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Treas.
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v.392
Department of the Treasury
PRESS RELEASES
The following numbers were not used:
3142,3190
The following numbers are not available:
3097,3194
These releases are in numerical order even though
some releases are not in order by date.
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 9:00 A.M. EDT
May 1,2002
CONTACT: BETSY HOLAHAN
202-622-2960
TREASURY STATEMENT ON THE DEBT CEILING
This moming the Treasury issued its quarterly refunding statement, reflecting revised
projections of the govemment's borrowing needs for the remainder of the 2002 fiscal
year. Under these projections, debt subject to limit is expected to reach the statutory
ceiling of $5,950 billion in mid-May and will remain above the current debt ceiling
thereafter.
If the statutory debt ceiling has not been raised by mid-May, the Treasury will have to
begin to use a number of stopgap devices to manage debt subject to limit which have
been previously utilized under established legal authority.
On current projections, this additional limited borrowing capacity would only be
adequate to meet the government's needs unti 1 the latter half of J LIne, when regularly
scheduled pa'.'ll1t'nts to the Social Security qnd nt11Pr government trust funds will require
the Treasury to borrow beyond this addition"l, LULled :.:apacity.
The Treasury will continue to work with Congress to enact the President's request for a
permanent $750 billion increase in the debt ceiling. The Treasury will strive to maintain
iiS regular auction calendar while meeting the financing needs of the federal govemment.
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PO-3065
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
D EPA R T :\1 E N T
0 F
THE
T REA S V R Y
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
VVednesday,Mayl,2002
Contact: Tasia Scolinos
(202) 622-2960
TESTIMONY OF KENNETH LA VVSON
ASSISTANT SECRETARY
OFFICE OF ENFORCEMENT
U.S. DEPARTMENT OF THE TREASURY
THE SUBCOMMITTEE ON NATIONAL SECURITY,
VETERANS AFFAIRS AND INTERNATIONAL RELATIONS
"RIGHTSIZING THE US PRESENCE ABROAD"
Mr. Chairman and distinguished members of the Subcommittee, thank you for
this opportunity to describe the Department of the Treasury's strategy and procedures
used to coordinate the placement of overseas personnel with the Department of State.
The Office of Enforcement along with the Office of International Affairs, at Main
Treasury, and several key bureaus of the Treasury Department, have had an international
presence for more than fifty years. Each office has a direct strategic, supportive or
crucial enforcement role in implementing US Government policy, yet an ongoing review
of positions abroad is vital for security, cost and policy reasons. Moreover, this is a
timely subject given our country's ongoing efforts to combat the global scourge of
terrorism, both at home and abroad. The demands on our resources abroad are expanding
and the need to coordinate the Treasury Department's efforts to protect our homeland
with the Department of State and other departments and agencies is essential. Our ability
to share information, work directly with foreign counterparts, and the ability to react
quickly to changing trends is essential not only for our battle against terrorism but for
other critical missions such as controlling transnational criminal behavior, promoting
U.S. interests in foreign markets, and providing essential technical assistance and training
to our counterparts overseas.
Mr. Chairman, allow me then to address the issues you raised in your invitation
letter. I will offer you background on Treasury's overseas presence as well as a brief
description of how our efforts and strategies are coordinated with the Department of
State.
BACKGROUND ON OVERSEAS PRESENCE
PO-3066
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
•
•
Support the establishment and consolidation of democracies; and
Uphold rights.
Our efforts abroad, therefore, and our strategic placement of personnel are guided by
these objectives. Though we have continued to focus on all of these missions, the critical
and global nature of the terrorist threat the United States is facing and the seminal role
that the Treasury Department and its Bureaus play in these efforts have required that we
emphasize our Enforcement efforts abroad with respect to attacking all aspects of
terrorism.
Mission Performance Planning
Treasury's overseas staffs contribute directly to their respective embassy annual
work plans, called Mission Performance Plans (MPPs). Treasury officials here in
Washington receive and review these plans and provide the State Department, other
Federal agencies, and the embassies with recommendations on program performance and
resource levels.
Embassy Construction
Treasury officials meet routinely with State Department program and overseas
buildings operations staff to ensure that Treasury presence at posts where major
construction is planned is appropriate and sized right to accomplish Treasury's missions.
Reporting on Treasury Presence Overseas
The Department of the Treasury reports annually to the State Department on the
number of staff positions, by Treasury component (bureau, office), by embassy/consulate,
with proposed changes for the next three years.
Chief of Mission and Agency Approval: Treasury Presence Overseas
The Department of the Treasury follows the interagency clearance process to
secure the approval of the U.S. Ambassador (officially called the Chief of Mission).
Treasury submits detailed justification for all proposed overseas staffing changes,
additions or subtractions, to the Chief of Mission, with a copy to the Department of State.
State officials also provide to the Chief of Mission and to the Department of the Treasury,
its views on the necessity of overseas staffing changes proposed by Treasury.
TREASURY OVERSEAS PRESENCE
The increasing demands on the Treasury regarding homeland security, terrorist
financing, and international financial markets requires a vibrant overseas Treasury
presence.
3
It is important to note that this total includes Americans posted abroad, local hires,
foreign national and personal contractors. The breakdown of Treasury personnel abroad
as reported to OMB is as follows:
•
•
•
•
•
•
Departmental Offices, including technical assistance, personnel total 112 persons;
The Customs Service accounts for a total of 369 persons abroad;
The U.S. Secret Service has a total of93 persons abroad;
The Bureaus of Alcohol, Tobacco, and Firearms accounts for 5 persons abroad
The Internal Revenue Service, both civil and criminal divisions, has 58 persons
abroad; and
The Office of Comptroller of Currency (OCC) has 4 bank examiners stationed in
London.
Challenges After September 1 ]'h: Actions and Increased Workload Internationally
After the horrific attacks of September 11, 2001, the nation focused its attention on
the global terrorist threat presented by al-Qaida and other related groups. For the
Treasury Department this meant increasing security at the borders and in cyberspace,
devising aggressive efforts to better screen outbound and inbound passengers and cargo,
and attacking terrorist financing at the operational and systemic level.
Terrorist Financing
As you are aware, Mr. Chairman, on September 24,2001, President Bush stated,
"We will direct every resource at our command to win the war against terrorists, every
means of diplomacy, every tool of intelligence, every instrument of law enforcement,
every financial influence. We will starve the terrorists of funding." The President
directed the Department of the Treasury to lead the nation's war against terrorist
financing -- to identify, disrupt, and dismantle global terrorist financing networks.
Treasury, in close partnership with the State Department, the Defense
Department, the Department of Justice, the Federal Bureau of Investigation, the
intelligence community, and many other parts of the federal government, has been
dealing with terrorist financing on multiple levels since September lIth. We have
concentrated much of our efforts and resources on identifying, tracing, and blocking
terrorist-related assets. In this endeavor, we have collected the financial expertise,
information, and authorities that are unique to the Treasury Department to attack terrorist
financing on all fronts. We have also engaged the world, in bilateral and multilateral
fora, to ensure international cooperation in our anti-terrorist campaign. All of these
efforts have required continued international cooperation and coordination at the
operational, financial, and structural levels. Allow me to highlight briefly the efforts the
Treasury Department has taken to date to tackle the global problem of terrorist financing.
4
In furtherance of this mandate, the President issued Executive Order (E.O.) 13224
on September 24,2001, which grants the Secretary of the Treasury, in consultation with
the Attorney General and the Secretary of State, the authority to block the assets of
individuals who support or finance terrorist groups. To date, the United States has
designated 202 entities and individuals as terrorists or terrorist supporters under this
Executive Order and frozen approximately $34 million in assets. Internationally, 161
countries/jurisdictions have blocking orders in force and over $70 million in terrorist
assets have been blocked internationally. A portion of the amount linked to the Taliban
has recently been unblocked for use by the new Afghan Interim Authority.
The international scope of this effort is exemplified best in two recent
designations. On April 19, 2002, the G-7 Finance Ministers jointly designated 9
individuals and 1 entity as terrorists or supporters related to al-Qaida. This was the first
joint list created and affected multilaterally. Prior to that designation, the United States
and the Kingdom of Saudi Arabia took a historic step on March 11, 2002, by jointly
designating the Bosnian and Somali branches ofthe Saudi-based charity, al Haramain.
These blocking actions internationally are complemented by our work to ensure
that the international financial system is not corrupted by those who would use funds to
support terrorist groups. We have worked closely with the U.N. Counter-terrorism
Committee, the G-7, G-8, G-20, regional groups like the European Union, the Asia
Pacific Economic Community (APEC), and the Association of Southeast Asian Nations
(ASEAN) (as well as the international financial institutions and regional banks) to
confront the systemic and regulatory issues to secure the international financial system
and to promote changes in nation's laws to facilitate the battle against terrorist financing.
The prime example of this work comes from our leadership in the Financial
Action Task Force (F ATF) on Money Laundering, which is now committed to the fight
against terrorist financing. At the October 2001 Special Plenary in Washington, D.C.,
FATF issued 8 Special Recommendations regarding terrorist financing that are quickly
becoming the international standard by which countries should address terrorist
financing. In addition, the leadership of the Financial Crimes Enforcement Network
(FinCEN) in the Egmont Group of Financial Intelligence Units (FlUs) to create expedited
ways of sharing information has important in following the money trail.
The work on these fronts is complemented by the Treasury's commitment to
provide training and technical assistance to our counterparts abroad in law enforcement
and finance ministries and central banks to ensure that they have the means to attack
terrorist financing. This is an important component of our long-term strategy since we
must help countries meet the demands of the international community and give them the
tools to combat terrorist financing in a way that will benefit the entire global community.
Expanded Efforts Internationally
As noted, our fight against terrorist financing is a global effort. As a result, we
have engaged in increased activities abroad that are critical to our mission.
5
Operation Green Quest
October 25,2001, Treasury created Operation Green Quest ("Green Quest"), a
new multi-agency financial enforcement initiative intended "to augment existing counterterrorist efforts by bringing the full scope of the government's financial expertise to bear
against systems, individuals, and organizations that serve as sources of terrorist funding."
In conjunction with OF AC, Green Quest is aimed at identifying, freezing and seizing the
accounts and assets of terrorist organizations that pose a threat to the United States and to
all nations of the world. This task force is led by the Customs Service, and includes the
Internal Revenue Service, the Secret Service, the Bureau of Alcohol Tobacco and
Firearms (A TF), Treasury's Office of Foreign Asset Control (OFAC), Financial Crimes
Enforcement Network (FinCEN), the Postal Inspection Service, the Federal Bureau of
Investigation (FBI), the Department of Justice, and the Naval Criminal Investigative
Service (NCIS). Green Quest brings together the extensive financial expertise of the
Treasury Bureaus along with the exceptional experience of our partner agencies and
departments to focus on terrorist financing.
Green Quest has complemented the work of OF AC in identifying terrorist
networks at home and abroad, and it has served as an investigative arm in aid of blocking
actions. Green Quest's work has led to 12 arrests, 6 indictments, the seizure of nearly $4.4
million, and bulk cash seizures-cash smuggling-of over $12.5 million.
Much of the work being conducted by Green Quest, along with the FBI and other
government agencies, has concentrated on international collaboration. Green Quest
agents have traveled abroad to follow leads, exploit documents recovered, and provide
assistance to foreign governments. In this effort, Green Quest has made full use of
overseas Customs Attaches and other international assets to investigate suspect networks
and to gather information for its own use and the use of OFAC. Green Quest's work, in
combination with the work of OFAC, serves as a seminal part of our international
enforcement efforts.
Office of Foreign Asset Control (OFAC)
The President's September 23 rd Executive Order greatly expanded the ability of
OFAC to block the assets of all property and interests in property, in the United States or
within the possession or control of a U.S. person, of foreign individuals and entities
determined by the President to have engaged in, threatened or supported grave acts of
terrorism against the United States or U.S. nationals. The powers derived from this
Executive Order have formed the heart of the U.S. efforts to block terrorist-related assets
domestically and internationally. As a result of the need to effect blocking efforts
internationally, OFAC has engaged in numerous overseas missions to discuss relevant
compliance issues with allies abroad. For example, OF AC currently has an analyst
serving in Riyadh to help with the ongoing cooperation on the financial front with the
Kingdom of Saudi Arabia.
6
Task Force on Terrorist Financing
After September 11 th, the Treasury established a task force to work with countries
and monitor their efforts to track and block terrorists' financial assets. This task force is
composed of international economists and financial analysts from International Affairs
and Enforcement's Office of Foreign Asset Control. Treasury enlisted support from
ministries of finance and central banks around the world to assist efforts to immobilize
and/or confiscate the financial assets of terrorist organizations and deny such
organizations use of the international banking system.
Certain countries crucial to this effort have expressed the desire to cooperate more
fully with the United States, but they do not possess the investigative apparatus to
identify financial assets belonging to terrorist organizations, nor do they have the legal
framework necessary to freeze the bank accounts of these organizations. As a result, $3
million in Emergency Response Funds were made available to Treasury's Office of
International Affairs to assist foreign governments, primarily their finance ministries and
central banks, in combating terrorist financing. Most ofthe current funding is being used
to train staff of foreign governments (anti-terrorism, financial investigations, money
laundering) in country, using short -term advisors. Treasury has already placed a resident
advisor in Kabul, Afghanistan to monitor aid donations and expenditures by the Afghan
Finance Ministry.
Economic and Financial Analysis Overseas
Treasury financial attaches playa critical role in the development of US
international economic policy by deepening our understanding of macroeconomic and
financial market developments and policies and their potential implications for U.S.
national interests. Financial attaches develop extensive contacts with finance ministries,
foreign regulatory authorities, central banks, and financial market participants that offer a
unique view of market developments in their respective countries. This unique
perspective lends itself to a more thorough understanding of potential policy implications
and a more rapid translation of new U.S. policy on the ground, a critical capability given
today's rapidly changing market conditions.
Financial Crime is Global
The Treasury is using its assets abroad to deal not only with terrorist financing
and terrorism generally but also to deal with transnational crime, which often forms a
nexus with terrorist groups. The following is a synopsis of the work being done abroad
and the overarching strategies of the Treasury Bureaus charged with protecting the U.S.
financial system and trade.
United States Secret Service
7
As you know, Mr. Chainnan, the Secret Service's investigative roots began with
its creation in 1865 to suppress counterfeiting. In addition to the demands of the Secret
Service's protective mission, the Secret Service continues to provide the nation with a
very productive and efficient investigative program. The thrust of the Secret Service's
investigative efforts and authority is to protect our currency and financial and banking
systems from criminal acts or from attacks used as tools component of our homeland
security. The financial infrastructure and confidence in that infrastructure is critical.
Furthennore, as the association between terrorist activities/funding and transnational
identity fraud, financial institution fraud and counterfeiting becomes more apparent, the
role of the Secret Service's investigative resources and expertise will have long reaching
benefits that will directly impact homeland security on all fronts.
The Secret Service is extremely active in cooperative investigations with foreign
law enforcement authorities regarding the counterfeiting of U.S. currency, and has
extraterritorial jurisdiction to prosecute foreign counterfeiters in the United States under
Title 18 USC 470. The Service is the sole U.S. law enforcement agency responsible for
protecting our nation's currency. There is no concurrent or overlapping jurisdiction
regarding U.S. currency in this area. Our 18 current Foreign Post of Duty with 46
authorized agents and 93 total authorized positions, and our presence at INTERPOL,
have established liaison and enhanced coordination of investigative efforts with foreign
law enforcement, and as a result the Secret Service has been increasingly successful in
suppressing the counterfeiting of U.S. currency overseas and protecting our nation's
financial systems.
Where pennanent assignments are not available, the Secret Service relies on
temporary overseas assignments to satisfy the requests for participation in overseas
financial crimes and counterfeit task forces. Within the last two years alone, our work
through temporary assignments in Lagos, Bucharest and Frankfurt has resulted in the
opening of penn anent offices. The temporary duty concept allows us to conduct a survey
in a specific area to detennine if the cost of opening a field office in that country is
warranted.
A Recurring Temporary Assignment (RTA) allows for the establishment of
relationships within the law enforcement and embassy communities. This is especially
important if the Service realizes a need to commit assets on a long-tenn basis (2+ years),
be it by long-tenn RTA or establishment of a permanent Foreign Post of Duty (FPD).
The relationships that were established during the cooperative period serve to forge the
framework for embassy and host governmental approval for the formal establishment of
an office.
The continued "dollarization" of foreign economies has resulted in an increase in
the number of countries that utilize the U.S. dollar as the base of their financial operating
system. The darker side of the "dollarization" process has already been observed in the
countries that are contiguous with Colombia, as the counterfeiters have spread across the
borders and into those nations.
8
The Secret Service's presence in that area of the world has primarily been one
confined to providing anti-counterfeiting training and staffing RTA (e.g., Bogota). We
believe that this effort has been successful in maintaining a controlling hand over rising
levels of problems to date, but that a greater effort will be required in the near future as
other nations "dollarize". In addition to the regional expansion of counterfeit-related
activities, there are international counterfeiting concerns affiliated with "dollarization," as
can be seen in Spain with a rise in the importation of counterfeit U.S. currency from
South America.
It must be stated that the new Foreign Post of Duty would bring to bear Secret
Service assets to contend with other core USSS investigative responsibilities. Today,
electronic payment systems are the new lifeblood of international business, and they too
are subject to compromise and counterfeiting, more frequently through the use of
computers and computer technology. The Secret Service anticipates additional
investigative and enforcement responsibilities in the area of alternative money or
electronic cash, also referred to as e-cash. The Financial Crimes Division attempts to
forecast vulnerabilities in these emerging payment systems that will be exploited by
criminal elements, such as al Qaida, on a global scale. The Service, through its current
complement of Foreign Posts of Duty, continues to interface with financial industries and
law enforcement, domestically and abroad, in pursuit of our criminal enforcement
responsibilities and our proactive risk analysis based programs.
These financial crimes can range in complexity and severity from a fraudulent
credit card transaction at a retail store located anywhere in the world, to a bank fraud
scheme spanning three continents, to an intrusion into a computer system perpetrated by a
suspect thousands of miles away, to an intricate system of terrorists laundering
fraudulently obtained assets that will be utilized to fund terrorist attacks globally. Secret
Service
personnel assigned overseas continue to work with foreign law enforcement to develop
strategies to combat the attacks against their financial institutions.
It must be stated that as the global economy continues to expand, so must this
agency's approach and global presence. Based upon these facts, the Secret Service is
proposing to increase our current complement of 18 Foreign Posts of Duty. Due to the
nature of the process by which Foreign Posts of Duty are formally approved and
established, it is difficult to firmly present the names of the specific locales at which the
Secret Service wishes to open new offices within this document relative to international
anti-counterfeiting efforts.
The Secret Service seeks to continue its strategic global expansion toward the
goals of extending its core investigative reach and presenting bilaterally coordinated
timely responses in the arena of transnational crime, with a primary focus on international
counterfeiting. An adjunct goal that is realized from this expansion abroad is better
fulfillment of the agency's protective responsibilities.
9
This expansion effort follows a time-tested approach that the Secret Service has
sought to adhere to when addressing global criminal concerns by expanding its overseas
presence, as is outlined in the President's 1998 International Crime Control Strategy.
The combination of an infusion of investigative training to regional law enforcement
populations and strategic placement of Recurring Temporary investigative Assignments
is a fiscally responsible manner by which to assess whether regionally specific concerns
will require a short or long-term (2+ years) control commitment. The insertion of
International Investigative Seminars training and the strategic placement of Recurring
Temporary Assignments Task Forces afford the Secret Service a period of time during
which to observe regional situations on several fronts, to include local law enforcement
capabilities and existing levels of criminal activities. The level of host country assistance
provided directly impacts the success rates of Recurring Temporary Assignments. In the
field of international counterfeiting, the Secret Service would seek to work hand-in-hand
with its host country vetted International Anti-Counterfeiting Forces (IACF)
The Secret Service's Office of Investigations believes that this three-tiered
approach to combating crimes against the United States' financial system is a fiscally
responsible approach, and the Department of Treasury's Office of Enforcement has
viewed it favorably. There are significant benefits to be derived from the realization of
the three-tiered approach. For example, the expansion of our International Investigative
Seminars will facilitate the Service's educational and training campaign amongst foreign
law enforcement authorities, which allows for a realistic assessment of criminal trends
and resource allocation needs.
The use of Recurring Temporary Assignments has been very successful in the
arena of financial crimes (e.g. the City of London Initiative and the Lagos, Nigeria Task
Force) and counterfeiting (Bogota, Colombia and Sofia, Bulgaria). RTA led to the
decisions to enhance the agent pool at the London Resident Office by one (1) additional
agent, formally establish the Lagos Resident Office, enhance the agent pool at the Bogota
Resident Office by one (1) additional agent and pursue the formal establishment of the
Bucharest, Romania Resident Office. The Service is able to remain fiscally noncommittal while addressing global criminal concerns. In addition, the domestic
investigative mission reaps the benefits of increased investigative intelligence collection.
The Foreign Posts of Duty have a chance to evaluate potential candidates for future
service at their posts. The agency benefits from these relationships not only during the
performance of its investigative mission but also during the performance of its protective
mission abroad. I
A determination is made during the Recurring Temporary Assignments period
concerning the level of commitment this Service should make to a regional concern. If it
is believed that the problem has been brought under control, or even eradicated, the
resources will be either sustained at a reasonable level or discontinued and reapportioned
to other global trouble spots. If the problem is seen as being formidable enough to have a
permanent Secret Service presence in place, as was the case in Lagos, Bogota and
Bucharest, then formal steps will be taken to establish an office based upon the
relationships that have already been fostered.
1
10
The Secret Service's pennanent presence in key posts abroad allow for improved
coordination in the area of counterfeiting, fraud, security and intelligence as well as the
ability of the U.S. government to assist our foreign counterparts in building their own
legal and enforcement mechanisms to confront these issues themselves. As the nature of
crime, including terrorism and terrorist financing, becomes more international in nature,
it will be essential for the Secret Service to work closely with key counterparts abroad to
achieve its mission. Whether it is the threat of counterfeiting related to "dollarization" or
the threat of cyber attacks on our financial system, the Secret Service's strategic presence
abroad is essential. This need for an expanded global presence will be coordinated
closely with the State Department to ensure that the Secret Service's mission can be
completed.
u.s.
Customs Service
The role of the U.S. Customs Service in protecting our homeland has become more
acute since September 11 tho As a result, Customs is seeking to increase its international
presence in a targeted way in order to support its key enforcement missions, such as
investigating terrorist financing and preventing the illegal export of weapons of mass
destruction (WMD).
The Customs Service is seeking to establish or enhance its presence in key
financial and shipping centers around the world. The strategic aims of this increased
international presence would be to deny and disrupt financial support for terrorist
organizations and to identify and intercept terrorist materials moving within the
international cargo stream. An enhanced overseas presence would directly support
Operation Green Quest and Operation Shield America, which is the innovative program
established by Customs to track and prevent the shipment of the implements of weapons
of mass destruction (MDWs). Moreover, an enhanced presence in Mexico and Canada
would support Customs' border security initiatives with each country, which is critical
for establishing smart border security and homeland defense.
Furthennore, the Customs Service has been tasked and funded by Congress to
increase its efforts overseas to support initiatives in Forced Child Labor, Intellectual
Property Rights, and the Northern Border.
As part of Customs' strategic plan, the additional investigators and analysts
overseas would be primarily investigating financial matters that relate to Customs
violations and matters linked to terrorist activities or organizations. Such violations
would include money laundering, export violations (including munitions list items,
WMD, and their delivery systems and dual-use technology), commercial fraud,
smuggling, and any other illegal activity within the import/export arena that is utilized in
support of international terrorism.
11
Additional investigators, inspectors and analysts would also support Customs'
foreign efforts to identify and interdict the materials that terrorist organizations and rogue
states require to accomplish their aims. With the assistance of our foreign counterparts,
overseas personnel would evaluate cargo traffic, analyze cargo manifests, review export
documentation, monitor transshipped items, and assist in prescreening cargo/containers.
Customs' overseas presence is essential to its mission on all fronts to protect the
United States, especially with respect to terrorism-related matters.
Customs' Overseas Expansion Priorities
Customs is actively seeking to establish or enhance its presence in key international
financial centers in addition to those overseas ports that are responsible for the majority
of container cargo that enters the commerce of the United States and to fulfill the
congressionally-mandated responsibilities in FCL, IPR, and Northern Border Initiative.
Bureau of Alcohol, Tobacco and Firearms
The Bureau of Alcohol, Tobacco, and Firearms (ATF) plays an important role in
the regulation of firearms and explosives as well as tobacco and alcohol. Though its
overseas presence is not significant in numbers, the ATF's mission and presence bears
mentioning because of its fundamental importance to overall U.S. security.
Overseas Mission and Staffing Analysis
The A TF is the premier agency in the United States entrusted with enforcing federal
fireann and explosive laws. In this capacity, ATF has developed a high level of practical
and technical expertise in crime gun tracing and analysis, ballistics identification, and
post-blast investigations. The U.S. Department of State has thus recognized and utilized
ATF expertise abroad on numerous occasions.
Through its regulatory and enforcement authorities derived from the Gun Control
Act of 1968, the National Fireanns Act, the Arms Export Control Act, and the Explosives
Control Act, ATF seeks to neutralize the illicit movement of firearms, explosives, and
ammunition, and to deny their access to international narcotics dealers, terrorists, and
other violent criminals. ATF's International Traffic in Arms (IT AR) initiative was
formalized as a Bureau-wide program in 1974 and is an aggressive enforcement effort
designed to combat the illegal movement of U.S.-sourced firearms, explosives, and
ammunition in international traffic. Through enforcement and compliance of the statutes
mandated by law, ATF seeks to neutralize the trafficking of these commodities from the
United States, which are used throughout the world to commit acts of terrorism and
political violence, to subvert restrictions imposed by other nations on their residents, and
2
to further narcotics-related activities and violent crime.
The ATF Alcohol and Tobacco Diversion Program focuses on the illegal distribution of
alcohol and cigarettes in the United States and other countries. Organized criminal
2
12
The success of the IT AR program depends heavily on ATF's ability to post
personnel in overseas assignments. Working alongside the host government, ATF
personnel assist in the identification of recovered crime guns that have a nexus to the
U.S. and then trace these weapons in order to identify the organizations responsible for
the illicit trafficking of anns. Joint investigations further assist in the sharing of
intelligence between agencies and the development of leads, both in foreign and domestic
cases. The ability to be located in foreign posts to coordinate efforts that affect this
progress ultimately leads to stemming the flow of firearms in international traffic.
Overseas Mission and Current Presence
ATF initially established country offices in Colombia, Mexico, and Canada
because these countries were identified as having been severely impacted by the illegal
trafficking of U.S.-sourced firearms. On site, the agents are able to provide investigative
and technical assistance with regards to this problem, however, they also regularly deliver
training to the host government in firearms identification, tracing procedures, trafficking
investigation techniques, and other related topics.
As a result of civil unrest and insurgent activity, both Colombia and Mexico have
experienced a significant increase in explosives incidents in the past year. The ATF
agents posted in these countries have been frequently used to provide technical assistance
to the Embassy, and especially the host government, in explosives identification and in
post-blast investigative procedures.
Additionally, the ATF personnel in the Canada Country Office have concentrated
much of their efforts assisting the Canadian Government in combating the diversion or
smuggling of U.S.-produced alcohol and cigarettes into Canada. The taxes on alcohol
and cigarettes are generally considerably higher in Canada than in the United States.
Consequently, during the 1990s, the Canadian Government lost billions of dollars in tax
revenues, much of which was earmarked to finance the Canadian National Health system.
Moreover, alcohol and tobacco smuggling and the organized criminal groups associated
with this activity became a major Canadian criminal concern.
groups purchase cigarettes and alcohol either, without paying taxes, or in low tax
jurisdictions, and divert or smuggle these commodities into high tax jurisdictions. These
groups then illegally distribute the alcohol or cigarettes depriving countries of substantial
amounts of excise and income taxes and often launder the proceeds to promote the
smuggling activity or to finance other criminal activities. Additionally, criminal groups
smuggle alcohol or cigarettes into the United States depriving the United States of tax
revenue. In the past several years, ATF has successfully prosecuted alcohol and tobacco
diversion schemes involving U.S-produced alcohol and cigarettes, which were diverted to
Canada, Russia, Georgia, Belgium, Mexico and several other countries. Additionally,
ATF contraband cigarette trafficking investigations in conjunction with the FBI have
established that certain Middle Eastern terrorist groups have used the proceed of illegal
cigarette trafficking to finance their activities. The assignment of ATF personnel overseas
will enable A TF to continue to combat international alcohol and tobacco-related crime.
13
Recently, ATF enforcement efforts have helped control this problem.
In 1990, ATF established its first overseas post at the U.S. Embassy in Bogota,
Colombia. The Colombia Country Office (CCO) is currently staffed by a Country
Attache (CA) and an Assistant Country Attache (ACA). There is also one Foreign
Service National (FSN) and a shared Administrative Assistant (contract employee who
also works for Customs.)
In 1992, our Mexico Country Office (MCO) was established at the U.S. Embassy
in Mexico City, Mexico. The MCO is currently staffed by one CA, one ACA, and two
FSNs. In 1997, ATF established a permanent office at the U.S. Embassy in Ottawa,
Canada. Current staffing consists of a CA and Administrative Assistant (contract through
State) in Ottawa, and an ACA at the Consulate in Vancouver. There is also one vacancy
for a contracted Administrative Assistant in Vancouver. An NSDD-38 request has been
forwarded to State at the request ofthe Royal Canadian Mounted Police (RCMP) and
with the support of the U.S. Ambassador for an additional FTE (Inspector) to be located
at RCMP Headquarters.
Review of Overseas Operations and Staffing Levels
ATF receives weekly activity reports and extensive annual reports from each of the
country offices. These reports detail the mission, efforts, accomplishments, and planned
action by each Country Office and are reviewed by the highest level of ATF
management. In addition to this internal oversight, there is regular communication
between the Deputy Chiefs of Mission and ATF personnel regarding the continued
productivity of the liaison mission.
Future Staffing Needs
ATF has a minimal staff abroad, and current manpower and other resource
considerations only allow for overseas assignments by ATF in countries capable of
supporting full-time positions.
Internal Revenue Service - Criminal Investigations Division
The Internal Revenue Service- Criminal Investigation Division (IRS-CI) is charged
with enforcing the nation's tax laws and has been playing a critical role in Operation
Green Quest as it lends its expertise in the tax arena, especially with respect to charities,
to the counter-terrorist financing fight. Based upon an assessment conducted in 2001 of
its workload overseas, IRS-CI is considering two changes in the number and placement
of its agents assigned overseas.
Changes to Overseas Presence Based on Trends
The assessment in 2001 determined that the workload in the Europe/Africa Region,
which includes the Middle East and the former Soviet Union Bloc countries, was too
substantial for one CI Attache to handle.
14
In the 5 years since the initial placement of a CI Attache in Frankfurt, Germany,
the number of requests for assistance involving countries located in this region had
increased approximately 400%. In addition, the Attache has been spending substantial
more time assisting in training initiatives being conducted in this region, including the
ILEA in Hungary and Botswana. Since the completion of the assessment, IRS-CI
resources needed in this area have further increased significantly as a result of CI's focus
on terrorist financing. Using the criteria recommended by the "Rightsizing" Working
Group, it was determined that the best location to add a second Attache to be responsible
for the Europe/Africa Region is London, England. The factors that weighed in this
decision are as follows:
•
Requests for Assistance by CI special agents to the United Kingdom in 2001 are
approximately 40 percent for the region.
•
Requests for Assistance by CI special agents to the United Kingdom in 2001 are
approximately three times higher than any other country in the region.
•
These statistics are primary the result of London's being the financial capital of
Europe.
•
Contacts with representatives of the United Kingdom's Law Enforcement
Agencies determined that there was a very strong desire to work with IRS-CIon
joint initiatives.
•
Contacts with US Law Enforcement personnel assigned to the London Embassy
determined that placement of an IRS-CI Attache at that embassy would not result
in an overlapping of missions, and endorsed our presence at the embassy.
•
London provides excellent transportation links with both the other countries in the
region and the US.
The second change the 2001 Worldwide Assessment recommended was moving the
CI Attache that is responsible for the Caribbean Basin Region from the US Embassy in
Mexico City to an Embassy in the Caribbean. In March 2000, CI placed a second
Attache in Mexico City. This placement of the second Attache afforded the opportunity
for one Attache to be primarily responsible for the countries located in the Caribbean
basin. This dedication of resources to the Caribbean has resulted in a tremendous growth
in the workload as new and better relationships have been developed with the law
enforcement agencies of the 22 countries located in the area. Specifically, the number of
requests for assistance involving countries in this region has increased by over 400
percent during the period 2000 to 2002. We expect that the workload will continue to
increase as additional Tax Exchange Agreements are signed and go into effect over the
next two years and as countries in the region continue to strengthen the anti-money
laundering regimes.
However, the past two years have demonstrated that to have the CI Attache operate
from Mexico City to handle the Caribbean is not cost-effective and wastes a significant
amount of time in traveling back and forth to the region (all travel must be made through
Miami from Mexico City to go to the region).
15
As a result of this recommendation, CI has just initiated a follow-up assessment to
determine the best site in the Caribbean Basin to relocate the Attache. Results of this
assessment should be available by the end ofFY 2002.
IRS-CI, like the other Treasury Bureaus, has reassessed trends related to its
jurisdictional responsibilities and demands abroad and is adapting its overseas
requirements accordingly. This flexible approach allows Treasury and the State
Department to work closely to ensure that the Bureaus' missions are fulfilled.
Internal Revenue Service - Civil Division
The Internal Revenue Service (IRS) works closely with its foreign counterparts on
tax treaties and other tax-related matters. The IRS currently has 46 positions in 7
regional offices overseas, including Berlin, London, Mexico City, Paris, Rome,
Singapore, and Tokyo. IRS has reduced its overseas presence significantly from 1985
when it had 83 positions in 15 regional offices overseas. IRS tax attaches and staff
interact with foreign governments on tax treaty and other tax issues and with business and
tax practitioner communities. Under bilateral tax treaties, tax attaches are delegated
signature authority for certain tax treaty exchange of information programs between
governments. These overseas tax offices also identify emerging tax and tax compliance
issues. Moreover, these offices also provide customer service to U.S. citizens residing
abroad and to foreign individuals who have a tax liability to the US. In addition, IRS
provides direct assistance to selected foreign governments to help improve their own tax
administration. This past year, IRS had 4 personal services contractor (PSC) staff in
Trinidad and Tobago and in Tanzania providing technical assistance.
Office of the Comptroller of the Currency
Because of its important role in bank regulation, the Office of the Comptroller of
the Currency (OCC) has 4 bank examiners assigned to the U.S. Embassy in London.
This is a critical presence because London is a major banking and commercial center.
Regional Development Banks, US Executive Directors and Their Offices
The Office of International Affairs currently is responsible for 10 positions at
regional development banks as follows: 2 positions at the European Bank for
Reconstruction and Development in London, 3 positions at the African Development
Bank in Abidjan, and 5 positions at the Asian Development Bank in Manila. The
Secretary of the Treasury is the U.S. Governor on the Board of Governors at these three
regional development banks.
Day-to-day policy, fiduciary and administrative oversight is delegated to the banks'
Board of Directors. As a member of the Board of Directors, the U.S. Executive Director
(a Presidential appointee with Senate confirmation) represents the U.S. Government.
16
The Asian Development Bank and European Bank for Reconstruction and
Development and the US Executive Director position are currently vacant and an
alternate is currently representing the United States. Treasury professional staffs are
assigned to the U.S. Executive Director offices as advisors and assistants. Costs of the
U.S. Executive Director, Alternate Executive Director (Asian Development Bank) and
technical advisors/assistants are paid either directly or reimbursed by the regional
development banks. Treasury also reimburses the State Department for two support staff
at the US Embassy, Manila.
Treasury Financial Attaches
Treasury financial attaches playa critical role in the development of US
international economic policy. Financial attaches develop extensive contacts with
finance ministries, foreign regulatory authorities, central banks, and financial market
participants that offer a unique view of market developments. This unique perspective
lends itself to a more thorough understanding of potential policy implications and a more
rapid translation of new U.S. policy on the ground, a critical capability given today's
rapidly changing market conditions.
The Office of International Affairs currently has 6 financial attaches and 13
analyticaV support staff, including foreign nationals, at U.S. embassies in Tokyo,
Moscow, Mexico City, and Rome (Southeast Europe region), at the U.S. Mission to the
Organization for Economic Cooperation and Development (OECD) in Paris, and at the
U.S. Consulate General, Frankfurt (European Union region). The U.S. Ambassador and
the State Department have approved Treasury opening a financial attache office in
Beijing, China. Opening this new post is subject to resource allocation. International
Affairs has recently proposed to close its financial attache office in Mexico City and open
an office in Buenos Aires.
Over the past decade, International Affairs has scaled back its overseas presence.
In 1990, International Affairs had 12 financial attaches and 25 analyticaVsupport staff at
12 U.S. embassies/missions overseas. Treasury financial attaches collect, report, interpret
and forecast macroeconomic and financial developments and policies on assigned foreign
countries. Department of Treasury personnel assigned abroad report on foreign economic,
financial and monetary matters, to help keep U.S. government decision-makers fully
informed on such matters. In addition, International Affairs is a user of economic and
financial information supplied by all U.S. embassies and consulates.
Treasury Technical Assistance
The Office of International Affairs provides technical assistance to foreign
countries in five core areas: budget policy and management; financial institutions policy
and regulation; government debt issuance and management; enforcement policy and
administration; and tax policy and administration.
17
The placement of Treasury advisors is closely coordinated through several offices
and bureaus at the State Department, including the Regional Coordinator for Assistance
to Countries of the fonner Soviet Union, Eastern and Central Europe, the Bureau of
International Narcotics and Law, the newly created Counter Terrorism Office and the
relevant regional bureaus. Treasury's Office of Technical Assistance also coordinates
work and assignments with Treasury's Office of Enforcement.
Treasury currently has 45 long tenn or resident advisors, primarily personal
services contractors, and 35 support staff in 22 countries. In addition, short tenn, or
intennittent, advisors are provided to foreign countries on temporary duty assignments,
for highly specialized assistance. The level and scope of all assistance efforts are
negotiated with host countries and advisors work at host government, primarily finance
ministry, facilities and thus do not require Embassy office space.
Funding for technical assistance comes primarily from the Freedom Support and
Support for Eastern European Democracy (SEED) Acts, augmented by additional AID
program funds and a direct Congressional appropriation to Treasury, knowns as the
Treasury International Affairs Technical Assistance (TIATA) program. Treasury has
closed assistance efforts as foreign countries have instituted structural and economic
refonn. For example, Treasury has completed assistance efforts in the Czech Republic,
Slovakia, Poland, Latvia, and Lithuania and no longer has advisors stationed in these
countries. In addition, projects under the US-Saudi Arabia Joint Economic Commission,
that was fully financed by Saudi Arabia, were closed in 2000, after 25 years of successful
assistance efforts in Saudi Arabia, eliminating the need to station over 40 U.S. employees
in Riyadh and Jeddah.
The Treasury Department has been flexible in its allocation of resources abroad.
Where needs no longer exist, for either enforcement or non-enforcement personnel, the
Treasury has been willing to reallocate those resources to areas where such personnel are
needed. This will continue to be the way the Treasury operates since we are dedicated to
the efficient use of resources abroad. We look forward to continued cooperation with the
State Department on this front.
REGIONALIZATION
The Department of the Treasury's law enforcement bureaus, as well as the nonenforcement offices, have traditionally practiced the concept of regionalization in varying
degrees - the practice by which a region is covered by personnel stationed in one
overseas post. The concept has proved beneficial in certain locations or regions of the
world given the assessed needs and trends related to our overseas.
As noted above, Mr. Chainnan, Treasury and its law enforcement bureaus have on
occasion closed a foreign office and moved to other countries when they felt the
opportunity to do so would produce a more effective and efficient work product. We are
committed to this approach by assessing the needs abroad.
18
In the post September 11 th world, we are required to reassess our needs - to deal
most specifically with the terrorist threat on several levels as well as to confront the
increasing threat of transnational criminal behavior. We will continue to work closely
with the State Department, as well as our other sister agencies and departments, to ensure
that the U.S. government's resources are used effectively and efficiently abroad.
CONCLUSION
Mr. Chairman, this concludes my formal testimony. I would be pleased to answer
any questions that you, or members of the Committee, may have regarding Treasury's
procedures, goals and mission abroad.
19
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
~/78~9~. . . . . . . . . . . ._
. . . . . . . . . . . . . .
OffiCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
May 1, 2002
Contact:
Betsy Holahan
202-622-2960
Treasury Department Awards "First Accounts" Grants to 15 Proposals
Projects Will Assist 35,400 Unbanked Americans
The Treasury Department today announced that it will award "First Accounts" grants
totaling $8.35 million to 15 projects designed to help unbanked Americans open accounts at
insured financial depository institutions.
"We were very pleased at the large number of high-quality and innovative proposals we
received," said Assistant Secretary for Financial Institutions Sheila C. Bair. "Our hope is that
these projects will serve as models for others in their efforts to reach the one in ten American
households that are unbanked."
Grant recipients include nonprofit organizations, insured depository institutions, insured
credit unions, a community development financial institution, a faith-based organization and a
foundation. The 15 awardees, selected from among 231 applications from 38 states, have
pledged that insured bank accounts will be opened by 35,400 unbanked people in 25 states,
including California, Colorado, District of Columbia, Georgia, Idaho, Iowa, Illinois, Kentucky,
Maryland, Michigan, Montana, New Jersey, New York, Nevada, North Carolina, North Dakota,
Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.
The awardees will implement projects that provide financial literacy training, connect
individuals to insured accounts, develop low- or no-cost products and services, and increase
access to financial services through installation of automated teller machines. The projects focus
on a wide variety of unbanked people, including youths, new entrants to the workforce, recent
immigrants, residents of low-income communities, residents in rural areas, native Americans
living on reservations, public housing residents and families using child care facilities.
The First Accounts program seeks to move a maximum number of unbanked low- and
moderate-income individuals to a banked status with an insured depository institution through
the development of financial products and services that can serve as replicable models in other
communities without the need for ongoing public subsidies.
Attached is brieflist of the awardees.
PO-3067
-
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·U S Governmen! Pnn!,ng Oll,ce ! 998 . 6! 9·559
Additional information the First Accounts program and the 15 grants can be found at
www.treas.gov/firstaccounts.
-30-
DEPARTMENT
OF
THE
TREASURY
178'1
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE. N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Friday,Apri126,2002
Contact: Tony Fratto
(202) 622-2960
INTRODUCTORY REMARKS
BY
JOHN B. TAYLOR
UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
UNITED STATES TREASURY
AT THE
ISLAMIC FINANCE 101 SEMINAR
HELD AT THE U.S. TREASURY DEPARTMENT
WASHINGTON, DC
Welcome to Islamic Finance 101! As the Under Secretary for International Affairs at the
Department of Treasury, I want to thank you all for joining us at this seminar on the
fundamentals of Islamic Finance.
Today's event is a result of a collaborative effort between the Treasury Department and
the Harvard Islamic Finance Information Program (HIFIP). HIFIP helped us design this program
and enabled us to invite prominent Islamic financial experts to speak today. We truly appreciate
HIFIP's assistance in making this event possible.
We are very grateful that this diverse panel is here today to share their knowledge with
us. They have joined us from great distances - travelling from Bahrain, Houston, Boston, and
New York to share their expertise with us. Though I'm saving the introductions of our speakers
to Thomas Mullins, Executive Director ofHIFIP and Associate Director of the Center for Middle
Eastern Studies at Harvard University, I do want to say that our speakers have impressive
backgrounds.
I'm particularly pleased to be at this event, surrounded by a number of academics, it
brings me back to my days Stanford University where I was a professor for many years.
Treasury's Office of International Affairs implements the U.S. government's
international finance and economic development policies and develops U.S. policy towards the
World Bank and IMF.
PO-3068
For press releases, speeches, public schedules and official biographies, roll our 24-hour fax line at (202) 622-2040
We have had a growing interest Islamic finance because of its rapid growth and
significant presence in many partners of the United States such as Bahrain, Egypt, Indonesia,
Kuwait, Malaysia and Pakistan.
Following the events of September 11, President Bush made a top priority of combating
the financing of terrorism. Lawful and legitimate institutions such as conventional banks,
Islamic banks, money transfer services, hawalas and charities must not be abused by terrorists.
We are working with the international community to ensure just that. We need to understand
how these legitimate institutions operate so that we can help strengthen them and prevent
terrorists from abusing these institutions. From my exposure so far, I've observed that the
economic principles of Islamic finance and conventional finance are the same, though the
structure of Islamic financial transactions can be different.
Today's seminar was inspired by a roundtable that Secretary O'Neill attended last month
in Bahrain. At the roundtable, hosted by Citibank Bahrain's Islamic Investment Bank, the
participants described the philosophy behind Islamic finance; they went into the nitty-gritty of an
Islamic financial transaction; and they discussed the accounting and supervisory issues related to
Islamic banking. I'm pleased that one of the speakers from that roundtable has joined us on
today's panel Dr. Rifaat Abdel Karim, the head of the Accounting and Auditing Organization for
Islamic Financial Institutions. We left the roundtable with a sense of what Islamic finance really
is - the Secretary wanted to make sure that we hosted a similar event in the United States to
"demystify" Islamic banking for our colleagues in Washington who may not have exposure to
this topic.
I thought you might also be interested to know about the increasing international effort
being made to understand Islamic finance. We recently held a meeting ofG-7 Finance Ministers
and invited other world leaders to participate. At this meeting, the Central Bank Governor of
Malaysia, Dr. Zeti Akhtar Aziz gave us an informative short presentation on Islamic finance and
led us in a discussion.
I hope that today we will have an open dialogue about Islamic finance end encourage you
to feel free to ask questions and make comments. We have a wide array of audience members
including commercial bankers, investors, banking regulators, economists, policymakers,
Congressional staffers, researchers, lawyers, consultants as well as Islamic banking practitioners.
I look fOIWard to hearing the questions that you pose during the Q & A session as I expect that
they will reflect your wide-ranging experiences and interests.
Thank you all again and let me tum this over to Tom Mullins.
DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 12:30 P.M.
May 2,2002
Contact: Public Affairs
(202) 622-2960
Treasury Secretary Paul H. O'Neill
"Can Japan's Ailing Banking System be Cured?"
Remarks to tbe Japan Society
New York City
I am a Japan fan. In my private sector experience, I developed the highest respect for Japanese
industry's ability to rise to the challenge of world competition, and to challenge the rest of us to
do the same. Japanese companies like Sony and Toyota, among others, defined the notion of
world-class manufacturing, offering the world's consumers value-priced, better products year
after year, and daring companies around the world to do the same.
In many ways, it was Japan's challenge that forced the U.S. economy to shake off its malaise of
the late 70s and early 80s, and become what it is today. The fact that American companies rose
to that challenge, and greatly improved their own productivity and quality is in no small way due
to the competition that they faced from their Japanese counterparts.
Japanese workers, too, are among the most diligent and productive in the world, and they rightly
feel great pride for their country's economic accomplishments in the past half-century.
But the past decade has been difficult for all of us who believe in the potential of the Japanese
economy. After decades of world-leading growth, Japan's GDP grew by an average of just one
percent annually over the past ten years. Unemployment has been rising, deflation has cast a
long shadow on consumption and investment, and banks and corporations are heaped with bad
and doubtful debt.
With such potential, and historic accomplishment, why has Japan performed so poorly over the
past decade? More importantly, how can Japan return to growth? The costs of
underperformance are high, both for Japan and for the rest of the world. Japan's citizens miss
out on higher living standards and Japanese young people are frozen out of the job market. The
rest of the world lacks a dynamic Japanese market for its goods and services.
PO-3069
In fact, if Japan's economy had grown over the past ten years at its full potential of, say, 3%
annually, real GDP would have been more than 20% larger in 2001 -- that's a difference of nearly
$900 billion alone. And over the past decade, growing below potential has cost Japan a total of
nearly $5 trillion in lost income or almost $40,000 in foregone income per person. That lost
income translates not just into lower living standards, but also into $760 billion less investment
to support future growth.
There are three areas for action in Japan that would restore growth:
1) Ending deflation;
2) Overcoming financial sector problems; and
3) Deregulating and opening the economy to competition.
I believe the last one is the most important, but I'll address them in the order I've listed them.
For the last seven years, Japan has been mired in deflation, as the broadest measure of prices, the
GDP deflator, has fallen by nearly 1% annually.
The phenomenon of deflation is corroding Japan's economy, multiplying the burdens faced by
debtors, while discouraging investment and consumption. Japan has to end expectations of
persistent deflation for the economy to recover and grow.
Last March, the Bank of Japan committed to expand the money supply until inflation was at least
zero. Since then, the BOJ has sharply expanded the growth rate of base money. But the growth
rate of broader money supply has not changed much, and deflation remains entrenched.
While sustained monetary expansion is an important step for addressing Japan's economic woes,
the expansion of base money has not produced an expansion in bank lending.
Why are banks not lending? It is not because of a lack of liquidity. Rather, anemic lending
reflects deep weakness in the balance sheets of the Japanese banks and the corporate sector.
An important role of financial institutions is to allocate capital between savers and investors by
pricing credit fairly and accurately. A healthy financial sector supplies funds to companies that
can put the money to the best use for their level of risk.
That has not been happening in Japan. There is plenty of capital there, but too much of it
continues to prop up old investments gone bad, instead of going after better opportunities and
fueling growth. Some banks are stuck in so many old, bad loans, they are afraid to take any new
risks, even in promising areas, further stunting the economy.
By some estimates, as much as a quarter of all bank loans in Japan are in or near bankruptcy.
Many of these loans are described as "non-performing." Non-performing means "nonproductive." Loans that are not performing are not producing for the Japanese economy, or at
least, they are not producing enough to justify their existence.
2
Bank lending is supposed to be an instrument for growth, not a life support machine.
If Japan's financial markets were functioning properly, companies that cannot pay their debts
would restructure, or if necessary, liquidate, so that their capital assets could go toward more
productive opportunities.
Financial institutions have to make tough choices on their non-performing loans, and start
making new loans, priced appropriately for the level of risk. For example, banks should offer the
cheapest credit to the world-beating export companies, which also get financing from the
international markets. They should offer higher priced credit for entrepreneurs and well-founded
start-ups, which are riskier than some established firms, but offer promise for future growth and
new industries. And they should impose the highest rates on credit to unproductive and highlyindebted firms that have no real plans for restructuring.
Because too much investment is going to low-return uses, investment productivity has
foundered. Japan's business capital stock increased more rapidly than any other major industrial
country over the past ten years, but it did not produce much growth.
Look at this another way: GDP in Japan is less than halfGDP in the United States, but business
capital stock in Japan is roughly equal to that in the United States. Therefore, U.S. fixed
investment is on average twice as productive as Japan's.
Investment resources in Japan aren't going where they can be most productive. In too many
cases good money is going after bad.
The new generation of bank managers and corporate leaders should put the failing companies out
of their misery, and not waste the hard-earned savings of Japanese workers. It is better to do it
now, when there is still some value to salvage, than to wait until the desperate, bitter, bankrupt
end.
There is plenty of advice out there on how to resolve the bad loans and clean up the bank balance
sheets. Everything that can be said, has been said.
The Japanese government has the right idea creating the Financial Services Agency and
strengthening the Resolution and Collection Corporation. I am convinced that Prime Minister
Koizumi's agenda is the right path. Now they have to make it happen.
Just as the U.S. and other countries in the past twenty years have had to deal with painful
banking crises, and came out the better for it, Japan has to deal with its own. I am confident it
will. The time for half-measures and postponement has passed. It has to be done, and the
quicker, the better.
The finance problems in Japan are a reflection of problems in the real economy. Nonperforming loans are symptomatic of bad investment choices. So even as Japan starts freeing its
3
capital from the prison of bad loans, the private sector has to start identifying and moving capital
into the real opportunities, those where investment will enhance productivity and produce a
superior return. Moving capital and other assets out of low-return, low-productivity industries
into activities that generate higher returns is the key to raising economic perfonnance.
Making sure that high-growth opportunities exist, and that finns exploit them to the fullest, is
necessary for any economy to achieve its full potential, and is of special importance to Japan.
There is no question that Japanese finns respond when the right conditions exist. Japan's exportoriented companies -- Toyota, Canon, and many others -- are among the most competitive in the
world. They are constantly innovating and adjusting to the competitive landscape in other
countries, and consumers, employees and shareholders worldwide are better for it.
Industries in which Japan's most successful finns operate share two characteristics. First, they
cannot be controlled by domestic regulation -- there is no way to limit entry, set prices, or
enforce restrictive standards -- because they are worldwide markets. Second, there is no way to
shield finns from competition in these industries. Faced with competition, these finns rise to
their best.
Unfortunately, too much of Japanese domestic industry is cocooned in a web of regulations and
trade barriers.
Eliminating regulatory barriers and introducing competition throughout the Japanese economy
entails thousands of smaller, highly important decisions in trade, regulatory, and fiscal policies.
It is not my place or the place of the U.S. government to lecture the Japanese government on how
to proceed -- these are decisions for the Japanese people.
The process is not painless. Increased price competition through deregulation and structural
refonn requires adjustments and some dislocation. But it also creates opportunities, encouraging
new entry by both domestic and foreign finns, increasing employment, and renewing economic
growth.
Prime Minister Koizumi has acknowledged that structural refonn "with no sacred cows" is
necessary for economic recovery and strong, sustained growth. He deserves our support.
Another revolution that Prime Minister Koizumi can take much credit for is emphasizing the role
of private activity in producing growth, and de-emphasizing public expenditure as life support
for the economy.
The Prime Minister has already outlined steps to cut back inefficient public works expenditures
and to abolish or privatize Japan's public corporations.
He has also made it clear that Japan will need to reduce its budget deficit substantially in order to
stabilize Japan's spiraling public debt. The Council on Economic and Fiscal Policy has begun
this process, and I hope that budget planning and implementation will carry it through.
4
The adjustments required by cutting deficits can also be eased by assuring that fiscal choices
provide the maximum benefits to private activity. Cutting taxes, particularly those that
discourage private activity and investment, coupled with reducing expenditures, can generate
higher growth and fiscal balance.
I have referred a number of times to the importance of international competition. International
trade provides an environment where firms can compete with the best and rise to their best. But
trade among nations also flourishes because we have agreed on governing rules for actions and
responses.
An agreed-upon dispute settlement system is critical to maintaining a trade-friendly environment.
Unilateral trade actions outside the WTO dispute settlement procedures set a bad precedent for
the world trading system.
The U.S. spent nine months conducting and reviewing a safeguard investigation on steel, in
accord with international trade rules. Any nation that has a complaint with this action should use
the agreed WTO dispute resolution process to seek redress.
Earlier, I described the vast difference between Japan's economic potential, and the recent course
it has taken. In 1991, Japan's economy was nearly nine times the size of China's, and three-fifths
the size of the U.S. But if the trends of the past decade continue for Japan and the U.S., and if
China grows at the 7% annual rate most analysts project, in 25 years the Japanese economy will
be less than one-fourth the size of the United States, and only four-fifths the size of China.
If that day comes, our successors won't even debate these topics. Japan will no longer be a
engine for the world economy, it will be a boxcar.
That scenario should not happen. Japan has to rejoin us, at full speed, as a leader in the global
economy. If Japan grows by 3 percent annually over the next 25 years, in 2027 Japan's economy
will be about 40 percent of the size of the United States, and 33 percent larger than China's.
This should be the target. The leading economies in the world need to grow at their full
potential, for the benefit of their own people and, more broadly, for the benefit of people
everywhere.
The people of Japan have the capacity to make their own future and return to growth. Not by
fleeing from the competitive world economy, but by embracing it and showing their true
potential, as they have before. I believe they will, not only because I am an optimist about Japan,
but because the stakes are too great to fail.
Thank you.
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5
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 3, 2002
Contact: Rob Nichols
(202) 622-2960
US-EU Designation of Terrorist Financiers Fact Sheet
May 3,2002
Statement by Treasury Secretary Paul O'Neill
Today the US and the EU atillOunce that we have taken joint blocking action on a list ofterrorists
and their supporters.
The EU list - made up of 18 terrorists and terrorist groups - includes such egregious
organizations as Al-Gama'a al-Islamiyya, a radical Islamic organization that launched a wave of
terrorist attacks against tourist sites in Egypt, such as the killing of 58 foreign tourists at Luxor in
November 1997. Also included in today's action were two extremist groups that have terrorized
Turkey for decades and the Shining Path, the militant Ma()ist terrorist group that has plagued
Peru since the 1980s.
The United States has taken action against eight of these groups previously, and we are very
pleased to join the EU to act against eight more today.
Today's coordinated blocking action is the result of close cooperation with our European allies -a collaboration that symbolizes an extremely important chapter in the financial war against
terrorism.
The United States wholeheartedly welcomes this intemational cooperation. It is our hope that
other governments and multilateral bodies will continue to take the lead in identifying terrorists
and their supporters, so that together the civilized world can shut down their organizations and
eradicate their sources of support.
PO-3070
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History of Coordinated International Actions against Terrorist Financing
In December 2001, the EU designated 42 ten-orist entities and organizations, including extremist
groups who threaten peace in Europe. The United States was pleased to follow the EO's lead and
designate six entities not already subject to Executive Order 13224. As part of the initiative lead
by the EU, we thereafter designated 21 individuals pursuant to Executive Order 13224, who
assist in, sponsor, or provide financial or other services to or in support of acts often-orism in
Europe. On March 11, 2002, the United States and the Kingdom of Saudi Arabia jointly blocked
th
the assets of two overseas branches of a Saudi-based charity. On April 19 , the G-7 countries
took the first multilateral joint action by designating nine ten-orists and terrorist financiers and
one entity that support al-Qaida. With today's action, we have taken yet another step, along with
our European partners, in our quest to dismantle all groups that sponsor acts of terror in every
part of the world.
Today's action
Today's action will block all assets the eight entities listed below have in the United States and
prohibits any financial interaction between U.S. persons and these entities and individuals.
These individuals and this organization the US designated today have acted for or on behalf of
ETA, also known as the Basque Fatherland and Liberty.
Today's designation is particularly timely, as ETA is the prime suspect in two powerful car
bombings that exploded in Madrid Wednesday, May 1,2002. Unidentified callers, claiming to
be spokesmen for ETA wamed a radical Basque newspaper and ambulance services in Madrid of
the location of the bombs.
The United States Depal1ment of State previously designated ETA as a "foreign ten-orist
organization," our govemment's gravest categorization.
ET A, established in 1959, seeks the creation of an independent state comprising the Basque
regions of both Spain and France. ETA's first victim was a police chief, killed in June 1968, and
its terrorist campaign has continued since then. Since then the group has engaged in an intense
campaign of bombing and shooting directed mainly at political and security force targets. ETA
has killed over 800 people and carried out about 1600 terrorist attacks since it was formed.
The simultaneous blocking of the assets of these individuals and entity by the US and the EU
demonstrates the broad intemational commitment to choke off the sources of financing for
terrorist acts.
One Organization
The organization, Askatasuna, is an ETA front whose actions are controlled by ETA to
complement and support ETA militants. Askatasuna acts as a conduit. for communi.cati~ns
between imprisoned ETA members and the ETA leadership and prOVIdes funds to Impnsoned
ET A activists.
Seven Individuals
These seven individuals are being designated for their support and activities on behalf of ETA.
Arrest warrants in Spain on charges of terrorism based have been issued against all seven of
them:
Ivan Apaolaza Sancho, D.N.I. 44.129.178, joined the "K. Madrid" cell of ETA in 1999.
Active participant in various terrorist actions, including placing several car bombs in
Madrid.
Ismael Berasategui Escudero, D.N.I. 15.379.555, is a member of the "K. Behorburu" cell
of ET A. He has participated in numerous terrorist acts, including placing a car bomb in
Malaga's Airport, placing a car bomb outside Cala Font Hotel in Salou, Tarragona, and
placing a car bomb in a ternlinal of Barajas's Airport in Madrid.
Lexuri Gallastegui Sodupe, D.N.I. 16.047.113,joined the "K. Madrid" cell of ETA in
2000. She has taken an active role in collecting infonnation on politicians, judges and
other officials for future terror attacks. Sodupe is the second woman to be placed on the
terrorist financing executive order.
Gorka Palacios Alday, D.N.I. 30.654.356, joined the "K. Madrid" cell of ETA in 1999
and has participated in various terrorist acts including placing several car bombs in
Madrid.
Asier Quintana Zorrozua, D.N.I. 30.609.430, joined the "K. Madrid" cell of ETA in 2000
and has participated in various tfrrorist acts inclllding several car bombings in Madrid.
Juan Luis Rubenach Roig, D.N.I. 18.197.545, participated with the "K. Madrid" cell of
ET A since 1999 in various terrorist acts, including placing several car bombs in Madrid.
Manex Zubiaga Bravo, D.N.I. 16.064.664, joined the "K. Madrid" cell of ETA in 2001
and has participated in placing a car bomb in Madrid.
Summary of Terrorism Financing War
Including today's designation, the Department of Treasury has blocked the assets of21 0 entities
and individuals. 161 countries and jurisdictions have taken concrete action to block the assets of
these groups and individuals and $116 million has been frozen worldwide. $34 million of that
has been blocked domestically in the United States with the remaining 582 million blocked by
our international pariners.
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D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 2:30 P.M.
May 2, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $30,000
million to refund an estimated $30,245 million of publicly held 13-week and 26-week
Treasury bills maturing May 9, 2002, and to pay down approximately $245 million. Also
maturing is an estimated $14,000 million of publicly held 4-week Treasury bills, the
disposition of which will be announced May 6, 2002.
The Federal Reserve System holds $13,850 million of the Treasury bills maturing
on May 9, 2002, in the System Open Market Account (SOMA).
This amount may be refunded
at the highest discount rate of accepted competitive tenders either in these auctions
or the 4-week Treasury bill auction to be held May 7, 2002. Amounts awarded to SOMA
will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,152 million into the 13-week bill and $919 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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
Attachment
PO-3071
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HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED MAY 9, 2002
May 2, 2002
Offering Amount ..... .
Public Offering ..... .
NLP Exclusion Amount.
. .... $15,000 million
.. $15,000 million
. .... $ 4,700 million
Description of Offerin~:
Term and type of security.
. . 91-day bill
CUSIP number.
.. 912795 KV 2
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 6, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 9, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 8, 2002
Original issue date . . . . . . . . . . . . . . . . . . . . . . . . . February 7, 2002
Currently outstanding..............
. $18,982 million
Minimum bid amount and multiples . . . . . . . . . . . . $1,000
$15,000 million
$15,000 million
None
182-day bill
912795 LJ 8
May 6, 2002
May 9, 2002
November 7, 2002
May 9, 2002
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FlMA) bids:
Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FlMA
accounts will not exceed $1,000 million.
A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
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 (NLP) 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.
35% of public offering
Maximum Recognized Bid at a Single Rate.
35% of public offering
Maximum Award.............
. .....
Receipt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders . . . . . . . . Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms:
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.
D EPA R T :\1 E N T
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THE
T REA SUR Y
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..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 9:30 A.M. EDT
MAY 6,2002
CONTACT: BETSY HOLAHAN
202-622-2960
PETER R. FISHER
UNDER SECRETARY OF THE TREASURY FOR DOMESTIC FINANCE
BEFORE
THE COUNCIL OF THE AlVIERICAS'
ND
32 ANNUAL WASHINGTON CONFERENCE
THE U.S. ROLE IN HEMISPHERIC RECOVERY
The most important thing that the United States can do for the prosperity of all of the
Americas is to retum and sustain our economy on a path of steady non-inflationary
growth. And nothing could be more predictable than a Treasury official and ex-central
banker that wants to talk to you about something so self-evident. But I ask you to look
beyond the truism and to see that we are at a tuming point.
I want you to see the connection between our 25-year effort to reverse the inflationary
mistakes of the 1970s and the volatility in our domestic credit markets in the last few
years and the recent decline in "contagion" among emerging markets. r would like you to
see much of the recent market tunnoil as a transition to a world of more stable real and
nominal interest rates and one in which the individual characteristics of both corporate
and sovereign borrowers will be better recognized - a world where credit matters.
But first, let me remind you of the history of one country's experience.
The country abandoned its long-maintained currency peg, stunning the foreign exchange
market. Lax monetary policy created the conditions for a subsequent acceleration of
inflation just as fiscal deficits began to increase. together leading to a second wave of
currency tunnoil and depreciation. The high interest rates with which the central bank
was forced to respond exposed weaknesses in the banking sector and in banking
supervision, leading to govemment bailouts of financial institutions and fUl1hcr volatility
in the exchange market.
PO-3072
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.2
I repeat this brief history of the United States in the 1970s and 1980s both to underscore
the common experiences we have had across the hemisphere and to take you back to the
extraordinary volatility in our economy - in both real output and in inflation and inflation
expectations - that accompanied the great expansion of traded capital markets both here
and around the world.
In such an environment, you make or lose money in credit markets by anticipatin u (or
failing to anticipate) the rapid swings in real and nominal interest rates. Anticipating the
big macro-economic events becomes relatively more important than the particular
circumstances of individual corporate or sovereign borrowers.
Catching the turns from the negative real U.S. interest rates in the late 1970s, to the
highly-volatile nominal and real rates ofthe 1980s, and to the low nominal rates of the
early 1990s, proved to be more important for creditors than the finer points of deciding
the particular spreads that individual borrowers should pay over comparable U.S.
Treasury yields. In that environment, it was good enough for bond traders, investment
bankers and credit officers to form a consensus on rough rules of thumb for credit
spreads, for both corporate and sovereign debt, as long as you could hang on for the ride
as the underlying interest rates gyrated.
In a period of more stable real and nominal interest rates, by definition, it becomes
relatively less important to anticipate the changes in underlying rates and, therefore,
relatively more important to assess accurately the credit standing of individual borrowers.
In the latter half of the 1990s we moved into such an environment, one of much more
stability in real output, in real interest rates and in inflation expectations. Even in the last
two years, in the recession and recovery now beginning, we have seen much less
volatility in real output and in long-tenn interest rates than most observers expected. In
this environment, bond traders who were once thought to be "masters of the universe"
have discovered that credit matters, that it is a little bit less about macro-economics and
little bit more about the particular conditions of the borrower.
In international financial circles this is referred to as the question of "sustainability". In
the somewhat blunter world of domestic finance, we say that it's about cash flow: it's
about whether a borrower can meet its payment obligations.
In the summer of 1998, participants in global capital markets made a collective credit
misjudgment. It was widely agreed that Russia was a better credit than Argentina that
summer because Russia had missiles. Before that summer was over, it tumed out that
what mattered was cash flow.
More recently, in our domestic capital markets, we have !eamed that it is I:ot enough to
know what sector a company is in. You also need to know whether there IS any rea! cash
flow behind the corporate balance sheet.
The transition to world where credit matters has been an expensive leaming process for
some. The habits of the 1980s and early 1990s - of tracking indexes and trading off of
rule-of-thumb spread relationships - have been hard to shed. Indeed, these habits can
only prudently be shed if we keep our economy on the path of stable and sustainable
growth and price stability.
A major benefit of our doing so will be greater stability and opportunity for developing
economies. A world in which credit matters is a world with less contagion.
in Aruentina
I am convinced that the relative lack of contagion from the current traaedy
b
b '
compared with the events in Mexico in 1994, is significantly a consequence of the greater
expected stability of the U.S. economy and interest rates and also of our low and stable
inflation expectations.
In 1994, financial markets had fim1ly in mind the then-recent spike in U.S. inflation up to
6 percent and the wide swings that our interest rates and exchange rates went through in
the 1980s. While our interest rate markets did experience some heightened volatility late
last year, they did so, in part, as they adjusted to the idea that our economy's perfom1ance
would be much less volatile than had been feared: that real output would vary less than
had been expected. Inflation expectations have also remained remarkably stable.
A world of more stable interest rates - and one of less divergence between real and
nominal rates - is a world in which all borrowers will be judged on their own
circumstances and not on the basis of the index that they are in or the language that they
speak.
If at this important turning point we can get our economy back on a path of steady noninflationary growth, and keep the trend of increasing convergence between our real and
nominal interest rates, we will be able to keep training credit market patiicipants to
differentiate both corporate and sovereign borrowers on the basis of their fundamentals.
For both companies and countries, this will mean greater attention to their cash flow, to
the question of whether they can sLlstain their debt service payments.
For countries this will also enable them to differentiate themselves more effectively on
the basis ofthe environment they provide for economic growth, on their commitment to
of their financial sector, on the competence of their
the rule of law , on the strenuth
b
administration and their commitment to fight corruption, and on their investments in
human capital in education and health care.
In a world where credit matters, where we differentiate more carefully among borrowers,
there will be fewer triple A companies here in the United States. And, in t~lct, \VC are
now down to just eight.
In a world where credit matters, some countries may not be able to borro\v at all in the
traded capital markets. Some countries may fall out of investment grade status if their
4
performance falls short. But other countries will be able to move up into investment
grade status, as we have seen.
Credit markets that can effectively differentiate among borrowers will provide the
strongest incentives for both the private sector and the public sector to pursue policies
that will lead to prosperity tlu·oughout the Americas. And steady and sustainable real
growth is tmly the most important contlibution that we can make to this process.
-30-
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3:00 PM
May 6, 2002
Contact: Peter Hollenbach
(202) 691-3502
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR APRIL 2002
The Bureau of the Public Debt announced activity for the month of April 2002, of securities within the Separate
Trading of Registered Interest and Plincipal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$2,091,060,788
Held in Unstripped Form
$1,923,491,654
Held in Stripped Forrn
$167,569,134
Reconstituted in April
$12,3 72,990
The accompanying table gives a breakdown of STRIPS activity by individual loan description. The balances in
this table are subject to audit and subsequent revision. These monthly figures are included in Table V of the
Monthly Statement 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 site at: www.publicdebt.treas.gov.Awide range of information about the public debt and Treasury
securities is also available at the site.
000
PA-553
PO-3073
www.publicdebLtreas.gov
TABLE V· HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM APRIL 30 2002
Corpus
Amount Outstanding in Thousands
STRIP
Loan Description
Maturity Date
CUSIP
Treasury Bonds:
GUSIP:
912810DM7
008
DR6
DU9
DN5
OPO
DS4
DT2
DV7
DW5
DX3
DYl
DZ8
EA2
EBO
EC8
E06
EE4
EFl
EG9
EH7
EJ3
Ef<O
EL8
EM6
EN4
EP9
E07
ES3
ETl
EV6
EW4
EX2
EYO
EZl
FAI
FB9
FE3
FFO
FG8
FJ2
FM5
FP8
Interest Rate'
11-5,8
12
10-3/4
9-3;8
11-3/4
11-114
10-5/8
9-7/8
9-1/4
7-1/4
7-1/2
8-3/4
8-7.'8
9-1/8
9
8-7/8
8-1/8
8-1i2
8-314
8-3/4
7-7/8
8-1/8
8-1/8
8
7-114
7-5/8
7-1/8
6-1/4
7-1/2
7-5/8
6-7/8
6
6-3/4
6-1/2
6-5/3
6-3/8
6-1/8
5-1/2
5-1/4
5-1/4
6-118
6-114
5-3 18
Total
Outstandinq
912803 AB9
ADS
AG8
AJ2
912800AA7
912803AAl
AC7
AE3
f'.FO
AH6
AK9
AL7
AM5
AN3
AP8
A06
AR4
AS2
ATO
AU7
AV5
AW3
AXl
AY9
AZ6
BAO
BB8
BC6
BD4
BE2
BF9
BG7
BH5
BJI
BK8
BL6
BM4
BP7
BV4
BW2
CG6
CH4
CK7
11/15104
05/15/05
08/15/05
02/15/06
11/15/14
02/15/15
08115/15
11/15/15
02/15/16
05115/16
11115/16
05115/17
08/15/17
05/15/18
11/15/18
02115/19
08115/19
02/15/20
05115/20
08/15/20
02115/21
05115/21
08115/21
11/15/21
08/15/22
11115/22
02115/23
08115/23
11115/24
02115/25
08115/25
02/15/26
08115/26
11115/26
02115/27
08115/27
11115/27
08115/28
11115/28
02115/29
08115/29
05115/30
02115/31
Total Treasury Bonds ..
Treasury Inllation-Indexed Notes:
Interest Rate.
Series:
CUSIP:
3-5/8
J
9128273A8
3·3/8
2M3
A
3-5/8
3T7
A
3-7/8
4Y5
A
4-1/4
5W8
A
3-1/2
6R8
A
3-3/8
7J5
A
912820 BZ9
BV8
CL9
DN4
Ef<9
GA9
GT8
07/15/02
01/15/07
01115/08
01/15/09
01/15/10
01115/11
01/15/12
Total Inflation-Indexed Notes.
Treasury Inflation-Indexed Bonds:
Interest Rate.
CUSIP.
3-5/8
912810 FD5
3-7/8
FH6
3-3/8
F06
Total Inflation-Indexed Bonds.
Portion Held in
Unstripped Form
04/15/28
04/15129
04115/32
172,641
61,106
8,301,306
4,260,758
9,269,713
4,755,916
5,015,284
10,520,299
4,023,916
5,584,859
5,431,754
18,823,551
18,787,448
15,559,169
10,968,358
6,717,439
7,174,470
13,090,498
18,940,932
9,476,268
7,582,183
17,059,306
10,075,573
10,066,788
9,506,382
30,632,194
10,127,790
7,423,626
15,782,061
22,659,044
9,604,162
9,509,170
11,187,207
12,837,916
8,810,418
10,860,177
9,521,971
9,196,756
22,021,339
11,776,201
10,947,052
11,350,341
11,178,580
17,043,162
16,427,648
4,518,247
1,887,805
6,259,613
4,400,477
1,755,100
8,681,110
3,175,130
3,378,517
5,326,448
13,697,118
17,380,388
7,990,317
7,289,355
3,124,639
2,816,547
7,192,671
17,715,491
7,352,708
2,998,598
6,729,376
9,240,693
4,839,525
7,106,726
16,404,938
8,909,791
3,172,831
10,010,861
19,252,484
3,614,082
4,048,969
7,857,165
11,578,816
6,227,600
5,093,127
6,275,116
7,215,356
11,676,639
11,016,201
10,299,652
10,871,0'15
10,423,780
16,285,498
16,318,848
3,783,559
2,372,953
3,010,100
355,439
3,260,184
1,339,189
848,786
2,206,342
105,306
126,433
1,407,060
7,568,852
3,679,003
3,592,800
4,357,923
5,897,827
1,225,441
2,123,560
4,583,585
10,329,930
834,880
5,227,263
2,399,656
14,227,256
1,217,999
4,250,795
5,771,200
3,406,560
5,990,080
5,460,201
3,330,042
1,259,100
2,532,818
5,767,050
3,246,855
1,981,400
10,344,700
760,000
647,400
479,296
749,800
757,664
108,800
97,600
64,000
35,000
133,800
24,960
487,760
880,325
204,400
188,200
385,600
404,800
320,200
99,200
672,360
328,800
546,280
657,040
1,691,150
99,200
19,200
368,000
32,900
117,800
553,400
287,120
166,600
422,600
251,200
295,000
242,600
304,200
137,600
0
13,600
75,200
107,744
1,600
499,889,485
356,414,398
143,4 75,087
11,987,286
18,667,770
17,681,704
18,499,598
17,238,198
11,962,296
11,236,898
6,011,428
18,667,770
17,681,704
18,389,557
17,238,198
11,962,296
11,236,898
6,011,428
0
0
110,041
0
101,297,892
101,187,851
110,041
0
18,447,560
21,084,147
5,020,054
18,442,064
20,943,971
5,020,054
5,496
135,176
0
0
44,551,761
44,411,089
140,572
°
°
0
0
.
912803 BN2
CF8
CL5
Reconstituted
This Month 18
Portion Held in
Strioped Form
°
291,800
1,200
28,000
715,500
°
°
°
°
°
0
°
°
TABLE
11
V - HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, APRIL 30,2002 - continued
Amounl Outstanding in Thousands
r
C0 r US
Recons:ituted
This Monlh "'
__________ ~ _______.________________+_----------_4------------4_~O~ul~s~ta~n~d~in~1q~_+~U~ns~l~riEEppie~d~F~o~rm~~~S~t~riL~LP~ed~r~o~rm~_t----___________
STRIP
CUSIP
Tolal
Portion Held in
Portion Held in
Tre~l::-lJrl i~cles
Interest Rate
CUSIC'
912d2-;- F.:J
i-
2""
n
8
5-1 2
coa
07,1505
1015:06
11,15 C5
02"507
051507
0315'07
02'1505
C
5-S
,5
C{1
OS/1503
[:
~-3
..;.
2
D'·.O
11 '''12 C3
11,714,397
13,503,890
14,871,823
13,058,694
14,320,609
12,231,057
15,057,900
23,859,015
12,731,742
15,072,214
12,806,814
15,144,335
26,593,892
12,120,580
15,058,528
12,052,433
14,822,027
13,100,640
15,452,604
23,552,691
13,670,354
14,685,095
14,172,892
14,674,853
12,573,2-13
13,338,528
13,132,243
13,331,937
13,126,779
14,671,070
16,003,270
28,011,023
19,852,253
18,665,0:,8
22,675,482
25,147,960
18,625,785
26,170,526
29,666,938
30,775,555
12,955,077
17,823,223
31,746,077
32,873,503
32,653,867
14,440,372
18,925,383
13,346,467
18,089,805
14,373,760
32,658,145
13,834,754
14,739,504
28,562,370
15,002,580
15,209,920
23,062,797
15,513,587
15,015,475
27,797,852
22,740,445
22,459,675
35,380,122
13,103,673
13,95a,135
25,635,803
13,583,412
27,190,951
25,083,125
D·.'::
05
1-+,79~.7~Q
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C3.15'':'·9
02,15,' 'J
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5-1/2
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4-1/4
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:,-3/8
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7-114
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7-7/8
5-7,8
7-1/2
6-1/2
BV2
Dn
8l_0
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8MB
E1N5
6-1/2
3-; 2
BUD
G84
6-53
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08/31'02
09:30'02
09/30'02
10'31 ,02
11/30'02
11/3002
12/31/02
12/31/02
01/31:03
01/31103
02.1503
02.28 '03
02/28'03
03/31 /03
03/31/03
0·1/:;003
04 130:03
05'31/03
05/31/03
05 / 30/03
06:30,03
07 /31 103
03 /15,103
03,15:03
03/31/03
09::;0:03
10131/03
11/15/03
11/3'],'03
12/31/03
01/31/04
04/3:1-04
05. /15 /04
05'15 '04
08/15·04
08'15'04
11/15:04
11/15'04
02/15'05
05/15'05
05/15/05
03/15'05
11 /15'05
11/15'05
02/15'06
05'15'05
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6-1/4
6-3 C,
6-1 '.;
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7-12
6-1 2
6-5'8
6-1 '~
6-38
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5-3
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7,480,141
13,503,890
14,849,423
4,23~,255
131,100
o
o
o
2?,400
13,058,69~
o
14,309,009
12,231,057
15,056,300
19,193,258
12,731,742
15,072,214
12,731,614
15,144,335
26,498,692
11,740,380
14,990,688
11,640,593
14,822,027
13,096,640
15,427,004
21,881,843
13,626,354
14,278,695
14,148,092
1·1,574,853
12,542,048
13,333,528
13,103,843
13,331,937
13,093,179
14,671,070
16,001,670
25,625,988
18,782,463
1 (\,665,038
22,675,482
25,146,360
17,361,865
26,170,526
29,666,988
30,775,555
12,202,997
17,805,628
31,745,077
:02,873,508
32,558,867
13,632,772
18,925,383
11,455,227
18,089,806
14,359,160
32,658,145
13,227,264
14,739,104
28,386,570
15,002,180
14,737,440
27,793,197
15,508,107
15,243,275
27,797,652
22,700,445
22,399,675
34,995,629
12,590,250
13,735,671
25,021,003
13,555,412
27,124,401
25,C59,125
14,750,290
27,304,894
23,351,109
11,600
o
o
o
o
o
o
o
o
1,600
4,665,757
o
o
o
75,200
o
o
a
95,200
380,200
67,840
411,840
o
o
a
o
o
o
o
4,000
25,600
1,680,848
44,000
406,400
24,800
97,304
o
o
o
o
o
31,200
o
o
o
o
o
28,400
o
o
33,600
a
o
1,600
2,385,0.10
69,800
o
14,000
o
o
o
o
a
o
o
o
o
o
1,600
1,263,920
o
o
o
33,200
752,080
17,600
a
o
o
o
o
o
807,600
41,000
o
o
a
1,891,240
8,900
o
o
o
4,600
o
o
607,490
400
175,800
400
472,480
269,600
5,430
772,200
46,800
o
a
o
o
o
o
1,600
o
o
o
o
40,000
60,000
384,500
513,428
221,515
615,800
27,000
400
9,800
o
1,600
o
o
66,S60
o
23,!"S-3,32S
26,>335.313
23,':3Q,569
23,'331,315
14,000
44,500
95,00')
4,6eJ
3,ODO
5,7S:)
4.CO·J
13,3dS,2~5
13,32;)2~5
o
o
o
o
o
o
o
o
1,":'-".5,321,650
1,421,..170,316
23,c~3,33':;
3a5,7G4
2.0~:
1.923.4~1
23,355,703
22.43~,594
,060,723
,654
, 67.569, 13~
~
2,372,99:)
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 6, 2002
Contact: Peter Hollenbach
(202) 691-3502
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN MARYLAND
The Bureau of Public Debt took action to assist victims of severe weather in Maryland by expediting the
replacement or payment of United States Savings Bonds for owners in the areas. The emergency procedures are
effective immediately for paying agents and owners in Maryland affected by the storms. These procedures will
remain in effect through the end of June 2002.
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.
Maryland counties involved are Calvert, Charles and Dorchester. 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.publicdebttreas.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 "DISASTER" on the front of their envelopes, to help expedite the processing of claims.
000
PA-554
www.publicdebUreas.gov
PO-3074
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 11:30 A.M.
May 6, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $20,000 million to
refund an estimated $14,000 million of publicly held 4-week Treasury bills maturing
May 9, 2002, and to raise new cash of approximately $6,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
will not be accepted.
TreasuryDirr~t
The Federal Reserve System holds $13,850 million of the Treasury bills maturing
on May 9, 2002, in the System Open Market Account (SOMA).
This amount may be refunded
at the highest discount rate of accepted competitive tenders in this auction up to the
balance of the amount not awarded in today's 13-week and 26-week Treasury bill
auctions.
Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal R8serve Bank of New York
will be included within the offering amount of the auction.
These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
Note:
The closlng times for receipt of noncompetitive and competitive tenders
will be at 11:00 a.m. and 11:30 a.m. eastern daylight saving time, respectively.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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 BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as ~ended).
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-307S
For press releases, speeches, public schedules ami official biographies, call our 24-11Our fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED MAY 9, 2002
May 6, 2002
Offering Amount ..... .
Public Offering .... .
NLP Exclusion Amount ....
. . . . . . . . . $20,000 million
. ... $20,000 million
. . . . . . . . . $10,400 million
Description of Offering:
Term and type of security
... 28-day bill
CUSIP number
.. .. ......
. .. 912795 JX 0
Auction date.....
......
. .. May 7, 2002
Issue date . . . . . . .
.. ....
. .May 9, 2002
Maturity d a t e . . . . . . . . . . . . . .
. .. June 6, 2002
Original issue date . . . . . . . . . . . . . . . . . December 6,2001
Currently outstanding . . . . . . . . . . . . . . . $40,595 million
Minimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids:
Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accoun·ts.
Accepted in order of size from smallest to largest
with no more than $100 million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million.
A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit.
However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) 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.
~la2::.mu."i1
~'iaximum
Recognized Bid at a Single Rate .
Award ..... .
of Tenders:
~Tor'.competi tive tenders:
?=i=r t= 1::00 a.m. aa3t2rn
. 35% of public offering
.35% of public offering
~ecei?t
,:iayligh~:
sas ":'e:cn da~?light
3:.:' :::-:a=;e ::-:: a.
fu~c.s
sa'Iing -ti:rne on .auction
.3 a -., ir:.g
c.a:l
t.i::ne en auction day
3.CC-;ur:..t at a F9d.aral Reserve Ban~c
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
May 6,2002
U.s. Interr-nationaH Reserve Position
The Tre3.sury Dep3.rtment tod3.Y released U.S. reserve assets dat3. for the btest week. As indicated in this table, U.S.
reserve assets totaled $69,177 million at the end of the latest week, comp3.red to $68,361 million at the end of the prior
week.
(in US millions)
AQrii 19, 2002
68,361
!. Official U.S. Reserve Assets
TOTAL
1. Foreign Currency Reserves
a. Securities
I
1
Euro
5,511
Yen
10,214
AQril 26, 2002
69,177
TOTAL
Euro
15,725
5,576
Yen
TOTAL
10,399
15,975
a
a
Of which, issuer headquartered in the U. s.
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
9,309
4,259
13,568
9.406
4,336
a
13,741
a
0
0
a
a
0
0
17,171
17,493
10,853
10,923
11.044
11,044
a
a
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 securrties reflect marked-la-market values, and depOSits reflect
carrying values.
21 The Items. 2. IMF Reserve POSition' and'3 Special DraWing Rights (SDRsl.' are based on data provldea by the IMF and are valued in dollar
terms at the offiCial SDRJdoliar exchange rate for the reporting date. The entrres 10 the table above for latest 'Neek (sl,own In Italics) reilect anll
necessary ldJustments Including revaluation. by the US Treasury to the prior weeks INiF dat? T),e IMF data Tor the prior 'Nee.~ are final
31 Gold stoci< is valued monthly at S42.2222 per fine troy ounce
PO-3076
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
Offical Reserve Assets Worksheet
(actual US dollar amounts)
Enter Oates Here
Last Week
19-Apr-02
This Week
26-Apr-02
Foreign Currency
19-Apr-02
26-Apr-02
Change
Source: NY Fed (fax)
Euro Securities
Yen Securities
$5,510,661,564.51
$10,214,495,118.77
$5,575,7 42,604.57
$10,399,350,140.43
184.855.022
copy and paste data into last week
and put new data from fax
Sec. Total
Euro Deposits
Yen DepOSits
$15,725,156,683.28
$15,975,092,745.00
249,936,062
into right column
$9,309,103,544.28
$4,258,513,820.25
$9.405,897.408.55
$4,335,594,093.71
96.793,864
Deposit Total
$13,567,617 ,364.53
$13,741,491,502.26
173,874,138
$29,292,774,047.82
$0.8893
130.5
$29,716,584,247.26
$0.8980
128.18
423,810,199
Total
Euro Rate
Yen Rate
IMF
19-Apr-02
65.081,040
77,080,273
26-Apr-02
Source: IMF (email)
(prelim, with adjust.)
Reserve Tranche
GAB
NAB
Total
SDR
17,170.862.62508
0.00
17,493,126,656.22
0.00
0.00
17,170,862,625.08
0.00
17,493,126,656.22
322,264.031 14
10,853,059,113.92
10,923,010,735.93
69,951,622.01
322,264.031 14
000
000
000
Source' FMS website
000
http://www.fms.treas.govlgold
o
816.025.85259
i~~i~~~~ifa~~~-~~~-?-~~-qf~~s{j~~~a!~~-~i~-U!!~~!-~~~~~~2!-!~~~~----------------------S[)R-rate-for--------~---------------:Calculation
Section
I
Reserve Tranche
GAB
NAB
SDRs
-
19 Apr -02
13,882,..)92.835
0
0
8,668"')68,5) I
Adiustments
13,882,492,835
0
0
13,882,492,835
8.668.468,551
26-Apr-02
0.793597
Total SDRs
Source:
http://WWN.imf.org/externallmap.htm. then go to "Exchange Rates in Terms of SDRs Dally"
In USD
$17,493,126,656.22
$0.00
$0.00
$17,493,126,656.22
$10,923,010,735 93
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May 06, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
May 09, 2002
August 08, 2002
912795KV2
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.740%
High Rate:
Investment Rate 1/:
Price:
1.773%
99.560
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 78.89%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
28,030,267
1.518,552
140,000
$
5,197,476
5,197,476
Federal Reserve
$
34,886,295
13,341,695
1,518,552
140,000
15,000,247 2/
29,688,819
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
20,197,723
Median rate
1.730%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.710%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 29,688,819 / 15,000,247 = 1.98
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1.261,794,000
http://www .publicdebt.treas.gov
PO-3077
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May 06, 2002
Office of Financing
202 -691-3 550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
May 09, 2002
November 07, 2002
912795LJ8
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.850%
High Rate:
Investment Rate II:
Price:
1.893%
99.065
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 31.49%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
$
Competitive
Noncompetitive
FI~~ (noncompetitive)
29,420,480
1,213,696
155,000
$
15,000,326 21
30,789,176
SUBTOTAL
5,759,508
5,759,508
Federal Reserve
$
TOTAL
36,548,684
13,631,630
1,213,696
155,000
$
20,759,834
Median rate
1.840%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.800%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio
= 30,789,176
I 15,000,326
=
2.05
11 Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $993,711,000
http://www.publicdebt.treas.gov
PO-3078
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
~~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . ..
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OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 7, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
Treasury Department Announces Office of Financial Education
New Deputy Assistant Secretary for Financial Education in Place
The Treasury Department today announced the establishment of the Office of Financial
Education (OFE) as part of its ongoing effort to improve financial education for all
Americans. The OFE will develop and implement financial education policy initiatives,
and will oversee and coordinate Treasury's outreach efforts.
Secretary Paul O'Neill has made financial education a focus at Treasury. Assistant
Secretary for Financial Institutions Sheila Bair and U.S. Treasurer Rosario Marin are
leading the Treasury effort to spread financial knowledge to Americans of all ages. Judy
Chapa, Treasury's new Deputy Assistant Secretary for Financial Education, is heading up
the OFE, effective May 6.
"The Office of Financial Education will playa key role in coordinating Treasury's efforts
to improve the financial skills of all Americans," said Secretary O'Neill. "The Office
will develop a long-term, multi-faceted approach to expanding our nation's money
management skills. This is an area of great importance to me personally, to the Treasury
Department, and to President Bush."
"The creation of this office is a tremendous step forward for the cause of financial
literacy," said U.S. Treasurer Rosario Marin, who has been one of the Administration's
leading advocates of financial education.
Ms. Chapa, who has more than 15 years of experience in marketing, public and
government relations and community affairs, previously was Manager of External Affairs
for Miller Brewing Co., Milwaukee, WI. In 1999, she served as the Executive Director of
the New Majority Council for the Republican National Committee, where she developed
and executed strategic plans aimed at increasing voter participation.
PO-3079
-
-
Fm- press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Ms. Chapa also worked as marketing director at The Laredo National Bank, Houston,
TX, during 1997-98 and as director for Hispanic marketing at Banc One Corp.,
Columbus, OH, during 1994-97. Prior to 1994, Ms. Chapa was a corporate affairs
regional manager at RJR Tobacco Co., Houston, TX. She earned a Bachelor of Science
degree in broadcast journalism from the University of Texas in 1981.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
~,78~q. . . . . . . . . . . . . ..
..............
OrnCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASillNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 7, 2002
Contact: Office of Public Affairs
(202) 622-2960
Opening Remarks by
Deputy U.S. Treasury Secretary Kenneth Dam
at the Pacific Basin Economic Council Meeting
Kuala Lumpur, Malaysia
May 6th
Thank you for coming today.
Before taking your questions, let me tell you why I am here in Asia (for the 3rd time in 5 onths),
what I am trying to achieve, and why my trip is of particular importance to President Bush and
the United States Treasury.
I am visiting three Asian nations this week - Malaysia, China and South Korea. The purpose is
to launch a new international economic initiative aimed at transforming financial sectors into
engines of growth. This represents a new Bush Administration international economic policy
initiative.
We believe that well-developed and competitive financial sectors must be the engines of growth
in this decade. My intention is to spotlight what I see as early successes in Asian financial
markets and to draw attention to where increased competition and better, more transparent
regulation can clear a path to stronger economic growth. I will initiate a new economic dialogue
with my Asian counterparts on ways we can encourage further financial sector openness in Asia.
These efforts are, in my view, essential so that Asian countries can make the best use of their
deep pools of domestic savings. Efficient use of domestic capital will be the new economic
challenge for Asia in this century. This is the real path to sustainable economic growth.
Gone are the days when a national airline and heavy investments in manufacturing were badges
of economic advancement. Now, in the 21 st century, the fate of all our economies is
intertwined. The world economy is no longer a zero-sum game. We have entered a period of
convergence. When the United States grows, Asia grows. And vice-versa. It's that
fundamental.
PO-3080
-
-
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The global economy now stands at the leading edge of a new millennium in which world-class
financial sectors - that are deep, flexible and resilient -- will be the engines of growth.
The path to transforming the world's financial sectors into engines of growth, we believe is
through increased productivity. And the path to productivity, we believe, is through freer trade
and investment in financial sectors.
Freer trade and investment in financial services enhances capital market efficiency. It bolsters
financial sector stability, stimulates innovation, and provides businesses and consumers with the
broadest range of financial products at the lowest cost. In short, freer trade in financial services
enhances productivity.
When I say trade, I include FDI, after all, the right to have a local presence is normally essential
to providing financial services. Openness in financial services also promotes access to new
technologies and best practices. This has sped the development of on-line banking, securities
trading, insurance services, and financial information services.
Therefore, I am using this trip to heighten the visibility of stronger and more advanced trade and
investment in financial services. The connection between fully developed financial markets and
economic growth is clear. The issue warrants being placed squarely on the global economic
agenda. More frankly, it has not been until now.
While in Malaysia, China and South Korea, I will be hoping to enlist key Asian policymakers in
an international effort to persuade leaders here and elsewhere to embrace greater openness to
financial services trade and investment and financial sector liberalization.
I hope - through listening and engaging in constructive dialogue this week - to deepen and
diversify the economic ties so that we can bring this issue to the forefront of governments in Asia
and the rest of the world.
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May 07, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28-Day Bill
May 09, 2002
June 06, 2002
912795JXO
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.725%
High Rate:
Investment Rate 1/:
Price:
1.749%
99.866
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 82.43%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
51,756,500
30,338
$
19,969,725
30,338
o
SUBTOTAL
Federal Reserve
TOTAL
Accepted
Tendered
Tender Type
$
°
51,786,838
20,000,063
2,893,222
2,893,222
54,680,060
$
22,893,285
Median rate
1.715%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.680%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 51,786,838 / 20,000,063 = 2.59
1/ Equivalent coupon-issue yield.
1'0- 3081
http://www .p ublicdebt. treas.gov
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Dcbt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
Office of Financing
202-691-3550
May 07, 2002
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
Issue Date:
Dated Date:
Maturity Date:
4 3/8%
E-2007
912828AC4
Price:
4.475%
High Yield:
May 15, 2002
May 15, 2002
May 15, 2007
99.556
All noncompetitive and successful competitive bidders were awarded
securities at the high yield.
Tenders at the high yield were
allotted 71.82%.
All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
?H1A (noncL':r.pctiLivc)
$
37,314,525
499,802
$
21,500,265
499,802
o
22,000,067 1/
37,814,327
SUBTOTAL
2,340,909
2,340,909
Federal Reserve
$
TOTAL
Medlan yield
Accepted
Tendered
Tender Type
40,155,236
$
4.430%:
24,340,976
50% of the amount of accepted competitive tenders
Low yield
4.395%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
~s tendered at or below that rate.
Bid-to-Cover Ratio = 37,814,327 /
1/ Awards to TREASURY DIRECT
=
22,000,067 = 1.72
$259,873,000
PO-3082
http://v'.;ww.publicdebt.treas.go y
OFFICE OF PUBLIC AFFAInS e1500 PENNSYLVANIA AVENUE, N.W. e WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 11: 00 A.M.
May 8, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS CASH MANAGEMENT BILLS
The Treasury will auction approximately $12,000 million of 7-day
cash management bills to be issued May 10, 2002.
Treasur~
Tenders for Treasury cash management bills to be held on the book-entry
records of TreasuryDirect will not be accepted.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Fe~~ral Reserve Bank of
New York will be included within the offering amount of the auction.
These
noncompetitive bids will have a limit of $100 million per account and will be
accepted in the order of smallest to largest, up to the aggregate award limit
of $1,000 million.
The allocation percentage applied to bids at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g.,
17.13%.
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 new security are given in the attached offering
highlights.
000
Attachment
For press releases, speeches, public schedules and offiCial biographies. call our 24-lIour fax line at (202) 622-2040
PO-3083
HIGHLIGHTS OF TREASURY OFFERING
OF 7-DAY CASH MANAGEMENT BILLS
May 8, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . $12,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . $12,000 million
Description of Offering:
Term and type of security ........... 7-day Cash Management Bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . 912795 KN 0
Auction date . . . . . . . . . . . . . . . . . . . . . . . . May 9, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . May 10, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . May 17, 2002
Original issue date ................. May 10, 2002
Currently outstanding .............. .
Minimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest discount
rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids
submitted through the Federal Reserve Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to
Federal Reserve Banks as agent~ for FIMA accounts will not exceed $1,000
million. A single bid that would cause the limit to be exceeded will be
partially accepted in the amount that brings the aggregate award total to the
$1,000 million limit.
However, if there are two or more bids of equal amounts
that would cause the limit to be exceeded, each will be prorated to avoid
exceeding the limit.
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 daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms:
date.
By charge to a funds account at a Federal Reserve Bank on issue
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Wednesday, May 8, 2002
Contact: Tasia Scolinos
(202) 622-2960
Statement of
Jimmy Gurule, Under Secretary for Enforcement
U.S. Depanment of the Treasury
Before the
Commission on Security and Cooperation in Europe
Chaim1an Campbell, Co-chainnan Smith, Ranking Member Hoyer, and Members of the
Commission, I am privileged to be here today to discuss the Treasury Department's efforts in
combating terrorist financing and ways in which the Department can work more closely with this
Commission and the Member States of the Organization of Security and Cooperation in Europe
(OSCE).
This is my first appearance berore the Helsinkj Commission since being confirmed as the
Treasury Depmiment's Under Secretary for Enforcement. The Commission has played a cmcial
role since 1976 in monitoring and encouraging compliance with the Helsinki Final Act and other
OSCE documents. Therefore, it is a special honor for me to be here today.
My testimony today will focus on three areas: 1) an overview of Treasury Enforcement;
2) the Treasury Depm1ment's counter terrorist financing activities: and 3) the contributions of
OSCE Member States in the war against ten'Olist financing and ways in which the Treasury
Department and OSCE can coordinate more closely in this global financial battle.
1,
Treasury Kml"oreemeillt Overv~ew
The mission ofTre:lsury Jaw enforcement is uniquely slJilcU lG <:ombaling krrorisl
tlnancing, as \vell as to playing a leading role in homeland security ellons -- from protecting tll<::
Nation's borders to protecting its leaders, to ensuring [he ll1tegrilY OrOLl( tinancial institutions
and critical infrastructures. Treasury Enforcement comprises approximately -1-0 percent or
PO-3084
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
Federal law enforcement, with a budget of$5.3 billion and more than 31,000 dedicated
men and women who quietly and selt1essly serve their country every day -- often at ~reat
personal peril and sacrifice.
~
The OUice of Enforcement oversees and provides policy guidance to five bureaus, and
includes the Office of Foreign Assets Control and the Executive Office for Asset Forfeiture. r
take this opportunity to highlight for the Helsinki Commission the roles and missions of the
Treasury law enforcement bureaus and offices.
u.s. Secret Service
The U.S. Secret Service protects the Nation's top leaders, combats financial fraud,
protects the integrity of the financial systems against cyberattacks, and leads the effort to ensure
the safety of thousands of citizens participating in designated National Special Security Events
(NSSEs). We have seen the stellar work of the Secret Service in providing security for two
recent NSSEs - the Super Bowl and the Winter Olympic Games in Salt Lake City.
u.s. Customs Service
The Customs Service is the vanguard agency in protecting the country against weapons
of mass destruction as it monitors travelers and cargo crossing the northern and southern borders
and through the Nation's seapo11s and airports. Customs also is the second largest source of
revenue for the U.S. Government.
Bureau of A Ieo/wi, TooaCL'o and Firearms
The Bureau of Alcohol Tobacco and Fireamls has developed the most respected program
in the world for detection of explosives and accelerants. This expertise is vital in our war on
terrorism, in which explosives are the terrorists' weapon of choice.
Federal Law Enforcement Training Center
The Federal Law Enforcement Training Center (FLETC) conducts the training for the
vast majority of the Federal Government's law enforcement personl1el. FLETC is projecting the
£reatest increase in trainin av requirements in its history as it responds in full measure to the
September 11 th attacks.
~
FinCEN
The Financial C(imes Enforcemenl i'iet\vork supports law enforcement in\'~Sli~J.tiv<:
etforts to enforce the Bank Secrecv [~CL combat money laundering ~ll1J other financial crinKs,
and implement its new responsibil-ities under the USA P.-\ TRIOT .':'"ct
:200 I. On >iovemb,.:r -:,
2001, President Bush, Treasury Secretary O'NeilL Secrdary of Slate Po\\ell ;.ll1J .-\tlO(J1<::
General Asbcro ft visited the FinCE?'f offices.
or
At that time, the President stated: "We put the world's financial institutions on notice:
if you do business with ten-orists, if you support them or sponsor them, vou will not do business
with the United States of America." FinCEN plays a critical role in this' eff0l1 and will continue
to provide this invaluable service to our Nation.
IRS Criminal Investigation
While the OtDce of the Under Secretary for Enforcement does not have direct oversight
authority over IRS-Criminal Investigation, we do provide policy guidance for IRS-CI criminal
investigators. These investigators otIer a unique blend of accounting and enforcement expertise
that is invaluable in perfecting complex tinancial investigations includinu cases involvinu
leaders and members of extremist groups who have committed tax, monev laundering, or
currency violations and individuals engaged in fundraising activities to Sl~PPOrt ten-orism,
especially iftax exempt organizations are being used.
~
,~
~
Office of Foreign Assets Control
The OHice of Foreign Assets Control (OFAC), an office within the Office of Treasury
Enforcement, administers and enforces economic and trade sanctions against targeted foreign
countries, terrorism sponsoring organizations and intemational narcotics tratDckers based on
U.S. foreign policy and national security goals. OFAC plays a key role on the inter-agency
working group, chaired by Treasury, that has been targeting and listing individuals and entities
pursuant to Executive Order 13224 which President Bush signed on September 23, 2001. In this
process, we have identified, among other entities, front companies, charities, banks, and a hawala
conglomerate that served as the financial supp0l1 networks for al-Qaida and other global tenorist
groups.
H.
TreasulryJ s Role in Combating Terrorist Financing
Combating terrorism and terrorist tinancing has become the Nation's primary agenda and
is the top priority for the Treasury Department and the Office of Enforcement. As you are
aware, on September 24, 2001, President Bush stated, .. lYe will direct eve,)' resollrce at ollr
commwzd to win the war ugainst terrorists, evel), means of diplomacy, evelY tool ofilltelligellce,
every instrument of law enforcement, everyjlllaneial illjluellce. We will SlLln'e the terrorists of
jimdiJlg. " Under Secretary Paul O'Neill's leadership, we in Treasury Enforcement have devoted
extensive resources and expertise to fulfill this mandate.
Our war a~ainst tenorist financing extends to tinancial inte1111ediaries and facilitators
who infuse LeITori~t or~anizations with money, materieL and sUppOI1. We have (ome LO clearly
J!JDreciak and underst;nd that tenorisl11 has been nourished by :Jmple, funding I:hannckd Crom
a~1d throu!Zh a okthora of sources, including banks, charities, bawalas', narcotics lraffick,~rs, :Jnd
~
1
money launderers.
1
B:lWJb
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j
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EJst and Fa[ EJst.
dlJllS
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\(lddk
Since September 11 th, Treasury Enforcement, including its component bureaus, has
launched a number of new initiatives to identify, dismpt, and dismantle terrorist financial
networks both domestically and abroad. I am pleased to report to the Helsinki Commission this
morning that Treasury has named 210 individuals and entities as financiers of terrorism pursuant
to the President's September nnJ Executive Order, and has blocked over $34.3 million in assets.
Our Coalition partners have blocked another $81.3 million. A portion of that amount has since
been unblocked for the new Afghan Interim Authority to assist in its critical period of rebuilding.
This is truly a global effOli -- 196 nations have expressed suppoti to disrupt terrorist
financing and 149 nations can block terrorist assets.
Operation Green Quest
On October 25, 2001, Treasury created Operation Green Quest ("Green Quest"), a new
multi-agency financial enforcement initiative designed to augment existing counter-terrorist
effOlis by bringing the full scope of the government's financial expertise to bear against systems,
individuals, and organizations that serve as sources of terrorist funding. This task force is led by
the Customs Service and includes the Internal Revenue Service, the Secret Service, ATF,
OFAC, FinCEN, the Postal Inspection Service, the FBI, the Depm1ment of Justice, and the Naval
Criminal Investigative Service. Operation Green Quest also receives support from Interpol's
National Central Bureau, based in Washington, D.C. Green Quest brings together the extensive
financial expertise of the Treasury Enforcement bureaus along with the exceptional experience of
our partner agencies and departments to focus on terrorist financing.
Green Quest has complemented the work of OF AC in identifying tenorist networks at
Green
l'on"~ ""d Clbr(-'a~ d and [·t 1'1·'<' <::(':-"·~d "s "'n ;n"P'O+;,,-~t;'~e '''1-1-\ tn ',id '11 11 [orl'l·J',cr
:::J ooeti011<::
Quest's work has led to 12 arrests, 6 indictments, the seizure of nearly $4 millIOn, aud bulk cash
seizures -- cash smuggling -- of over $12 million, Green Quest agents, along with those from the
FBI and other government agencies, have traveled abroad to follow leads, exploit documents
recovered, and to provide assistance to foreign governments. In this effo11, Green Quest has
made full use of its overseas Customs Attaches to investigate suspect networks and to gather
inforn1ation for its own Llse and the use of OF AC. The work of these financial experts is just
stal1ing as they have opened well over 200 terrorist financing investigations and are following
leads on a daily basis. Green Quest's work, in combination with the work of OFAC, serves as a
seminal part of our enforcement efforts,
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Blocking Assets
One of the hi~her motile results of OfAC and inlelligence community analysis \vas the
idenLlllcation of AI-Barak'aat as a major financial opt?raticn that sUPPOl1t:J 1,:::-rorist org~ll1iLa[ions.
The AI-Barakaat case is a sood ,:;xample of model coordination bd\\een the Treasury
Depaliment, the FBf, and ~ther enforcement agencies both domesticaJ1y elml abroad,
AI-Barakaat is a Somali-based hawaladar operation, with locations in the United St~ltes
and in 40 countries, that was used to finance and support terrorists around the world. 3 The
investigative work of the FBI, Customs, and IRS-Criminal Investigation, alonG with analvsis bv
OF AC, FinCEN, and the intelligence community, identified AI-Barakaat as a ~ajor fina;cial operation that was providing material, financial, and logistical support to Usama bin Laden and
other tenonst groups.
2
Treasury, along with the Department of Justice, coordinated efforts to block assets and to
take law enforcement actions against AI-Barakaat on November 7,2001. As part of that action,
OF AC was able to freeze approximately $1,100,000 domestically in AI-Barakaat-related funds.
Treasury also worked closely with the United Arab Emirates (UAE) to enable the UAE to block
AI-Barakaafs assets at its financial center of operations in Dubai. Disruptions to AI-Barakaat's
cash flows, resulting from OFAC's designation actions and intemational cooperation, are
estimated to be in excess of $65 million from the United States alone. In addition, the combined
work of OFAC, Operation Green Quest, and law enforcement has led to additional leads and a
money laundering conviction in the AI-Barakaat investigation.
Joint Designations
Our efforts to block the assets of terrorist financiers and sLlpp0l1ers have truly become an
intemationaI endeavor. Over the past two months, our partners abroad have engaged directly in
proactively identifying and freezing the assets ofteiTorist organizations and supporters.
On May 3, 2002, the European Union and the United States took coordinated actions
against the assets of several tenorist groups and individuals - including seven individuals and
one group related to ETA, the Basque telTorist group. This follows the EU's actions, which we
111
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in late December
2001. On /\pn'1 1,·0 , Lle..]-.
Washington and jointly designated nine indi viduals and on( entl ty as terrorist supporters or
financiers related to al-Qaida. A.mong those designated were The Aid Organization of the Ulema
(AOU), headquartered in Pakistan, which was previously operating as al Rashid Trust, an entity
that was amonG
one of the first oraanizations
named as a terrorist financial facilitator in
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September 2001. This organization has been raising funds for the Taliban since 1999. In
addition, the G-7 designated two prominent individuals, Abu Hamza aI-Masri and Ahmed Idris
Nasreddin, who have been facilitators oftenorist organizations linked to al-Qaida. This action
was the first multilateral joint designation, which marks a new stage of infom1ation sharing,
collaboration , and coordinated action in this field.
or
The G-7 action followed on the heels of the j\iarch 11 til joint designation between the
Umted States and the Kingdom of Saudi Arabia. On the six month anniversary of the September
11 th att:.1cks, our countries~jointly took a bold step in the war en lenorisr financing by milking ll1L~
Erst joint designiltion of a iinancial supporter oftenorism. Prj,]!" lO, that date, Trcasur: r~c':::.I\',;J
si<Jnificant cooner:.1tiol1 from other countries in blocking :.lccounls or lbose named by the LnlLcd
St~tes, and our'Europe:ll1 allies have made designatIons of their O"il1.
A hawaladar is an c:ntitv that c:nL'.aL'.cs 111 ha\\ala transactiuns,
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With the March 11 th action, Treasury and the Saudi govenUl1ent blocked the accounts of
the Somalia and Bosnia-Herzegovina branches of the Saudi Arabia-based Al-Haramain Islamic
Foundation. While the Saudi headquarters [or this private charitable entity is dedicated to
promoting Islamic teachings, Treasury and our Saudi Arabian allies detem1ined that those
specific branches of AI-Haramain have been engaged in supporting terrorist activities and
terrorist organizations such as al-Qaida, ALAI (al-Itihaad al-Islamiya), and others. This action
also highlights the special need to safeguard charities, so that well-intentioned donors can be
assured that their donations will be used only for their intended good purposes, and not for acts
of terrorism.
th
The joint blocking actions of April 19 and March 11 th , and the continued cooperation
with the EU, are especially significant because these actions si,gnify the growing strength of the
anti-terror coalition and mark a new level of international coordination and cooperation.
As part of our overall strategy to maintain the intemational momentum in our battle
against terrorist financing, Treasury Secretary O'Neill has taken critical trips to the Persian Gulf
region and Europe to discuss the importance of coordinated action in this arena. While in
Europe last month, the Secretary met with his counterparts in Genl1any, France, and the United
Kingdom where he obtained commitments to work closely on operational and structural issues
related to the war against tenorist tinancing. On this trip, our European colleagues recommitted
to taking aggressive steps along with the United States to attack the structural underpilmings of
terrorist financing. In the Persian Gult~ the Secretary gained the commitment of our allies to
work together on regulatory issues, like the oversight of charities and hawalas, and to combat
generally the menace of terrorist financing. In these trips, the Secretary has reiterated this
country's commitment to battle tenorism on all fronts, and he has obtained the support and
cooperation of all these countries.
We at Treasury have been extensively engaged in this inlel1ulional outreach. In my trip
to Europe in December 2001, I called on my Spanish, French and British counterparts to work
with us to develop new ways of sharing information and taking aggressive steps to shut down
terrorist financing networks. Treasury will continue to work with our allies for concrete actions
in this area.
international Cooperatioll
Our etTorts will not have the greatest SLlccess if prosecuted unilaterally, and may
ultimately fail if we cmmot obtain th~ cooperation of other nations. To date, a!l b:lt a handful of
countries have expressed their suppOli for the intemational fight agaJl1st tenonst i1l1ancll1g. The
Treasurv Department, in concert \vith other Federal agencies, is pro\'iding technical assistance to
:l numb~r of~oLlntries to strengthen their capacity to free!e renorist funds. Daily. we are in
CI)ntact with forei~n tinancial ;fticials ~md are engaged in bilateral and multilateral Jiscussilir1S
regarding intematTonal coooeration and action ag:.linst ten'orist activities and tinanc:ng.
~
-
,
The Offi.ce of Enforcement has also helped coordinate the Jeplc:rment of linal1ciaj "jL1ml~
teams;! consisting of experienced accountants. bank examiners. and other financial cxpc::ns t'i'(,l11
OF:~C. the Customs Service. IRS, FinCE>i. the FBI. and other ;lg'::nclc.:s.
b
These experts review business records and possible links to monev associated with bin
Laden's al-Qaida network.
Treasury has worked with regional organizations such as APEC and the Manila
Framework Group to further coordinate intemational efforts to stop the financing of terrorism.
In March, we, along with the State Department, participated in an ASEAN Regional Forum
(ARF) and Pacific Island Forum (PIF) regarding counter-terrorism and financing issues. These
fora provide an opportunity to expand our efforts and to engage the entire world in this endeavor.
In light of the regional composition of the OSCE and the jLllisdictional interest of the
Helsinki Commission, I would like to take this opportunity to highlight Treasury Enforcement's
work with a number of European multilateral organizations. The members of these organizations
also are Participating States within the OSCE.
Treasury has engaged in numerous intel11ational fora, including the G-7, G-S, G-20, the
Financial Action Task Force (F ATF), the Egmont Group -- the global network of Financial
Intelligence Units (FlUs) of which FinCEN is a key member -- and with the intel11ational
financial institutions to combat terrorist financing in a global, systematic way.
At this point, I will highlight specific examples of counter terrorist financing activities in
these organizations. On November 17, 200 I, the G-20 finance ministers and central bank
govel110rs met in Ottawa, Canada and agreed that they would block terrorist assets in their
respective countries, and report publicly on precisely which tenorist groups each country has
blocked and the amount of actual monies blocked, if any. Meeting the next day, the goveming
body of the lntemational Monetary Fund (IMF) announced that the llvlF would take similar
steps.
In February 2002, the u-7 group of industrialized countries met 11l Ottawa and agreed to
an ambitious new work program. In pm1icular, the G-7 agreed to develop a mechanism to
identify jointly terrorists whose assets would be subject to freezing. This announcement has led
to even closer cooperation and commitment between and among the G-7 countries. Treasury
continues to work with the G-7 on developing key principles regarding infonnalion to be shared,
the procedures for sharing it, and the protection of sensitive infonnation.
The Financial Action Task Force on Money Laundering (FATF) is a 31-member
organization committed to attacking the problem of money laundering on an intel11ational basis.
Treasury's .office of Enforcement chairs the U.S. Delegation to FATF, and through its
leadership, has applied the use of the successful FATF to Jddrcss tht~ issue of knorist financing.
At the end ofOclober 20U[, the TreJsury DepJrtmcm. in cGnjunction \vith the
Departments of Justice :md SIJte. hosted an E:~traordinary Pkn:1 ry s-:ssiot1?f F.~
,iii
.
Washington. D.C., to address krrorist financing. ThIS medlllg \\:.15 ImmCLilJ.lety (O!lG\\t::::J c~,.J
meetinv~of the f,rmont GrouD to discuss infoll11ation sharing ~ll1d l<.::rrcrism . .it lhe plc;lar~/
session~ FATF e:rablished eight SpeciJl Recommendations l'(~g,-ll-ding l~n'ori~~ t!nancing \\hich
represent all lmp0i1ant step to establishing J global regime LG cut it::rronsts Gti rrom till:'
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intemational financial system.
7
I
These new Recommendations were endorsed by countries throuLThout
the world at a
D
specIal FATF Forum on Terrorist Financing held in February and attended by over 55
jurisdictions. Moving forward, FATF, with the strong support of the U.S., is now leading a
global effort to bring all countries in compliance with these new standards. The U.S. has~
recently completed a self-assessment questionnaire against these standards, which is posted on
the Treasury web site. In June, FATF will begin to consider a process with respect to countries
that are not cooperating in the international etTort against terrorist tlnancing.
.
Treasury Enforcement also SUpp0l1S FinCEN's active involvement in the growing
network of financial intelligence networks or FlUs. The specialized agencies created by
governments to tlght money laundering tirst met in 1995 at the Egmont-Arenber DLT Palace in
Belgium to share experiences. Now known as the Egmont Group, these FlUs meet annually to
find ways to cooperate, especially in the areas of infonnation exchange, training, and the sharing
of expertise.
~
~
This global network of infornlation exchange and cooperation has been a valuable and
responsive avenue of terrorist-related information. As I mentioned above, FinCEN hosted a
special meeting of the Egmont Group on terrorist tinancing in October 2001, to support the
unprecedented law enforcement investigation in the wake of the events of September 11 tho
During that special meeting, the Egmont Group agreed to: (1) review existing national
legislation to identify and eliminate existing impediments to exchanging info1111ation between
FIUs, especially when such infornlation concerns terrorist activity; (2) encourage national
governments to make terrorist financing a predicate offense to money laundering and to consider
terrorist financing one fonn of suspicious activity for which financial institutions should be on
the look out; (3) pass requests for infonnation involving FlUs exclusively between FIUs rather
di.llan.
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infonnation; and (5) pool Egmont Group resources, where appropriate, to conduct joint strategIC
studies of money laundering vulnerabilities, including Hawala.
Combating iUolley Laundering
The Office of Enforcement is about to publish the National Money Laundering and
Ten-orist Financing Strategy of2002, and is overseeing the implementation of the 2001 Natiomll
Money Laundering Strategy. The main focus of the Strategy is on the prosecution of the war
against ten-orist tinancing and investigation of major money laundering enterprises and
sophisticated net\vorks. This work has been significantly impacted by the passage of the USA
PATRIOT Act.
One recent enforcement success has international implications -- (jperalion Wire Cutler,
il.2 1'2-year joint DEA;,Customs undercover oper~ltion larg,:ting ~h,~ L.lrgl..:~t Coiombian Black
Market P,::so Exchange (8j\iPE) money brokers. These brokers are proi<:?sslonal mone:;
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cash, over 800 Dounds of cocaine, and a total of o\·er 1,000 pounJs 0 i nai-C'JtlC:J.
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T~1e Multinational Black Market Peso Exch~nge (BMPE) Experts Working Group
(Lolombw, Aruba, Panama, Venezuela, and the Ul1lted States), led by the Office of
Enforcement, h~s produced a report that recommends BMPE initiatives to participating
governments to Improve international cooperation in efforts to combat and dismantle the BlvIPE.
In March 2002, a joint statement was issued embodying the conclusions and recommendations of
this Working Group. We are also working closely with senior executives of major trade
associations and corporations operating in the United States whose products are vulnerable to
being involved in BMPE transactions.
Treasury's anti-money laundering efforts directly involve the cooperation of European
countlies, and our eiTorts will not be successful without the continued cooperation of our allies in
Europe.
Ill.
OSeE Contributions and Treasury Coodination
The Treasury Department supported the action taken by the OSCE in Bucharest on
December 4, 2001, when the OSCE adopted the Bucharest Plan of Action for Combating
TelTorism. Section 24 of the Bucharest Plan of Action, entitled "Suppressing the financing of
terrorism," calls on Participating States to suppress the financing of ten-orism, criminalize the
collection or provision of funds for ten-orist purposes, and freeze ten-orist assets, all within the
framework of the U.N. Convention on the Suppression of Financing of Terrorism. The section
also calls on Participating States to enhance info1111ation sharing.
Less than two weeks after the Plan of Action was adopted, the OSCE, in partnership with
the U.N. Office for Drug Control and Crime Prevention (UN ODCCP) sponsored an
international conference in Bishkek, Tashkent, on Enhancing Security and Stability in Central
i\sia: Strengthening the Ccmprehensive EfL'rts fe, COLE'.tcr Terrorisr>l. This fOfllm provided an
important opportunity to consider the special challenges and threats to the security of the Central
Asian region as a neighbor to Afghanistan.
In addition to these strong actions taken by the OSCE, many of the Pmiicipating States of
the OSeE also are members of other European multilateral organizations. Much progress
already has been made since September 11 th, and we look forward to continued cooperation on
operation as well as macro-level structural issues related to ten-orist financing.
It is my view that there are a number of areas for enhanced participation by OSCE .
Participating States in the financial war against tenorism, as well as tor enhanced cooperatlOn
between Treasury Enforcement and the OSeE.
I had Ihe OppOl1Lll1lty to meet at the TreJsury Department ;,villl "..I.dllba:sador Stephen
[\Iiinikcs, sh0i11y after he was confilll1cd JS rhe nevI' U.S ...1:..mbassador to tl2e !!SCE Jnd pncr
his departure tor ·Vienna. We discussed a number 0 f new \vays Tre,asury tnior~emel1l and Gene!'
programs within Treasury could support his efforts and the work ot OSCE and lls .membershm ill
counter tenorism and counter terrolist financing. 1:.1111 scheduled to meet agall1 \v1tll
.A.mbassador Minikes later this month to discLlss addilional ways to enhance cooper:.ltion lnli
:c
coordination.
9
DseE EL'[JIlomic Forum
One area in which Tre:.lsury Enforcement C:.ln work directly and immediately with the
OSCE is at its :.lImual Economic Forum in Pr:.lgue, schedllied for May 28 - 31,2002. This year's
conference topic is water management and transboundary issues; however, a special meetinS?, on
terrorist financing issues has been included in the agenda. I have authorized two officials tr~l11
Treasury Enforcement to patiicipate in OSCE's annual Economic Forum in Praoue
scheduled for
::0
May 28 - 31, 2002. They will join their colleagues from the State Department to support
OSCE's dforts on counter terrorist financing.
The Economic Fomm will provide an excellent opportunity to discuss international
standards in the fight against money laundering and terrorist financing, including the role of
FATF and its Eight Special Recommendations. National experts will participate to advise on
ways to strengthen OSCE Paliicipating States' capabilities in implementing these guidelines,
especially the establishment of Foreign Intelligence Units (FIUs). The Forum also will provide
the opportunity for bilateral and multilateral discussions on counter terrorist financing
cooperative initiatives.
Another area in which the OSCE can be especially helpful is to encourage and assist
other countries in developing legislation or setting up FIUs, especially in Central Asia and the
Caucasus. A number of Central Asian states agree in principle with the need to adopt the FA TF
recommendations, but require advice or assistance in how to accomplish this objective or
overcome tec1mical (and in some cases, legal) obstacles to implementing them. The
Participating States of the OSCE which have mechanisms in place for counter tenorist financing
could share their expertise with those OSCE Participating States that require teclmical assistance.
Intenwtimwi Law EJljorcement A.cademy -- Budapest
Another area in which the Treasury Department and its Office of Enforcement can assist
Participating States of the OSCE is in the provision of international training. Treasury's Federal
Law Enforcement Training Center has comlucted training prob'Tams in suppoli of the U.S.
Govemment's interest in intemational law enforcement activities since 1984. FLETC was a
founding partner in the Department of State's Antitenorism Assistance Training Program, which
has provided specialized training in topics such as seaport and aviation security to countries
cooperating with the United States. Some of those programs have been conducted overseas and
others at FLETC sites and other locations amll1ged by the Department of State in the u.S.
Typically, FLETC's international training has been Cl tlm;e-prongt::d effort: 1) assessment
in conjunction \\ith the foreign govemment of <.::xisting needs: 2) implementalion sf lhc training:
Q:1d 3) follow-up \~llidation of the training to meaSUi"e effecti\'l.:ncss or addr':ss il<~t:;ded
:.Hljustments. FLETC ::l1so is a principal member agt::ncy of the group formd by the [;epClrlilKl1t
of State for its [memational Lnv ami Democracy P,·ogral1l. FLETC 5Upr crts this ,:ITc)i"t thrcugh
the International Lavv Enfcrcel11t:nt Academy (lLEA) operalicns in \'arious regions of the \vorlJ.
including the ILEA in Budapest. Hungary ror countnes in th,ll region. and throll~h biLll·.:ral
training programs.
Of special interest to the members of the Helsinki Commission, the ILEA in Budapest
has provided Intemational Banking and Money Laundering training to officials in Russia,
Poland, Romania, Ukraine, Lithuania and Kazakhstan. Examples of other programs which have
been provided include Human Dignity and Police Training, Health Care Fralld, Computer
Investigations and Security and Under Cover Operations. FLETC, working with the State
Department has assisted in numerous training needs assessments for newly emerging
democracies throughout Eastern Europe.
I am pleased to report to the Helsinki Commission that I have requested FLETC to
develop a T en-orist Financing Training Program in Europe and elsewhere. My goal is to be able
to provide a three to five day training program on Terrorist Financing at the ILEAs in Budapest
and Bangkok in the near future. When this program is implemented, it will be of immediate
benefit to law enforcement officials in the OSCE region.
IV.
Conclusion
In conclusion, the OSCE's Bucharest Plan of Action for Combating Terrorism, the
Bishkek Declaration, and the upcoming Economic Fomm represent three significant steps the
OSCE has taken since September 11 til to counter ten-orism and terrotist financing. The Treasury
Department's enhanced cooperation and coordination with the OSCE and its Participating States
will result in a force multiplier in this global battle.
I thank the members of the Helsinki Commission for holding this hearing today and for
your support of Treasury Enforcement. I look forward to answering any questions you may
have.
I1
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..............................
OffiCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASmNGTON, D.C. • 20220. (202) 622-2960
For Immediate Release
May 9,2002
Contact: Tara Bradshaw
(202) 622-2014
STATEMENT OF
ANDREW LYON, DEPUTY ASSISTANT SECRETARY FOR TAX ANALYSIS
UNITED STATES DEPARTMENT OF THE TREASURY
BEFORE THE COMMITTEE ON FINANCE
UNITED STATES SENATE
HEARING ON REVENUE ISSUES RELATED TO THE HIGHWAY TRUST FUND
Mr. Chaim1an and Members of the Committee, I appreciate the opportunity to describe
recent trends in actual highway-related excise taxes, briefly describe how funds are credited to
the Highway Trust Fund, discuss the Administration's FY 2003 Budget forecast of related excise
taxes, and highlight areas that Treasury is evaluating as a part of its ongoing simplification
project.
The Office of Tax Analysis in the Department of the Treasury forecasts most future tax
receipts for the President's Budget. These forecasts are made using economic models that are
constantly updated to incorporate the most current infomlation on tax collections and reported
tax liabilities. The forecast for Fiscal Years 2002 through 2012 incOlporates the
Administration's economic assumptions fom1Ulated for the Budget by the Troika, which consists
of the Council of Economic Advisors, the Office of Management and Budget, and the
Department of the Treasury. I Each of the six dedicated Highway Account excise tax sources are
separately forecast: (i) Gasoline, (ii) Gasohol fuels, (iii) Diesel and other fuels, (iv) Retail tax on
trucks, (v) Highway-type tires, and (vi) Heavy vehicle use tax. In Table 1, fiscal year receipts
for 2000 through 2012 are reported for these six excise tax sources. The 2000 and 2001 figures
are actual receipts drawn from the Highway Account Income Statement, while the 2002 through
2
2012 figures are projections from the President's FY 2003 Budget.
Recent Excise Tax Receipts
I
The economic assumptions are descnbed in Chapter 2 of the Analytical Perspectives volume of the Fiscal Year
2003 Budget.
2 The Inca-me Statement for FY 2000 and 200 I includes three quarters of achlal tax receipts certified by the IRS.
Receipts for the last quarter of the fiscal year are based on an estimated allocation of total excise tax receipts. Any
differences between estimated and actual receipts for the last quarter IS adjusted 111 :Ylarch and ret1ected 111 the
~3085
Income Statement of the subsequent year.
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
There was a rapid downturn in highway-related excise taxes as the economy began
w~akening in the summer of 2000 and continuing through 2001. Tax receipts deposited in the
HIghway Account fell $3.4 billion from Fiscal Year 2000 to Fiscal Year 2001, dropping from
$30.3 billion to $26.9 billion, an 11.3 percent decline. As shown in Table 1, five of the six
receipt sources were lower in 200 I than in 2000. Only taxes on gasohol fuels show an increase.
The increase in taxes on gasohol fuels is evidence of an ongoing substitution of gasohol
fuels for gasoline, which may be used interchangeably in cars and light trucks. We anticipate
that there will be an increasing use of gasohol fuels as a proportion of total fuel use as States ban
the use of MTBE (methyl tertiary-butyl ether) as a fuel additive. Since the Highway Account
receives 15.44 cents per gaIIon of gasoline but only about 8 cents per gallon of gasohol, the
substitution of gasohol fuels for gasoline will result in a net reduction in Highway Account
receipts.
The most dramatic declines between FY 2000 and FY 2001, both in percentage tenns and
in dollars, occurred in excise taxes related to the sales and operations of trucks. The retail tax on
trucks, a 12 percent tax on the first retail sale of heavy trucks, buses, truck tractors, and trailers,
was down 55.2 percent, a decline of more than $l.8 billion. Tax receipts from the tax on truck
tires fell 22.5 percent, and tmck use tax receipts fell 33.8 percent. The reductions in retail truck
taxes were particularly large because this tax is levied as an ad valorem tax on the first retail sale.
During the investment boom of 1998 and 1999, a large volume of new trucks were purchased at
premium prices. As the economy weakened, large numbers of these slightly used trucks were
placed on the market. This greatly depressed prices and sales in the new heavy truck market, and
tax revenues from retail tmck taxes declined accordingly.
How Receipts Get to the Highway Trust Fund
Motor fuel, which accounts for more than 90 percent of trust fund receipts, is taxed when
it moves out of the bulk transportation and storage network and into tanker trucks at the tenninal
rack. At this point the fuel is taxed or dyed if it is diesel or kerosene intended for nontaxable
purposes. The owner of the fuel as it passes the tenninal rack, the registered position holder, is
liable for payment of the tax.
Taxpayers with more than $2,500 in net excise tax liability are required to make semimonthly estimated payments and typically rely on safe harbor rules in detennining the amount to
deposit. For example, safe harbor rules pern1it taxpayers to make deposits of 1I6th of their tax
liability from the quarter two quarters prior to the current quarter. These deposits are typically
made via the Electronic Federal Tax Payment System and are initially deposited in the
Treasury's General Fund. At the time of these deposits, taxpayer.s ~re,not re~uired to ite~ize
which excise taxes they are depositing; they simply indicate that It IS tor excise taxes. ThiS
deposit may be for any of approximately 50 different excise taxes. Even taxp~ye~s that
.
exclusively owe taxes on motor fuel are likely to have tax liability for a combmatlOn of gasolIne,
diesel, kerosene, gasohol and possibly various altemative fuels. Th.ese fuels are taxed at
different rates and distributed in different proportions across four different accounts: the two
accounts of the Highway Tmst Fund, the Leaking Underground Storage Tank Trust Fund, and
the General Fund.
7
In the absence of sufficient infornlation from the taxpayer regarding the composition of
excise tax deposits, tax receipts appropriated to the Highway Tmst Fund are estimated as called
for in Section 9601 of the Internal Revenue Code. Thus on a semimonthly basis the Office of
Tax Analysis allocates incoming excise tax receipts based on historical liability shares as an
estimate of the amounts appropriated to the Highway Tmst Fund.
Taxpayers report their tax liability for most excise taxes quarterly on Form 720, which is
due one month following the close of the quarter. On the Form 720 taxpayers itemize their
liability, for example reporting the number of gallons of each type of fuel and the tax due, and
claims of nontaxable use of the fuel. Any balance due or overpayment is settled at the time the
Form 720 is filed. Taxpayers report liability for the heavy vehicle use tax on Form 2290. For
vehicles in use in ] uly the return is due by August 31; otherwise it is due by the end of the month
following the month the vehicle is first used. In general, payment must be paid in full with the
return or in quarterly installments.
In conjunction with taxpayer payment records, the Internal Revenue Service (IRS) uses
the Form 720 and Fornl 2290 returns to calculate the Highway Tmst Fund Certification of taxes
collected for the quarter. After processing the excise tax return the IRS compares the reported
tax liability with the deposits received from each taxpayer. In cases where taxpayers have
reported tax liability exceeding their deposits, deposits are allocated based on their prorated
reported liability to assure that certified amounts equal tax collections. On the quarterly
certification IRS reports the total prorated liability for the quarter. In order to allow time for late
filing by taxpayers, amended returns, or adjustments from examinations, the certification is
issued approximately four and a half months following the due date of the return. The certified
amount is then compared to the amounts transferred as estimated. Reconciling adjustments are
made to the trust fund accounts for any differences hetween the certified amounts and the
amounts previously transferred.
In the past, the end of year financial statements for the Highway Tmst Fund were not
finalized until February, hence the final statements reflected three quarters of certified receipts
and one quarter of estimates. The reconciling adjustment for the final quarter of the year would
be reflected in the subsequent fiscal year. Beginning in FY 2002 Treasury will finalize the end
of year financial statements in November, six weeks following the close of the fiscal year. As a
result, beginning this year the end of year financial statements will reflect two quarters of actual
receipts and two quarters of estimated receipts.
Forecast of Future Excise Tax Receipts
Looking forward, the Administration projects steady growth in highway-related excise
tRX receipts. Net receipts in FY 2003 are projected to be 6.2 percent higher than FY 2001 and
2.9 percent higher than FY 2002. Average annual growth is forecast to be more than 3 percent
per year over the remainder of the budget period.
3
The FY 2003 Budget forecasts a faster long-run growth in receipts than last year's
Budget; however, this faster rate of growth is relative to a smaller base, so the forecasted levels
are lower than previously projected. In the current budget, the Administration forecasts net
Highway Account excise tax receipts to be $28.57 billion in FY 2003.
During the first five years of the forecast period, gallons of gasoline and gasohol fuels are
projected to grow at an average of 2.3 percent per year. The consumption of gasohol fuels grows
faster than gasoline consumption due to the increasing reliance on ethanol as an oxygenate to
meet clean air requirements. Because of the difference in the amount per gallon dedicated to the
Highway Account, total gasoline and gasohol receipts grow at about 2 percent per year during
the first five years of the forecast, which is slower than the rate of growth of fuel consumption.
While Gasoline and Diesel tax receipts are entirely dedicated to the Highway and
Leaking Underground Storage Tank Trust Funds, some 2.5 cents per gallon of Gasohol receipts
are retained in the General Fund. This general revenue from gasohol fuels is estimated to be
almost $600 million in FY 2003 and, if the taxes were extended, almost $800 million in FY
2012. In addition, it is estimated that in FY 2003 approximately $l.l billion in excise tax
receipts will be forgone due to the excise tax exemption for ethanol fuels; in FY 2012 the excise
tax exemption is estimated to reduce Highway Trust Fund receipts by $1.5 billion. 3
The truck related excise tax receipts are projected to grow quickly as the economy
recovers. For FY 2003 compared to FY 2001, receipts from the retail tax on trucks are projected
to grow 22.1 percent and tire tax receipts are projected to grow by 10.6 percent. Between FY
2003 and FY 2002 receipts from the retail tax on trucks are projected to grow 15.6 percent and
tire tax receipts are projected to grow 6.5 percent. This growth reflects the recovery of the heavy
truck market and more generally increased investment in equipment. Due to continued weakness
in the manufacturing sector of the economy, diesel fuel receipts are forecast to decline slightly
between FY 2001 and FY 2002 before resuming growth averaging more than 3.5 percent per
year.
In summary, the Administration's forecast of highway-related excise taxes reflects the
most recent tax collection and liability data available, and the Administration's economic
forecast. The data reflect the weakness in the economy during 2000 and 2001. The forecast for
future years is based on the assumption that the economic downturn would end in early 2002 and
a strong recovery would be underway later in the year.
Administrative and Compliance Difficulties with Hi ghway Excise Taxes
Maintaininu the flow of receipts into the Highway Trust Fund requires continuing efforts
to secure better ta/compliance. Over the last decade there have been three major compliance
SIJccess stones.
This is an updated Tax Expenditure estimate ret1ecting the ethanol consumption l!1 the current forecast. The Tax
Expenditure estimate does not consider changes in the use of fuel that may accompany a c~lange 111, tax polIcy. ~or
further detail on Tax Expenditures, see Chapter 6 of the Analytical Perspectlves volume ot the Flscal Year 200.)
3
Budget.
4
Moving the point of taxation for motor fuels to the terminal rack significantly reduced
opportunities for tax evasion, some of it carried out on a multi-million dollar scale by
sophisticated criminal organizations. Requiring diesel fuel, home heating oil and other diesel
substitutes to be dyed red if sold tax-free eliminated another source of evasion. The third has
been the taxation of undyed kerosene on the same basis as the regular diesel fuel with which it is
often mixed.
Combating fuel tax evasion OCCUlTing outside the main distribution network is a
continuing effort of the IRS in cooperation with State tax authorities. Untaxed kerosene intended
to be used as aviation fuel, "transmix" taken out of pipelines, waste vegetable oils, used drycleaning fluids, and other chemicals may be mixed with diesel fuel and find their way into the
fuel tanks of trucks on the road. New initiatives are under way to combat this form of evasion.
One is a detailed, computerized information system developed in cooperation with the petroleum
industry and the States that will allow all fuels to be tracked from the refinery gate all the way
through the distribution system. Another is "fuel fingerprinting," a technique that tests samples
taken from retail stations for adulteration or for a mismatch with samples taken from the terminal
racks that normally supply those stations. These continuing efforts are supported in part by a
small appropriation from the Highway Trust Fund of moneys used specifically for compliance
efforts.
The annual use tax involves all owners of heavy highway vehicles and imposes
significant compliance burdens on taxpayers, the IRS, and State agencies. Some vehicle owners
evade full compliance by paying the first quarter's tax but not subsequent installments.
The retail truck tax is particularly difficult to administer and compliance is particularly
difficult for truck dealers and others. A factual finding must be made to determine ifthe truck is
"heavy," i.e., whether the truck chassis or trailer body is suitable for use with a vehicle that has (1
gross vehicle weight in excess of 33,000 pounds. The determination of whether a truck has been
remanufactured (and is therefore subject to tax) or has been repaired can be involved and may be
confusing to the taxpayer. In some cases the distinction between a highway vehicle and a
vehicle intended for off-highway use is not clear. There are a number of exemptions for
particular types of trucks and installed equipment that are a continuing source of controversy
between taxpayers and the IRS.
The Treasury Department expects to alUlounce proposals to both simplify and improve
compliance with the excise taxes that support the Highway Trust Fund as part of its ongoing
simplification project.
Conclusion
I appreciate this opportunity to describe revenue issues related to the Highway Trust
Fund and present our current forecast to you.
5
TABLE 1
ACTUAL AND FORECAST EXCISE TAX RECEIPTS TO THE HIGHWAY ACCOUNT OF THE HIGHWAY TRUST FUND
Actual
Actual
2000
2001
Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast
2002
2003
2004
Highway Account
Gross Receipts
Gasoline
Gasohol fuels
Diesel and other fuels
Retail tax on trucks
Highway-type tires
Heavy vehicle use tax
Gross Highway Account Receipts
Less Aquatic Resources
Net Highway Account Receipts
Less HA Refunds
INet Highway Account Receipts
Year-to-Year Changes
Gasoline
Gasohol fuels
Diesel and other fuels
Retail tax on trucks
Highway-type tires
Heavy vehicle use tax
Gross Highway Account Receipts
Less Aquatic Resources
Net Highway Account Receipts
Less HA Refunds
INet Highway Account Receipts
Year-to-Year Percentage Changes
Gasoline
Gasohol fuels
Diesel and other fuels
Retail tax on trucks
Highway-type tires
Heavy vehicle use tax
Gross Highway Account Receipts
Less Aquatic Resources
Net Highway Account Receipts
Less HA Refunds
[NeiHighwayAccountReceipts
Note
2005
2006
2007
2008
2009
2010
2011
2012
[millions of dollars, fiscal years]
17,969
1,293
7.427
3,321
442
921
31,374
209
31,165
831
30,334
19,995
2,607
10,330
16,922
1,519
7,158
1,489
343
610
28,040
215
27,825
925
26,900
17,165
1,696
7,079
1,572
356
891
28,759
251
28,508
830
27,678
17,465
1,850
7,219
1,818
379
93.'3
29,669
256
29,413
843
28,570
17,707
2,009
7.491
2,153
400
986
30,746
271
30,4 75
872
29,603
17,888
2,198
7,892
2,504
419
1,035
31,936
277
31,659
910
30,749
18,240
2,305
8,173
2,834
435
1,082
33,069
284
32,785
941
31,844
18,571
2,364
8.487
3,103
450
1,129
34,104
289
33,815
973
32,842
18,846
2.411
8,810
3,343
464
1,178
35,052
294
34,758
1,006
33,752
19,109
2,465
9,157
3,577
477
1,229
36,014
299
35,715
1,039
34,676
19,397
2,513
9,503
3,843
490
1,282
37,028
306
36,722
1,073
35,649
19,692
2,558
9,904
4,168
502
1,337
38,161
314
37,847
1,112
36,735
4,522
514
1,395
39,363
320
39,043
1,154
-3?:-889J
-1,047
226
-269
-1,832
-99
-312
-3,334
7
-3,340
94
-3,435
243
177
-79
83
13
281
719
36
683
-95
778
30':)
154
140
246
23
47
91 ()
5
905
13
892
242
159
272
335
21
48
1,077
15
1,062
29
1,033
181
189
401
351
19
49
1,190
6
1,184
38
1,146
352
107
281
330
16
47
1,133
7
1,126
31
1,095
331
59
314
269
15
47
1,035
5
1,030
32
998
275
47
323
240
14
49
948
5
943
33
910
263
54
347
234
13
51
962
5
957
33
924
288
48
346
266
13
53
1,014
7
1,007
34
973
295
45
401
325
12
55
1,133
8
1,125
39
1,086
303
49
426
354
12
58
1,202
6
1,196
42
1,1541
-5.8%
17.5%
-3.6%
-55.2%
-22.5%
-33.8%
-10.6%
3.1%
-10.7%
11.4%
-11.3%
1.4%
11.7%
-1.1%
5.6%
3.9%
46.2%
2.6%
16.6%
2.5%
-10.3%
2.9%
1.7%
9.1%
2.0%
15.6%
6.5%
5.3%
14%
8.6%
3.8%
18.4%
5.5%
5.1 %
3.6%
5.9%
3.6%
3.4%
3.6%
1.0%
9.4%
5,4%
16.3%
4.8%
5.0%
3.9%
22%
3.9%
4.4%
3.9%
2.0%
4.9%
3.6%
13.2%
3.8%
4.5%
3.5%
2.5%
3.6%
3.4%
3.6%
1.8%
2.6%
3.8%
9.5%
3.4%
4.3%
3.1%
1.8%
3.1%
3.4%
3.1%
1.5%
2.0%
3.8%
7.7%
3.1%
4.3%
2.8%
1.7%
2.8%
3.4%
2.8%
1.4%
2.2%
3.9%
7.0%
2.8%
4.3%
2.7%
1.7%
2.8%
3.3%
2.7%
1.5%
1.9%
3.8%
7.4%
2.7%
4.3%
2.8%
2.3%
2.8%
3.3%
2.8%
1.5%
1.8%
4.2%
85%
2.4%
4.3%
31%
2.6%
3.1%
3.6%
3.0%
1.5%
1.9%
4.3%
85%
2.4%
4.3%
3.1%
1.9%
3.2%
3.8%
31%1
3.2c,~
20%
3.2%
1.6%
3.2%
The FY 2000 and FY2001 figures are based on the end-of-year Highway Account Income Statement reported by the Bureau of Public Debt. The FY 2002 through
FY 2012 figures are forecasts made by the Office of Tax Analysis, Department of the Treasury for the FY 2003 Budget.
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May 09, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 7-DAY BILLS
7-Day Bill
May 10, 2002
May 17, 2002
912795KNO
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.725%
High Rate:
Investment Rate 1/:
Price:
1.773%
99.966
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted
7.22%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
SUBTOTAL
46,445,000
$
12,000,090
o
o
46,445,000
12,000,090
o
o
Federal Reserve
TOTAL
$
o
o
46,445,000
$
12,000,090
Median rate
1.710%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.620%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
46,445,000 / 12,000,090
=
3.87
1/ Equivalent coupon-issue yield.
http://www .publicdebt. treas.gov
PO-3086
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 2: 30 P.M.
9, 2002
CONTACT:
May
Off~ce of Financ~ng
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auct~on 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $31,194 million of publicly held 13-week and 26-week
Treasury bills maturing May 16, 2002, and to raise new cash of approximately $806
million. Also maturing is an estimated $14,000 million of publicly held 4-week
Treasury b~lls, the ~sposition of wh~ch will be announced May 13, 2002.
The Federal Reserve System holds $14,501 million of the Treasury bills matur~ng
on May 16, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest ~scount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held May 14, 2002. Amounts awarded
to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetit~ve bids from Foreign and International
Monetary Authority (FIMA) accounts bid~ng through the Federal Reserve Bank of New
York will be included with~n the offering amount of each auction.
These
noncompetit~ve b~ds w~ll have a l~m~t of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
mill~on .
of
TreasuryDirect customers have requested that we re~nvest their maturing hol~ngs
$1,105 mill~on ~nto the 13-week bill and $683 m~llion into the 26-
approx~mately
week
b~ll.
w~ll
The allocation percentage applied to bids awarded at the highest ~scount rate
be rounded up to the next hundredth of a whole percentage po~nt, e.g., 17.13%.
Th~s offer~ng of Treasury securit~es ~s governed by the terms and con~tions set
forth ~n the Un~form Offering C~rcular for the Sale and Issue of Marketable Book-Entry
Treasury B~lls, Notes, and Bonds (31 CFR Part 356, as amended).
Deta~ls
h~ghlights
about each of the new
secur~ties
are
g~ven
in the attached
offer~ng
.
000
Attachment
0-3087
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 MAY 16, 2002
May 9, 2002
Offerlng Amount.
PubllC Offering.
NLP Exclusion Amount.
!:!,escr ~E!lon of Offerl.ng:
Term and type of security.
C{)SIP number.
AuctlOTl date.
Issllrc'dat.e ..
Matllrl ty date.
Origlnal lssue date.
Current.ly outstanding.
Mlnimum bld amount and multiples.
$17,000 million
$17,000 million
$ 4,800 million
· 91-day bill
· 912795 KW 0
· May 13, 2002
· May 16, 2002
· August 15, 2002
Februa ry 14, 2002
$19,109 million
$1,000
$15,000 million
$15,000 million
None
182-day bill
912795 LK 5
May 13, 2002
May 16, 2002
November 14, 2002
May 16, 2002
$1,000
The followlng rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids:
Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FIMA
accounts will not exceed $1,000 million.
A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
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 (NLP) 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.
35% of public offering
Maximum Recognized Bid at a Single Rate.
35% of public offering
Maximum Award . . . . . . . . . . . . . . . . . . . . . . . .
Recelpt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders . . . . . . . . Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms:
By charge to a funds account at ~ 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 DEB1' NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 9,2002
Contact: Peter Hollenbach
(202)219-3302
BUREAU-OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN KENTUCKY
The Bureau of Public Debt took action to assist victims of tomadoes in Kentucky by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Kentucky affected by the tomado. These procedures will remain in effect through the end of June
2002.
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.
Kentucky counties involved are Breckinridge, Crittenden, Grayson, Hancock, Hardin, Henderson,
Hopkins, McLean, Meade, Ohio, Union and Webster. 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 fOIm PD-10!J8, available at ]"(lOSt financial institutions or by writing the Kansas City
Federal Reserve Bank's Savings Bond Customer Service Department, 925 Grand Boulevard, Kansas
City, MissOllll 64198; phone (816) 881-2000. This form can also be downloaded from Public Debt's
website at: www.publicdebureas.gov. Bond owners should include as much infOImation as possible
about the lost bonds on the form. This infOImation 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 Investor Services at 200 Third St.,
Parkersburg, West Virginia 26106-1328. Bond owners should write the word "DISASTER" on the
front of their envelopes, to help expedite the processing of claims.
000
PO-3088
www.publicdebt.1reas.gov
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~~ _ _ _ _ _ _~/78~q~~ _ _ _ _ _ _ _ __
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IlVIMEDIATE RELEASE
May 10, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
Secretary O'Neill Announces Bair Plans to Leave Treasury
Treasury Secretary Paul O'Neill today announced that Sheila C. Bair, Assistant
Secretary of the Treasury for Financial Institutions, plans to leave government service in
mid-June.
Bair will join the University of Massachusetts-Amherst's Center for Public Policy
and Administration as Professor of Practice in Public Policy. In this capacity she will
teach and conduct research on financial services issues, including the regulation of
insurance and the expansion of access to financial services in low- and moderate-income
areas.
"Sheila has done an outstanding job and has made exceptional contributions to the
Treasury and to financial institutions nationwide," said Secretary O'Neill. "She brought
invaluable expertise to her position, having worked for more than 20 years in both
government service and with financial markets. With that experience and perspective,
Sheila has played an important role in shaping many issues within the Administration and
on Capitol Hill.
"She cares deeply about the need for a greater focus on financial education in U.S.
schools and among low- and moderate income people who are 'unbanked.' Sheila has
spearheaded efforts to improve the financial knowledge and skills of Americans of all
ages, most notably helping to establish the Department's new Office of Financial
Education. She also oversaw implementation of the First Accounts program, which
recently awarded grants to 15 proposals that will assist more than 35,000 unbanked
people.
"Followin a the tracric terrorist attacks of September 11,2001, Sheila has worked
:=0
:=0
tirelessly with Capitol Hill to gain consensus on much-needed legislation addressing
terrorism risk insurance. She understands and effectively communicates the importance
of enacting such a measure that will help keep our economic recovery on track.
PO-3089
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
"Sheila has played an integral part in the development of the USA PATRIOT Act
regulations to engage financial institutions in the fight against terrorist financing and
money-laundering. As Chairman of the Financial and Banking Information Infrastructure
Committee of the President's Critical Infrastructure Protection Board, she has been a key
Administration voice as we work to strengthen our financial services infrastructure
protection and keep U.S. banking and financial systems safe from potential terrorist
attacks. This effort is critical to protecting our homeland and our economy.
"Sheila's impact will be felt as we at Treasury continue work she started to
encourage mortgage lenders to establish a code of best practices to address predatory
lending, and to improve deposit insurance, regulatory coordination, implementation of
the Gramm-Leach-Bliley Act, remittances, privacy issues and consumer protection.
"In short, both President Bush and I are grateful for her public service, as should
be all Americans."
-30-
D EPA R T 1\,1 E N T
0 F
THE
T REA SUR Y
~~/78~9~. . . . . . . . . . . . . . . .. .
..................
OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlllNGTON, D.C. _ 20220 - (202) 622-2960
EMBARGOED UNTIL 12:30 P.M. EDT
MAY 13,2002
CONTACT: BETSY HOLAHAN
202-622-2960
REMARKS OF UNDER SECRETARY
OF THE TREASURY PETER R. FISHER
TO
THE INDEPENDENT COMMUNITY BANKERS OF AMERICA
I am skeptical of the view that the future of financial services will be all about financial
conglomeration. I expect that small and nimble financial institutions will compete effectively in
the coming years and, thus, I expect that well-managed community banks will prosper.
I concede that large banks and financial firms have some important advantages, among
them greater potential for diversification. Effective diversification is a powerful tool in financial
intermediation. It spreads risk and stabilizes earnings. Yet while large banks have the
opportunity to benefit from diversification they must work continuously to effectively diversify
their exposures and to avoid risk concentrations lurking inside seemingly diversified portfolios of
assets.
Community banks have options and advantages that can counter-balance large banks'
built-in diversification advantage.
First, advances in information and communication technology offset some of the scale
and diversification advantages that large banks may have. The theory that supports large firms
and conglomerates is that it is cheaper to move information inside a single corporation than
between and among different corporations. The communications revolution that we have lived
through in the last twenty years challenges this theory.
Today technology permits small firms to outsource many functions and thereby recapture
some of the advantages previously associated only with economies of scale. In fact, small banks
increasingly have been employing technological and financial innovations to improve efficiency
and diversify operating and balance sheet risks. More of you are turning to nonbank technology
providers as a means of outsourcing administrative and payments functions and other activities.
Eighty percent of community banks now have web sites, up from 21 percent in 1997. More and
more banks are taking advantage of the secondary markets to enhance liquidity and reduce
balance sheet risks.
PO-3090
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Second, small banks operate and make decisions closer to their customers. Small banks
provide a level and continuity of services that their customers appreciate. The proximity of
community bank management to the household and business customers benefits the credit
decision process in a way that large banks find difficult to replicate.
Third, in a world in which real and nominal interest rates are converging, and in which
inflation expectations are both low and stable, the franchise of deposit taking will be increasingly
valuable. Consider how competitive community banks have been in recent years in attracting
deposits. As Chairman Greenspan recently testified, after adjusting for the effects of mergers,
banks below the top 1,000 on average increased in asset size almost twice as fast as the top 1,000
since the mid-1990s. And, in spite of the perception that that the largest banks have a "too big to
fail" funding advantage, banks below the top 1,000 increased their uninsured deposits at twice
the rate of the top 1,000 during the same period.
Small bank profitability has remained relatively strong and stable for the past several
years. FDIC data reveal that banks with assets under $1 billion achieved higher returns on assets
(ROAs) on average than larger banks in 7 of the last 10 years. And small banks remain sound:
banks under $1 billion in assets have consistently reported higher capital ratios and lower
nonperforming asset ratios than their large bank counterparts. Perhaps the most revealing
indicator of the robust health of community banking is the chartering of over 1,350 new banks
and over 180 new thrifts during the last 10 years.
In short, community banks are quite healthy, continue to adapt successfully to the
changing financial and technological environment, and remain valued by millions of customers
who rely upon your special quality of service. Consequently, I expect well-managed community
banks to continue to play an important role in financial intermediation in America.
Let me tum to two issues of importance to the Treasury where I think you can play an
important role: financial education and predatory lending.
A world in which smaller institutions can manage risk by selling assets into the secondary
market is, unfortunately, also a world in which problems such as predatory lending may emerge.
Let me be clear: I think that the secondary market is a great development, one that has helped
both banks and consumers. But it does change the incentive structure at the margin.
When loan originators sell their production into the secondary market they have an
increased incentive to pursue volume, which may be inconsistent with a thorough credit review
and fair dealing with customers. Secondary market holders of the credit risk manage broadly
diversified portfolios in which credit risk management practices differ from those used by a
traditional originator and holder of credits. Because the secondary market approach to financing
credit may sever the ongoing customer relationship an originator has with a borrower, at the
margin, there is both an incentive and an opportunity for bad actors to enter the scene.
2
At Treasury, Assistant Secretary Sheila Bair has done a terrific job - in so many ways,
but also - in addressing the problem of predatory lending by encouraging the development of
best practices throughout all segments of the mortgage industry - brokers, lenders, and
secondary market participants. A number of mortgage industry participants have developed best
practices and Assistant Secretary Bair has been evaluating these efforts. While your banks and
other federally regulated depository institutions are generally not associated with predatory
lending problems, we urge you to adopt practices that help your banks avoid predatory lending
situations. In doing so, you model good corporate citizenship in this area and establish a
standard for others in your communities to follow.
We must also do more to educate consumers so they are in a better position to provide a
first line of defense against abusive lending practices. This brings me to a second issue of
importance to both community banks and the Treasury: financial education. As Secretary
O'Neill recently noted, while financial independence is a goal all Americans share, many
Americans never learn the basics of personal finance. We must work to ensure that all
Americans have the knowledge and the tools to build their own financial security. Our schools
need to teach the basic rules of personal finance.
As part of our long-term commitment to improve financial education for all Americans,
we recently established an Office of Financial Education at the Treasury, which will develop and
implement financial education policy initiatives and will oversee and coordinate our outreach
efforts. We are also collaborating with the Department of Education to encourage all schools to
integrate financial education into their curricula.
By helping us promote financial education, you have an opportunity not only to help
individuals become more financially astute, but to secure future generations of loyal customers.
We applaud the ICBA's interest in "Bank on Your Schools," a partnership between schools and
financial institutions to promote financial education in low and moderate-income areas. This
initiative will encourage financial institutions to open student-run branches in high schools, or
give students a chance to work in the institutions themselves. Students will get hands-on
experience and they'll learn about the importance of saving and managing money.
Another issue I would like to touch on briefly has to do with an increasingly important
source of funding for community banks, the Federal Home Loan Banks. Last fall, the Federal
Housing Finance Board published a notice and solicitation of comments on the issue of a single
depository institution concurrently belonging to multiple Federal Home Loan Banks.
Like the ICBA, we believe that a plain reading of the relevant language ofthe Federal
Home Loan Bank Act strongly suggests that the Finance Board does not have legal authority to
grant multi-district membership. Nor do we think that the relevant legislative history supports
such an interpretation of the statute. We also question whether multidistrict membership serves
the interests of the System's community banks and thrifts.
Finally, we share with you a common interest in deposit insurance reform. I've already
described the recent strong performance of small banks and the bright future I see for you.
3
What I don't understand is why you want to pursue increased insurance coverage limits
that will only worsen the problems of moral hazard and the regrettable perception that the largest
banks are too-big-to-fail.
It is reasonable to be concerned that moral hazard increases costs born by healthy banks.
Yet raising the deposit insurance coverage limit will worsen, not dampen, these problems. So I
don't get it. Why expand moral hazard by increasing coverage limits when doing so will do
absolutely nothing to improve the competitive position of small banks vis-a-vis large banks?
This makes no sense to me, especially when you have demonstrated your ability to compete
successfully for deposits, including uninsured deposits.
We also know that, with the BIF's reserves just above 1.25 percent, increased coverage
will dilute those reserves to an extent that makes paying higher insurance premiums inevitable.
And for every additional $30,000 in insured deposits you may be able to offer a customer, some
of your large bank competitors will be able to offer multiples of that amount in insurance
coverage through the control of several affiliated depository institutions.
There are so many aspects of deposit insurance reform where we agree. First, reforms we
agree upon would compensate small banks for the adverse effects of "free riders" on the
insurance fund. Rapid insured deposit growth from sweep programs conducted by a couple of
large financial companies controlling multiple subsidiary banks - without compensating the
FDIC - has reduced the BIF reserve ratio by 4 basis points. The proposed transition assessment
credits offsetting future premiums would recognize the contributions that many of your banks
made to reserve growth in the early-to-mid-1990s. Newer and recent fast-growing institutions
would be eligible for proportionally fewer (or no) credits against future premiums. The proposed
premium-setting reforms would also prevent future "free rider" inequities.
Second, merging the bank and thrift insurance funds would not only better diversify risks
but - especially in light of the BIF reserve ratio's recent decline to 1.26 percent - reduce the size
of any possible premium levied on the great majority of you that are BIF members.
And third, eliminating triggers in the current system that have the potential to force banks
to pay very higher premiums at a time when the economy may be under serious stress just makes
good sense for well-being of the financial system and for general economic stability.
In conclusion, let's recognize that the Treasury and the nation's community banks agree
upon so many more things than we disagree. Let's work together to thwart abusive lending
practices, to increase the financial literacy of our country's youth, and to preserve a strong
deposit insurance system that promotes competition, fairly allocates costs, and protects
taxpayers.
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4
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS - 1500 PENNSYLVANIA AVENUE, N.W. - W,\SHI:'H;TON, D.C.- 20220 _ (202) 622-296()
~ARGOED UNTIL 11:30 A.M.
May 13, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $25,000 million to
refund an estimated $14,000 million of publicly held 4-week Treasury bills maturing
May 16, 2002, and to raise new cash of $11,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $14,501 million of the Treasury bills maturing
on May 16, 2002, in the System Open Market Account (SOMA). This amount may be refunded
at the highest discount rate of accepted competitive tenders in this auction up to the
balance of the amount not awarded in today's 13-week and 26-week Treasury bill
auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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 BookEntry Tre3sury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-3091
-F
I
h
hi"
", dille\' and o/"'iciai bio(1raphies call ollr 2-1-llOllr lax line at (l02) ()l2·20-l0
__
~~o~r~p~r:es:s~'~re~e~a~s~e~s~,~sp~ee~c~'~e~s~"~P~u~~I~C~):(~~:e::::'~~~.~J______~~__~___' _______________·________________________
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED MAY 16, 2002
May 13, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . $25,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . $25,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . $10,100 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 ....
28-day bill
912795 JY 8
May 14,2002
May 16,2002
June 13,2002
December 13, 2001
$39,302 million
$1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) 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 daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Pa:nnent Terms:
By charge to a funds account at a Federal Reserve Bank
on issue date.
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
2002
CONTACT:
Office of Financing
202-691-3550
May 13,
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
91-Day Bill
May 16, 2002
August 15, 2002
912795KWO
1.750%
Investment Rate 1/:
1.781%
Price:
99.558
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted
5.08%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
35,240,570
1,481,410
75,000
$
17,000,444 2/
6,299,078
6,299,078
Federal Reserve
$
43,096,058
15,444,034
1,481,410
75,000
36,796,980
SUBTOTAL
TOTAL
Accepted
$
23,299,522
Median rate
1.730%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.700%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 36,796,980 / 17,000,444 = 2.16
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,221,252,000
http://www .publicdebt.treas.gov
PO-3092
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
May 13, 2002
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
182-Day Bill
May 16, 2002
November 14, 2002
912795LK5
1.870%
Investment Rate 1/:
1.913%
Price:
99.055
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 47.44%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
32,979,572
939,524
150,000
$
5,667,980
5,667,980
Federal Reserve
$
39,737,076
13,910,636
939,524
150,000
15,000,160 2/
34,069,096
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
20,668,140
Median rate
1.860%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.810%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 34,069,096 /
15,000,160 = 2.27
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $747,850,000
http://www .pu blicdebt. treas.gov
PO-3093
D EPA R T :\1 E N T
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THE
T REA S V R Y
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..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 9:55 A.M.
MAY 1-&,2002
CONT ACT: BETSY HOLAHAN
202-622-2960
TREASURY STATEMENT ON THE DEBT CEILING
Today the Treasury infOlmed Congress that, absent extraordinary actions, the government
will exceed the statutory debt ceiling no later than May 16. The Treasury also inforn1ed
Congress that a "debt issuance suspension period" will begin no later than May 16. Today's
notification allows the Treasury to suspend or redeem investments in two trust funds, which will
provide flexibility to fund the operations of the government during this period. The two funds
are the Civil Service Retirement and Disability Fund (CSRDF) and the Government Securities
Investment Fund of the Federal Employees Retirement System (G-Fund). Both funds will be
restored in full as to principal and interest once the debt limit has been raised. There will be no
etIect on beneficiaries.
To reduce unceliainty over the Treasury's borrowing needs during this period, the
Treasury also has announced the suspension of new issuance of State and Local Government
Series (SLGS) Treasury securities effective May 15 .
.Based upon the latest projections, debt subject to the limit would rise above the current
statutory limit of $5,950 billion no later than May 16 and remain at a level roughly $40 to 50
billion above the limit through mid-June. Suspending investments in the two federal trust funds
will provide approximately $44 billion in borrowing capacity, of which $4 billion will come
from the CSRDF and $40 billion will come from the G-Fund. In addition to managing debt
subject to the limit during this period by suspending or redeeming investments in the two trust
funds, the Treasury also will make use of available cash resources, including balances held at the
Federal Reserve and deposits held at commercial banks by which the Treasury compensates the
bank:s for services essential to the collection of government receipts. Making use of these
balances will require the Treasury to make larger deposits in the future as compensation to the
banks.
In the second halfofJune. uncel1ainty with respect to taxes to be received on June 17
increases the chances that additional measures will be necessary to manage debt subject to the
limit.
PO-3094
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
These measures are the suspension of U.S. dollar investments in the Exchange
Stabilization Fund, and a swap of non-Treasury securities held by the Federal Financing Bank
for an equivalent value of Treasury securities held by CSRDF. The Treasury is not authorized to
restore the funds with interest once the debt ceiling is raised; these funds can only be fully
restored through congressional action.
Collectively, the devices announced today - and those that could become necessary in
June -will add a total of roughly $80 billion to the Treasury's borrowing capacity. All of these
devices were used previously by Treasury in 1995 and 1996.
The Treasury faces obligations in late June that, on the basis of current projections,
cannot be surmounted without an increase in the statutory debt limit. On June 28, the Treasury
must credit an interest payment of approximately $67 billion to the Social Security and other
federal trust funds that, on current projections, will result in an increase of debt subject to limit to
almost $100 billion over the current statutory ceiling. In addition, the Treasury is scheduled to
make $54 billion in payments between July 1 and 3, including approximately $30 billion of
payments to trust fund beneficiaries. Lack of certainty by June 26 as to how the Treasury will
fund these payments will challenge the Treasury's ability to ensure timely processing of
payments to Social Security and other beneficiaries.
The Treasury would nOl1nally announce on June 19 the size of the 2-year note auction
scheduled for June 26. Particularly in light of the risk that the Treasury will draw down
compensating balances before the last week of June, this 2-year note auction will be an important
source of funds for the payment obligations scheduled for the first week of July. lfthe debt
ceiling has not been raised prior to June 19, the Treasury may need to delay the announcement of
the size of the auction, announce the auction subject to cancellation, or both.
The Treasury Department requests that Congress pass the President's request for a
permanent $750 billion increase in the debt ceiling as soon as possible.
-30-
May 14,2002
The Honorable Tom Daschle
Majority Leader
United States Senate
Washington, DC 20510
Dear Mr. Leader:
Absent other actions, the Federal government's debt subject to limit will rise
above the current statutory ceiling of $5,950 billion no later than May 16. I am writing to
infonn you of actions the Treasury must take to avoid reaching the current statutory debt
limit, and to reiterate the Administration's request for a pern1anent increase of$750
billion.
To manage debt subject to limit, the Treasury will initially take those
extraordinary actions that it can reverse once the debt ceiling has been raised. First,
Congress has explicitly authorized the Secretary of the Treasury to suspend or redeem
investments in two funds for this purpose: the Government Securities Investment Fund of
the Federal Employees Retirement System (G-Fund), and the Civil Service Retirement
and Disability Fund (CSRDF). For purposes of these statutes, I have determined that a
"debt issuance suspension period" will begin no later than May 16, 2002 and will last
until June 28, 2002.
I am notifying you, as required under 5 U.S.c. § 8348 (1)(2) and 5 U.S.c. §
8438(h)(2), that by reason of the public debt limit, it is my determination that I will be
unable to invest fully the portion of the CSRDF not immediately required to pay
beneficiaries, and that I will be unable to invest fully the G-Fund. Therefore, during the
debt issuance suspension period, I will redeem a portion of the investments held by the
CSRDF, as authorized by law; and I will suspend the full investment of the G-Fund, as
authorized by law. These actions will open an additional $44 billion in borrowing
capacity under the limit. Beneficiaries will be fully protected and will suffer no adverse
consequences. The statutes require that the Treasury restore all due interest and principal
to these funds as soon as this can be done without exceeding the public debt limit.
Second, to reduce borrowing as much as possible during this period, the Treasury
will actively manage and draw upon as needed all available cash resources,
approximately $30 billion as of today, subject to the necessity of maintaining prudent
cash balances to meet the govemment's payment obligations.
Based on current Treasury forecasts, these actions should be sufficient to enable
us to finance the govemment's operations through mid-June. Uncertainty about projected
debt subject to limit rises in the second half of June, in particular because of tax receipts
PO-309S
due on June 17. During this period, as necessary, the Treasury will take further
extraordinary actions that have been previously utilized under established legal authority.
However, based on the information now available to me, these additional devices at my
disposal will be insufficient to manage debt subject to limit beyond June 28. On June 28,
Treasury must credit an interest payment of approximately $67 billion to various federal
tmst funds, including Social Security. This payment is projected to exceed Treasury's
flexibility in managing debt subject to limit.
These devices could also be exhausted earlier than June 28 because of uncertainty
associated with federal receipts in mid-June. I will alert you as soon as possible if that
should prove to be the case.
However, in order to meet the govemment's payment obligations in the first week
of July, sufficient confidence as to our sources of funding must be established by June 26
in order to ensure timely processing.
I again urge Congress to pass the President's request for a permanent $750 billion
increase in the debt ceiling as soon as possible.
Sincerely,
Paul H. O'Neill
D EPA R T ;\1 E N T
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THE
T REA S V R Y
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Tuesday, May 14, 2002
Contact: Public Affairs
(202) 622-2960
MEDIA ADVISORY
Treasury Secretary to hold News Conference in advance of Five-Nation Trip
Treasury Secretary Paul H. O'Neill will hold a news conference in advance of a
trip that will take him first to Romania and then on to Africa with visits to Ghana, South
Africa, Uganda and Ethiopia. The news conference will be held in the Treasury
Department's Diplomatic Reception Room at 10:30 a.m. on Thursday, May 16, 2002.
Departing Friday, May 17, O'Neill will attend the annual meeting of the European
Bank for Reconstruction and Development in Bucharest, Romania. On Monday, May,
20 O'Neill will depart Romania for Africa, returning to Washington on Friday, May 31.
Time: 10·30 a.m. FDT
Where: Treasury Department, Diplomatic Reception Room
1500 Pennsylvania Ave, NW
Washington, DC
Media without Treasury or White House 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.
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PO-3096
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
D EPA R T :\1 E N T
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THE
T REA SUR Y
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
MAY 14,2002
CONTACT:
BETSY HOLAHAN
202-622-2960
Secretaries O'Neill and Paige "Viii Host Financial Education Roundtable This Week
Treasury Secretary Paul O'Neill and Education Secretary Rod Paige on Thursday, May 16, will
host a roundtable meeting with leaders of key youth education groups to discuss ways in which
the Departments of Treasury and Education can work with them to promote the integration of
financial education concepts into core cUlTiculum in U.S. schools.
u.S. Treasurer Rosario Marin will moderate the roundtable discussion jointly with Education
Deputy Secretary Bill Hansen, Treasury Assistant Secretary for Financial Institutions Sheila Bair
and Treasury Deputy Assistant Secretary for Financial Education Judy Chapa.
The roundtable will begin at 9:30 a.m. in the Treasury Department's Cash Room, 1500
Pennsylvania Ave., N.W. The first 30 minutes of the meeting will be open to the media.
The room will be ;1vaibh\e
fnr ,rre-set CIt 8:00 3.111. on Tllllrsd:lY. Media without Treasury or
.
White House press creuentlais planning to attend should contact Frances Anderson at Treasury's
Office of Public Affairs at (202) 622-2960 by 5 :00 p.m. on Wednesday with the following
infonnation: name, social security number and date of birth. This infoffi1ation may also be faxed
to (202) 622-1999.
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PO-3098
For press releases, speeches, public schedules and official biographies, call our 24.Jrour 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
CONTACT,
FOR IMMEDIATE RELEASE
2002
Office of Financing
202-691-]550
May 14,
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28 -Day Bill
May 16, 2002
June 13, 2002
912795JY8
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
1.745%
Investment Rate 1/,
1.775%
Price:
99.864
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 13.74%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
71,589,154
2],704
$
24,976,602
23,704
o
°
SUBTOTAL
Federal Reserve
TOTAL
Accepted
Tendered
Tender Type
$
71,612,858
25,000,306
2,533,992
2,5]],992
74,146,850
$
27,534,298
Median rate
1.735%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.710%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
~s
Bid-to-Cover Ratio = 71,612,858 /
25,000,306 = 2.86
1/ Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
PO-3099
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T REA SUR Y
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 14,2002
CONTACT: BETSY HOLAHAN
202-622-2960
Treasury Names Private Sector Coordinator
for Critical Infrastructure Protection Partnership Effort
The Treasury Department today announced that Rhonda E. MacLean of Bank of America has
been named as the private sector coordinator for a partnership between the government and the
financial services industry to strengthen critical infrastructure protection initiatives that will
protect the U.S. financial sector and economy from attack.
Treasury has lead-agency responsibility for the financial services sector with regard to critical
infrastructure protection. Additionally, Treasury Assistant Secretary for Financial Institutions
Sheila C. Bair chairs the Financial and Banking Infon11ation Infrastructure Committee (FBIIC)
of the President's Critical Infrastructure Protection Board, which includes state and federal
financial regulators and a representative from the Office of Homeland Security.
Ms. MacLean will work with Treasury's financial sector liaison, Assistant Secretary Bair, and
the FBIIC to draw together industry initiatives and coordinate private sector outreach related to
critical infrastructure protection and homeland security.
Ms. MacLean joined Bank of America in 1996 as Senior Vice President and Director of
Corporate Infornlation Security and is responsible for providing global leadership for
infomlation security policy, procedures and corporate standards, awareness programs, risk
management, and information security teclmology implementation.
In addition, she is responsible for enterprise business continuity and the company's regional
recovery centers. Prior to joining Bank of America, Ms. MacLean was with the Boeing
Company from 1982-1996, where, as Senior Manager for Computing and Communications
Security, she was responsible for all commercial and government program infomlation security
initiatives.
-30-
PO-3100
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~2i178~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
......................................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMIEDATE RELEASE
Wednesday, May 15,2002
Contact: Rob Nichols
(202) 622-2910
"Transforming Korea's Financial Sector
into a Domestic Engine of Growth"
Deputy U.S. Treasury Secretary Kenneth W. Dam
Korean Chamber of Commerce and Industry
Seoul, Korea
May 14, 2002
Good morning. It is a great honor for me to have the opportunity to address this
impressive assembly of Korean business executives.
I am also privileged to be making my first trip to Korea in my capacity as Deputy
Secretary of the United States Treasury. I've been to Korea many times before.
The importance of this particular visit could not be greater.
I am here to launch a new effort aimed at transforming financial sectors into
economic engines of growth. This is a new Bush Administration international
economic policy initiative. We are calling it "Engines of Growth."
Why is this important to the United States and Korea?
For one, the fate of all our economies is intertwined. Economic growth is not a
zero-sum game. When the United States grows, Korea grows. And vice-versa.
It's just that fundamental.
For Korea, the consequences of this economic integration are profound. Access
to export markets abroad means new growth for the Korean economy and greater
profits for Korean firms. But economic integration also has its downsides, and
the changing winds of the global economy, no doubt, can be punishing. Hedging
against these risks is-essential. In this economic landscape, countries like Korea
must have strong, efficient financial sectors: in short, domestic engines of growth.
PO-310I
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Wednesday, May 15, 2002
Contact: Rob Nichols
(202) 622-2910
"Transforming China's Financial Sector
into an Efficient Engine of Growth"
Good aftemoon. It is an honor for me to have the opportunity
to address some of China's best and brightest students.
I am also privileged to be making my first trip to China as
Deputy Secretary of the United States Treasury. The timing
could not be better.
I am here to launch a new effort aimed at transforming
financial sectors into economic engines of growth. This is a
new Bush Administration international economic policy
initiative. Weare calling it "Engines of Growth."
Why is this important to the United States?
Friends, we stand at the leading edge of a new millennium.
Now in the 21 st century, the fate of all our economies is
intertwined. World economic growth is not a zero-sum game.
When the United States grows, Asia grows. And vice-versa.
It's that fundamental.
PO-3102
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
For China, the consequences of this new economic
convergence are profound. Access to new markets abroad
means rapid economic growth. Export-led growth alone,
though, exposes China to the changing winds of the global
economy. One way to offset this vulnerability is to diversify.
And one way to diversify is to find additional fuels for growth.
In my opinion, China's great economic challenge in this
decade will be to transform its financial sector into modem,
efficient engine of growth. The importance of having a deep,
flexible and resilient financial sector cannot be overstated.
Gone are the days when a national airline or heavy
investments in manufacturing are the badges of economic
development.
In the United States, our financial sector is the backbone of our
domestic economy. During last year's U.S. economic
slowdown, for example, it was our financial sector - in
addition to tax relief measures and monetary easing - that
helped ignite the economic recovery we are currently
experiencing. It was access to innovative mortgage products
and sophisticated debt instruments that kept U.S. consumers
spending and businesses investing.
Developing China's financial sector into an engine of growth
will be a challenge. It will require enlightened policymaking,
a deep commitment to openness, and the very best regulatory
oversight and enforcement. Nevertheless, I am confident that
China can succeed.
In developing its financial system, there are many possible
configurations from which it can choose.
2
511512002 - 8:43 AM
But, the importance of openness to trade and investment in
financial services is undisputed. China's WTO commitments
in financial services represent a healthy start. It is in China's
self-interest to do more.
Let me be clear about one thing before going any further.
Opening a financial system to freer trade in financial services
is different from liberalizing the capital account. Allowing
foreign firms to compete on equal terms with domestic firms
can and should be independent of decisions on regulating
portfolio capital flows. Just as there can be foreign direct
investment in manufacturing without capital account opening,
there can also be FDI in financial services. This is true for the
whole panoply of financial services, including retail banking,
investment·banking, brokerage services, asset management,
insurance and pension advisory services.
However, I don't want to be understood as supporting capital
controls. They retard long-term economic productivity. Look
around the world. No major developed economy maintains
capital controls.
The fastest way to financial sector modernization for China
will be to open to trade and investment in financial services.
Increased trade and investment in financial services will bring
in needed foreign direct investment and expertise. It will
induce better management in domestic firms. And, it will
increase the rates of return for those who invest in domestic
Chinese firms.
Don't just take my word for it. A 200 1 WorId Bank study
found that countries with fully open financial services sectors
grow on average one percentage point faster than other
countries.
3
5/15/2002 - 8:43 AM
These results corroborate an earlier World Bank study
estimating that more open and competitive financial services
markets increase national growth rates by 1.3 to 1.5 percentage
points. Likewise, a recent WTO study of 27 emerging market
countries found that allowing foreign financial firms to
establish locally and to engage in a broad spectrum of financial
activities contributed to greater financial sector stability.
This should not be news to many of you. Here in China, for
example, the very promise of a new, more level playing field
in financial services is already beginning to speed the
development of securities trading, new insurance services, and
financial information services.
-,
Implementation on these commitments is important.
Particularly on the issue of transparency, China should
continue to apply new, transparent methods of creating and
applying regulations. Regulators should seek out the insights
of the private sector before creating the rules of the game.
We use these methods in the United States. The U.S. Federal
Reserve, for example, regularly publishes proposed regulations
and asks for comments from the private sector in a reasonable
period of time. During the implementation of our GrammLeach-Bliley bill-- which fundamentally reformed the US
banking, securities and insurance sectors -- the U.S. Federal
Reserve sought out and received hundreds of comments from
foreign banks. As a result, it made several significant changes
to accommodate the many international banks doing business
in the United States. Rules that specify how regulations will
be implemented and how applications for licenses will be
granted or denied are just as important.
4
5115/2002 - 8:43 AM
My mission here in China this week has been to engage key
policymakers in a dialogue on building momentum for
financial sector liberalization. Economic policymakers need to
collaborate and share best practices if we are to pull back
restrictions on international trade and investment in financial
servIces.
I hope many of you here today will take the time to study your
financial sector. You are China's future financial leaders.
You have an important responsibility to help develop China's
financial sector into a strong, efficient engine of growth.
Thank you.
5
511512002 - 8:43 AM
Bureau. Of The Public Debt Announces Series EE Savings Bond Rate For May Through 0 ... Page 1 of 2
BUREAU OF THE PUBLIC DEBT
ANNOUNCES SERIES EE SAVINGS BOND
RATE
FOR MAY THROUGH OCTOBER 2002
FOR IMMEDIATE RELEASE
May 1,2002
The Bureau of the Public Debt announced today the rate for Series EE savings
bonds issued on or after May 1, 1997.
SERIES EE SAVINGS BOND RATE: 3.96%
The 3.96 percent Series EE savings bond rate is in effect for bonds issued on or
after May 1, 1997, that enter semiannual earnings periods from May through
October 2002. The rate is 90 percent of the average 5-year Treasury securities
yields for the preceding six months. A new interest rate is announced effective
each May 1 and November 1. A 3-month interest penalty is applied to these
bonqs if redeemed before five years. The Series EE bonds on sale now increase
in value monthly. The bond's interest rate is compounded semiannually.
SERIES EE BONDS ISSUED BEFORE MAY 1997
The 3.74 percent Long-Tenn Series EE savings bond rate is in effect for bonds
issued from May 1995 through April 1997 as they enter semiannual earnings
periods from May through October 2002. See the E<1.mjngsEgp9rt for earnings
on Series EE bonds issued from January 1980.
MATURED SERIES E SAVINGS BONDS AND SAVINGS NOTES
Series E savings bonds continue to reach final maturity and stop earning
interest. Bonds issued from May 1941 through April 1962 along with those
issued from December 1965 through April 1972, have stopped earning interest.
All Savings Notes, issued from May 1967 through October 1970, have stopped
earning interest. Series E Bonds with issue dates shown here will reach final
maturity in the next six months.
E-Bond Issue Dates
E-Bonds Stop Earning Interest
May 1962 through October 1962
May 1972 through October 1972
May 2002 through October 2002
May 2002 through October 2002
MORE INFORMATION
PO-3103
Infonnation abopt savings bonds is available at Public Debt's website at
www.savingsbonds.gov.CheckoutournewSavingsBond.Ca1cul~tor to see how
easy it is to fmd out what your bonds are wort~, what they ~e earnmg, and even
keep track of them. Or, download the free SaYlngs.Bp.nd Wlzarci to keep track of
http://www.pubhcdetn.treas.guvkomicomee0502.htm
05115/2002
Burem.l Of The Public Debt AmlOunces Series EE Savings Bond Rate For May Through 0 ... Page:2 of 2
your savings bond portfolio. The Eal11ings Rep0l1, which contains rate and yield
information for bonds is available by mail. Send a postcard a~.K.lllg for "Earnings
Report" to Bureau of the Public Debt, 200 Third Street, Parkersburg, WV
26106-1328.
UpdaTed May I. 2002
Click for text links
http://www.publicdebt.treas.gov~ornlcomee0502.htm
05/15/2002
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622-2960
FOR IMMEDIATE RELEASE
MAY 16,2002
CONTACT: BETSY HOLAHAN
202-622-2960
Secretaries O'Neill and Paige Call for Increased Focus
on Financial Education in America's Schools
WASHINGTON, DC - Treasury Secretary Paul O'Neill and Education Secretary Rod Paige
today met with leaders of key youth education groups to discuss ways in which the Departments
of Treasury and Education can work with them to promote the integration of financial education
concepts into core curriculum in U.S. schools.
"Ownership, independence and access to wealth should not be the privilege of a few. They
should be the hope of every American," said Secretary O'Neill. "Financial education is an
essential tool to make that hope a reality."
" Financial education should be one of the cornerstones of a well-rounded, high-quality
education," said Secretary Paige. "The Education Department is working to help school systems
across the country promote the basics principles of earning, spending, saving, and investing.
That's why we are pleased to announce today that the department intends to make up to $250,000
available to a coalition of organizations working to promote financial literacy among our
nation's students."
The roundtable discussion among the agencies and 13 education groups was jointly moderated
by U.S. Treasurer Rosario Marin, Education Deputy Secretary Bill Hansen, Treasury Assistant
Secretary for Financial Institutions Sheila Bair and Treasury Deputy Assistant Secretary for
Financial Education Judy Chapa. Topics discussed included the need for improved financial
education programs~ integrating financial education into specific age/grade levels/geographic
areas; and opportunities and obstacles related to integrating financial education into core
curriculum.
"As Americans, we need to be fully prepared to take advantage of the opportunities offered to us
by our financial system," said Treasurer Marin, who has been very focused on improving
financial education in communities across the country. "With the proper education, there is
greater opportunity for each of us to be master of our own fate and determine our own financial
destiny."
PO-3104
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
"Studies show that most young Americans' financial skills fall short and the problem appears to
be worsening. As young people become more financially active at an earlier age, it is imperative
that they learn the skills to make sound financial decisions," said Secretary O'Neill. "Today we
hope to gain ideas and learn about effective methods for integrating financial education into
schools' core curriculum, and we see this as the beginning of an on-going dialogue with the
education community to address this critical issue."
Following the roundtable meeting, Treasury and Education Department officials plan to develop
a white paper summarizing the effective methods and opportunities for integrating financial
education into schools. They also will meet with representatives from states that have had
success in integrating financial education into their core curriculum, and develop case studies
and best practices for implementation nationwide. Other initiatives include the "Bank on Your
Schools" partnership between schools and financial institutions in low- and moderate-income
areas, and establishing an interagency working group within the Federal government to better
coordinate financial education efforts.
"Financial education can be compared to a road map to the American Dream," said Secretary
O'Neill. "We are committed to trying to ensure that all Americans have the necessary tools to
read that map."
-30-
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 16,2002
Contact: Michelle Davis
(202) 622-2960
Statement of Secretary Paul O'Neill on eve of trip to Romania and Africa
Good morning. I am leaving tomorrow for a two-week trip to focus on economic development.
I will first visit Romania, and then I will be joined by Bono, ofU2 fame, as I travel to four
nations in Africa: Ghana, South Africa, Uganda and Ethiopia.
I'm looking forward to traveling with Bono. His compassion is well known. I've come to know
him as a substantive person who wants to make a difference. I know that our traveling together
has raised eyebrows. I hope it also raises interest in getting serious about achieving real
improvements in the lives of the people of Africa. For too long, we've seen too little progress.
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
Yet, even as compassionate people and nations around the worla sena asSIstanCe, some nauun:s
in Africa have actually lost ground. We must support those African nations and peoples who are
working to change the disappointing performance of the last 50 years and help to create
conditions that free individuals to reach their human potential.
We don't know the perfect formula for development. Ifwe did, our task would be far easier.
But we do know certain things:
•
•
•
•
Stable governments protecting individual rights and enforcing contracts are
necessary to increase economic growth and raise human potential,
Governments encouraging private sector development and innovation can unlock
human potential,
AIDS and other diseases ravage human potential, and
Education unleashes human potential.
PO-3105
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 16,2002
Contact: Michelle Davis
(202) 622-2960
Statement of Secretary Paul O'Neill on eve of trip to Romania and Africa
Good morning. I am leaving tomorrow for a two-week trip to focus on economic development.
I will first visit Romania, and then I will be joined by Bono, ofU2 fame, as I travel to four
nations in Africa: Ghana, South Africa, Uganda and Ethiopia.
I'm looking forward to traveling with Bono. His compassion is well known. I've come to know
him as a substantive person who wants to make a difference. I know that our traveling together
has raised eyebrows. I hope it also raises interest in getting serious about achieving real
improvements in the lives of the people of Africa. For too long, we've seen too little progress.
I traveled to many parts of the world in my private sector days, and I saw heartbreaking poverty.
Heartbreaking because we know so much more is possible. We know that human beings
everywhere have the potential to succeed.
Yet, even as compassionate people and nations around the world send assistance, some nations
in Africa have actually lost ground. We must support those African nations and peoples who are
working to change the disappointing performance of the last 50 years and help to create
conditions that free individuals to reach their human potential.
We don't know the perfect formula for development. If we did, our task would be far easier.
But we do know certain things:
•
•
•
•
Stable governments protecting individual rights and enforcing contracts are
necessary to increase economic growth and raise human potential,
Governments encouraging private sector development and innovation can unlock
human potential,
AIDS and other diseases ravage human potential, and
Education unleashes human potential.
PO-310S
For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040
'U 5 Gov..,nmenl Pronl,ng Otf,ce 1998· 619.559
In short, when people can stay healthy, receive the necessary education and explore their
entrepreneurial spirit, then people prosper, productivity grows, and countries advance.
This is the premise underlying the President's newly announced Millenium Challenge
Accounts. Recognizing and acting on these truths requires strong leadership committed to
improving the living conditions of its people. Leaders - national and community leaders -- must
be committed to these principles in order for their people to flourish. Once that leadership is in
place, development assistance from outside can fuel progress. President Bush is committing $5
billion per year in assistance to nations that rule justly, invest in their people and encourage
economic freedom, so that nations taking the right policy actions are rewarded and so that we
send US development assistance dollars where they have the greatest chance to make a
difference in people's lives.
We want to help promote growth opportunities in countries where governments are
already working to enhance the environment for private sector development, by promoting
individual rights and enforceable contracts, by showing leadership on AIDS, and by investing
effectively in education. The President's budget included an 18% increase in funding for the
African Development Bank and for IDA, the World Bank assistance program for the poorest
nations. The President has also called on the nations who fund IDA to make grants rather than
loans for projects that are vital to improving health and education but don't create a direct
economic return that can be used to repay loans.
As I travel over the next 14 days, I will see first hand some of the progress being made as
well as the obstacles we have yet to tackle. My first stop is to attend the EBRD meeting in
Bucharest, Romania. The EBRD has devoted much of its work to the development of small and
medium size businesses throughout Russia and central Europe, and I will voice my support for
that continued focus and encourage more activities in Central Asia.
In Africa, Bono and I will see several examples of progress toward stable governments
protecting individual rights and enforcing contracts - and will witness the private sector growth
such progress has unleashed. Ghana is one of only half a dozen nations in Africa to have held a
democratic election and witnessed a peaceful transfer of power to the opposition party in the last
decade. That political stability now has been combined with increased fiscal discipline and
better economic policies to improve the investment climate, both for foreign and domestic
investors. And the results are clear. The economy returned to its decade-long average growth·
rate of over 4%, and the percentage of the population living on less than $1 per day has fallen.
Of course, there's a long way to go. But Ghana is an example of the progress that is possible.
I often say capital is a coward, because it's true. Foreign investors don't want to risk
their savings in a place where corruption is rampant and contracts aren't enforced. And private
citizens are scared offby the same uncertainty, choosing to keep their savings buried under their
houses rather than put up a building or buy a machine that they fear could be taken away from
them at any time.
Political stability and the rule of law are fundamental to the health of any economy.
We'll see examples of that as we visit small entrepreneurs and large foreign owned companies in
each of our stops in Africa. After making its transition to democracy, South Africa has achieved
sound macroeconomic management and endeavors to create opportunity for all of its citizens. In
large part, that opportunity stems from the country's political stability and rule oflaw.
But political stability and the rule of law are not enough. Sovereign governments must
also invest in their people. Education is key to unleashing human potential. And eliminating or
ameliorating major health problems is crucial as well. The African people's economic potential
has been ravaged by the spread of AIDS and other infectious diseases. We must bolster local
initiatives that are succeeding in taming these threats.
The Ugandan government, in particular, has shown leadership in addressing these social
challenges. I'm looking forward to learning more about the cutting-edge work there on AIDS
and seeing the progress they've made toward universal primary education. Bono and I will visit
schools and health facilities in every nation to witness for ourselves the progress being made and
the enormous challenges yet to be faced. We'll look at various projects being funded by
international development assistance, and we'll insist on hearing about results. Because if we
don't demand results, we aren't doing our jobs on behalf of compassionate taxpayers who want
to help alleviate poverty, nor are we serving the poor who struggle for an opportunity to improve
their own lives. Compassion requires that we be hard-minded and insist that we measure the
impact our assistance is having, so that we can constantly improve our effectiveness and
participate in the development of human potential in Africa.
The trip will wrap up at the African Development Bank Annual Meetings in Ethiopia. In recent
years, the AIDB has undergone one of the most far-reaching and comprehensive restructuring
efforts ever taken by a multilateral development bank. That these meetings are taking place in
Ethiopia is a reflection of our hope for this country, the second most populous in sub-Saharan
Africa and one with a long history of charting its own course. We look forward to working with
the Ethiopian government, and other reform-minded governments on the continent, to make a
real impact in reducing poverty and raising living standards.
--30--
DEP ARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
202-622-2960
FOR IMMEDIATE RELEASE
May 16,2002
Contact: Michelle Davis
(202) 622-2960
Statement of Secretary Paul O'Neill on eve of trip to Romania and Africa
Good morning. I am leaving tomorrow for a two-week trip to focus on economic development.
I will first visit Romania, and then I will be joined by Bono, ofU2 fame, as I travel to four
nations in Africa: Ghana, South Africa, Uganda and Ethiopia.
I'm looking forward to traveling with Bono. His compassion is well known. I've come to know
him as a substantive person who wants to make a difference. I know that our traveling together
has raised eyebrows. I hope it also raises interest in getting serious about achieving real
improvements in the lives of the people of Africa. For too long, we've seen too little progress.
I traveled to many parts ofthe world in my private sector days, and I saw heartbreaking poverty.
Heartbreaking because we know so much more is possible. We know that human beings
everywhere have the potential to succeed.
Yet, even as compassionate people and nations around the world send assistance, some nations
in Africa have actually lost ground. We must support those African nations and peoples who are
working to change the disappointing perfonnance of the last 50 years and help to create
conditions that free individuals to reach their human potential.
We don't know the perfect fonnula for development. If we did, our task would be far easier.
But we do know certain things:
•
•
•
•
Stable governments protecting individual rights and enforcing contracts are
necessary to increase economic growth and raise human potential,
Governments encouraging private sector development and innovation can unlock
human potential,
AIDS and other diseases ravage human potential, and
Education unleashes human potential.
PO-310S
In short, when people can stay healthy, receive the necessary education and explore their
entrepreneurial spirit, then people prosper, productivity grows, and countries advance.
This is the premise underlying the President's newly announced Millenium Challenge
Accounts. Recognizing and acting on these truths requires strong leadership committed to
improving the living conditions of its people. Leaders - national and community leaders -- must
be committed to these principles in order for their people to flourish. Once that leadership is in
place, development assistance from outside can fuel progress. President Bush is committing $5
billion per year in assistance to nations that rule justly, invest in their people and encourage
economic freedom, so that nations taking the right policy actions are rewarded and so that we
send US development assistance dollars where they have the greatest chance to make a
difference in people's lives.
We want to help promote growth opportunities in countries where governments are
already working to enhance the environment for private sector development, by promoting
individual rights and enforceable contracts, by showing leadership on AIDS, and by investing
effectively in education. The President's budget included an 18% increase in funding for the
African Development Bank and for IDA, the World Bank assistance program for the poorest
nations. The President has also called on the nations who fund IDA to make grants rather than
loans for projects that are vital to improving health and education but don't create a direct
economic return that can be used to repay loans.
As I travel over the next 14 days, I will see first hand some of the progress being made as
well as the obstacles we have yet to tackle. My first stop is to attend the EBRD meeting in
Bucharest, Romania. The EBRD has devoted much of its work to the development of small and
medium size businesses throughout Russia and central Europe, and I will voice my support for
that continued focus and encourage more activities in Central Asia.
In Africa, Bono and I will see several examples of progress toward stable governments
protecting individual rights and enforcing contracts - and will witness the private sector growth
such progress has unleashed. Ghana is one of only half a dozen nations in Africa to have held a
democratic election and witnessed a peaceful transfer of power to the opposition party in the last
decade. That political stability now has been combined with increased fiscal discipline and
better economic policies to improve the investment climate, both for foreign and domestic
investors. And the results are clear. The economy returned to its decade-long average growth
rate of over 4%, and the percentage of the population living on less than $1 per day has fallen.
Of course, there's a long way to go. But Ghana is an example of the progress that is possible.
I often say capital is a coward, because it's true. Foreign investors don't want to risk
their savings in a place where corruption is rampant and contracts aren't enforced. And private
citizens are scared offby the same uncertainty, choosing to keep their savings buried under their
houses rather than put up a building or buy a machine that they fear could be taken away from
them at any time.
Political stability and the rule of law are fundamental to the health of any economy.
We'll see examples of that as we visit small entrepreneurs and large foreign owned companies in
each of our stops in Africa. After making its transition to democracy, South Africa has achieved
sound macroeconomic management and endeavors to create opportunity for all of its citizens. In
large part, that opportunity stems from the country's political stability and rule oflaw.
But political stability and the rule of law are not enough. Sovereign governments must
also invest in their people. Education is key to unleashing human potential. And eliminating or
ameliorating major health problems is crucial as well. The African people's economic potential
has been ravaged by the spread of AIDS and other infectious diseases. We must bolster local
initiatives that are succeeding in taming these threats.
The Ugandan government, in particular, has shown leadership in addressing these social
challenges. I'm looking forward to learning more about the cutting-edge work there on AIDS
and seeing the progress they've made toward universal primary education. Bono and I will visit
schools and health facilities in every nation to witness for ourselves the progress being made and
the enormous challenges yet to be faced. We'll look at various projects being funded by
international development assistance, and we'll insist on hearing about results. Because if we
don't demand results, we aren't doing our jobs on behalf of compassionate taxpayers who want
to help alleviate poverty, nor are we serving the poor who struggle for an opportunity to improve
their own lives. Compassion requires that we be hard-minded and insist that we measure the
impact our assistance is having, so that we can constantly improve our effectiveness and
participate in the development of human potential in Africa.
The trip will wrap up at the African Development Bank Annual Meetings in Ethiopia. In recent
years, the AtDB has undergone one of the most far-reaching and comprehensive restructuring
efforts ever taken by a multilateral development bank. That these meetings are taking place in
Ethiopia is a reflection of our hope for this country, the second most populous in sub-Saharan
Africa and one with a long history of charting its own course. We look forward to working with
the Ethiopian government, and other reform-minded governments on the continent, to make a
real impact in reducing poverty and raising living standards.
--30--
D EPA R T 1\1 E N T
() F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
May 16, 2002
Contact: Michelle Davis
(202) 622-2960
Highlights of Secretary O'Neill's Schedule in Africa
GHANA (Arrive late Monday May 20; Depart early Thursday May 23)
•
Secretary will meet with President Kufuor
•
Secretary will meet with Ghanaian Government Economic Team
•
Secretary will give a speech outlining the purpose of the trip and highlighting
Ghana's potential to promote private sector-led economic growth
•
Secretary will tour ACS-BPS, an example of foreign direct investment
•
Secretary will visit with small local ventures assisted by USAID and community
development projects financed by the African Development Bank to see examples
of how official aid is working
•
Secretary will travel to Tamale, in northern Ghana, to learn about conditions
outside the capital
•
Secretary will visit a local hospital to learn first hand the threat AIDS and other
infectious diseases pose to the people of Ghana and their economic future
•
Secretary will meet with NGOs promoting economic development, rule of law
and civic action in Ghana
SOUTH AFRICA (Arrive mid afternoon Thursday May 23; Depart afternoon Sunday May 26)
•
Secretary will meet with President Mbeki
•
Secretary will meet with Finance Minister Manuel
•
Secretary will meet with Central Bank Governor Mboweni
•
Secretary will meet with South African businessmen and labor leaders
•
Secretary will tour Ford Plant in Pretoria, example of successful foreign direct
investment and a model corporate AIDS program
•
Secretary will visit Chris Hani Baragwanath Hospital in Soweto to learn about
progress from investment in AIDS research
•
Secretary will tour People's Dialogue Moderate Housing Project, an example of
expanding home-ownership to build the foundation of a private sector economy
•
Secretary will tour a high school in Soweto, to learn about the investment in
education to unleash human potential
•
Secretary will visit the Johannesburg Stock Exchange to highlight the importance
of capital to development
PO-3106
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·U S Governmenl P"nllng Office 1998· 619·559
UGANDA (Arrive evening Sunday May 26;Depart evening Tuesday May 28)
•
Secretary will meet with President Museveni
•
Secretary will meet with Central Bank Governor Tumusiime
•
Secretary will meet with Finance Minister Ssendaula
•
Secretary will meet with other government officials, NGO representatives,
businessmen and academics
•
Secretary will give a speech at Makerere University, highlighting the
government's strong commitment to economic refonns
•
Secretary will tour a cut flowers factory as an example of export diversification
•
Secretary will visit with small entrepreneurs who got their start with USAID
micro-loans as an example of effective assistance, supporting private sector
development
•
Secretary will visit a private indigenous health clinic committed to treating and
counseling people living with HIV/AIDS, in order to learn about Uganda's
success in reducing the prevalence rate of HIVI AIDS in the adult population
•
Secretary will visit a water project funded by the Government of Uganda with
funds freed up by HIPC debt relief
•
Secretary will visit a primary school to learn about the investment in education to
ensure every child has the tools to succeed
•
Secretary will visit two HIVI AIDS research centers
•
Secretary will tour Customs facility in Entebbe to learn about Uganda's efforts to
administer its borders efficiently to facilitate exports
ETHIOPIA (Arrive evening of Tuesday May 28; Depart morning of Friday May 31)
•
Secretary will attend annual meeting of African Development Bank, deliver US
Governor's Statement and meet with AfDB President Kabbaj
•
Secretary will meet with other African Finance Ministers as well as with US and
African businessmen doing business throughout the continent
•
Secretary will meet with Ethiopian Prime Minister Meles and Finance Minister
Sufian
Secretary will visit a private coffee processing plant, an example of a successful
•
agribusiness exporter
•
Secretary will meet with religious leaders coping with the spread of AIDS
Secretary will visit a school receiving official development assistance to learn of
•
the effectiveness of this investment in human development
•
Secretary will tour a garment factory to highlight the benefits of open borders,
particularly the African Growth and Opportunity Act (enacted in 2000 to reduce
US trade barriers to African products)
D EPA R T [\1 E N T
0 F
THE
T REA SUR Y
omcr OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622-2960
EMBARGOED UNTIL 2:00 P.M. EDT
MAY 16,2002
CONTACT: BETSY HOLAHAN
202-622-2960
TESTIMONY OF THE HONORABLE SHEILA C. BAIR
ASSISTANT SECRETARY FOR FINANCIAL INSTITUTIONS
BEFORE THE
SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
Chainnan Barr, Mr. Watt, and Members of the Subcommittee, I appreciate the opportunity to
appear here today to discuss administrative and procedural aspects of the joint Federal ReserveTreasury rule proposal on whether to pennit financial holding companies and financial
subsidiaries of national banks to engage in real estate brokerage and real estate management
under the Grarnm-Leach-Bliley Act (HGLBA").
The four-month public comment period for this proposal ended May 151 of last year. Based on
the substantial number of comment letters that the Treasury and the Federal Reserve Board
("Board") have received, there clearly is wide public interest in this proposal. The volume of
letters demonstrates the sensitivity of this particular detennination as well as the difficulty of the
task that Congress gave us in promoting competition in financial services.
We also received letters from 160 Members of Congress, some of whom transmitted comments
from their constituents and some of whom set forth comments of their own. We are carefully
reviewing the issues raised by all the commenters.
On April 22 nd , Secretary O'Neill infonned Chainnan Oxley by letter that, in consultation with
Chainnan Greenspan, he had decided that the Treasury will not make a final detennination on
this proposed rule until next year. It is incumbent on us to carefully review all the issues in
keeping with the statutory criteria and purposes of the GLBA and to carefully articulate criteria
that can guide our review of future requests. Given other Treasury priorities in the wake of
September 11, we do not believe such a deliberative review can be completed until next year.
PO-3107
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Because the rulemaking is pending, I will not be able to discuss the Treasury's views on
substantive issues involved in making a final decision about the proposed rule. Instead, my
prepared remarks will briefly describe the process and factors we considered in making the
proposal and where it stands today.
By way of background, let me begin by highlighting the key provisions of the GLBA that relate
to the rulemaking.
Rulemaking Provisions of the Gramm-Leach-Bliley Act
At its core, the GLBA stimulates greater competition and innovation in the financial services
industry. At the same time, the legislation promotes consumer protection and safety and
soundness, and restricts the mixing of banking and commerce.
To accomplish these outcomes, the GLBA amended the Bank Holding Company Act to permit
financial holding companies to engage in a broad range of activities specifically listed in GLBA,
as well as other activities that the Board determines, in consultation with the Treasury, to be
"financial in nature or incidental to a financial activity." According to the Conference Report,
the "financial in nature or incidental" standard represents a significant expansion of the "closely
related to banking" standard that the Board previously applied in determining the permissibility
of activities for bank holding companies.
The GLBA also amended the National Bank Act to allow national banks to control qualifying
"financial subsidiaries" that are permitted to engage in most of the same "financial in nature or
incidental" activities that the GLBA authorizes for financial holding companies. Activities in
which financial subsidiaries may not engage under the GLBA generally include insurance
underwriting and merchant banking. GLBA also explicitly prohibits financial subsidiaries from
engaging in real estate development and investment.
Just as GLBA requires the Board to consult with Treasury before approving new activities as
"financial in nature" or "incidental to a financial activity" for financial holding companies,
GLBA also requires Treasury to consult with the Board in determining whether a new activity
should be approved as financial in nature or incidental for financial subsidiaries. Under the
GLBA's consultation requirement, neither the Treasury nor the Board may determine that an
activity is financial in nature or incidental to a financial activity if the other agency disagrees
with such a determination in writing. Treasury and the Board have developed procedures for
those requesting determinations under the financial activities provisions of GLBA and for
coordinating and consulting with each other. Treasury and the Board are working cooperatively
in considering these determinations, as the joint proposal on real estate brokerage and
management demonstrates.
In making determinations for financial subsidiaries, the GLBA requires Treasury to take into
account, among other factors:
•
•
the purposes ofGLBA and the National Bank Act,
changes in the marketplace in which banks compete,
•
•
changes in the technology for delivering financial services, and
whether the activity is necessary or appropriate to allow a bank and its subsidiaries to
compete effectively with any company seeking to provide financial services in the United
States. 1
Let me tum now to a description of the process that the Treasury and the Board are following
and where the rulemaking stands currently.
Status of the Rulemaking Process
The rulemaking process was initiated after Treasury and the Board received requests from the
American Bankers Association, the Financial Services Roundtable, and the New York Clearing
House Association asking that we determine that real estate brokerage and real estate
management activities are financial in nature or incidental to a financial activity. Shortly
thereafter, the National Association of Realtors sent a letter opposing such a determination.
In March 2000, the Treasury issued an Interim Final Rule setting forth specific procedures for
requesting determinations under the GLBA, and invited the American Bankers Association and
the Financial Services Roundtable to resubmit their requests to conform to these procedures.
The American Bankers Association did so in July 2000, and a month later Freemont National
Bank submitted a request that referenced the American Bankers Association's request.
After considering the factors specified in the GLBA and other relevant information, and
conSUlting with the Federal Reserve Board and its staff, in December of2000 the Treasury
agreed with the Board to issue a joint notice of proposed rulemaking with a 60-day comment
rd
period. The proposal was published in the Federal Register on January 3 2001.
Following publication, it soon became apparent that there was a great deal of public interest in
the proposal. Given this wide public interest and our desire to give the public sufficient time to
I
Section 5136A(b)(2) of the Revised Statutes (the National Bank Act) provides that:
"In determining whether an activity is financial in nature or incidental to a fmancial activity, the Secretary shall take
into account (A) the purposes of this [National Bank] Act and the Gramm-Leach-Bliley Act;
(B) changes or reasonably expected changes in the marketplace in which banks compete;
(C) changes or reasonably expected changes in the technology for delivering fmancial services; and
(D) whether such activity is necessary or appropriate to allow a bank and the subsidiaries of a bank to(i) compete effectively with any company seeking to provide fmancial services in the United States; .
(ii) efficiently deliver information and services that are fmancial in nature through the use oftechn~lo.glcal
means, including any application necessary to protect the security or efficacy of systems for the transrrusslOn of data
or fmancial transactions; and
(iii) offer customers any available or emerging technological means for using fmancial services or for the
document imaging of data."
consider and comment on the proposal, and in view of letters we received requesting an
extension, the Treasury and the Board decided to extend the comment period another 60 days.
As I mentioned, the comment period closed on May 1, 200l. Of the 34,735 comment letters we
have received, most have come from real estate brokers expressing the same or similar views.
We are giving serious consideration to the views expressed.
Conclusion
In conclusion, Mr. Chairman, we intend to carefully consider the issues raised by all the
commenters. As we move forward next year, the Treasury will work closely with the Federal
Reserve to ensure that this and other rulemakings under the financial in nature authority are
consistent with the criteria Congress prescribed, the legal process, and the public interest.
Thank you. I am happy to respond to any questions.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS - 1500 PENNSYLVANIA AVENlJE. N.W. - WASHINGTON, D.C.- 10220. (202) 622.2960
EMBARGOED UNTIL 2:30 P.M.
May 16/ 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32/000
million to refund an estimated $31/786 million of publicly held 13-week and 26-week
Treasury bills maturing May 23/ 2002/ and to raise new cash of approximately $214
million. Also maturing is an estimated $9/000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced May 20, 2002.
The Federal Reserve System holds $15,218 million of the Treasury bills maturing
on May 23, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held May 21, 2002. Amounts awarded
to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
Treas~Direct customers have requested that we reinvest their maturing holdings
of approximately $1,086 million into the 13-week bill and $846 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g. / 17.13%.
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
Attachment
po- 3108
FOT
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 MAY 23, 2002
May 16, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . . $ 4,800 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . . . 91-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912795 KX 8
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 20,2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 23, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 22,2002
Original issue date . . . . . . . . . . . . . . . . . . . . . . . . . February 21,2002
Currently outstanding . . . . . . . . . . . . . . . . . . . . . . . $18,952 million
~nimum bid amount and multiples ............ $1,000
$15,000 million
$15,000 million
None
182-day bill
912795 LL 3
May 20, 2002
May 23, 2002
November 21, 2002
May 23, 2002
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FTIMA) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts. Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FEHA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
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 (NLP) 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 daylight saving time on auction day
Competitive tenders ........ Prior to 1:00 p.m. eastern daylight saving 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.
DEPARTIVIENT
OF
THE
TREASURY
NEWS
ornCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C .• 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 17, 2002
Contact: Tara Bradshaw
(202) 622-2014
TREASURY RELEASES PRELIMINARY REPORT
ON INVERSION TRANSACTIONS
Today the Treasury Department released its preliminary report on the issues arising in
connection with the reincorporation of U.S.-based multinational corporations in foreign
countries, sometimes referred to as "corporate inversion" transactions, and the implications of
these transactions for U.S. tax rules.
"When we have a tax code that allows companies to cut their taxes on their U.S. business by
nominally moving their headquarters offshore, then we need to do something to fix the tax code,"
stated Treasury Secretary Paul O'Neill.
"In addition, if the tax code disadvantages U.S. companies competing in the global marketplace,
then we should address the anti-competitive provisions of the code. I don't think anyone wants
to wake up one morning to find every U.S. company headquartered offshore because our tax
code drove them away and no one did anything about it. This is about competitiveness and
complications in the tax code that put U.S.-based companies out of step with their foreign
competitors. "
"We will work with Congress to address these important issues quickly," O'Neill concluded.
An inversion is a transaction through which the corporate structure of a U.S.-based multinational
group is altered so that a new foreign corporation, typically located in a low or no tax country,
replaces the existing U.S. parent corporation as the parent of the corporate group.
In recent months, several high-profile U.S. companies have announced plans to reincorporate
outside the United States. The documents prepared for shareholder approval and filed with the
Securities and Exchange Commission cite substantial reductions in overall corporate taxes as a
key reason for the transactions.
PO-3109
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Governmenl P"nllng Off'ce 1998 - 619·559
While the corporate inversion transactions are not new, there has been a marked increase
recently in the frequency, size, and profile of the transactions. The Treasury Department has
been studying the issues that arise in connection with this corporate inversion activity and the
implications for the U.S. tax system and the U.S. economy. The Treasury Department
concluded that the release of a preliminary report would be useful to the consideration of the
issues posed by the increased inversion activity. The report describes the current law tax
treatment of the transactions and of the companies post-inversion, and the features of current law
that facilitate the transactions and that may be used to reduce inappropriately the companies' tax
burdens post-inversion. The report also describes the potential ramifications of reformulations of
the tax laws, including in particular the long-term effect of such changes on the U.S. economy,
that must be considered in the evaluation of changes to the tax laws.
Inversions are not the only transactions that result in an offshore headquarters. Companies can
start up in a foreign jurisdiction. Also, U.S. companies that merge with a foreign company can
decide to locate the headquarters of the merged companies outside the United States.
The report concludes that the policy response to the recent corporate inversion activity should be
broad enough to address the underlying differences in the U.S. tax treatment of U.S. -based
companies and foreign-based companies, without regard to how foreign-based status is achieved.
Measures designed simply to halt inversion transactions may address the issues in the short run,
but in the long run produce unintended and harmful effects for the U.S. economy.
A prompt and thoroughly-reasoned response is needed to address the U.S. tax advantages that are
available to foreign-based companies through the ability to reduce the U.S. corporate-level tax
on income from U.S. operations. Inappropriate shifting of income from the U.S. companies in
the corporate group to the foreign parent or its foreign subsidiaries provides a competitive
advantage to companies that have undergone an inversion or otherwise operate in a foreignbased group. Changes to the applicable statutory and regulatory rules is needed to ensure that
any transaction that results in a new foreign parent of a corporate group with U.S. operations
does not serve to facilitate an inappropriate decrease in tax on the U.S. income of the U.S.
operations.
Further work also is needed to address the features of U.S. tax laws that may disadvantage U.S.based companies relative to companies based in major trading partners, including the U.S. tax
treatment of income from U.S. companies' foreign operations. A comprehensive reexamination
of the U.S. international tax rules and the economic assumptions underlying them is needed to
ensure that the system of international tax rules does not disadvantage U.S.-based companies
competing in the global marketplace.
"As we address these important issues, we must do so in a way that maintains the position of the
United States as the most desirable place in the world for people to do business. We must not
undermine the fundamental strength of our economy," stated Acting Treasury Assistant
Secretary for Tax Policy Pam Olson. "We want companies to keep their headquarters and their
jobs here."
The text of the preliminary report is attached.
-30-
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
~~/78~q~~~~~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
......................................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Tuesday, May 21, 2002
Contact: Public Affairs
(202) 622-2960
Treasury Secretary Paul H. O'Neill
Remarks at International Conference Center
Accra, Ghana
Good afternoon. Thank you for welcoming me to Ghana, and thanks to the American
Chamber of Commerce for hosting today's lunch.
This tour marks my first visit to Africa since becoming Secretary of the United States
Treasury. In my previous visits I traveled as a businessperson. I am eager to make the most of
my time. to witness first hand the efforts underway to engage all the people of Africa in creating
a brighter future.
I come here to learn. To hear from entrepreneurs, investors, fanners, artisans and
vendors in the market. I want to hear their hopes and dreams and I hope they share with me their
insights into how best to eliminate the obstacl~s to Africa's prosperity.
I come here with an open mind, convinced of only one thing -- that human beings
everywhere have the potential to succeed.
The question for us, and for our time, is how to finally realize that vision. How can the
people of the African nations and their elected leaders create prosperity -- and how can the
people of the United States and the other industrialized countries best support their efforts?
If I had the answer, I would have sent a prescription. It's not so easy. For some 50 years,
thoughtful, compassionate people have struggled to solve poverty here. As Bono, my friend and
travelling companion, might say we "still haven't found what we're looking for." The results of
official development assistance have been disappointing, and many poor countries here have
stayed that way, even as others have excelled.
So I have come to Africa. Not to preach, but to listen, and share. I want to see what has
worked here, and what has failed. I want to ask how we can do better. I want to learn from
Ghana's political and economic success, so I can share the best of your experience ,with your
neighbors and the world. At the same time, I want to share what we ha:r e learned from ~tber
successful developing countries around the world, and show our commitment to promotll1g those
practices in Africa.
PO-3110
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And I want to take our combined experience and put it to work, to produce results for
Africans. Not in the next generation, but right now.
Here is what we know: all people are created equal. Given the tools and incentives for
success, they will succeed, no matter who they are or where they live. Of course this is selfevident. But I have also seen this truth first-hand, as a leader in the private sector. As Chainnan
and CEO of Alcoa, I helped grow the company from 55,000 employees in 13 countries when I
joined in 1987, to 140,000 people in 36 countries -- including several African countries -- when I
retired in 2000.
During that time I learned about job creation, and about the ways of life and work around
the globe. In my travels, I saw that human beings everywhere, with the proper education, good
health, and a stable environment, could perfonn meaningful, value-adding work at worldcompetitive levels. I saw that in the Americas, I saw it in Europe, I saw it in Asia, and I saw it in
Africa.
We also know that in every nation, economic growth and higher living standards come
from increasing productivity -- that is, increasing the value that each worker produces each day.
When productivity is rising, workers earn more for their work and their quality of life improves,
year after year.
Moreover, we know that it is a competitive private sector that drives productivity gains.
As companies compete with each other for business, they seek better ways to satisfy their
customers. They try to provide more and more value for each dollar. As opportunities to add
value emerge, entrepreneurs enter the market. To stay competitive, leaders mnst constantly
invest in new ideas and better methods for production.
So what can a country do to unleash its private sector and increase productivity? What have
successful leaders done?
•
They rule justly, by fairly enforcing law and contracts, respecting human rights and
property rights, and fighting corruption.
•
They encourage economic freedom, by removing barriers to tra~e - both in~emal and
external - and by opening their economies to investment, allowmg compames and
entrepreneurs to compete without excessive interference, an.d pursuing :ound fiscal and
monetary policies, including government divestment of bus mess operatIOns.
•
And they invest in their people, by providing the best possible systems f~r education and
health care. In particular, we must work to fight the spread of AIDS, whIch threatens to
cripple the economic potential of many African nations and peoples.
All three of these elements -- ruling justly, encouraging economic freedom, and investing in
people -- are essential for successful development.
Ghana is a leader in Africa, and nothing better demonstrates that leadership than last year's
peace!ul ~ransfer of power following a ~~mocratic election. Respect for democracy is one aspect
of ruhng Justly. But that peaceful transItIon was not only a political achievement it was an
economic achievement.
'
.Here is why: capital is a coward. Investors know there are great opportunities for growth in
Afnca. The very fact that development in Africa has lagged compared to many parts of the
world means that there is enormous potential for high returns as you catch up to the leaders.
Investors are slow to put their capital into Africa because they are afraid that the buildings
and machines and businesses their capital will help build could be confiscated through
corruption, or through a violent change in power. They fear their contracts will not be respected.
I am not only talking about foreign investors. I am talking about Africans investing in
Africa. When savings and investments are not perceived as safe, people hide their cash where it
cannot work for the economy, or they send it to countries where they know it will be safe.
According to one study, 40% of Africa's private wealth is held abroad. Local entrepreneurs
cannot flourish when they fear that corrupt officials may appropriate their success.
With its growing history of democracy and stability, Ghana is showing that it can offer
continuous rule oflaw, even with a change in power. At the same time, Ghana has been opening
its economy to intemational trade and investment, and continuing with the economic reform
process started under previous governments.
Already, investors and entrepreneurs are responding to Ghana's improved stability and
economic reforms. For example, this morning I visited a successful investment in Ghana, called
Affiliated Computer Services, Inc.-Business Process Solutions (ACS-BPS). ACS sells data
processing services to insurance companies in the U.S. It opened its office here in 2000, and
already it employs over 800 Ghanaians, paying an average of three times the average wage in
Ghana. The company now plans to expand its operations to four new sites in Ghana and to
increase its workforce to over 1000 people.
The employees start with a high school diploma and typing skills. The training they receive
creates a new knowledge base on which future employers can build. As foreign investments like
ACS/BPS show success, others are bound to follow, and I am optimistic that increasingly
advanced services, such as software development, will thrive in Ghana.
While foreign direct investment creates notice, building a new office and creating a lot of
new jobs at one time, it isn't the silver bullet or magic solution for creating self-sustaining
economic growth. Local entrepreneurs -- not foreigners -- are the ba~kbone o.f every econon:w
That is true in the United States and around the world. Individuals WIth roots 111 the commul1lty
are willing to take risks to improve the lives of their families and communities, and they pass on
their skills and spark the imaginations of future entrepreneurs.
3
Lat~r today, I :vill meet with several small businesses that are perfo1111ing value-added
processll1g for agncultural products, such as making cashew butter. Tomorrow, I'll travel to the
northern region of Tamale, where I ":rill visit Wamali, a village which produces, among other
crops, Shea nut butter. The processmg of shea nuts holds great potential for small and larGe
scale agri-business, as shea nut is a good moisturizer used in cosemetics.
:;:,
Small and medium-sized agricultural and business ventures like these can make a biG
With the right kind of s~pport,
such as ll1vestments ll1 mral roads and refornl of the land tenure system, the government could
encourage further innovation, and help producers get their goods to the market.
differen~e for Ghana.ian communities and the overall economy.
As a framework for these economic development policies, I believe Ghana should pursue
investment grade rating for its sovereign debt. The transparency and policy environment needed
for an investment grade rating, and the rating itself~ disciplines government. Achieving
investment grade sovereign debt would allow Ghana to grow on its many merits, as investors
could more easily differentiate Ghana's risks from those ofless progressive nations.
When the sovereign leader is working to improve conditions for investment and
entrepreneurship, outside assistance can speed progress.
In February of this year, with U.S. support, the World Bank and the IMF approved Ghana for
debt relief under the enhanced Heavily Indebted Poor Countries, or "HIPC ," initiative. Ghana
now benefits from debt service relief from official creditors. As Ghana's debt burden is reduced,
it will have greater resources to invest in health, education and fiscal stability.
As we forgive debt, we must also take steps to avoid recreating the debt burdens that stifled
so many nations. President Bush has proposed that up to 50% of the World Bank and other
development bank funds for the poorest countries be provided as grants rather than as loans.
This proposal makes a lot of sense. It acknowledges the long-term development challenges
facing these countries, their vulnerability to economic shocks, and the reality that investments in
cmcial social sectors such as education and health care -- investments in people ~ while critically
important, may not generate the revenue needed to service new debt. Grants, rather than loans,
will eliminate the need for governments to tax their people in order to repay the principal and
interest - and thereby eliminate the next generation of debt servicing problems for the poorest
nations.
We in the US have also taken steps to bolster economic growth in Africa. In the year 2000,
we adopted the Africa Growth and Opportunity Act, or "AGO A," to open markets in the United
States to exports from sub-Saharan Africa. Later today, I will be meeting with some apparel and
handicraft producers that are eager to export to the U.S. under AGOA. I would en.coura~e
Ghanaian companies to take advantage of AGOA to enter the U.S. market an~ budd theIr
businesses. I would also encourage the nations of Africa to explore opportumtIes to reduce trade
barriers between neighboring nations.
· In ou~ meeting ~his morning, I committed to President Kufuor that the Treasury Department
wIll p.rovide ~n advIsor on domestic debt management in 2002. We are pleased to provide
techl1lcal assIstance whenever we can to support national leaders seeking to improve their
internal budgeting and financial systems.
Technical assistance is also a crucial means through which our official development
assistance adds support to burgeoning private sector growth. While in Ghana, we will be visiting
several small businesses which have received technical assistance through USAID to market
~
their goods, better organize their books and improve their manufacturing processes.
Official development assistance, through USAID, through the World Bank, the African
Development Bank or bilaterally, stands a better chance of success when local leaders are
already improving the economic framework of the nation.
That is the premise of the President's Millennium Challenge Accounts and the New Compact
for Development. The President has proposed $5 billion in additional US bilateral aid annually,
channeled to those countries that can use the money effectively. To access the Millennium
Challenge Account, developing countries must demonstrate a strong commitment to ruling
justly, encouraging economic freedom, and investing in people.
\;Ve are in the process of developing the criteria for measuring countries' policies in this area,
so we can begin to disburse funds. As part of the process, President Bush has asked us to reach
out to the world community, and that is one reason for this tour of Africa.
The plan the President outlined echos the objectives of the New Partnership for African
Development (NEP AD), an initiative created by African leaders to promote, among other things,
"sound economic m~magement and people-centered development."
We have to be hard-headed and demand results-that is our responsibility to the
impoverished people of Africa. Ifwe don't insist on results for the dollars provided by
compassionate people all over the developed world, then we are not meeting our responsibility as
world leaders to improve the lives of people everywhere.
Since I became Treasury Secretary, I have been detennined to reforn1 the way in which the
World Bank and the other multilateral development banks do business. They must improve the
effectiveness of their assistance. Rather than focusing on inputs, I want them to focus on results.
For example, don't tell me how many children you've enrolled in school, or how much you've
spent on enrollment programs -- tell me how many of the children can read, write and compute at
their grade level after six years of schooling. That's what matters - it's the only thing that
matters to those children and their future.
President Bush has created new incentives in our development assistance programs to
encouraae a areater focus on results. He has committed to an 18% increase in funding for the
African Dev:lopment Bank and an 18% increase in funding for IDA, the World ~an~'s lending
program for the poorest nations, so long as those programs can show they are achIevll1g
measurable improvements in development.
5
I believe strongly in development assistance that makes a difference in people's lives.
I am optimistic that our efforts together will produce results in Ghana, and throughout Africa.
This is an exciting time for those of us who relish the challenge of unleashing human potential
around the world, especially in Africa. We are making progress on many fronts. With the right
govenunent policies, we can accelerate the spread of private sector production around the world.
We can create vibrant, self-sustaining local economies and a rising standard of living for people
everywhere. We can unleash the human potential -- and we will not be satisfied with anything
less.
Thank you.
6
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May 20, 2002
Contact: Betsy Holahan
202-622-2960
Bill Luecht
202-622-8042
Remarks of Tony T. Brown
Director of the Treasury's Community Development Financial Institutions Fund
to the Association for Enterprise Opportunity's Annual Conference
Ft. Lauderdale, FL
Good afternoon and welcome to Florida, which happens to be my home state. I have spent 20
years in banking. Ten of these years have been in community development in the state of Florida. I
know the importance of community development finance and the value of micro-finance. Yes, microenterprise does work and it is an effective tool for successfully alleviating poverty.
I am here to say thank you and to commend you for providing capital to underserved
entrepreneurs. What started as a movement has grown to an industry and the CDFI Fund has been a big
part of that growth.
The CDFI Fund has invested nearly $21 million in micro-lenders. We believe in you and the
work you do to bring economic stability to our nation's communities. You can count on the CDFI Fund
as an effective partner in helping you "provide access to capital to all Americans."
In remarks to community and business leaders in Los Angeles this month at the 10-year
anniversary of the racial disturbances in South-Central LA, President Bush acknowledged the role of
community-based organizations in helping to eliminate pockets of despair. His remarks sums up the
socioeconomic commitment of your sponsoring organizations. President Bush believes in you and the
work you do to improve America. He knows that we must work hard and that there is plenty of work to
do. And he knows that we can eliminate poverty and despair with love, compassion and decency.
President Bush often reminds people that the great strength in America is in the hearts and souls
of citizens all around our country. The great strength in America is embodied in those who work, such
as you, in community-based institutions across the country.
I am honored to be here today as your speaker, to represent the CDFI Fund and the U.S.
Department of the Treasury.
PO-3Ill
Page I of7
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First, let me thank Bill Edwards for that kind introduction and commend ABO for advancing the
field of micro enterprise development. I thought I would share my vision for the CDFI Fund largely in
relation to ABO's vision for micro-finance. I will relate many of my comments to ABO's five-year
strategic plan.
In thinking about my comments to your organization, I recalled my first experience at selfemployment and thought about how a micro-lender could have aided me in my first venture. It was the
summer of 1978 - I was fresh out of high school. Two buddies and I were brainstorming ways we could
make money during the summer.
First, we took an inventory of our assets. In our case, there wasn't much in the way of financial
assets. My buddy, Gregg, had just purchased a pick-up truck. Now, Terrence and I knew that this had
to be a sign from God.
We thought that money could be made from that pick-up truck because how many brothers from
the North in urban, inner-city America, would go out and buy a pick-up truck after high school! A sports
car maybe - but a pick up truck?
A neighbor told us that they made $500 in two days over the weekend delivering telephone
books in the city. Our neighbors were a middle-aged couple and they delivered these telephone books in
a station wagon.
We were 18 years old. In prime physical condition with a pick-up truck! So offwe went to
Cincinnati Bell. We told them to load up the truck and we gave them about 20 neighborhoods we were
familiar with. They, in turn, gave us the list of homes to deliver telephone books. We then learned that
you make twice as much picking up the old telephone books than you get delivering the new ones.
We learned a second lesson. You can't cover much of the city on one tank of gas and going up
and down stairs on an empty stomach. So, we went to our micro-lender at that time - my grandmother for $100 loan.
After a full day going up and down stairs and running from dogs, we learned our third lessonmarket perception and receptivity. We were able to drop off telephone books but there weren't many
homes willing to open their doors to let us in to pick up an old telephone book. We were young, weIlgroomed, African-American males bartering telephone books: look at this smile - would you invite me
into your home? I guess in hindsight hocking telephone books doesn't sound as credible as selling
Insurance.
Well, we gave up on the telephone book exchange business and went into the moving business
and made a pretty good living that summer.
I share this story with you because that experience helped to shape my sensitivities later in life as
a banker.
Page 2 of7
As a banker, I empathized with entrepreneurs who are willing to take business risk but can't
seem to overcome a financial institutions requirement for equity or collateral, including second or third
potential sources for loan repayment.
I recall being trained as a lender to look for ways to consolidate debt to increase the loan size
since our bank could not make money on a small loan. If this couldn't be done then we were to advise
the customer to apply for a credit card and get a cash advance for a small dollar loan.
In my early years as a banker, bank regulations scrutinized an institution's lending policies when
they reportedly had minimum loan amounts. To get around this aspect of Regulation B, a financial
institution had to justify its minimum loan amounts as part of a business case.
In my mind, I felt that my financial institution was leaving too much money on the table and that
scores of potential customers were being turned away. Well, you as mico-Ienders, have proven me right.
Thankfully, you as micro-fmance institutions help to fill this credit gap. You have proven that
you are able to lend deeper with smaller loan sizes and to grow your portfolio by moving up-market as
your clients mature. You have demonstrated profitable operations with strong portfolio performance.
The CDFI Fund fully supports the development of strong and effective micro enterprise programs
to assist underserved entrepreneurs in starting, stabilizing and expanding businesses. The numbers
speak for themselves. For instance:
Annually, the CDFI Fund conducts a survey of its awardees. In 2000,58 out of 122 awardees
reported outstanding microloans in their portfolios. That means that a full 48% of the Fund's awardees
engage in some degree of micro enterprise, whether it is a microenterprise organization dedicated 100%
to this sector or a business loan fund or credit union that has a microloan product. These institutions
reported total assets of$1.8 billion and during FY 2000 they made nearly 9,200 loans for over $28
million - an average loan size of over $3,000.
Under the CDFI Data Project, 25 micrenterprise organizations completed an annual survey.
These 25 had 14% delinquency (or 30 days or more past due). I consider this to be a "risky" portfolio.
However, what's interesting is that larger business loan funds - which tend to do less risky investment had 12% delinquency. So on that basis, you compare favorably. The average loan loss reserve for a
micro-lender registered 12%, and compared favorably to the average loan loss provision reported for
larger business loan funds at 11 %.
Our analysis at the Fund generally includes a self-sufficiency calculation where we determine if
earned program income covers general operating expenses. A rating of 100% or more means earned
income exceeds operating expenses and the CDFI is "self-sufficient," it does not have to rely at all on
grant income.
Our sample of 25 micro-finance institutions reported an average self-sufficiency ratio of 35%,
while the business loan funds averaged self-sufficiency ratios of 55%.
Page 3 of7
This infonnation helps me to better understand why many micro-lenders are part of other
organizations with general socio-economic missions. It appears that you either need to achieve scale; be
part of a larger organization, where operating expenses can be subsidized; or you have to attract annual
operating grants just to keep your doors opened.
I understand from talking to my staff that your array of functions - entrepreneurial training,
guidance to other would be business owners and other non-lending activity is a barrier for several AEO
members to gaining CDFI certification. To meet the "financing entity" test it may be useful to consider
forming an affiliated entity and consolidating lending activity in it, and keeping the training and other
non-lending activity in the existing parent corporation.
Micro-finance institutions are important to the CDFI Fund. Our records show that 20% of our
certified CDFIs are AEO members and that they offer some fonn of micro-finance. It is great to know
that you value the CDFI Fund.
Bill Edwards also shared with me AEO's legislative priorities for 2002 where you cited the
CDFI Fund as the most prominent source of funding and that you rank the CDFI Fund the highest in
terms of scale and innovation for the micro-enterprise field. Thank you for this strong endorsement of
importance and value.
But I think there is room for improvement. One such area is the utilization of our Small and
Emerging CDFI Assistance Component (or SECA) under the CDFI Program. This program was created
in response to the needs that you put forth •
for a program that focused on new or smaller organizations that needed funding to help these
organizations grow and expand;
•
a program where similar entities can compete among themselves, as opposed to against much
larger entities as in our CORE Component;
•
and a program that provided funding for critically needed technical assistance dollars, but also
allowed for smaller amounts of capital.
We introduced our SECA program in 2001 and made 70 awards. Only 9 of those awards - or
roughly l3% - were made to AEO members. This number will rise in the coming months, as the CDFI
Fund begins announcing the FY 2002 SECA awards. We know the SECA program is important to you,
but it seems like there is a great opportunity here that many of you are not taking advantage of. I
strongly encourage you to consider applying under the 2003 round of SECA. There is a great
description of this program in AEO's January/March newsletter.
Another major change you will see at the Fund is how we manage compliance and
measure CDFI perfonnance and impact.
Bill has met with me and shared the details on the valuable work AEO has undertaken to develop
a standard for accrediting micro-enterprise organizations. Your work has influenced my thoughts as the
Page 4 of?
CDFI Fund moves from our present compliance, monitoring and evaluation systems to a new evaluation
tool we are calling PLUM (Performance, Leverage, Underwriting, Management).
In a 1998 report completed by the General Accounting Office on the Fund's systems, it was
recommended that the Fund review its assistance agreements and establish procedures to encourage the
greater use of accomplishment measures. To encourage the use of accomplishment measures, GAO
recommended that the Director waive sanctions for accomplishment measures beyond the awardees'
control - such as economic conditions - while retaining sanctions for activity measures within an award
recipient's control.
Treasury Secretary Paul O'Neill is asking us to measure the outcome of your lending activities.
He wants to know how did this lending improve the area's local economy? Were jobs created and
retained? Did we build personal wealth? How many people were removed from welfare rolls and made
successful entrepreneurs, as examples?
Our Compliance Monitoring program will begin to take on a more sophisticated approach. Our
goal is to measure compliance based on your performance and capacity to reach and serve distressed
markets, not merely on your performance to a five-year business plan that gets outdated after one year.
The point I want to make is that we are now at the stage where it is essential that we be able to
measure the true impact of CDFls in building community wealth through community development
financing activities for our nation's financially underserved and economically distressed areas.
I will discuss my last point by addressing an issue of concern to micro-finance institutions and
that is the growth of micro-lenders through mergers and partnerships that achieve scale. I think we all
agree that the field of community development finance has grown considerably. The issue at hand is
whether or not we can sustain our loan programs with existing and traditional funding sources.
One of the major policy objectives of President Bush is to see an increased flow of private
capital into low-income communities. One new initiative at the Fund that you need to evaluate is the
New Markets Tax Credit program.
The New Markets Tax Credit Program is the newest of the CDFI Fund's program. It is designed
to help spur $15 billion worth of new investments in low-income urban and rural communities across the
country. Briefly, here's how NMTCs will work:
• An organization may apply to the CDFI Fund to become certified as a CDE. To qualify as a CDE,
the entity must have a mission of community development and demonstrate accountability to the
low-income communities served;
•
The CDE applies for an allocation ofNMTCs;
• If the CDE is awarded an allocation of tax credits, it may offer them to its equity investors;
Page 5 of7
•
Investors can receive NMTCs worth 39% of the invested amount over the seven-year life of the
credit. Investors may not redeem their investment in the CDE prior to the conclusion of the sevenyear period;
•
The CDE must use substantially all of the proceeds from these investments to make Qualified LowIncome Community Investments (QLICls). QLICls include:
•
Loans and investments in support of commercial real estate development in lowincome communities;
•
Loans and investments to businesses operating in low-income communities;
•
Loans and investments to other CDEs;
•
The purchase of loans made by other CDEs to businesses operating in low-income
communities; and
•
The provision of counseling to businesses operating in low-income communities.
•
Tax incentives covering $15 billion in investments will be available over the next six
years. We expect to allocate up to $2.5 billion in NMTC in calendar year 2002.
•
If you have not done so, you should be completing applications for certifications. As CDFls, it is a
simple online registration.
I encourage you all to think out-side-the-box on how we might utilize this new tool to help
capitalize the important work you do. Don't let this opportunity slip by.
Conclusion:
The Fund is initiating a number of changes. These changes reflect the organizational maturity of
the Fund and that of the CDFI industry itself. The Fund is poised to better connect our nation's
distressed and underserved markets with financing alternatives to increase economic health and build
community infrastructure.
We can achieve these changes and fulfill the goals described with your help. If the CDFIs do
their share, the Fund, as your federal government partner, will do what it needs to in order to fulfill its
end of the bargain. It is a partnership about which I am very excited.
Page 6 of7
Thank you so much for your attention. (At this time, I am open to take a few questions.)
Page 7 of7
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Tuesday, May 21, 2002
Contact: Public Affairs
(202) 622-2960
""Financial Services: Growth and Stability in Asia in the 21 st Centurv"
Deputy U.S. Treasury Secretary Kenneth W. Dam
.
Good aftemoon.
It is a great pleasure for me to speak to the Asia Society today. I have had
a long and fmitful association with the Asia Society, both as a board member for
some years, and as a steady customer for its policy discussions.
From my perspective, today's event is quite timely. I have just retumed
from a ten day trip to Malaysia, China, and South Korea. There, I announced a
Bush Administration initiative to transform key emerging market financial sectors
into engines for economic growth. I would like to elaborate on this new policy
goal, which pertains directly to today's conference topic, "Strategizing for an
Uncertain Future in Asia."
Our initiative seeks to strengthen financial sectors in emerging markets by
helping them introduce best practices gleaned from the most developed markets.
Such practices include opening their economies to intemational financial finns'
resources and tec1mology, and designing better domestic financial regulations and
supervision. Financial sector strengthening consequently offers two fundamental
benefits to those who undertake it. First, an open, well-regulated financial sector
is more efficient and robust, and fuels growth throughout an economy. Indeed, all
other sectors rely on financial intem1ediation for their growth. Second, perhaps
more than any other economic sector, a strong financial sector protects an
economy from extemal and domestic shocks. Thus it offers stability.
Clearly, growth and stability in the Asian economies are both high
priorities for U.S. investors and multinationals doing business in Asia, just as they
are sensible priorities for leadership in Asian countries. In light of the audience
today, I should also point out two other benefits. Financial sector openness
enables foreign investors to support the success of these economies with less
systemic risk. And better regulatory supervision, along wit.h openne~s, makes it
easier for responsible govemments to crack dmvn on terrOrIst financll1g.
PO-3112
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In my view, there is no better way to advance the Asian economies in the
21 st century, and to reduce risks for both foreign and domestic investors in those
economies, than through strengthening their financial service sectors.
Financial Services and Growth
As we look around the world, we see that just about every advanced
eco?omy has an open financial sector, with a large number of firn1s competing for
busmess.
For example, in the United States, imports of financial services, including
insurance, totaled $19.3 billion in 2000. This accounted for 10 percent of all
cross-border service imports into our country that year. Sales by foreign-owned
financial fim1s operating in the U.S. were even more substantial. In 1999, the
latest year available, sales of services in the U.S. by majority-owned finance and
insurance affiliates of foreign companies totaled $94 billion. These affiliates
account for more than ten percent of total U.S. revenue in these sectors.
Because the U.S. economy is open to these firms, consumers and
businesses can choose from the most advanced, best-priced financial services in
the world. To attract and keep their business, financial firms offer the highest
possible returns to savers, and the lowest possible cost of capital to investors.
Thus the competition leads to narrower spreads, and stimulates both savings and
investment. Financial institutions, as they aggregate capital, must move it into the
businesses and industry sectors where the institutions can earn the best riskadjusted returns for their savers. That means investing in the businesses that can
make the best use of their capital. In other words, those that offer the highest
productivity. And rising productivity -- output per worker -- is the root ofrising
living standards.
At the same time, proper regulatory practices, including transparency in
rule-making and adequate disclosure from finns, ensures that savers can choose
the right level of risk and return for themselves.
The process of intern1ediating capital between savers and investors -- the
job of the financial sector -- is one of the most fundamental components of
modem capitalism. The faster and more efficiently the financial sector identifies
the best growth opportunities and moves savings into them, the faster the
economy can grow. That is why I like to say that an efficient financial sector is
an engine for economic growth. It converts the fuel -- the potential -- of savings
into kinetic energy for the economy.
The best way to increase efficiency in emerging market financial sectors is
to expose domestic firms to the best practices of world-class financial i?stitutions,
so that domestic firms can learn from the best and compete. Just as ASJan
manufacturers excelled in the last century by learning, and then improving upon
the manufacturing methods of the industrialized economies, Asian financial
systems must do the same with financial services.
2
· Empirical evidence supports the theory. A 2001 World Bank study found
that countnes with fully open financial services sectors grow, on average, one
percentage point faster than other countries. These results corroborate an earlier
World Bank study estimating that more open and competitive financial services
markets increase national growth rates by 1.3 to 1.5 percentage points. Likewise,
a recent WTO study of27 emerging market countries found that allowing forei211
financial fim1s to establish locally and to engage in a broad spectrum of financi~l
activities contributed to greater financial sector stability.
Financial Services and Risk
A strong financial service sector is also important because it enhances
economic stability. That is, it reduces risk for savers and investors. I want to
focus on two types of lisk, though there are many others - risk posed by
globalization and risk posed by terrorism.
Few regions of the world have more than Asia reaped the benefits of
globalization - the growing interconnection between economies. Export-led
growth was basic to the so-called Asian Miracle of the past half-century, one of
the great development success stories in economic history. Nevertheless, growing
interdependence brings challenges of its own. Increasingly, our economies pedal
in tandem. When the United States moves forward, so do many Asian economies,
and the reverse is true as well.
For many emerging markets, especially those in Asia, the consequences of
this economic integration are profound. Access to markets abroad means greater
exports for Asian economies and greater profits for their firms. But economic
integration also has its downside, and the turbulent winds of the global economy
can swing a boom hard, fast, and unexpectedly. The slowdown in U.S. high tech
manufacturing in the last few years hit many Asian component manufacturers'
exports in just that way.
A strong financial sector makes an economy more resilient to external
economic shocks. One way it helps is by sustaining domestic demand when
export demand falls off.
AGain
t::>
, consider the United States. During last year's economic
slowdown, our flexible financial sector -- in addition to well-timed tax relief and
aGGressive monetary easing -- powered a swift rebound. In particular, widespread
a~~ess to home mortgage products and rapid, low-cost refinancing kept U.S.
consumers spending until businesses could clear their inventories and begin to
~
rebuild.
Another risk we are beginning to understand as an economic risk is
terrorism. Indeed, the terrorist attacks on September 11 were directed at the
World Trade Center not only because so many people worked there, but also
because the Twin Towers were symbols of the American economy, and the
financial system in particular.
3
While September 11 was a wake up call to America, several economies
and financial sectors of Asia have long faced this threat. The Philippine stock
exchange was bombed in 2000 and the Korean financial sector has lon ba had to
cope with the threat of a military attack.
A
strong financial service sector helps our economies manaae
risk from terrorism
.
b
111 two ways.
First, modem financial institutions can detect suspicious activity, report it,
and help law enforcement to disrupt terrorists before they can attack. Modem
financial institutions have infonnation systems capable of searching millions of
daily transactions. Stringent laws against terrorist financing are most effective
when financial institutions have the technology to implement the laws at a
reasonable cost, without impairing nomlal operations.
Second, robust financial services help diffuse the risk of an actual attack.
One of the reasons the American economy proved so resilient following
September 11 was that the United States has well-developed volatility markets.
These markets shifted risk from those who didn't want it to those who were
willing to bear it -- for a price, of course. When the risk was realized in that
terrible moment, advanced financial instruments helped absorbed its financial
impact.
At the same time, despite a devastating attack on the physical heart of our
financial system, the American economy continued to function, thanks to our
technologically advanced, highly decentralized financial infrastructure. Our
payments system kept working. Our bond and stock markets re-opened in days.
Since the attacks, we have hardened our critical financial infrastructure further.
How To Get There From Here
The economic importance of a deep, flexible and resilient financial sector
cannot be overstated. Gone are the days when a national airline or govemmentdirected investments in manufacturing were the badges of economic development.
In this decade, the great challenge for Asian countries in transition will be
financial sector restructuring and development. The question, of course, is how to
get there.
Transfonning the financial sectors of Asian economies into engines of
growth will be a challenge. But I believe the record shows that when
policymakers are detennined, they can act to strengthen their nation's financial
sector -- and succeed.
Consider Korea. In just four years, Korea has recreated its economy
through financial sector refonn, setting an example for the region ..Faile? banks
have been recapitalized. Non-perfomling assets have been sold; F1I1~nclal
regulation and supervision have been strengthened. And Korea s capItal account
has been substantially liberalized.
4
· The results are clear. Private banks are again profitable. Capital ratios
have Improved, and the number of non-perfOlming loans is down. Though the
reform process is not yet complete, change for the better is well underway.
It is essential that countries that forge ahead to strengthen their financial systems
will require enlightened policymaking, a deep commitment to openness, and the
very best regulatory oversight and enforcement. Vested interests may object, and
a new and deeper faith in the markets must be nurtured.
Let me say a word about regulation and supervision. Sound regulation
and supervision are essential to the success of efforts to bolster the financial
system. Every effort should be taken to apply new, transparent methods for
drafting and applying regulations. Regulators should seek out the insights of the
private sector before creating the rules of the game. We use these methods in the
United States.
The U.S. Federal Reserve, for example, regularly publishes proposed
regulations and asks for comments from the private sector in a reasonable period
of time. During the implementation of our Gramm-Leach-BliJey bill-- which
fundamentally refornled the U.S. banking, securities and insurance sectors -- the
U.S. Federal Reserve sought out and received hundreds of comments from foreign
banks. As a result, it made several significant changes to accommodate the many
international banks doing business in the United States. Rules that specify how
regulations will be implemented and how applications for licenses will be granted
or denied are equally as important.
We are making some progress in improving the regulatory climate
worldwide. Here in the United States, we have enacted the USA PATRIOT Act.
Among other things, the Act requires financial institutions to tenninate
correspondent accounts maintained for foreign shell banks and to take reasonable
steps to ensure that they do not indirectly provide banking services to foreign
shell banks. Internationally, the United States, along with 28 other countries and
territories , works with the multilateral Financial Action Task Force (FA TF) to
fight money-laundering and terrorist financing.
For the most part, Asian economies have been strong allies in the fight
against terrorist financing. Hong Kong has been a strong advocate, as have
Singapore, Malaysia and Thailand. While the Philippines and Indonesia have
recently passed anti-money laundering laws, improvements are still needed.
Furthernlore , total assets blocked have been disappointing to date, particularly in
Southeast Asian economies where we lmow terrorist cells operate.
My mission in Asia last week was to eng~ge key pol.icym~ke~s in a
dialogue aimed at building momentum for finanCIal sector hberahzatl?n. I
believe we were successful in sparking the discussion. We must contll1ue to
collaborate on financial sector development if the Asian economies are to enjoy
the sustained barowth and stability that a strong, modem financial service
sector
.
makes possib Ie. Asian prosperi ty in the 21 st century depends on 1t.
5
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. e WASHINGTON, D.C.e 20220 _ (202) 622.2960
EMBARGOED UNTIL 11: 30 A. M.
May 20, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $18,000 million to
refund an estimated $9,000 million of publicly held 4-week Treasury bills maturing
May 23, 2002, and to raise new cash of $9,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $15,218 million of the Treasury bills maturing
on May 23, 2002, in the System Open Market Account (SOMA). This amount may be refunded
at the highest discount rate of accepted competitive tenders in this auction up to the
balance of the amount not awarded in today's 13-week and 26-week'Treasury bill
auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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 BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-3113
-
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED MAY 23, 2002
May 20, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . • . $18,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . $18,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . $ 9,600 million
Description of Offering:
Term and type of security . . . . . . . . . . . 28-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . 912795 JZ 5
Auction date . . . . . . . . . . . . . . . . . . . . . . . . May 21, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . May 23, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . June 20, 2002
Original issue date . . . . . . . . . . . . . . . . . December 20, 2001
Currently outstanding ..........•..•. $38,027·million
Minimum bid amount and mUltiples .... $1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $~,OOO
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) 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 daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May 20. 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
May 23, 2002
August 22, 2002
912795KX8
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.730%
High Rate:
Investment Rate 1/:
Price:
1.760%
99.563
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 58.13%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
34,266,545
1,438.237
175.000
$
17,000,105 2/
35.879,782
SUBTOTAL
$
TOTAL
6,913,013
6,913.013
Federal Reserve
42,792,795
15,386,868
1,438,237
175,000
$
23,913,118
Median rate
1.715%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.690%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
~as
Bid-to-Cover Ratio
=
35.879.782 /17,000,105 :: 2.11
l/ Equivalent coupon-issue yield.
l/ Awards to TREASURY DIRECT = $1.184,398,000
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
FOR IMMEDIATE RELEASE
May 20, 2002
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
May 23, 2002
November 21, 2002
912795LL3
High Rate:
1. 900%
Investment Rate 1/:
1.946%
Price:
99.039
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 25.09%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
30,994,668
1,087,195
75,000
$
15,000,055 2/
32,156,863
SUBTOTAL
$
TOTAL
5,846,043
5,846,043
Fed€ral Reserve
38,002,906
13,837,860
1. 087 ,195
75,000
$
20,846,098
Median rate
1.885%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.835%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio
= 32,156,863
/ 15,000,055
= 2.14
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $905,039,000
http://www.publicdebt.treas.go v
'0-3115
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
2002
CONTACT:
Office of Financing
202-691-3550
May 21,
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
28-Day Bill
May 23, 2002
June 20, 2002
912795JZ5
1.690%
High Rate:
Investment Rate 1/:
1.710%
Price:
99.869
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 63.97%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
FlMA (noncompetitive)
$
SUBTOTAL
Federal Reserve
TOTAL
$
Accepted
46,505,600
26,187
$
17,974,005
26,187
o
o
46,531,787
18,000,192
2,458,688
2,458,688
48,990,475
$
Median rate
20,458,880
1.680%: 50% of the amount of accepted competitive tenders
Low rate
1.650%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
was tendered at or below that rate.
Bid-to-Cover Ratio
=
46,531,787 / 18,000,192
=
2.59
1/ Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
0-3116
D EPA R T :\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
Embargoed until 2:00 pm EDT
May 21, 2002
Contact: Betsy Holahan
202-622-2960
STATEMENT OF ERIC SOLOMON
DEPUTY ASSISTANT SECRETARY (REGULATORY AFFAIRS)
DEPARTMENT OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON OVERSIGHT
HOUSE COMMITTEE ON WAYS AND MEANS
Mr. Chainnan, Mr. Coyne, and Members of the Subcommittee:
I appreciate the opportunity to discuss with you today tax incentives designed to foster
the revitalization of economically disadvantaged communities. I would like to start by thanking
the Chainnan and the Subcommittee for holding a hearing on this important issue.
The Administration is finnly committed to helping Americans in economically distressed
communities. However, because there are limits on what the Federal government alone can
accomplish, a more comprehensive approach is necessary. This approach calls for initiatives to
encourage further involvement by individuals, businesses, and community-based and faith-based
organizations in working to eliminate conditions of economic distress in this country.
Thanks in large part to the leadership shown by the Ways and Means Committee, many
of the Administration's tax proposals in this area have already been enacted. Administration tax
proposals benefiting low-income individuals or distressed communities that have already been
enacted include the following: (1) extension of the work opportunity tax credit through 2003; (2)
extension of the welfare to work credit through 2003; (3) extension of authority to issue qualified
zone academy bonds through 2003; (4) authorization of tax-exempt private activity bonds to
finance reconstruction in the area surrounding the World Trade Center in New York City
devastated by the September 11,2001 terrorist attacks; (5) creation of a new 10 percent income
tax bracket; and (6) doubling of the child tax credit to $1,000.
The President's Budget for FY 2003 contains additional proposals on both the spending
and tax side. The tax proposals include creation of a new tax credit, similar in design to the lowincome housing tax credit, for developers of affordable single-family housing, and making the
brownfields tax incentive pennanent. These will be discussed in more detail below.
PO-3117
For press releases, speeches, public schedules and official ¥ographies, call our 24-hour fax line at (202) 622-2040
'U S Government Prtnlong OffIce 1998· 619-559
We look forward to working with this Subcommittee as it considers the remainder of the
Administration's initiatives related to encouraging community renewal.
The remainder of my testimony will provide a more detailed discussion of current law
and the Administration's budget proposals.
INCENTIVES FOR DISTRESSED COMMUNITIES
Current law tax incentives for distressed communities
The Internal Revenue Code of 1986 currently includes numerous incentives to encourage
the development of economically distressed areas. They include tax incentives for businesses
located in empowerment zones, enterprise communities and renewal communities, the new
markets tax credit, qualified zone academy bonds, certain categories of tax-exempt bonds,
special incentives for investment and employment on Indian reservations, the low-income
housing tax credit, the work opportunity tax credit, and the deductibility of brown fields
remediation costs.
Empowerment Zones
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) authorized a project under
which nine empowerment zones, six in urban areas and three in rural areas, were designated
through a competitive application process. State and local governments nominated distressed
geographic areas, which were selected on the strength of their strategic plans for economic and
social revitalization. The urban areas were designated by the Secretary of the Department of
Housing and Urban Development. The rural areas were designated by the Secretary of the
Department of Agriculture. The Taxpayer Relief Act of 1997 added two urban Round I zones
and authorized 20 Round II zones (15 urban and five rural). The Community Renewal Tax
Relief Act of2000 authorized nine Round III zones (seven urban and two rural). There are
currently 30 urban zones and 10 rural zones. Designation of Round I, Round II or Round III
status generally will apply until December 31, 2009.
Qualifying businesses in empowerment zones are eligible for certain tax benefits. These
benefits include the following: (I) a 20-percent wage credit for qualifying wages; (2) additional
expensing for qualified zone property; and (3) tax-exempt financing for certain qualifying zone
facilities. In addition, taxpayers may elect to defer capital gains from certain sales and reinvestments in qualified empowerment zone assets. Taxpayers may also exclude certain gain
from the sale of qualifying empowerment zone stock that is held for more than five years.
The wage credit provides a 20 percent subsidy on the first $15,000 of annual wages paid
to residents of empowerment zones by businesses located in these communities, if substantially
all of the employee's services are performed within the zone. By lowering the cost oflabor, the
wage credit encourages new businesses to locate in zones, and encourages those businesses
already there to expand, providing jobs and opportunities for self-sufficiency for zone residents.
2
Enterprise zone businesses are allowed to expense the cost of certain property up to an
additional $35,000 above the amounts generally available under section 179 of the Internal
Revenue Code. In addition, only 50 percent of the cost of such property counts toward the
aggregate annual limit on section 179 expensing. This incentive is designed to increase
investment in machines, computers and other tangible business property within empowennent
zones by small businesses.
Enterprise zone businesses are also pennitted access to a special class of tax-exempt
private activity bonds. Limits are placed on the amount of such financing available to each zone.
Rural zones are allowed $60 million of such financing, urban zones with less than 100,000
residents are allowed $130 million of such financing and urban zones with at least 100,000
residents are allowed $230 million of such financing. These bonds are not subject to the State's
volume cap on private activity bonds.
The Community Renewal Tax Relief Act of2000 added two provisions to limit capital
gains taxation on certain investments within empowennent zones to encourage greater private
investment in the zones. Taxpayers are allowed to roll over the capital gain from the sale of
qualified empowerment zone assets held more than one year, if a replacement qualified
empowerment zone asset is purchased in the same zone as the asset sold. Qualified
empowerment zone assets include certain stock and partnership interests in an enterprise zone
business and certain tangible property used in an enterprise zone business. This provision
applies to assets acquired after December 21, 2000.
In addition, taxpayers other than corporations are allowed to exclude 60 percent of the
gain on the sale or trade of qualified small business stock held more than 5 years, if the business
also qualifies as an enterprise zone business. Taxpayers are normally allowed to exclude 50
percent of the gain on the sale of qualified small business stock. This provision applies to stock
acquired after December 21,2000.
Enterprise Communities
In addition to empowennent zones, OBRA 93 provided for the designation of95
enterprise communities, 65 in urban areas and 30 in rural areas. Qualified businesses in these
communities are entitled to the same favorable tax-exempt financing benefits as those in
empowerment zones. Many of these enterprise communities have subsequently been redesignated as part of an empowerment zone or a renewal community and are no longer
designated as an enterprise community. Currently, 66 enterprise communities qualify for taxexempt financing, 40 in urban areas and 26 in rural areas. A second round of rural enterprise
communities were authorized under the Food and Drug Administration and Related Agencies
Appropriations Act, 1999 (Agriculture Appropriations Act 1999), but this second round of rural
enterprise communities were not entitled to the tax-exempt financing benefits.
Renewal Communities
3
The Community Renewal Tax Relief Act of 2000 authorized 40 renewal communities, at
least 12 of which must be in rural areas. The renewal communities were chosen through a
competitive application process similar to that used for empowerment zones. The 40
communities were designated by the Department of Housing and Urban Development at the
beginning of this year and that designation continues through 2009.
Taxpayers may utilize the renewal community tax benefits beginning this year. These
benefits include the following: (1) a IS-percent wage credit for qualifying wages; (2) additional
section 179 expensing for qualified renewal property; (3) a commercial revitalization deduction;
and (4) an exclusion for capital gains on qualified community assets held more than 5 years.
The wage credit and increased section 179 expensing operate in a similar fashion as in
empowerment zones. The primary difference is that the wage credit is smaller, equal to 15
percent for the first $10,000 of wages.
The commercial revitalization deduction is designed to foster the development or
rehabilitation of commercial real estate in renewal communities. This deduction is applicable to
certain nonresidential real property or other property functionally related to nonresidential real
property. A taxpayer may elect to either: (1) deduct one-half of any qualified revitalization
expenditures that would otherwise be capitalized for any qualified revitalization building in the
tax year the building is placed in service, or (2) amortize all such expenditures over a 120-month
period beginning with the month the building is placed in service. A qualified revitalization
building is any building and its structural components placed in service by the taxpayer in a
renewal community. If the building is new, the original use of the building must begin with the
taxpayer. If the building is not new, the taxpayer must substantially rehabilitate the building and
then place it in service. The total amount of qualified revitalization expenditures for any
building cannot be more than the smaller of $1 0 million or the amount allocated to the building
by the commercial revitalization agency for the state in which the building is located. A $12
million dollar cap on allowed commercial revitalization expenditures is placed on each renewal
community annually.
In order to help stimulate private investment in renewal communities, qualified capital
gain earned on qualified community assets is excluded from gross income. A qualified
community asset includes stock or a partnership interest in a qualified renewal community
business and certain tangible property used in a renewal community business. To qualify for the
capital gain exclusion, the asset must be purchased after December 31, 2001 and before January
1,2010, and it must be held for at least five years.
District of Columbia Incentives
A special set of incentives was enacted in 1997 to help redevelop the District of
Columbia. The Taxpayer Relief Act of 1997 included tax incentives for both residents and
businesses to locate in the District of Columbia. A $5,000 income tax credit for first-time home
purchasers was designed to attract new homeowners to the District. A second set of in~entives,
similar to those provided in empowerment zones, was intended to encourage the estabhshment of
new businesses in the District as well as new investment in existing enterprises.
4
Subject to certain income restrictions, the $5,000 credit is available to first-time
purchasers of a principal residence in the District of Columbia who have not owned houses in the
District during the year preceding the purchase. Although the credit was initially available for
property purchased through the end of 2000, subsequent legislation extended the incentive
through the end of 2003.
Other tax incentives offer a range of economic inducements to businesses operating in the
more economically disadvantaged parts of the District. With the exception of a provision related
to the sale of capital assets, these incentives are available only to businesses located either within
the boundaries of the D.C. Enterprise Community, or located in census tracts elsewhere in the
District where the poverty rate exceeds 20 percent. These areas are collectively known as the
DC Zone. With certain minor adjustments, businesses in the DC Zone may claim the same wage
credit, expensing of certain capital investment, and tax exempt bond financing as businesses in
an empowerment zone. In addition, as in renewal communities, capital gains realized from the
sale of certain assets are excludable from the income of the seller. For the purposes of this
provision alone, the DC Zone is expanded to include all census tracts in the District in which the
poverty rate exceeds 10 percent.
New York Liberty Zone
While the area around the World Trade Center in New York City would not have been
described as an economically distressed community prior to the extraordinary events of
September 11, 2001, the horrible destruction oflife and property in that area due to the terrorist
attacks prompted both the Administration and the Congress to support tax incentives targeted to
helping New York City recover economically. I commend you, Mr. Chairman, and other
members of the Ways and Means Committee for the leadership you exhibited in helping to enact
the Job Creation and Worker Assistance Act of2002.
Some of the tax incentives provided in the New York Liberty Zone are similar to the tax
incentives offered in empowerment zones, while others were designed to meet the unique
challenges facing New York City in the aftermath of the September 11 terrorist attacks. As in
empowerment zones, qualified businesses are allowed a wage credit, increased section 179
expensing, and access to tax-exempt financing. Provisions specific to the New York Liberty
Zone include 30 percent expensing of certain property, accelerated depreciation of qualified
leasehold improvement property, extension of the replacement period for certain property
involuntarily converted, and an additional advance refunding of bonds for facilities located in
New York City.
The wage credit is allowed for certain employees who work in New York City through an
extension of the work opportunity tax credit (WOTC). The new targeted group for the WOTC
includes employees of businesses located in the New York Liberty Zone if substantially all of the
employee's services for the business are performed within the New York Liberty Zone.
5
In addition, the new targeted group includes employees of businesses that relocated
from the New York Liberty Zone due to the physical destruction or damage of their workplaces
by the September 11, 2001 terrorist attacks to another location within New York City, provided
that substantially all of the employee's services are performed within New York City. Only
businesses with an average of 200 or less employees during the taxable year are eligible for the
credit. The credit is effective for wages paid or incurred for work performed during calendar
year 2002 or 2003.
An increase in section 179 expensing of$35,000 is allowed for property placed in service
by taxpayers after September 10,2001, and before January 1,2007, if the original use of the
property in the New York Liberty Zone commences with the taxpayer after September 10,2001
and substantially all of the use of the property is in the New York Liberty Zone. As in
empowerment zones and renewal communities, only 50 percent of the value of such property
counts toward the aggregate annual limit on section 179 expensing.
The Governor of New York State and the Mayor of New York City are each given an
allowance to issue up to $4 billion of tax-exempt private activity bonds before January 1,2005.
The bonds may be used to finance the acquisition, construction, rehabilitation and renovation of
nonresidential real property, residential rental real property, and public utility property in the
New York Liberty Zone. The Governor and the Mayor may each designate up to $1 billion of
such bonds for the acquisition, construction, rehabilitation and renovation of certain commercial
real property located outside the New York Liberty Zone and within New York City. These
bonds are not subject to the State's volume cap on private activity bonds.
A taxpayer is allowed an additional first-year depreciation deduction equal to 30 percent
of the adjusted basis of qualified New York Liberty Zone property. In order to qualify for this
partial expensing, the property must be (1) a property with a MACRS recovery period of20
years or less, (2) computer software other than computer software covered by section 197, (3)
water utility property, or (4) certain nonresidential real property and residential rental property.
Nonresidential real property and residential rental property is eligible for the partial expensing
only to the extent such property rehabilitates real property damaged, or replaces real property
destroyed or condemned, as a result of the terrorist attacks of September 11, 2001. This
provision applies neither to property that would otherwise qualify for 30 percent expensing under
section 168(k), nor to qualified New York Liberty Zone leasehold improvement property.
Furthermore, to qualify for the partial expensing, substantially all of the use of the property must
be in the New York Liberty Zone and the original use of the property in the New York Liberty
Zone must commence with the taxpayer after September 10,2001 (except for certain leased
property). Finally, qualified property must be purchased by the taxpayer after September 10,
2001, and placed in service before January 1, 2007, or for nonresidential property and residential
rental property, January 1,2009.
Qualified New York Liberty Zone leasehold improvement property placed in service
after September 10, 2001 and before January 1, 2007 is treated as 5-year property for the
purposes of section 168 depreciation rules, with deductions taken using the straight-li~e method.
Under the alternative depreciation system (section 168(g)), such property has a class hfe of9
years.
6
Qualified New York Liberty Zone leasehold improvement property is qualified leasehold
improvement property as defined in section 168(e)(6) that is placed in service in the New York
Liberty Zone.
When property used in a trade or business is damaged or destroyed, the taxpayer may
deduct any loss sustained to the extent that the loss is not compensated by insurance or
otherwise. When insurance or other compensation results in a gain from the damage or
destruction of property, then the taxpayer may elect to reduce the current recognition of gain by
purchasing a replacement property within a specific time period which is similar or related in use
to the damaged or destroyed property (section 1033(a». For property in the New York Liberty
Zone that was involuntarily converted as a result of the terrorist attacks on September 11, 2001,
the replacement period is extended from 2 years to 5 years if substantially all of the use of the
replacement property is in New York City.
Finally, certain bonds for facilities located in New York City are given one additional
advance refunding. There is an aggregate limit of $9 billion advance refunding bonds that may
be issued before January 1,2005.
New Markets Tax Credit
The new markets tax credit was created by the Community Renewal Tax Relief Act of
2000 to encourage capital investments in businesses that are located in low-income communities.
The new markets tax credit provides a tax credit to investors who make "qualified equity
investments" in privately-managed investment vehicles called "community development
entities," or "CDEs." The CDEs are required to invest substantially all of the proceeds of the
qualified equity investments in low-income communities. For example, CDEs may make loans
or capital investments in companies that operate in low-income communities. I
Eligible investors in a CDE are entitled to claim tax credits over a seven-year period
beginning on the date of the initial investment. The value of the credits to investors will be about
30 percent of the amount of the qualified equity investment on a present value basis.
In order for an entity to qualify as a CDE, it must meet three requirements. First, the
primary mission of the entity must be to serve or provide investment capital for low-income
communities or low-income persons. Second, the entity must maintain accountability to
residents of low-income communities through their representation on the entity's governing or
advisory board. Third, the entity must be certified as a CDE by the Treasury Department's
Community Development Financial Institutions Fund (CDFI Fund).
In order for a CDE to issue qualified equity investments with respect to which new
markets tax credits may be claimed, the CDE must apply for and receive from the CDFI Fund an
allocation of credit authority for those investments. A total of $15 billion of equity investments
will be able to qualify for this authority on a phased-in basis between 2001 and 2007. The CDFI
Fund will allocate this authority among CDEs based on a competitive application process.
I For these purposes, "low-income community" is defmed as any population census tract if (1) the poverty rate for
the tract is at least 20 percent, or (2) the median family income for the .tract does no~ excee~ 80 percent .of statewide
median family income (or, in the case of metropolitan areas, metropolttan area medIan farruly mcome, If greater).
7
In making these allocations, the CDFI Fund is required to give priority to any entity (1)
with a record of having successfully provided capital or technical assistance to disadvantaged
businesses or communities, or (2) which intends to invest substantially all of the proceeds of the
qualified equity investments in one or more businesses in which persons unrelated to the entity
hold the majority equity interest.
The Treasury Department has issued temporary and proposed tax regulations regarding
the new markets tax credit and is currently accepting and reviewing comments on the
regulations.
Qualified Zone Academy Bonds
State and local governments can issue qualified zone academy bonds (QZABs) to fund
the improvement of certain eligible public schools. Instead of receiving interest payments, an
eligible holder of a QZAB receives annual Federal income tax credits. These annual credits
compensate the holder for lending money and, therefore, are treated like taxable interest
payments for Federal tax purposes. Eligible holders are banks, insurance companies, and
corporations actively engaged in the business of lending money. The credit rate for a QZAB is
set on its day of sale by reference to credit rates established by the Department of the Treasury.
The maximum term of a QZAB issued during any month is determined by reference to the
adjusted applicable Federal rate (APR) published by the Internal Revenue Service for the month
in which the bond is issued.
This provision was enacted in the Taxpayer Relief Act of 1997, which established
authority to issue $400 million of QZABs per year for 1998 and 1999. This authority was
extended to 2000 and 2001 by the Ticket to Work and Work Incentives Improvement Act of
1999. The Administration proposed that this authority be extended through 2003, which was
accomplished in the recently enacted Job Creation and Worker Assistance Act of2002. The
annual cap is allocated among the States in proportion to their respective populations of
individuals with incomes below the poverty line. Unused authority to issue QZABs may be
carried forward for two years (three years for authority arising in 1998 and 1999) after the year
for which the authority was established.
A number of requirements must be met for a bond to be treated as a QZAB. First, the
bond must be issued pursuant to an allocation of bond authority from the issuer's State
educational agency. Second, at least 95 percent of the bond proceeds must be used for an
eligible purpose at a qualified zone academy. Eligible purposes include rehabilitating school
facilities, acquiring equipment, developing course materials, or training teachers. A qualified
zone academy is a public school (or an academic program within a public school) that is
designed in cooperation with business and is either (1) located in an empowerment zone or
enterprise community, or (2) attended by students at least 35 percent of whom are estimated to
be eligible for free or reduced-cost lunches under the Richard B. Russell National School Lunch
Act. Third, private entities must have promised to contribute to the qualified zone academy
certain property or services with a present value equal to at least 10 percent of the bond proceeds.
Tax-exempt Bonds
8
States and local governments may issue tax-exempt bonds to revitalize economically
disadvantaged communities so long as: (1) no more than ten percent of the bond proceeds is
used by private entities in a trade or business if payments or security associated with that use are
available to pay principal or interest on the bonds; and (2) no more than five percent of the bond
proceeds is loaned to private businesses or individuals. If these private activity requirements are
not met, the following types of tax-exempt private activity bonds may nonetheless be issued,
subject to per-State volume limits, for revitalization purposes: mortgage revenue bonds
("MRBs"), bonds for qualified residential rental projects, and qualified redevelopment bonds.
MRBs may be issued to finance the purchase, or qualifying rehabilitation or
improvement, of single-family, owner-occupied homes located within the jurisdiction of the
issuer of the bonds. Interest on MRBs is excluded from gross income if they meet the
requirements for "qualified mortgage bonds" or "qualified veterans' mortgage bonds." In
addition, in some circumstances, "mortgage credit certificates" may be issued as an alternative to
qualified mortgage bonds.
In general, qualified mortgage bonds must finance residences for first-time home buyers;
the purchase price of the residence may not exceed certain amounts; and the purchaser must
satisfy certain income limitations. In addition, certain special rules apply with respect to
"targeted areas." A targeted area is defined as (1) a census tract in which 70 percent or more of
the families have incomes that are 80 percent or less of the Statewide median family income, or
(2) an area of chronic economic distress designated by the State and approved by the Secretary of
the Treasury and the Secretary of Housing and Urban Development.
Exempt facility bonds may be used to fund qualified residential rental projects, if at least
95 percent of the net bond proceeds are used to provide a qualified residential rental project. A
qualified residential rental project is a multifamily rental project in which one ofthe following
two requirements is met at all times during the qualified project period: (1) 20 percent or more
of the residential units in such project are occupied by individuals whose income is 50 percent or
less of area median gross income; or (2) 40 percent or more of the residential units in such
project are occupied by individuals whose income is 60 percent or less of area median gross
Income.
Qualified redevelopment bonds are bonds for which at least 95 percent of the net bond
proceeds are used for redevelopment purposes in a locally designated blighted area. The
payment of principal and interest must be primarily secured by taxes of general applicability
imposed by a general purpose government, or by incremental property tax revenues that are
reserved exclusively for debt service on such issue (and similar issues). Blighted areas are
designated by a local governing body based on the substantial presence of factors such as
excessive vacant land on which structures were previously located, abandoned or vacant
buildings, substandard structures, vacancies, and delinquencies in payment of real property taxes.
9
The volume of certain tax-exempt private activity bonds, including qualified mortgage
bonds, bonds for qualified residential rental projects, and qualified redevelopment bonds, that
States and local governments may issue in each calendar year is limited by State-wide volume
limits. The current annual volume limits are $75 per resident of the State or $225 million if
greater. These dollar limits are indexed for inflation for years after 2002.
Indian Employment Credit
Unfortunately, many residents of Native American communities continue to struggle
economically. The Indian Employment Credit provides an incentive for job growth in these
communities. Employers may claim an Indian Employment Credit on the qualified wages and
employee health insurance costs paid to an enrolled member of an Indian tribe in compensation
for services performed on or near a reservation. The credit amount is equal to 20 percent of the
excess of the employer's current year qualified wages and employee health insurance costs over
the sum of the corresponding amounts paid or incurred by the employer during calendar year
1993. The aggregate amount of qualified wages and health insurance costs may not exceed
$20,000 per person per year. This incentive was due to expire at the end of 2003, but has been
extended through 2004 by the recently enacted Job Creation and Worker Assistance Act of2002.
Depreciation of Property Used on Indian Reservations
Another tax incentive that encourages economic development on Indian reservations is
the accelerated depreciation of qualified Indian reservation property. This accelerated
depreciation is accomplished through the use of shorter recovery periods for certain property. In
order to qualify for this provision, a property must (1) be used by the taxpayer predominantly in
the active conduct of a trade or business within an Indian reservation, (2) not be used outside the
Indian reservation on a regular basis, (3) not be acquired from a person related to the taxpayer,
and (4) not be used for the purpose of certain gaming activities. In addition, property for which
the alternative depreciation system is applied is not eligible for this provision. This provision
was scheduled to expire for property placed in service after 2003, but was extended through 2004
by the recently enacted Job Creation and Worker Assistance Act of2002.
Low-income Housing Tax Credit
Taxpayers who invest in qualified low-income rental units are eligible for the low-income
housing tax credit (LlliTC). The LlliTC may be claimed over a 1O-year period for a portion of
the cost of rental housing occupied by tenants having incomes below specified levels. The credit
percentage for newly constructed housing that is not federally subsidized is adjusted monthly by
the Internal Revenue Service so that generally the 10 annual credit amounts have a present value
of 70 percent of qualified basis. The credit percentage for new buildings that are federally
subsidized and for existing buildings is calculated to have a present value of 30 percent of
qualified basis. In general, the aggregate first-year credit authority allocated to each State is
$1.75 per capita in 2002 and will be indexed for inflation in following years. Tax credits are
allocated to particular projects by State or local housing agencies pursuant to publicly announced
plans for allocation. Authority to allocate credits may be carried forward by agencies to the
following calendar year.
10
Unused credit allocations may be returned to an agency for reallocation. Credit
allocations may revert to the agency if less than 10 percent of the taxpayer's reasonably expected
qualifying basis is expended within 6 months after receiving the allocation. Authority not used
in a timely manner reverts to a national pool for distribution to States requesting additional
authority. Generally, a qualifying building must be placed in service in the year the credit is
allocated unless at least 10 percent of the taxpayer's reasonabl y expected basis in the property is
expended in the year of allocation or within 6 months after the allocation date. Rules are
provided for the allocation of costs to individual units in multi-unit projects and to property that
is part of a project but used for purposes other than rental housing. The tax credit period begins
with the taxable year in which a qualified building is placed in service (or, in certain
circumstances, the succeeding taxable year). Credits are recaptured ifthe required number of
units is not rented to qualifying tenants for a period of 15 years.
In certain geographic areas designated by the Secretary of Housing and Urban
Development, LllITC amounts awarded to projects may be increased by up to 30 percent. These
areas are: Difficult Development Areas, defined as metropolitan areas and nonmetropolitan
counties where development costs are high relative to area incomes (limited to 20 percent of U.S.
metropolitan and nonmetropolitan populations); and Qualified Census Tracts, census tracts,
containing not more than 20 percent of their metropolitan area or State nonmetropolitan
populations, where either at least 50 percent of households have incomes below 60 percent of
area median income, or the poverty rate is at least 25 percent.
Work Opportunity Tax Credit
Employers are generally entitled to the work opportunity tax credit (WOTC) for the first
$6,000 of wages paid to several targeted groups of economically disadvantaged workers or
workers with disabilities. For workers employed between 120 and 400 hours per year, the credit
rate is 25 percent of qualified wages. For workers employed over 400 hours per year, the credit
rate is 40 percent. Employers must reduce their deduction for wages paid by the amount of the
credit claimed. Current WOTC target groups include qualified: (1) recipients of Temporary
Assistance to Needy Families; (2) veterans; (3) ex-felons; (4) high-risk youth; (5) participants in
State-sponsored vocational rehabilitation programs; (6) summer youth; (7) food stamp recipients;
and (8) Supplemental Security Income recipients.
A qualified high-risk youth employee listed above is an individual at least 18 years old
but less than 25, who lives within an empowerment zone, enterprise community, or renewal
community. A qualified summer youth employee works for the employer between May 1 and
September 15, is 16 or 17 years old, and resides within an empowerment zone, enterprise
community, or renewal community. The limit on the wages of a summer youth employee that
qualify for the credit is reduced to $3,000.
At the time the Administration proposed the FY 2003 budget, the WOTC was scheduled
to expire at the end of 200 1. The Administration proposed that the :V0TC be extended through
2003. This was accomplished by the Job Creation and Worker ASSIstance Act of2002.
11
The House is considering the Encouraging Work and Supporting Marriage Act of2002.
The bill would combine the WOTC and the welfare to work (WTW) credit by making persons
eligible for WTW a WOTC target group with special rules. The WTW credit enables employers
to claim a tax credit for eligible wages paid to certain long-term welfare recipients. The changes
contained in the House bill will simplify the computation of the credit for employers that hire
members of the economically disadvantaged targeted groups. We commend the proposed tax
simplification.
Brownfields Remediation Costs
A brownfield site is real property, the expansion, redevelopment, or reuse of which may
be complicated by the presence or potential presence of a hazardous substance, pollutant, or
contaminant. Because lenders, investors, and developers fear the high and uncertain costs of
cleanup, they avoid developing contaminated sites. Blighted areas ofbrownfields hinder the
redevelopment of affected communities and create safety and health risks for residents. The
obstacles in cleaning these sites, such as regulatory barriers, lack of private investment, and
contamination and remediation issues, are being addressed through a wide range of Federal
programs, including the tax incentive for brownfields remediation.
To encourage the cleanup of contaminated sites, the brownfields tax incentive permits the
current deduction of certain environmental remediation costs. Environmental remediation costs
qualify for current deduction if the expenditures would otherwise be capitalized (generally costs
incurred to clean up land and groundwater that increase the value of the property) and are paid or
incurred in connection with the abatement or control of hazardous substances at a qualified
contaminated site. A qualified contaminated site generally is any property (1) that is held for use
in a trade or business, for the production of income, or as inventory; (2) at or on which there has
been a release, threat of release, or disposal of a hazardous substance; and (3) that is certified by
the appropriate State environmental agency as to the release, threat of release, or disposal of a
hazardous substance. Sites that are identified on the national priorities list under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA)
do not qualify as qualified contaminated sites. The brownfields tax incentive applies to
expenditures paid or incurred before January 1,2004.
Administration budget proposals
The President's Budget for FY 2003 includes two proposals to improve upon these tax
incentives and further encourage development in economically distressed communities. In
addition, there are other Administration proposals that would help low-income individuals, such
as the creation of Individual Development Accounts, increased incentives for charitable giving,
and a refundable tax credit for the purchase of health insurance, which are not discussed in this
testimony.
Single-Family Housing Tax Credit
12
The Administration believes that quality of life in distressed neighborhoods can be
improved by increasing home ownership. Existing buildings in these neighborhoods often need
extensive renovation. Renovation may not occur because the costs involved exceed the prices at
which the housing units could be sold. Similarly, the costs of new construction may exceed their
market value. Properties will sit vacant and neighborhoods will remain blighted unless the gap
between development costs and market prices can be filled. The Administration has proposed
the creation of a single-family housing tax credit (SFHTC) to expand the possibility of home
ownership for low-income families.
First-year credit authority of$1.75 per resident would be made available annually to
States (including U.S. possessions) beginning in calendar year 2003. The per capita amount
would be indexed for inflation beginning in 2004. Pursuant to a plan of allocation, State or local
housing credit agencies would award first-year credits to housing units comprising a project for
the development of single-family housing in certain low-income census tracts. Rules similar to
the current law rules for the LllITC would apply regarding carry forward and return of unused
credits and a national pool for unused credits. Units in condominiums and cooperatives could
qualify as single-family housing. Credits would be awarded as a fixed amount for individual
units comprising a project. The present value of the credits with respect to a unit could not
exceed 50 percent of the qualifying costs of the unit. For these purposes, present value would be
determined based on the mid-term Applicable Federal Rate in effect for the date the agency
allocated credits to the project. Rules similar to the current law rules for the LIHTC would apply
to determine eligible costs of individual units. The Treasury Department would have the
authority to promulgate necessary reporting requirements.
The taxpayer (developer or investor partnership) owning the housing unit immediately
prior to the date of sale to a qualified buyer would be eligible to claim SFHTCs over a 5-year
credit period beginning on that date. No credits with respect to a housing unit would be available
unless the unit was sold within a I-year period after the construction or rehabilitation was
completed.
Eligible homebuyers would have incomes at 80 percent (70 percent for families with less
than 3 members) or less of applicable median family income. They would not have to be firsttime homebuyers. Homebuyers would be subject to recapture provisions in certain
circumstances. In particular, recapture rules would apply if the homebuyer (or a subsequent
buyer) sold the property to a nonqualified buyer within 3 years after the date of initial sale of the
unit. No recapture provision would apply to taxpayers eligible to claim SFHTCs. If a housing
unit for which any credit is claimed were converted to rental property by the initial homebuyer
within the first 3 years following the purchase, expenses relating to the unit would not be
allowed as a deduction with respect to that unit during that time period.
The proposal would be effective beginning with first-year credit allocations for calendar
year 2003. The revenue cost ofthis proposal is expected to be $2.4 billion over FY 2003-2007.
Brownfields Remediation Costs
13
The Administration believes that encouraging environmental remediation is an important
national goal. The brownfields provision encourages the cleanup of contaminated brownfields,
thereby enabling them to be brought into productive use in the economy and mitigating potential
harms to public health. The current-law incentive was made temporary to encourage faster
cleanup of brownfields. Experience has shown, however, that many taxpayers are unable to take
advantage of the incentive because environmental remediation often extends over a number of
years. For that reason, the President's budget proposed a permanent extension of the brownfields
tax incentive. Extending the special treatment accorded to brownfields on a permanent basis
would remove doubt among taxpayers as to the future deductibility of remediation expenditures
and would promote the goal of encouraging environmental remediation. The Administration's
brownfields proposal was introduced by Mr. Coyne and Mr. Weller as H.R. 1439.
The revenue cost of the proposal is estimated to be $1.1 billion over FY 2003-2007.
Treasury estimates that the proposal, at a $300 million annual cost, will leverage approximately
$2 billion per year in private investment.
CONCLUSION
I would like to thank you, Mr. Chairman, Mr. Coyne and the members of the
Subcommittee for providing the chance today to discuss these important issues. I hope that,
working together, we can ensure that all Americans share in our country's prosperity and have
even greater opportunity in the future. While this concludes my prepared testimony, I would be
pleased to respond to your questions.
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THE
T REA SUR Y
NEWS
omcr OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. EMBARGOED UNTIL 8:30 A.M. EDT
Wednesday, May 22, 2002
20220 - (202) 622-2960
Contact: Tasia Scolinos
(202) 622-2960
"Risk and Recovery"
Remarks by Kenneth W. Dam
Deputy Secretary of the Treasury
Delivered to
The World Economic Forum
Washington, D.C.
Thank you, Greg, for that kind introduction.
I'd like to
make just a few opening comments and then I look forward to
engaging in a more informal dialogue with you, Greg.
I noticed in looking at the agenda that I am speaking to
you after a working breakfast on risk and before a session
on the scope of the recovery in the U.S. economy.
Accordingly, I thought I'd say a word about both.
The Recovery.
First, we do believe that economy is strong and growing
stronger.
Annualized GDP growth in the past two quarters has been
stronger than most predicted --- 1.7% in the fourth quarter
of 2001 and 5.8% in the first quarter of 2002.
Inventory adjustment appears to be almost over.
Production
is rising.
Equipment spending is stabilizing. Although
investment in equipment and software declined at a 0.5%
annual rate in the first quarter, a sharp decline in
investment in transportation goods, particularly aircraft,
offset solid gains in other types of capital investment.
Computer expenditures, for example, rose at a 38% annual
rate in the first quarter of 2002 - on top of a 34%
increase in the fourth quarter of 2001.
PO-3118
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'U S Govemment Prontlng OI1lce 1998· 619-559
Consumer spending is healthy.
It rose by 3.5% in the first
quarter.
Non-automotive spending increased by more than
6%.
Inflation remains tame.
And the productivity numbers increasingly support the
hypothesis that new technologies have increased the growth
potential of the u.s. economy.
Productivity increased at a
5.5% annual rate in the fourth quarter of 2001 and at an
eye-popping 8.6% rate in the first quarter of 2002.
All told, we continue to expect growth over the four
quarters of this year to come in at a healthy 3 plus
percent.
Risk
Terrorism, however, remains an economic wild card. And,
unfortunately, we are almost certain to be attacked again.
As the Vice President said last weekend, "we're as much
involved in conflict today as we were September 12 .
the prospects of a future attack against the United States
are almost certain./I
Our job is to try to prevent those attacks from occurring
and to take steps now that will mitigate the damage of
future attacks.
At Treasury, we lead the nation's fight on the financial
front of the war on terrorism. Among many, many other
things, we have implemented provisions of the USA PATRIOT
Act that require broker-dealers, money-service businesses,
and other financial institutions to adopt anti-money
laundering compliance programs. On the international
front, we are working bilaterally and multilaterally
through organizations like the G7 and the Financial Action
Task Force to close the financial system to terrorists.
Treasury is also leading steps to mitigate the damage of
future attacks.
For example, we playa leadership role in
critical infrastructure protection. An October 16
executive order from the President established the Critical
Infrastructure Protection (CIP) Board, which seeks to
secure information systems, including emergency
preparedness communications, and the physical assets that
support such systems.
2
I represent the Department on the CIP Board, and Assistant
Secretary Bair chairs a committee of state and federal
financial regulators that addresses CIP issues with regard
to the financial sector of the economy.
And we are working hard to obtain passage of a terrorism
insurance bill that makes good economic sense. Consensus
estimates put the losses resulting from the September 11
attacks in the $36 billion to $54 billion range.
To put
that in perspective, the losses from Hurricane Andrew were
$19.3 billion (adjusted for inflation).
In addition,
terrorist risks are harder to model than hurricanes.
Immediately following September 11, the reinsurance
industry almost entirely stopped assuming terrorism risk
and primary insurers withdrew from the market where state
law and regulation permitted them to do so. More recently,
there has been some tentative reengagement in providing
limited coverage at high premium rates, but there are still
serious gaps, and the expiration of additional policies
over the summer will expose more businesses to risk.
Needless to say, this unprecedented gap in coverage has
serious adverse consequences for our economy. Most
specifically, it makes it more difficult to finance
commercial construction and more difficult to sell
commercial real estate. More generally, the lack of terror
risk insurance jeopardizes the economy's ability to
withstand future attacks.
Accordingly, we are working with Congress to obtain
legislation that would provide a federal backup for
terrorism insurance. The House has passed a bill that is a
starting point.
It is time for the Senate to act.
There are many, many other things that we are doing on
these fronts, Greg, but I'd like to stop there open it up
to you for some questions.
3
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMlVlEDIA TE RELEASE
May 22,2002
CONTACT: BETSY HOLAHAN
202-622-2960
MEDIA ADVISORY
u.S. Treasurer Marin Will Demonstrate
New, Lower-Cost Remittance Options at Friday Event
Treasurer Will Send Nfoney to Relative ill Mexico City
As part of her ongoing leadership in the U.S./Mexico Partnership for Prosperity initiative, U.S.
Treasurer Rosario Marin on Friday will highlight some of the new competitive, low-cost ways
that people in the United States can send money to family members and friends in Mexico. She
will demonstrate these options by sending personal funds to a relative in Mexico City.
The event will take place at 10:00 a.m. EDT on Friday, May 24 at the Citibank Financial
Center, 1749 Y2 Columbia Road, N.W., Washington, DC.
The event is hosted b:, the LT S./Mcxico Chamber of ('ommercc and will take pbce in a Citihank
Financial Center in the Adams Morgan neighborhood ot Washington, D.C. The U.S./Mexico
Chamber of Commerce selected Citibank as one of several financial institutions including banks
and credit unions that are offering competitive, low-cost ways to send money to Mexico.
Each year, Mexicans and Mexican-Americans send a total of more than $9 billion to family and
friends in Mexico. The average remittance is $200-$250. However, fees for those remittances
can be as high as 20%.
The U.S./Mexico Partnership for Prosperity initiative - a joint effort created by President George
W. Bush and Mexican President Vicente Fox - seeks to leverage private sector resources to
promote development in the parts of Mexico where growth has lagged and fueled migration.
Partnership for Prosperity is working to promote competition among financial institutions
offering remittance services. Greater competition will lower the cost to consumers of sending
money home to households and regional economies in Mexico that need it most.
Rosario Marin, the highest-ranking Latina in the Bush Administration. was sworn in as the 41 sl
Treasurer of the United States on Aug. 16,2001. Born in Mexico City before immigrating to the
United States at age 14, Treasurer Marin is the first U.S. Treasurer born outside of the country.
-30PO-3U9
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D EPA R T 1\ lEN T
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TREASURY
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 26220. (202) 622-2960
EMBARGOED UNTIL 2:30 P.M.
May 22, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 2 - YEAR NOTES
The Treasury will auction $27,000 million of 2-year notes to refund $22,078
million of publicly held notes maturing May 31, 2002, and to raise new cash of
approximately $4,922 million.
In addition to the public holdings, Federal Reserve Banks hold $6,298 million
of the maturing notes for their own accounts, which may be refunded by issuing
an additional amount of the new security.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of the auction. These
noncompetitive bids will have a limit of $100 million per account and will be
accepted in the order of smallest to largest, up to the aggregate award limit of
$1,000 milJ:-ion.
TreasuryDirect customers requested that we reinvest their maturing holdings
of approximately $813 million into the 2-year note.
The auction will be conducted
tive and noncompetitive awards will
tenders.
The allocation percentage
be rounded up to the next hundredth
in the single-price auction format.
All competibe at the highest yield of accepted competitive
applied to bids awarded at the highest yield will
of a whole percentage pOint, e.g., 17.13%.
The notes 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 BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.
000
Attachment
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HIGHLIGHTS OF TREASURY OFFERING TO THE PUBLIC OF
2-YEAR NOTES TO BE ISSUED ~ 31, 2002
May 22, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . . . . .
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dated date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2-year notes
N-2004
912828 AD 2
May 29, 2002
May 31, 2002
May 31,2002
May 31,2004
Determined based on the highest
accepted competitive bid
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
Interest payment dates . . . . . . . . . . . . . . . . . . . . . . . . November 30 and May 31
~nimum bid amount and multiples .............. $1,000
Accrued interest payable by investor .......... None
Premium or discount . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
STRIPS Information:
amount required . . . . . . . . . . . . . . . . . . . . . . . $1,000
Corpus CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . 912820 HA 8
Due date (s) and CUSIP number (s)
for additional TINT(s) . . . . . . . . . . . . . . . . . . . . . . May 31,2004 - - 912833 YU 8
~nimum
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $5 million at the highest accepted yield.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids
submitted through the Federal Reserve Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account. The total noncompetitive amount awarded to Federal
Reserve Banks as agents for FIMA accounts will not exceed $1,000 million. A
single bid that would cause the limit to be exceeded will be partially accepted
in the amount that brings the aggregate award total to the $1,000 million limit.
However, if there are two or more bids of equal amounts that would cause the
limit to be exceeded, each will be prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a yield with three decimals, e.g., 7.123%.
(2) Net long position for each bidder must be reported when the sum of the total
bid amount, at all yields, and the net long position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the
closing time for receipt of competitive tenders.
Maximum Recognized Bid at a Single yield ........... 35% of public offering
Maximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon eastern daylight saving time on auction day.
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day.
Payment Terms: By charge to a funds account at a Federal Reserve Bank on issue date,
or payment of full par amount with tender.
Treas~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 :\1 E N T
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~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 23, 2002
CONTACT:
BETSY HOL-\HAN
202-622-2960
Air Transportation Stabilization Board:
th
June 28 is the Deadline for Applications
WASHINGTON, DC --As stated in the Office of Management and Budget (OMB) regulations
that govern the loan guarantee program, June 23. 2002 is the deadline tor submitting complete
applications LO the :-\ir TransDortalion Sub ili2~lli()1l Board (ATSB) under the air carrier loan
guarantee program.
Prospective -applicants should submit an original application and tour copies. Applications will
not be accepted via facsimile machine transmission or electronic mail. No application will be
accepted for review unless it is received at the ATSB's offices by 5:00 p.m. EDT on June 23,
2002.
The OMB regulations and in particular 14 CFR 1300.16, which is available on the ATSB web
site (www.treas.gov/atsb/documents), clearly set out ~the infonnation required to be included in
an application. The ATSB is authorized to reject at any time an application that it detennmt"s ttl
be incomplete.
~The
Board will continue to review all applications received by the deadline, as long as the
applications are complete and satisfactorily meet the OMB regulations," said ATSB Executive
Director Dan Montgomery.
Under the Act. signed into law September 22, 2001, the ATSB is authorized by Congress to issue
Federal loan guarantees to eligible air carriers that suffered losses due to terrorist attacks on
September 11, 2001.
The ATSB consists of designees of Federal Reserve Board Chairman Alan Greenspan, Treasury
Secretary Paul O'Neill and Transportation Secretary Norman ?vIineta. The designees are Federal
Reserve Board Governor Edward M. Gramlich. Treasury Under Secretary tor Domestic Finance
Peter R. Fisher and Department of Trans po nation General Counsel Kirk K. Van Tine. David
Walker, Comptroller General ofttle United States, is a non-voting member of the Board.
Additional infonnation about the ATSB is available on its web site referenced above.
- 3i)-
PO-3121
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......................................
OffiCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASmNGTON, D.C. • 20220 • (202) 622-2960
u.s. International Reserve Position
May 10, 2002
The Treasury Department today released u.s. reserve assets data for the latest week. As indicated in this table, u.s. reserve
assets totaled $68,523 million at the end of the latest week, compared to $68,580 million at the end of the prior week.
(in US millions)
I. Official U.S. Reserve Assets
May 3: 2002
1. Foreign Currency Reserves
a. Securities
I
1
May 10: 2002
68,523
68,580
TOTAL
Euro
5,671
Yen
TOTAL
Euro
Yen
10,479
16,150
0
5,659
10,423
4,369
13,941
0
0
0
0
9,560
4,345
Of which, issuer headquartered in the U. S.
TOTAL
16,082
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 U.S.
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4. Gold Stock
2
3
5. Other Reserve Assets
9,572
16,3411
11,132
11,151
11,044
11,044
0
0
carrying values.
21 The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the.IMF and are valued in dollar
terms at the official SDR/doliar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
PO-3122
0
0
16,313
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
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
13,905
0
0
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U.S. International Reserve Positi.Q[1.
May 3, 2002
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $69,758 million at the end of the latest week, compared t,O $69,240 million at the end of the prior
week.
(in US millions)
TOTAL
1. ForeIgn Currency Reserves
a. Securities
Ma~
AQril 26, 2002
I. Official U.S. Reserve Assets
l
1
Euro
5.576
Yen
10,399
3, 2002
69,758
69,.:14100
Euro
TOl"AIL
11::.975
5.671
Yen
TOTAL
10,479
a
Of which, issuer headquartered in the U.S.
16,150
a
b. Total deposits with:
b.i. Other central banks and BIS
b.ii. Banks headquartered in the U.S.
9,406
4,336
: 3.741
9,572
4,369
13,941
0
a
b.ii. Of which, banks located abroad
a
0
b.m. Banks headquartered outside the U.S.
0
0
0
0
r-51a
17,598
101.969
11,025
1yi"J44
11,044
0
0
b.iii. Of which, banks located in the U.S.
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
2
<\, Gold Stock :,
5. Other Reserve Assets
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 mar"edJ-~o-market values, and deposits reflect
carrying values.
21 The items, "2. IMF Reserve POSition" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued In dollar
terms at the official SDR/dollar exchange rate for the reporting date. The entries in the table above for i; atest week (shown in italics) reflect any
necessary adjustments, including revaluation. by the US. Treasury to the prior week's IMF data. The IIlrtllF data for the prior week are finai
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
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NEWS
TREASURY
OFFICE OF PU8L1C AFFAIRS e1500 PENNSYLVA;\IIA AVENCE, N.W .• WASHINGTON. D.C.- 20220. (202) 622-2960
EMBARGOED UNTIL 2:30 P_M.
May 23, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $30,749 million of publicly held 13-week and 26-week
Treasury bills maturing May 30, 2002, and to raise new cash of approximately $1,251
million_ Also maturing is an estimated $16,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced May 28, 2002.
The Federal Reserve System holds $14,839 million of the Treasury bills maturing
on May 30, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held May 29, 2002_ Amounts awarded
to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,087 million into the 13-week bill and $743 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e_g., 17.13%.
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
Attachment
PO-3124
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HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED MAY 30, 2002
May 23, 2002
Offering Amount ..... .
Public Offering ... .
NLP Exclusion Amount.
· $17,000 million
· $17,000 million
· $ 4,900 million
$15,000 million
$15,000 million
None
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 KY 6
· May 28, 2002
· May 30, 2002
· August 29, 2002
. February 28, 2002
· $19,812 million
· $1,000
183-day bill
912795 LM 1
May 28, 2002
May 30, 2002
November 29, 2002
May 30, 2002
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids:
Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FIMA
accounts will not exceed $1,000 million.
A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
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 (NLP) 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.
~aximum Recognized Bid at a Single Rate.
35% of public offering
Maximum Award.............
. .....
35% of public offering
~eceipt of Tenders:
Noncompetitive tenders
Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders...
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms:
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.
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THE
T REA SUR Y
NEWS
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
MAY 23, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
Treasury Department Issues Proposed Regulation
Implementing Section 312 of the USA PATRIOT Act
The Treasury Department today issued and sent to the Federal Register for publication a
proposed rule implementing Section 312 of the USA PATRIOT Act.
Section 312 requires certain U.S. financial institutions to take prescribed anti-money laundering
measures with respect to correspondent and private banking accounts that they establish or
maintain for non-U.S. persons.
Under the proposed rule, certain U.S. financial institutions would be required to establish a due
diligence program for correspondent accounts they maintain for certain foreign financial
institutions designed to detect and report money laundering, and to conduct enhanced due
diligence for accounts maintained for foreign banks from certain jurisdictions considered of
higher risk for money laundering.
In addition, these U.S. financial institutions must take reasonable steps to determine the owners
of, and source of funds deposited into, private banking accounts they maintain for non-U.S.
persons, and conduct enhanced scrutiny of such accounts maintained for senior foreign political
figures in order to detect and report transactions involving the proceeds of foreign corruption.
The proposed rule is open to public comment for 30 days after it is published in the Federal
Register, which is expected to occur next week.
Proposed Regulation
-30-
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'U S Government PnntJng OIilCe t'l<lR. '''~''''o
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OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASIDNGTON, D.C .• 20220 • (202) 622.2960
FOR IMMEDIATE RELEASE
May 19, 2002
Contact: Office of Public Affairs
(202) 622-2960
STATEMENT BY TREASURY SECRETARY PAUL H. O'NEILL
GOVERNOR FOR THE UNITED STATES OF AMERICA
EBRD 2002 Annual Meeting
Bucharest, Romania
EMBARGOED FOR 4:20 Local Time
President Lemierre, fellow Governors, ladies and gentlemen, I am delighted to be here in
Bucharest for these annual meetings. I believe I am the first U.S. Treasury Secretary to visit
Bucharest. And it has been a decade since a Treasury Secretary attended the EBRD annual
meetings. Secretary Brady attended in 1991 and 1992. I have come because I think the EBRD
has been an exceptionally effective tool for development and transition in the region. It is
uniquely endowed with a mandate to support countries committed to and applying the principles
of mUltiparty democracy, pluralism, and market economics. I also want to call on this bank to
rise to the challenges now facing us.
In a series of recent speeches, President Bush and I have put forth an agenda for accelerating
development and for greatly increasing aid effectiveness. Key elements of that agenda are:
•
•
•
•
a focus on productivity growth,
the importance of private investment and investment in human capital in raising productivity,
an insistence on measurable results, and
the Millennium Challenge Account based the on essential policy underpinnings good
governance, economic freedom, and investment in health and education.
The EBRD is well-designed and well-positioned to advance this agenda. The central purpose of
the EBRD is to promote the transition to democratic market economies, particularly by
facilitating private sector investment. It is designed to finance projects that are above the risk
threshold for private capital alone. Under President Lemierre, it has also intensified efforts to
use its financing to encourage better corporate governance and improved investment
environments. We view these activities as among the most effective that international financial
institutions can undertake in raising productivity and spurring growth and higher living
standards.
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·U S Govemment PrintIng OHlce 1998· 619-559
September 11 and the war on terrorism it launched have forced us to look again at our definitions
of national, regional, and global security. The concept of security must be broadly defined to
encompass the sources of instability, extremism, and terrorism. We know that the war on
terrorism has an economic front. This bank includes countries and regions very much on the
frontlines of this struggle, including Central Asia and the Caucasus. I think the EBRD has a
unique, vital contribution to make, and I welcome its efforts to step up its activities in these
areas.
We very much support and encourage more EBRD efforts to expand operations to the South and
to the East, and also to expand financing and investment in micro, small, and medium size
companies. While these are only a part of the EBRD's operations, we view its programs to
promote new, small businesses as especially valuable tools in support of transition and
development. SMEs are an essential source of job growth, where productivity gains are likely to
be highest.
The governments of the region should seize this moment and redouble their efforts to improve
investment climates. They have influence over much of the risk facing investors. If they act, we
are confident that the EBRD will vigorously respond. The United States has put its own
resources on the line in these efforts. We have created a Fund at the EBRD to support the
development of micro, small and medium sized businesses in early and intermediate transition
countries, which will grow to over $25 million this year, and expand operations to the farthest
reaches of the Bank.
Just this morning in Bucharest, President Lemierre and I visited a furniture factory that has been
a beneficiary of this SME fund. With a loan from this Facility, the furniture factory has rapidly
increased its operations, enabling it to expand from sales to designing and manufacturing its own
products. This is typical of the EBRD's success with this facility across Southeast Europe.
Nearly 17,000 loans worth over $100 million have been provided since its inception nearly two
years ago. This Fund includes a ··policy dialogue" component, under which EBRD staff engage
governments at the local and national levels on steps to identify and remove obstacles to small
business finance and growth. Our financing also trains loan officers to do this kind of lending,
thus building human capital in a very practical, productive sense.
While in Russia last summer, I witnessed first hand the enormous impact ofEBRD's activities in
promoting small business loans through the Russia Small Business Fund. We fully endorse the
EBRD's plans to further expand this very successful program, and I strongly urge other donors to
join us in contributing the resources necessary to support its expansion.
With more than a decade of transition behind us, the benefits of reform are more and more in
evidence. Despite the global uncertainty in the wake of the events of September 11, as well as
financial turmoil in other regions, the economies in the EBRD's portfolio grew at an average rate
of 4% in 2001, with every country except Macedonia posting positive growth for the second
consecutive year. In the Baltics and Central Europe, this growth is driven by vibrant private
sectors, robust export performances and high levels of foreign investment, and we look forward
to the day when these countries will no longer need the EBRD.
In other countries, the foundations for growth are much more fragile. In the Balkans, the key is
to seize the opportunity offered by improved political stability by embracing the reforms
necessary to attract investment - such as simpler tax systems, clear and efficient regulatory
frameworks, contract and property rights enforcement, and comprehensive efforts to root out
corruption.
In Russia, the government has embarked on structural reforms that are making tangible
improvements in the investment climate. In addition to a radical income and profit tax refonn,
the Government is turning its attention to the small business sector, agricultural land refonn, the
banking sector, public administration reform, and the remaining large state-owned monopolies in
the energy sector. I sense and welcome continued resolve by President Putin and his government
to stay this difficult course.
For Romania, our host country, this as a critical year: it has the attention of the international
community and has opportunities created by growth, lower inflation and foreign investment. If
the authorities can seize these opportunities by embracing further reform, this could be the year
that Romania launches itself on the path of sustained growth.
Finally, I would like to commend EBRD for its efforts to help fight terrorism by establishing
procedures to ensure that the proceeds of Bank financing do not go to organizations that support
or finance terrorist activity. This is a crucial component of the international community's
determination to choke off financing for terror, and we are very grateful for the Bank's
cooperation. The EBRD is also taking additional steps to combat money laundering, including
working more closely with the Financial Action Task Force, a most welcome development that
should continue.
In conclusion, I would like to thank President Lemierre for his leadership at this institution, and
look forward to working closely with him - and others - to achieve our common objectives. I
will not be satisfied with a region where one's living standard depends on one's longitude. Our
aim is sustained high growth throughout the region, and I hope this bank aims for no less.
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FOR IMMEDIATE RELEASE
MAY 24, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
Remarks by U.S. Treasurer Rosario Marin
at the
U.S.lMexico Chamber of Commerce Event
Highlighting Competitive, Low-Cost Ways To Send Money To Mexico
Thank you. Thank you, Barbara for hosting this event. Thank you, Ambassador Bremer
for your leadership, friendship, and support. Thank you, Jose for joining us today and for
your leadership at the Inter-American Development Bank. Thank you, Fernando and
Michael for showing us your financial center, your employees, and letting us use your
services to demonstrate something very important.
Today I sent $200 to my aunt in Mexico. I paid $10 to do this, plus an exchange-rate
conversion fee of3.5%. Of the $200 I sent, my aunt in Mexico will receive $193.
I was pleased to do this because I love my aunt and I'm glad I had the chance to share
some of my money with my aunt.
But I'm also pleased because this is a very important transaction. It happens tens of
thousands oftimes a day in the United States. Last year, over $9.3 billion was sent to
Mexico by Mexicans and Mexican-Americans in the United States. Average fees,
however, are about 20%. That means that of the $9.3 billion dollars sent to Mexico last
year, $1.86 billion was eaten up in fees.
Last September, President Bush and President Fox launched the U.S.lMexico Partnership
for Prosperity. The Partnership seeks to leverage private sector resources to promote
development in the parts of Mexico where growth has lagged and fueled migration.
One of the things that we are working on in the Partnership for Prosperity is to lower the
cost of sending money to Mexico. We want to do this by promoting competition. More
competition will result in lower costs to consumers. Ifwe can cut the fees in half - from
20% to 10% -- we can increase the amount of money that ultimately gets to Mexico by as
much as $930 million dollars. That's a lot of money.
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·U S Government Pnnllng Office 1998· 619-559
That's a lot of money, especially, when you think of it in human tenns. 20% of$200 is
$40. If we can cut that fee in half, though competition, innovation, and the use financial
institutions like banks and credit unions, we'll save consumers $20. $20 is a lot of
money. It can mean a pair of shoes or a new dress. It can put meat into tortillas instead
of just beans. And when you add it up it means almost $1 billion more into the pockets
of Mexicans who need it most.
Already, we are seeing progress. Since the Partnership was launched in February, we
have seen competitive remittance products being offered by a number of financial
institutions including banks and credit unions. I appreciate the U.S.lMexico Chamber of
Commerce's decision to host this event and to celebrate these accomplishments. I look
forward to seeing more competition and even lower costs in the future.
Thank you.
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omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• %0220. (%02) 6%%.2960
FOR IMMEDIATE RELEASE
May 24, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
u.S. Treasurer Marin Demonstrates New, Low-Cost Remittance Options
Treasurer Sends Money to Relative in Mexico City
WASHINGTON - As part of her ongoing leadership in the U.S.lMexico Partnership for
Prosperity initiative, U.S. Treasurer Rosario Marin today demonstrated one of the new
competitive, low-cost ways that people in the United States can send money to family members
and friends in Mexico. She did so by sending personal funds to a relative in Mexico City.
The event, hosted by the U.S.lMexico Chamber of Commerce, took place in a Citibank Adams
Morgan Financial Center in the Adams Morgan neighborhood of Washington, D.C. The
U.S.lMexico Chamber of Commerce selected Citibank as one of several financial institutions
including banks and credit unions that are offering competitive, low-cost ways to send money to
Mexico. It will be followed by a second event, in Mexico City on May 27, during which
Treasurer Marin and her relative will pick up the money.
"This is a very important transaction," said Treasurer Marin. "It happens tens of thousands of
times a day in the United States. Last year, over $9.3 billion was sent to Mexico by Mexicans
and Mexican-Americans in the United States. Average fees, however, are about 20%. That
means that of the $9.3 billion dollars sent to Mexico last year, $1.86 billion was eaten up in fees.
"That's a lot of money, especially, when you think of it in human terms," she said. "Twenty
percent of$200 is $40. Ifwe can cut that fee in half, though competition, innovation, and the
use financial institutions like banks and credit unions, it will save consumers $20. $20 is a lot of
money. It can mean a pair of shoes or a new dress. It can put meat into tortillas instead of just
beans. And when you add it up, it means almost $1 billion more into the pockets of Mexicans
who need it most."
The U.S.lMexico Partnership for Prosperity initiative - a joint effort created by President George
W. Bush and Mexican President Vicente Fox - seeks to leverage private sector resources to
promote development in the parts of Mexico where growth has lagged and fueled migration.
Partnership for Prosperity is working to promote competition among financial institutions
offering remittance services. Greater competition will lower the cost to consumers of sending
money home to households and regional economies in Mexico that need it most.
PO-312S
-
For press releases, speeches, public schedules and official biographies, roll OUT 24-hour fax line at (202) 622-2040
·U.S Government Prmtmg Offoce 1998 - 619-559
Rosario Marin, the highest-ranking Latina in the Bush Administration, was sworn in as the 41 51
Treasurer of the United States on Aug. 16, 2001. Born in Mexico City before immigrating to the
United States at age 14, Treasurer Marin is the first U.S. Treasurer born outside of the country.
-30-
D EPA R T :\1 E N T
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T REA SUR Y
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..................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
For Release Upon Delivery
Monday, May 27, 2002
Contact: Tony Fratto at 256-41-345-260.
Treasury Secretary Paul H. O'Neill
Remarks at Makcrere University
Kampala, Uganda
Good afternoon. It is a pleasure to be at your university today.
This tour marks my first visit to Africa since becoming Secretary of the United States
Treasury. In my previous visits I traveled as a businessperson. I am eager to make the most of
my time, to witness first hand the effOlis underway to engage all the people of Africa in creating
a brighter future.
I come here to learn. To hear from entrepreneurs, investors, farmers, artisans and
vendors in the market. I want to hear their hopes and dreams and I hope they share with me their
insights into how best to eliminate the obstacles to Africa's prosperity.
I cnm~ here vvlth '111 open Dlmd, ronvlnccc of enly one thinfl .. - that human oeinl;!s
everywhere have the potential to succeed.
The question for us, and for our time, is how to finally realize that vision. How can the
people of the African nations and their elected leaders create prosperity -- and how can the
people of the United States and the other industrialized countries best support their efforts?
If I had the answer, I would have sent a prescription. It's not so easy. For some 50 years,
thoughtful, compassionate people have struggled to solve poverty here. As Bono, my friend and
travelling companion, might say we "still haven't found what we're looking for." The results of
official development assistance have been disappointing, and many poor countries here have
stayed that way, even as others have excelled.
So I have come to Africa. Not to preach, but to listen, and share. I want to see what has
worked here, and what has failed. I want to ask how we can do better. I want to learn from
Uganda's political and economic success, so 1 can share the best of your experience with your
neighbors and the world. At the same time, I want to share what we have learned from other
successful developing countries around the world, and show our commitment to promoting those
practices in Africa.
PO-3129
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And I want to take our combined experience and put it to work, to produce results for
Africans. Not in the next generation, but right now.
Here is what we know: all people are created equal. Given the tools and incentives for
success, they will succeed, no matter who they are or where they live. Of course this is selfevident. But I have also seen this truth first-hand, as a leader in the private sector. As Chairn1an
and CEO of Alcoa, I helped grow the company from 55,000 employees in 13 countries when I
joined in 1987, to 140,000 people in 36 countries -- including several African countries -- when I
retired in :WOO.
During that time I learned about job creation, and about the ways of life and work around
the globe. In my travels, I saw that human beings everywhere, with the proper education, good
health, and a stable environment, could perform meaningful, value-adding work at worldcompetitive levels. I saw that in the Americas, I saw it in Europe, I saw it in Asia, and I saw it in
Africa.
We also know that in every nation, economic growth and higher living standards come
from increasing productivity -- that is, increasmg the value that each worker produces each day.
When productivity is rising, workers earn more for their work and their quality of life improves,
year after year.
Moreover, we know that it is a competitive private sector that drives productivity gains.
As companies compete with each other for business, they seek better ways to satisfy their
customers. They try to provide more and more value for each dollar. As opportunities to add
value emerge, entrepreneurs enter the market. To stay competitive, leaders must constantly
invest in new ideas and better methods for production.
So what can a country ao to unleash Its private sector anu mcrease productivity? What have
successful leaders done?
•
They rule justly, by fairly enforcing law and contracts, respecting human rights and
property rights, and fighting corruption.
•
They encourage economic freedom, by removing barriers to trade - both internal and
external - and by opening their economies to investment, allowing companies and
entrepreneurs to compete without excessive interference, and pursuing sound fiscal and
monetary policies, including government divestment of business operations.
•
And they inv.:st in their people, by providing the best possible systems f~r education (lr:J
health care. In particular, we must work to fight the spread of AIDS, whIch threatens to
cripple the economic potential of many African nations and peoples.
All three of these elements -- ruling justly, encouraging economic freedom, and investing in
people -- are essential for successful development.
Amo.ng t?e ~1any nations in Africa, we chose to visit Uganda on this tour because you have
been an InSpiratlon for the continent. Uganda's economy has grown by almost 7% annually over
the past ten years, an extraordinary achievement in any part of the world. Because of that
growth, poverty fell from 56% of the population in 1992 to 35% in 2000. Inflation is low the
currency is stable, and trade is open.
'
Foreign investment has increased by ten-fold from its average rate in the early 90s, as
Ugandan reforms have raised investor confidence.' Just a few weeks ago, President Museveni
and I met in Washington to discuss how to further encourage private investment in your country.
One of my suggestions was to pursue an investment grade credit rating as an indicator of
leadership and good policies.
The transparency and policy environment needed for an investment grade rating disciplines
government. Achieving investment grade sovereign debt would allow Uganda to grow on its
many merits, as investors could more easily differentiate Uganda's risks from those ofless
progressive nations.
Thanks to President Museveni' s leadership, Uganda has become the first country in Africa to
reduce its AIDS infection rate. At the same time, primary school emollment has increased from
about half(55%) of children in 1994 to nearly all of them (94%) in 1999, and half(over 47%) of
the students are girls. Education quality is improving as well.
Uganda shows the positive difference that leadership can make. There is still much more
work to do -- fighting corruption and building democracy, improving infrastructure,
strengthening the financial sector, and expanding exports. But there is much to learn here. And
so, we will visit The AIDS SuppOli Organization clinic in Kampala and several AIDS research
ccrit.~r=:. 'rl~is ~:-_~Jrrll~lb "'''v'C '-isi~C'd a lJni".;er:3:,~l Pr~~arJ' P:i~~c?!icn -:'('h~"'Ol zl!~d ;' c0mr~~njt;' 1..l,'.~+O!""
project. A cut-rlower factory we will VIsit exemphiles uganda's export etTons. Ami lale! tuday,
we will meeth entrepreneurs building businesses with micro-finance loans from USAID.
V!hen we return to Washington, we will push ahead with President Bush's reform agenda.
One key component of this reform agenda is that official development assistance, through
USAID, through the World Bank, the African Development Bank or bilaterally, stands a better
chance of success when local leaders are already improving the economic framework of the
nation.
That is the premise of the President's Millennium Challenge Account and the New Compact
for Development. The President has proposed $" billion in additional US bilater~l aid ~nnually,
channeled to those countries that can use the money effectively. To access the MIllennlUm
Challenge Account, developing countries must demonstrate a strong commitment to ruling
justly, encouraging economic freedom, and investing in people.
I
FDI $228 million in 2001 up from annual average $23 million per year, 1989-1994.
3
We are in the process of developing the criteria for measurinab countries' policies in this area ,
so we can begin to disburse funds. As part of the process, President Bush has asked us to reach
out to the world community, and that is one reason for this tour of Africa.
. . .U ~anda ~as the first beneficiary of the World Bank and IMF Heavily Indebted Poor Country
mitIatlve, whIch has freed substantial debt service resources for worthwhile social investments.
Washington has supported the HIPC initiative. But we want to go even further, to overcome the
causes of excessive debt for countries whose leaders embrace refornl.
President Bush has proposed that up to 50% of World Bank and other development bank
funds for the poorest countries be provided as grants rather than as loans. This proposal
acknowledges the long-term development challenges facing these countries, their vulnerability to
economic shocks, and the reality that essential investments in social sectors such as education
and health care -- investments in people -- cannot directly generate the incremental revenue to
service new debt.
Replacing loans with targeted grants will eliminate the need for governments to repay
principal and interest on long-term investments in people. It will thereby eliminate the next
generation of debt service problems. It is time to end the sad cycle of indebtedness for countries
committed to success.
We have to be hard-headed and demand results-that is our responsibility to the
impoverished people of Africa. Ifwe don't insist on results for the dollars provided by
compassionate people all over the developed world, then we are not meeting our responsibility as
world leaders to improve the lives of people everywhere.
(:;l'"",~
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World Bank and the other multilateral development banks du business. They must improve the
effectiveness of their assistance. Rather than focllsing on inputs, I want them to focus on results.
For example, don't tell me how many children you've enrolled in school, or how much you've
spent on enrollment programs -- tell me how many of the children can read, write and compute at
their grade level after six years of schooling. That's what matters - it's the only thing that
matters to those children and their future.
.....,
1"\-<.
__
......
_.
11
.......
i...
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President Bush has created new incentives in our development assistance programs to
encourage a greater focus on results. He .has com~litted ~o an 18% increase in fundin~ for th~
African Development Bank and an 18% mcrease m fundmg for IDA, the World ~a~ s lend1l1g
program for the poorest nations, so long as those programs can show they are aChIeV1l1g
me:1surable improvements in development.
In the long-term, domestic entrepreneurship as well as trade ~nd fore.ign investment are far
more important for economic growth than official aid .. I agree wIth PreSIdent Musevem, wh~
wrote in our Wall Street Journal last week that "there IS now a broad a agreement that no natIOnal
or international strategy for addressing poverty can be successful unless it promotes expanded
trade and investment."
4
The United States has created the Africa Growth and Opportunity Act, or "AGOA," to open
U.S. markets to exports from sub-Saharan Africa. AGOA provides duty-free treatment for
African exports to the United States, including preferential treatment for certain products. The
Ugandan government has qualified for AGOA, which will advance export-driven private sector
growth. As President Museveni said "If somebody buys what Uganda produces, then he is
rendering my country the best assistance possible."
I would also encourage Uganda and all African nations to reduce trade barriers amongst
themselves, so that all can benefit from their different comparative advantages, and relative
proximity to each other.
I believe strongly in development assistance that makes a difference in people's lives.
I am optimistic that our efforts together will produce results in Uganda, and throughout Africa.
This is an exciting time for those of us who relish the challenge of unleashing human potential
around the world, especially in Africa. We are making progress on many fronts. With the right
government policies, we can accelerate the spread of private sector production around the world.
We can create vibrant, self-sustaining local economies and a rising standard of living for people
everywhere. We can unleash the human potential -- and we will not be satisfied with anything
less.
Thank you.
5
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 11:30 A.M.
May 28, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS 4 -WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $16,000 million to
refund an estimated $16,000 million of publicly held 4-week Treasury bills maturing
May 30, 2002.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $14,839 million of the Treasury bills maturing
on May 3,Q, 2002, in the System Open Market Account (SOMA).
This amount may be refunded
at the highest discount rate of accepted competitive tenders in this auction up to the
balance of the amount not awarded in today's 13-week and 26-week Treasury bill
auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign ,~d International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of N9w York
will be included within the offering amount of the auction.
These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securi::'ies is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-3130
' b l l · C ~cl,edu!es and o Ff'icial biographies, call
For press re Ieases, speeClles,
pu
-, I,
:JJ' •
Ollr
24-llOur fax fine {Ii (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED MAY 30, 2002
May 28, 2002
Offering Amount ................ ··.· .$16,000 million
Public Offering ................ ···· .$16,000 million
NLP Exclusion Amount ................ $ 9,400 million
Description of Offering:
Term and type of security ........... 28-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . · .912795 KA 8
Auction date . . . . . . . . . . . . . . . . . . . . . . . . May 29, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . May 30, 2002
Maturity date ................... ··· . June 27, 2002
Original issue date ............... · . December 27, 2001
Currently outstanding ............... $37,496 million
Minimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not e~ceed $1,000 million.
A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit.
However, if there are two Dr more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with ·three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) 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.
~1aximum
Maximlli~
Recognized Bid at a Single Rate ... 35% of public offering
Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 11:00 a.m. eastern daylight saving time on auction day
Competitive tenders:
Prior to 11:30 a.m. eastern daylight saving time on auction day
Payment Terms:
By charge to a funds account at a Federal Reserve Bank
on issue dat:.e.
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington. DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May 28, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
May 30, 2002
August 29, 2002
912795KY6
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.730%
High Rate:
Investment Rate 1/:
1.760%
Price:
99.563
All noncompetitive and successful competitive bidders were awarded
securities at the high rate
Tenders at the high discount rate were
allotted 82.06%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
$
Competitive
Noncompetitive
FI~1\
Accepted
Tendered
Tender Type
(::onc8mF~::.i ti~}·e:
31,876,362
1,456,424
153,000
$
17,000,246 2/
33,485,786
SUBTOTAL
$
TOTAL
6,440,886
6,440,886
Federal Reserve
39,926,672
15,390,822
1,456,424
$
23,441,132
Median rate
1.720%: 50% of the amount of accepted competitive tenders
vas tendered at or below that rate.
Low rate
1.695%:
5% of the amount
)f accepted competitive tenders was tendered at or below that rate.
lid-to-Cover Ratio
=
33,485,786 / 17,000,246
= 1.97
/ Equivalent coupon-issue yield.
/ Awards to TREASURY DIRECT = $1,192,JOO,000
http://www.publicdebt.treas.gov
PO-3131
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May 28, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
183-Day Bill
May 30, 2002
November 29, 2002
912795LM1
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.890%
High Rate:
Investment Rate 1/:
Price:
1.935%
99.039
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 80.35%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitjvc)
$
28,527,105
1,068,699
465,000
$
6,014,025
6,014,025
Federal Reserve
$
36,074,829
13,466,543
1,068,699
465,000
15,000,242 2/
30,060,804
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
21,014,267
Median rate
1.880%: 50% of the amount of accepted competitive tenders
lias tendered at or below that rate.
Low rate
1.830%:
5% of the amount
)f accepted competitive tenders was tendered at or below that rate.
3id-to-Cover Ratio = 30,060,804 / 15,000,242 = 2.00
.j Equivalent coupon-issue yield.
~j Awards to TREASURY DIRECT = $802,722,000
http://www.publicdebt.treas.gov
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 28, 2002
Contact: Betsy Holahan
(202) 622-2960
ATSB Decision On Vanguard Airlines
WASHINGTON, DC - The Air Transportation Stabilization Board (ATSB) announced
today that it has rejected the application of Vanguard Airlines, Inc. for a Federal
guarantee of a $15 million financing pursuant to the Air Transportation Safety and
System Stabilization Act (Act) and implementing regulations promulgated by the Office
of Management and Budget (OMB). The Board concluded its review based on the
standards set out in the Act and the OMB regulations and determined that Vanguard's
application did not meet the applicable standards. The Board determined that Vanguard's
proposal did not provide a reasonable assurance that Vanguard will be able to repay the
loan, one of the factors that the Board is required to consider under the OMB regulations.
The ATSB, established as part of the Air Transportation Safety and System Stabilizatioll
Act signed into law September 22, consists of designees of Federal Reserve Board
Chairman Alan Greenspan, Treasury Secretary Paul O'Neill and Transportation Secretary
Norman Mineta. The designees are Federal Reserve Board Governor Edward M.
Gramlich, Treasury Under Secretary for Domestic Finance Peter R. Fisher and
Department of Transportation General Counsel Kirk K. Van Tine. David Walker,
Comptroller General of the United States, is a non-voting member of the Board.
Additional information about the ATSB is available on its web site, www.treas.gov/atsb.
PO-3133
For press releases, speeches, public schedules and official biographies, call our 24.Jrour 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
CONTACT:
FOR IMMEDIATE RELEASE
May 29, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
Issue Date:
Dated Date:
Maturity Date:
3 1/4%
N-2004
912828AD2
High Yield:
Price:
3.274%
May 31, 2002
May 31, 2002
May 31, 2004
99.954
All noncompetitive and successful competitive bidders were awarded
securities at the high yield.
Tenders at the high yield were
allotted
6.82%.
All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FII1A.
$
70,919,927
1,581,271
$
27,000,048 1/
72, SOL 198
SUBTOTAL
6,298,360
6,298,360
Federal Reserve
$
78,799,558
25,418,777
1,581,271
o
o
{nollco~l:tJetit:iv-ei
TOTAL
Accepted
Tendered
Tender Type
$
33,298,408
Median yield
3.255%:
50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low yield
3.200%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 72,501,198 / 27,000,048 = 2.69
1/ Awards to TREASURY DIRECT
$1,134,206,000
http://www .publicdebt. treas.gov
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T R E .\ S l' R Y
NEWS
ornCE OF PUBUCAFFAIRS -1500 PENNSYLVANJAAVENUE., N.W. - WASHINGTON, D.C.. 20220. (202) 622.2960
FOR IMMEDIATE RELEASE
Thursday, May 30,2002
Contact: Tasia Scolinos
(202) 622-2960
TREASURY UNDER SECRETARY
FOR ENFORCEMENT JIMMY GURULE
D.C. BAR ASSOCIATION SPEECH
INTERNATIONAL LAW SECTION
Introduction:
I want to thank you for this opportunity to be here with you today. It is always a
pleasure to dialogue with fellow lawyers about issues of importance confronting our
natio~ and I welcome the opportunity to share with you the Treasury Department's role
in combating terrorist financing. As you all know the United States is engaged in a war
against terrorism. This is an unconventional war and this requires that it be fought on
several unconventional fronts, including the financial front.
In the aftennath of the September 11 th disaster President Bush acted decisively and his
command to us was clear. On September 24, 2001, he stated: "We will direct every resource at
our command to win the war against terrorists, every means of diplomacy, every tool of
intelligence, every instrument oflaw enforcement, every financial influence. We will starve
the terrorists of funding." The President directed Secretary O'Neill to lead the nation's war
against terrorist financing and we have devoted extensive resources and applied our
considerable expertise to fulfill this mandate.
The Treasury Department's strategy is preventive, intended to disrupt the ability of
terrorists to raise funds and finance future terrorist attacks. This isn't a numbers game,
focusing on how much money the USG blocked last week versus this week. Instead, by
dismantling terrorist financial networks, we seek to prevent acts of terror and save human lives.
To be successful, any strategy intended to dismantle the financial infrastructure of
terrorist groups like al Qaida must be international in nature. The reasons of course are
obvious. First, terrorism is a global problem. Al Qaida cells are believed to be operating in as
many as 60 countries worldwide. Second, money is a fluid commociity that can be wired
around the world in seconds. Third, because of the strict federal bank reporting requirements
and aggressive forfeiture laws, terrorist funds are not likely to be held in U.S. banks.
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However, the development of an international strategy to starve terrorist of funds poses
enormous challenges. Foreign governments have different legal regimes, imposing different
legal standards and procedures. Some countries have not enacted either anti-terrorist
financing, money laundering, or asset forfeiture legislation. Finally, sovereignty concerns may
hamper information sharing and law enforcement cooperation.
Executive Order 13224
Let me first begin by outlining the tools we have been utilizing to develop our
comprehensive domestic and international strategy. On September 23 rd , pursuant to the
International Emergency Economic Powers Act (IEEPA), President Bush issued
Executive Order 13224 declaring a national emergency with respect to acts of terrorism
and threats of terrorism committed by foreign terrorists against the United States. E.O.
13224 provides the Treasury broad, sweeping powers to block all property and interests
in property of the individuals and entities named in the E.O.'s Annex or as designated by
the Secretary of the Treasury or the Secretary of State under the Order. It also prohibits
all financial transactions, including charitable donations, between U.S. citizens and all
designees named in the E.O. Annex.
Although prior to 9/11 other executive orders and statutes were already in effect
that permitted some blocking action, E.O. 13224 broadened the Treasury Department's
existing authority in two principal ways. First, it expanded the coverage of existing
Executive orders from terrorism in the Middle East to global terrorism. Second, it
emphasized the authority to block assets and deny access to the U.S. financial markets to
persons who support, finance, or assist those who commit or pose a serious threat of
committing acts of terrorism.
The new E.O. has proven an effective tool. Since September 24th the Treasury
Department's Office of Foreign Assets Control, has blocked the assets of210 entities and
individuals and $ 34 million has been frozen here in the U.S.
We are also intimately involved in the selection of the blocking targets. The
Treasury Department chairs the inter-agency working group that has been targeting and
listing these entities and individuals. In this inter-agency process, we have assembled
experts and policymakers from the Treasury Departmen~ including the Office of Foreign
Assets Control (OFAC), the Department of Justice, the Department of State, the Federal
Bureau of Investigation (FBI), the intelligence community, and the White House.
The process of identifying and investigating targets is ongoing and we are
currently investigating other financial entities, businesses, groups, and persons for
potential listing. We are focusing on uncovering high-impact financial intermediaries that
act as financial conduits and facilitators for terrorist groups. Our ultimate goal is to use
all the tools at our disposal to disrupt terrorist financing in an effort to prevent the
perpetration of further terrorist attacks.
2
International Cooperation
I am pleased to report that we have seen unprecedented cooperation from our
friends and allies on the financial front. To date, all but a handful of countries have
expressed their support for the war on terrorist financing and 166 countries and
jurisdictions around the world have taken blocking action against individuals and entities
with suspected terrorist links resulting in blocked assets abroad of $ 82 million.
UN Security Council Resolutions
Despite our successes there have been some unique challenges that have required
flexibility and creativity as we crafted together an international coalition one country at a
time. For instance, many countries, despite the good intentions of the government, do not
have the domestic laws necessary to allow the government to take blocking action
legally. In some of these cases legal authority was obtained via UN Security Council
Resolutions 1267, 1337 and 1390. Let me take a moment to explain how this works.
UNSCR s 1267 and 1333 are now combined in UNSCR 1390. UNSCR 1390 was adopted
January 16,2002, and requires all UN member States to block the assets of the Taliban,
Usama bin Ladin, the al-Qaida organization and those linked to them. Thus, when the
U.S. designates persons or entities under E.O. 13224, those names are forwarded to the
U.N. Sanctions Committee. The members of the U.N. Committee have 48 hours to
object or the names are placed on the U.N. Security Council list. The UN's so-called
"1267 Committee" maintains a list of blocked individuals and entities. All states are
required to freeze their assets and prevent assets from being made available to them.
In additio~ UNSCR 1373, adopted on September 28th, 2001, mandates that all
States prevent and suppress the financing of terrorist acts. To be more specific, it requires
them to criminalize providing or collecting funds for terrorist use. It also requires them to
block without delay funds and other assets of terrorists and their supporters, and prolubits
making assets available to terrorists and supporters. UNSCR 1373 also mandates that
States prosecute terrorists and provide mutual assistance in criminal investigations and
proceedings for terrorist financing, including obtaining needed evidence. It further bars
States from giving terrorists a safe haven. The resolution also mandates the establishment
of the Counter-Terrorism Committee to monitor implementation ofUNSCR 1373.
Technical Assistance
In additio~ the Treasury Department has also worked bilaterally with many of
these countries to provide them with the technical assistance necessary to enact and
enforce domestic laws in their home countries that would give them the legal authority to
block assets. Over the past eight months forty-three countries have requested technical
assistance from the United States. The Treasury Department has been sending out teams
of lawyers, accountants, and other specialists to aid many of these countries in drafting
new laws that would enable them to take action unilaterally without relying on the UN
process. Our technical assistance efforts are an ongoing priority of the Department and
we are encouraged by the progress we have seen thus far on this front
3
Another prong of our international strategy involves the Financial Action Task
Force. FATF, a twenty-nine member organization, was originally created for the pwpose
of combating money laundering on an international, multilateral level. Treasury, State
and Justice each contribute to the U.S. position on policy matters that implicate FATF.
The decision was made post September 11 th to also utilize FATF to address
terrorist financing issues. The United States hosted an Extraordinary FATF Plenary
session in October of2001, at which FATF members established 8 Special
Recommendations on Terrorist Financing that have quickly become the international
standard on how countries can ensure that their financial regimes are not being perverted
by terrorist financiers. The U.S. delegation also attended a FATF Plenary Session in
Hong Kong earlier this year in which FATF required that all countries, including nonmembers, participate in a self-assessment process to identify loopholes in their financial
systems that could be exploited by terrorist financiers. This FATF effort, along with our
ongoing bilateral and multilateral negotiations, will ensure that we are crippling terrorist
financiers by securing the global financial system.
Other Multi- Lateral Organizations
Treasury officials have also engaged internationally with key countries via three
multi-lateral bodies: the G-7, the G-8, and the G-20. In particular, the G-7 agreed to
develop a mechanism to jointly identify terrorists whose assets are subject to freezing.
This has resulted in even closer cooperation and commitment from our allies. We are
also working toward developing criteria regarding information-sharing protocols that
would address such issues as the procedures for sharing information and the protection of
sensitive materials.
Another example of the progress that has been made on the multi-lateral front is
the November 17th decision by the G-20 finance ministers and Central Bank governors in
Ottawa, Canada They agreed that they would block terrorist assets in their respective
countries and report publicly which terrorist groups each country has blocked and the
amount of actual monies blocked. Such coordination has been extremely helpful in
improving communication and information sharing.
Joint Designations:
There has also been steady progress on the joint designation front. I am referring
to situations where the United States and one, or more, other countries coordinate to
identify, target and block the assets of terrorist related individuals and entities. Such
action takes extensive coordination and close cooperation. The first joint designation took
place on March 11 III of this year with our ally Saudi Arabia. The U.S. and Saudi Arabia
together took action to designate and block the assets of two branch offices of the Saudi
Arabia based charity the Al-Haramain Islamic Foundation.
4
On May 3rd we also participated in a joint designation with the European Union
countries. The list of designees, which consisted of 18 groups and individuals, was a
product of different countries contributing information and possible blocking targets to
the larger group. It is this type of international synergy that we strive toward in our
terrorist financing strategy. I am very optimistic that joint designations will become a
routine component of terrorist related blocking actions by the U.S. government.
Financial Intelligence Units
Treasury also supports FinCEN's active involvement in the growing network of
financial intelligence units or FIUs. These specialized agencies were created by
governments around the world to fight money laundering. They first met in 1995 at the
Egmont-Arenberg Palace in Belgium to compare money laundering trends and law
enforcement tips. Now known as the Egmont Group, these FlUs meet annually to find
ways to cooperate on money laundering issues, especially in the areas of information
exchange, training, and the sharing of expertise.
This global network of information exchange and cooperation has proved to be a
valuable tool on the terrorist financing front. FinCEN hosted a special meeting of the
Egmont Group in October 200 1 to support the unprecedented law enforcement
investigation in the wake of the events of September 11 tho During the special meeting,
the Egmont Group agreed to: (1) Review existing national legislation to identify and
eliminate existing impediments to exchanging information between FlUs, especially
when such information concerns terrorist activity; (2) Encourage national governments to
make terrorist financing a predicate offense to money laundering and to consider terrorist
financing one form of suspicious activity for which financial institutions should be on the
look out; (3) Pass requests for information involving FlUs exclusively between FlUs
rather than other government agencies; (4) Have FlUs playa greater role screening
requests for information; and (5) To pool Egmont Group resources, where appropriate, to
conduct joint strategic studies of money laundering vulnerabilities, including Hawala.
In addition, Egmont officials have also met with representatives of international financial
institutions in order to solicit the support of private industry in its efforts to combat
terrorist financing in a global, systematic way.
Long Term Efforts
The fight against terrorist financing is a complex problem that will involve years
of careful diplomacy and innovative thinking. One critical component of the strategy as
we look toward the future is the development of personal relationships with our
counterparts abroad. Treasury Secretary O'Neill has personally traveled to Europe, Asia
and the Middle East in an effort to enlist the cooperation of our global counterparts. I
have also visited Europe to engage with our colleagues there on this issue and will be
traveling to Belgium, Luxembourg, Switzerland and Italy next week to engage in
additional discussions with our global partners and personally underscore the importance
of the financial war on terrorism to the U.S. government.
5
Close relations and regular communication with our global partners is critical to
our success in combating terrorism now and in the future.
Conclusion
In conclusion, I want to talk a bit about why we are doing all of this. Our strategy,
both domestically and internationally, is designed to be a preventative approach to the
crisis facing our country today. Our view is that money that makes it into the hands of the
terrorists is money that kills. If we can make it difficult for the terrorists to move money
around the world and, even more importantly, make it difficult for them to raise money,
we believe we can save lives. Terrorism threatens to harm not only our great country but
freedom-loving countries around the globe. Our challenge is to harness the international
interest in the terrorist financing issue into worldwide action. We believe that we have
made some important steps in the right direction but I want to point out that this fight will
be a marathon and not a sprint. We are just beginning. And I leave you with my personal
assurance that we will not stop until every last dollar is rendered useless to those who
seek to destroy us and our friends and allies abroad.
Thank you. I will be happy to take a few questions at this time.
6
OFFICE OF PUBLIC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W •• WASHINGTON, D.C .• 20220. (202) 622.2960
EMBARGOED UNTIL 1:45 P.M.
May 30, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS CASH MANAGEMENT BILLS
The Treasury will auction approximately $20,000 million of 9-day
Treasury cash management bills to be issued June 3, 2002.
Tenders for Treasury cash management bills to be held on the book-entry
records of Treas~Direct will ~ be accepted.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (F~) accounts bidding through the Federal Reserve Bank of
New York will be included within the offering amount of the auction. These
noncompetitive bids will have a limit of $100 million per account and will be
accepted in the order of smallest to largest, up to the aggregate award limit
of $1,000 million.
Note:
The closing time for receipt of noncompetitive and competitive
tenders will be at 11:00 a.m. eastern daylight saving time.
The allocation percentage applied to bids at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g.,
17.13%.
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) .
We expect to issue one or more additional cash management bills in June.
Details about the new security are given in the attached offering
highlights.
000
Attachment
PO-3136
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 9-DAY CASH MANAGEMENT BILLS
May 30, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . $20,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . $20,000 million
Description of Offering:
Term and type of security ........... 9-day Cash Management Bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . 912795 KP 5
Auction date . . . . . . . . . . . . . . . . . . . . . . . . May 31,2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . June 3, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . June 12,2002
Original issue date . . . . . . . . . . . . . . . . . June 3,2002
Currently outstanding .............. .
~nimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest discount
rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids
submitted through the Federal Reserve Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account. The total noncompetitive amount awarded to
Federal Reserve Banks as agents for FIMA accounts will not exceed $1,000
million. A single bid that would cause the limit to be exceeded will be
partially accepted in the amount that brings the aggregate award total to the
$1,000 million limit. However, if there are two or more bids of equal amounts
that would cause the limit to be exceeded, each will be prorated to avoid
exceeding the limit.
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
Recei;Et of Tenders:
Noncompetitive tenders:
Prior to 11:00 a.m. eastern daylight saving time on auction day
Competitive tenders:
Prior to 11:00 a.m. eastern daylight saving time on auction day
Payment Terms:
date.
By charge to a funds account at a Federal Reserve Bank on issue
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THE
T REA SUR Y
NEWS
TREASURY
OFFICE OF PUBLlC AFFAIRS .1500 PENNSYLVANIA AVENUE. N.W .• WASHINGTON. D.C •• 20220. (202) 622.2960
EMBARGOED UNTIL 2:30 P.M.
May 30, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $29,758 million of publicly held 13-week and 26-week
Treasury bills maturing June 6, 2002, and to raise new cash of approximately $2,242
million. Also maturing is an estimated $20,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced June 3, 2002.
The Federal Reserve System holds $13,730 million of the Treasury bills maturing
on June 6, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held June 4, 2002. Amounts awarded
to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIHA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,053 million into the 13-week bill and $889 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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
Attachment
PO-3137
For press releases, speeches. public schedules and official biographies. call our 24-lIour fax line at (101) 612-1040
HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED JUNE 6, 2002
May 30, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . . $ 4,500 million
$15,000 million
$15,000 million
None
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . . . 91-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912795 KZ 3
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 3,2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 6, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 5, 2002
Original issue date . . . . . . . . . . . . . . . . . . . . . . . . . March 7, 2002
Currently outstanding . . . . . . . . . . . . . . . . . . . . . . . $17,642 million
~nimum bid amount and multiples . . . . . . . . . . . . $1,000
182-day bill
912795 LN 9
June 3, 2002
June 6, 2002
December 5, 2002
June 6, 2002
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids:
Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FTIMA
accounts will not exceed $1,000 million.
A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
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 (NLP) 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
~eceipt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders . . . . . . . . Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms:
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.
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T REA S V R Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C.• 20220. (202) 622.2960
FOR IMMEDIATE RELEASE
Saturday, May 25, 2002
Contact: Tasia Scolinos
(202) 622·2960
TREASURY UNDER SECRETARY FOR ENFORCEMENT JIMMY GURULE
UNIVERSITY OF UTAH SCHOOL OF LAW
Introduction:
Good afternoon, I am happy to be here with you, my alumni, sharing in your time of
accomplishment. I am proud to be in such great company. You have worked hard, stood
determined and today you will be rewarded for all that you gave and all that you
sacrificed. Today you should stand proud and recognize your achievement.
As most of you know I am also a graduate of the University of Utah School of Law. I
have to be honest with you. Just stepping foot on campus today made me feel a little
nervous and anxious. My palms started to sweat when I thought about all those final
exams and hours of studying. It seems not so long ago, I sat in those same chairs, eager
to learn, eager to be a lawyer and carry the title of one of the noblest professions. Being a
lawyer brings so many opportunities. As you pursue your career objectives, I hope you
consider all your options and realize that the pursuit of financial gain, while necessary for
the well being of yourself and your families, should not be your sole focus.
Role as Treasury Under Secretary for Enforcement:
Let me talk for a moment about my current position as Under Secretary of Enforcement,
for the United States Department of the Treasury. I am responsible for overseeing the
enforcement operations of a number of Treasury agencies: the Bureau of Alcohol,
Tobacco and Firearms; the United States Secret Service - which was established in 1865
and holds the distinction of being the oldest federal law enforcement agency in the
country; the United States Customs Service which was established in 1789 to collect
duties; the Financial Crimes Enforcement Network; the Federal Law Enforcement
Training Center; and IRS Criminal Investigations, which as many of you know was the
government agency that brought down Al Capone. I must ensure that the men and
women of law enforcement are serving the country in the most professional manner.
More importantly, I must ensure that the country is protected and kept safe, both from
domestic as well as international threats.
The job has taken on new dimensions since the events of September 11 th. I was able to
visit both Ground Zero and the Pentagon in the days immediately following the attacks.
They are experiences that have left an indelible impression on me.
PO·3138
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The day I visited the site of the World Trade Center it was pouring rain, the air had the
feel of death, and the sullenness of the moment was unnerving. Standing immediately
across the street from where once stood the majestic "Twin Towers" now remained six
stories of smoldering concrete and gnarled steel beams.
It was there at the site that I saw our dedicated agents, agents who had been working
around the clock, combing through the debris, uncovering the remains of the horrific dark
side of humanity, yet never forgetting the oath taken nor the honor of the badge. Their
undaunting courage and loyalty to the country ever present.
I asked them what they needed. I talked with many of these brave men and women, their
dedication and concern apparent. They were giving of themselves so unselfishly, so loyal
to serving the citizens of this great nation. Their sacrifices many - time spent away from
family and loved ones, the physical and emotional pressures - such sacrifices speak to the
true meaning of public service. Clearly, the calling of public service provided the
strength for these officers to persevere.
I had a similar experience at the Pentagon. ATF Director Brad Buckles and I met with
dedicated ATF agents working at that site two days after the· attacks. Parts of the
building were still burning and recovery teams were removing bodies as we met with our
dedicated Treasury law enforcement team there. Their dedication to this country and to
the difficult task at hand left quite an impression.
The challenges when I accepted the job as Treasury Under Secretary for Enforcement
were daunting. The challenges we have faced over the last eight months are even more
formidable. As Under Secretary, I am intimately involved in the fight against terrorism.
The Treasury Department is playing a critical role in this fight. We are blocking the
assets of those persons and organizations supporting terror. My employees are involved
daily in identifying these fanatical perpetrators and assassins and ensuring that the
monetary resources used to fund their malevolent activities are severed. I am pleased to
report that our efforts are making a difference. We have blocked the assets of 21 0 entities
and individuals. 166 other countries have joined us in our blocking actions. Worldwide
$116 million has been frozen.
As Under Secretary, there is great solace in knowing that you are actively involved in.
facilitating the apprehension of those that act with such callous disregard for human life.
As a lawyer, involvement in the execution of justice and the protection of our country
provides me with an inexplicable sense of achievement. Martin Luther King, once wrote,
"Morality cannot be legislated, but behavior can be regulated. Judicial decrees may not
change the heart, but they can restrain the heartless." It is through the dedication,
competence, and patriotism of our public servants that we will ensure that those who
terrorize U.S. citizens receive their just punishment.
2
Importance of Public Service:
As a public servant myself perhaps I might be a bit bias but I hope you consider the
benefits of public service, both tangible and intangible when you are plotting your career
path. I cannot convey amply enough the sense of satisfaction that is derived when you
lend a hand to your fellow man.
I graduated from law school 22 years ago with a boundless sense of idealism; I was
determined to "make a difference". As a novice lawyer, I was able to serve as a state
prosecutor working on child abuse cases.
One of the cases that I successfully prosecuted involved the sexual abuse of a 7 year-old
girl by a next door neighbor. You can't even begin to imagine the pressure that I felt. I
wanted to see this man taken off the streets, to deprive him of his freedom so that he
could never again harm another child. I tried the case and won; he was sent to jail.
It was sometime later that I received a card at my office. I was curious to see who had
sent it. When I opened it, on the front I saw a picture of a rainbow as well as a selfportrait of the little girl that had been abused by her neighbor. Inside the card she had
written, "Thank you for helping me smile again." I can't even begin to describe to you
how bittersweet that moment was. Her words touched both my heart and soul.
As a lawyer, you possess a unique knowledge and understanding of our legal system and
are trained to analyze and dissect complex issues. I challenge you to use that knowledge
and those skills to make a difference in someone's life. Defending that little girl and
bringing the assailants of DEA Agent Camarena to justice made me so appreciative of my
profession and the skills that my legal education had provided me.
I simply wish for you to know that there is so much good that can be done if educated
and brilliant minds such as yours are used for the public good.
I'm not sure how many of you may be acquainted with the President's Freedom Corps, so
I would like to discuss the Corps with you for a moment. It seems that the recent acts of
terrorism have reawakened the American spirit of patriotism - service to our country.
Americans have looked for and found many opportunities to do good. President Bush
created the USA Freedom Corps in an effort to capture those opportunities and foster an
American culture of service, citizenship and responsibility. During his State of the Union
address, he called upon every American to commit at least two years of their lives - the
equivalent of 4,000 hours-to the service of others. Through USA Freedom Corps he
wants to help every American answer the call to service by strengthening and expanding
service opportunities for them to protect our homeland, to support our communities and
to extend American compassion around the world.
3
I encourage all of you to expand your realm of experiences and explore the challenge of
public service. At a time when we see our country, and its landmarks and other symbols
of its greatness under attack, the need for well-trained, strong analytical minds like yours
is obvious. Our nation needs you. If your interest is in policy development, working
with counsel, or other areas, the public service has it all.
I encourage you to provide your services pro-bono from time to time and never lose sight
of the true meaning of justice - defined as, "the quality of being fair." There is a quote
by Thomas Woodrow Wilson that sums up this sentiment quite profoundly. The quote
reads, ''The nature of men and of organized society dictates the maintenance in every
field of action the highest and purest standards of justice and right of dealing. By justice
the lawyer generally means the prompt, fair, and open application of impartial rules. But
we call ours a civilization, and a conception of justice must include sympathy and
helpfulness and a willingness to forego self-interest in order to promote welfare,
happiness, and contentment of others and to the community as a whole."
Importance of Integrity:
As a lawyer it is incumbent upon you to set the example. Morality and ethics govern our
legislative and judicial processes and cannot be divorced from the law. As lawyers, you
are held to the highest of standards and will be expected to represent the profession in an
exemplary way, always reflecting the characteristics of those charged with the ultimate
duty, that of carrying out justice. Life can often provide temptation and often great
financial gain but you must always caution yourself and use your analytical gifts to guide
you in the right direction.
I cannot emphasize to you enough the importance of integrity. After several years of trial
work, I have found that when I walk into a courtroom the strongest tool that I bring to the
bar is not a well-written brief or my oratory skills. It is my integrity. When you sign your
name to a document or represent information in open court you are putting your
reputation on the line. That means something. Once that credibility is tarnished in any
way it is something that can never truly be replaced.
Another important quality is to always set high expectations for yourself in whatever
you do. " Strive for greatness". On this front, I want to share with you the inspirational
words of my grandmother. She always told me" to set the bar high and go after what it
is that you want to pursue and be relentless in your efforts." She cautioned me to never
lose sight of that goal and always strive for excellence. I never forgot my grandmother's
words - they are words that I try to live by. I realized through the years that the bar must
always be high, excellence should never be substituted by something less.
Conclusion:
While the road you have chosen will not always be an easy one and the obligations will
sometimes feel overwhelming, you will undoubtedly find that the joys of the profession
far outweigh the burdens. The sense of accomplishment at being able to right ''wrongs'' is
unsurpassed.
4
"A good job and comfortable standard of living" should not be the benchmark by which
you measure your professional success. Rather, the benchmark should be " did I
constantly strive for excellence - even 'greatness' and did I stay true to my values and
beliefs while doing so".
While it goes without saying that all of you will make great lawyers, after all you are
graduates of the University of Utah, it is even more apparent that your opportunities are
endless. I wish you success in whatever course you take and extend my sincerest
congratulations to you as you accept today that honor which you so rightly deserve.
Thank you and best of luck!
5
D EPA R T :\1 E N T
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THE
T REA SUR Y
~ZiI78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
......................................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Thursday, May 30, 2002
Contact: Tasia Scoiinos
(202) 622-2960
The United States and China Meet to Discuss Terrorist Financing Concerns
Experts from the People's Republic of China and the United States of America
met at the Department of the Treasury in Washington, DC from May 29th to the 31 st to
exchange views on how to prevent and combat terrorist financing. The experts,
representing various agencies and departments in both countries, also visited and were
briefed at the FBI's Financial Review Group, Treasury's Operation Green Quest, and the
Financial Crimes Enforcement Center (FINCEN).
The present meeting is the first of semi-annual meetings planned to deal with the
issue of terrorist financing. The U.S. and China will alternate serving as hosts of future
meetings. These meetings will not only strengthen cooperation between China and the
U.S. in the area of terrorist financing, but will also seek to further strengthen the existing
cooperative relationship in the law enforcement and counter-terrorism areas between the
two countries. The meetings this week represent another important step in our bilateral
relationship with China and in the international fight against global terrorism.
PO-3139
For press releases, speeches, public schedules and official biographies, call our 24.Jrour 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
CONTACT:
FOR IMMEDIATE RELEASE
May 31, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 9-DAY BILLS
9-Day Bill
June 03, 2002
June 12, 2002
912795KP5
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
1.720%
Investment Rate 1/:
Price:
1.745%
99.957
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 59.92%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
49,165,000
$
20,000,192
°
°
°
°
20,000,192
49,165,000
SUBT(l·l·AL
°
°
Federal Reserve
TOTAL
Accepted
Tendered
Tender Type
$
49,165,000
$
20,000,192
Median rate
1.705%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.680%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 49,165,000 / 20,000,192 = 2.46
1/ Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
PO-3140
D EPA R T :\1 E N T
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THE
T REA SUR Y
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..............................
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
AIR TRANSPORTATION STABILIZATION BOARD
FOR IMMEDIATE RELEASE
May 31, 2002
Contact: Betsy Holahan
(202) 622-2960
ATSB Decision On Frontier Flying Service, Inc.
W ASHlNGTON, DC - The Air Transportation Stabilization Board (ATSB) announced
today that it has rejected the application of Frontier Flying Service, Inc. for a Federal
guarantee of a $7.2 million financing pursuant to the Air Transportation Safety and
System Stabilization Act (Act) and implementing regulations promulgated by the Office
of Management and Budget (OMB).
The Board concluded its review based on the standards set out in the Act and the OMB
regulations and determined that Frontier's application did not meet the applicable
standards. In its application, Frontier emphasized that it expected to be unable to renew
its insurance at reasonable rates as a result of the terrorist attacks of September 11 and
applied for a Federal loan guarantee as part of a plan to address this issue. However,
Frontier recently informed the Board that, in fact, it was able to renew its insurance
coverage at acceptable rates.
Accordingly, the Board was unable to determine that the proposed Federally guaranteed
loan was a necessary part of maintaining a safe, efficient, and viable commercial aviation
system in the United States, as required by the Act. The Board also concluded that
Frontier's proposal did not provide a reasonable assurance that Frontier would be able to
repay the loan, another of the factors the Board is required to consider under the OMB
regulations.
PO-3141
For press releases, speeches, public schedules and official biographies, call our 24.Jrour fax line at (202) 622·2040
The ATSB, established as part of the Air Transportation Safety and System Stabilization
Act signed into law September 22, consists of designees of Federal Reserve Board
Chairman Alan Greenspan, Treasury Secretary Paul O'Neill and Transportation Secretary
Norman Mineta. The designees are Federal Reserve Board Governor Edward M.
Gramlich, Treasury Under Secretary for Domestic Finance Peter R. Fisher and
Department of Transportation General Counsel Kirk K. VanTine. David Walker,
Comptroller General of the United States, is a non-voting member of the Board.
Additional information about the ATSB is available on its web site, www.treas.gov/atsb.
-30-
o
EPA R T :\1 E N T
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THE
T REA SUR Y
NEWS
1REASURY
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIflNGTON, D.C. - 20220 - (202) 622·2960
u.s. International Reserve Position
May 17. 2002
u.s.
u.s.
The Treasury Department today released
reserve assets data for the latest week. As indicated in this table,
reserve
assets totaled $68,931 million at the end of the latest week, compared to $68,519 million at the end of the prior week.
(in US millions)
May 10,2002
I. Official U.S. Reserve Assets
1. Foreign Currency Reserves
a. Securities
1
May 17. 2002
68,519
TOTAL
I
Euro
5.659
Yen
10,423
68,931
TOTAL
Euro
16.082
5.714
Yen
TOTAL
10.5n
16.291
o
o
Of which. issuer headquartered in the U.S.
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 U.S.
9,560
4.345
13.905
0
0
0
0
9,660
4.410
14.070
0
0
0
0
16,336
16,360
I. SpeCial Drawing Rights (SDRs) 2
11,151
11.167
I. Gold Stock 3
11.044
11.044
0
0
!. IMF Reserve Position
2
i. Other Reserve Assets
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Mar1<et Account (SOMA).
valued at current mar1<et exchange rates. Foreign currency holdings listed as securities reflect mar1<ed-to-mar1<et values, and deposits reflect
carrying values.
2J The items. "2. IMF Reserve Position" and "3. Spedal Drawing Rights (SDRs): are based on data provided by the IMF and are valued in dollar
teons at the Official SDRldoliar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
necessary adjustments. including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
:>-3143
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THE
T REA SUR Y
NEWS
--1111111..:~'"
u.s. International Reserve Position
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIUNGTON, D.C. - 202%0 _ (202) 622-2960
May 24, 2002
u.s.
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table,
reserve
assets totaled $69,194 million at the end of the latest week, compared to $68,916 million at the end of the prior week
(in US millions)
Ma~
I. Official U.S. Reserve Assets
TOTAL
1. Foreign Currency Reserves
a.Securities
I
1
Euro
5,714
1712002
68,916
Yen
10,5n
Ofwhich, issuer headquartered in the U.S.
Ma}! 241 2002
69,194
TOTAL
16,291
0
Euro
5,736
Yen
11,330
TOTAL
17,066
0
b. Total deposits with:
b.T. Other central banks and SIS
b.lI. Sanks headquartered In the U.S.
bji. Of which, banks located abroad
b.li/. 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)
2
~. Gold Stock 3
5. Other Reserve Assets
9,660
4,410
14,070
0
0
0
0
9,681
3,815
PO-3144
0
0
16,390
11,167
11,199
11,044
11,044
0
0
2J The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar
terms at the official SDRJdollar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
0
16,344
11 Indudes 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.
necessary adjustments, induding revaluation, by the U.S. Treasury
13,496
G
to the prior week's IMF data. The IMF data for the prior week are final.
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE. N. W. _ WASHINGTON, D.C.- 20220 - (202) 622-2960
EMBARGOED UNTIL 11:30 A.M.
June 3, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $18,000 million to
refund an estimated $20,000 million of publicly held 4-week Treasury bills maturing
June 6, 2002, and to pay down approximately $2,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
will ~ be accepted.
Treas~Direct
The Federal Reserve System holds $13,730 million of the Treasury bills maturing
on June,-E), 2002, in the System Open Market Account (SOMA). This amount may be refunded
at the highest discount rate of accepted competitive tenders in this auction up to the
balance of the amount not awarded in today's 13-week and 26-week Treasury bill
auctions. Amounts awarded to SOMA will be in addition to'the offering amount.
Up to $1,000 million in noncompetitive bids from Foreigntcnd International
Monetary Authority (FIMA) accounts bidding. through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securi~ies is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-314S
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED JUNE 6, 2002
June 3, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . $18,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . $18,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . $ 9,700 million
Description of Offering:
Term and type of security ........... 29-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . 912795 KQ 3
Auction date . . . . . . . . . . . . . . . . . . . . . . . . June 4,2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . June 6, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . July 5,2002
Original issue date . . . . . . . . . . . . . . . . . January 3,2002
CUrrently outstanding ............... $38,829 million
~nimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded ,to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit t6 be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two~r more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) 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 daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.
<D
Ol
C\J
S
federal financing
WASHINGTON, DC.
20220
FEDERAL FINANCING BANK
May 31 t 2002
Kerry Lanham, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of April 2002.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $37.6 billion on April 30, 2002,
posting a decrease of $388.0 million from the level on March 31,
2002.
This net change was the result of decreases in holdings of
agency assets of $380.0 million and in holdings of governmentguaranteed loans of $8.0 million. The FFB made 51 disbursements
and received 14 prepayments during the month of April. The FFB
also refinanced two Rural Utilities Service ("RUS") guaranteed
loans, and extended the maturities of 123 loans guaranteed by the
Rural Utilities Service during the month of April.
Attached to this release are tables presenting FFB April
loan activity and FFB holdings as of April 30, 2002.
PO-3146
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Page 2
FEDERAL FINANCING BANK
APRIL 2002 ACTIVITY
Borrower
Date
Amount
of Advance
Final
Maturity
Interest
Rate
5.823%
5.823%
4.530%
5.724%
5.724%
5.770%
5.732%
4.163%
5.633%
5.688%
GOVERNMENT-GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Foley Services Contract
Foley Services Contract
San Francisco OB
Foley Services Contract
Foley Services Contract
Atlanta CDC Lab
Foley Services Contract
San Francisco OB
ICTC Building
Atlanta CDC Lab
S/1S/1S/p:
S/p:
S/A
S/A
S/A
S/A
S/A
S/A
4/03
4/03
4/03
4/11
4/11
4/15
4/18
4/25
4/26
4/29
$16,739.'56
$13,609.80
$403,927.64
$6,890.83
$4,886.92
$54,126.50
$4,372.58
$358,231.16
$266,598.41
$59,700.38
7/31/25
7/31/25
8/01/05
7/31/25
7/31/25
1/30/31
7/31/25
8/01/05
11/02/26
1/30/31
4/12
4/19
$69,214.53
$572,378.42
3/01/30
7/01/31
5.690% S/A
5.727% S/A
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
$7,000,000.00
$788,752.17
$591,564.11
$988,966.76
$3,073,205.71
$1,364,988.35
$341,339.68
$787,320.78
$1,027,997.00
$684,581.32
$393,597.44
$735,862.37
$890,467.05
$287,147.85
$208,400.61
$358,469.08
$210,092.96
$150,525.73
$131,137.73
$71,846.74
$108,567.07
$34,943.41
$1,157,563.45
$230,763.92
$873,775.62
$2,617,317.55
$1,567,440.52
3/31/03
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
2.695%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
DEPARTMENT OF EDUCATION
Barber-Scotia College
Livingstone College
RURAL UTILITIES SERVICE
*Amicalola Electric #664
*Big Sand Elec. #540
*Big Sand Elec. #540
*Big Sand Elec. #540
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
IrBrazos Electric #917
IrBrazos Electric #917
~Brazos Electric #917
~Brazos Electric #917
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr.
Qtr,
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3
FEDERAL FINANCING BANK
APRIL 2002 ACTIVITY
Borrower
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #437
*Brazos Electric #437
*Brazos Electric #437
*Brazos Electric #437
*Brazos Electric #437
*Brazos Electric #437
*Brazos Electric #561
*Brazos Electric #561
*Brazos Electric #561
*Brazos Electric #561
*Brazos Electric #561
*Brown County Elec. #687
*Brown County Elec. #687
*Central Georgia Elec. #731
*Citizens Elec. #742
*Clark Energy Coop. #611
*Clark Energy Coop. #611
*Cumberland Valley #668
Cornbelt Power #565
*Darien Telephone Co. #719
*Darien Telephone Co. #719
*Darien Telephone Co. #719
*Delaware County Elec. #682
*Delaware County Elec. #682
*East River Power #453
*Farmer's Telephone #459
*Farmer's Telephone #459
*Fleming-Mason Energy #644
*Fleming-Mason Energy #644
Date
Amount
of Advance
Final
Maturity
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
$939,366.52
$567,166.64
$881,983.48
$479,165.07
$1,382,597.80
$1,665,853.35
$1,957,619.43
$800,869.97
$612,696.28
$1,255,962.33
$992,155.32
$402,399.04
$1,079,641.18
$1,402,808.02
$2,306,287.49
$2,468,627.92
$484,048.55
$15,662.29
$825,800.79
$2,705,436.53
$2,121,372.88
$4,015,964.94
$1,357,129.44
$307,835.23
$2,948,753.56
$1,138,797.37
$478,340.79
$10,703,540.19
$5,387,339.61
$10,512,183.82
$8,272,224.01
$4,762,794.59
$250,000.00
$600,000.00
$1,780,000.00
$2,694,000.00
$2,966,900.25
$1,971,579.96
$4,200,000.00
$2,052,000.00
$1,927,403.00
$444,000.00
$214,000.00
$364,000.00
$250,000.00
$390,286.72
$23,011.79
$221,892.78
$2,571,313.54
$1,384,553.43
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
1/03/28
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
Interest
Rate
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.926%
1.926%
1.926%
1.926%
1.926%
1.926%
1.926%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
5.796%
1.801%
1.801%
1.801%
1.801%
1.801%
1.926%
1.926%
1.926%
1.801%
1.801%
Qt:r
Qt:r
Qt:r
Qt:r
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 4
FEDERAL FINANCING BANK
APRIL 2002 ACTIVITY
Borrower
*Fleming-Mason ~nergy #644
*Fleming-Mason Energy #644
*Fleming-Mason Energy #644
*FTC Communications #709
*Georgia Trans. Corp. #446
*Grayson Rural Elec. #619
*Grayson Rural Elec. #619
*Grayson Rural Elec. #619
*Grayson Rural Elec. #619
*Greenbelt Elec. #743
Harrison County rural #609
*Harrison County #532
*Harrison County #532
*Inter-County Energy #592
*Inter-County Energy #592
*Inter-County Energy #592
*Inter-County Energy #592
*Johnson County Elec. #482
*Karnes Elec. #568
*Karnes Elec. #568
*Licking Valley Elec. #522
*Magnolia Electric #560
*Meade County Elec. #662
*Meade County Elec. #662
*Meade County Elec. #662
Middle Georgia Electric #804
*Newberry Electric #704
*Nolin Rural Elec. #528
*Nolin Rural Elec. #577
*Nolin Rural Elec. #577
*Oglethorpe Power #445
*Oglethorpe Power #445
*Owen Electric #525
*Panhandle Tele. #400
*PRTCommunications #798
*San Miguel Electric #919
*San Miguel Electric #919
*Shelby Energy Coop. #758
*Stearns Cooperative #733
*Stearns Cooperative #733
*Sumter Elec. #735
*Surry-Yadkin Elec. #534
*Surry-Yadkin Elec. #534
*Surry-Yadkin Elec. #534
*Surry-Yadkin Elec. #534
*Surry-Yadkin Elec. #534
*Surry-Yadkin Elec. #534
*Upsala Coop. Tele. #429
*Upsala Coop. Tele. #429
Tideland Electric #734
Date
Amount
of Advance
Final
Maturity
Interest
Rate
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/01
4/03
$1,483,450.11
$2,175,726.84
$1,384,553.43
$6,648,000.00
$10,937,133.20
$1,186,760.09
$593,380.06
$988,966.76
$1,281,236.85
$1,739,000.00
$1,000,000.00
$984,944.93
$886,450.43
$1,477,417.38
$1,969,889.85
$2,567,751.40
$218,561.65
$1,584,634.70
$1,482,914.65
$1,385,164.62
$2,707,613.59
$4,927,895.01
$1,300,000.00
$2,000,000.00
$2,000,000.00
$1,200,000.00
$4,164,000.00
$1,864,500.73
$2,544,112.74
$2,544,112.74
$14,500,169.30
$15,001,159.09
$1,968,656.37
$553,477.60
$4,802,000.00
$8,047,859.18
$8,450,346.32
$1,000,000.00
$2,400,000.00
$1,400,000.00
$1,000,000.00
$977,453.68
$977,453.68
$488,726.84
$977,453.68
$977,453.68
$993,479.60
$312,059.74
$7,259.12
$438,000.00
7/01/02
7/01/02
7/01/02
3/31/06
3/31/03
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
1/03/34
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
3/31/03
3/31/05
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
12/31/35
3/31/32
7/01/02
7/01/02
7/01/02
3/31/03
3/31/04
7/01/02
12/31/13
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
12/31/35
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
7/01/02
12/31/31
1.801%
1.801%
1.801%
4.591%
2.689%
1.801%
1.801%
1.801%
1.801%
1.801%
5.846%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.926%
2.695%
4.278%
1.801%
1.926%
1.801%
1.801%
1.801%
5.859%
5.835%
1.801%
1.801%
1.801%
2.814%
3.798%
1.801%
5.229%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
5.859%
1.801%
1.801%
1.801%
1.801%
1.801%
1.801%
1.926%
1.926%
5.761%
QtJ
QtJ
Qtl
Qtl
Qtl
Qtl
QtI
QtI
Qt:r
Qt:r
Qt:r
Qt:r
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr,
Qtr,
Qtr,
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 5
FEDERAL FINANCING BANK
APRIL 2002 ACTIVITY
Borrower
Horry Electric Coop. #536
Johnson County Elec. #500
Rio Grand Electric #615
East Otter Tele. #435
Newberry Electric #704
Tri-County EMC #814
Tri-County EMC #814
United Power Assoc. #721
North Plains Elec. #785
Buckeye Power #822
Buckeye Power #823
South Slope Cooperative #741
Cooper Valley Tel. #648
Jemez Mountains Elec. #499
Rural Elec. Conven. #613
W. Farmers Elec. #701
Fairfield Elec. #684
KEM Electric #537
Tri-State E.M.C. #730
Craig-Botetourt #632
Ocmulgee Electric #654
Planters Electric #763
Arkansas Elec. #812
East Otter Tele. #435
Greenbelt Elec. #743
Douglas Electric #725
FTC Communications #709
Coop. Power Assoc. #450
Coop. Power Assoc. #722
United Power Assoc. #721
+Brazos Electric #917
+Brazos Electric #917
Brown County Elec. #687
Farmer's Telephone #459
Mid-Carolina Elec. #645
P.K.M. Electric #770
San Miguel Power #824
Date
Amount
of Advance
Final
Maturity
Interest
Rate
4/04
4/04
4/04
4/05
4/05
4/05
4/05
4/05
4/08
4/10
4/10
4/10
4/11
4/11
4/11
4/11
4/12
4/12
4/12
4/15
4/17
4/17
4/18
4/18
4/18
4/19
4/19
4/22
4/22
4/22
4/23
4/23
4/23
4/26
4/26
4/26
4/26
$5,730,000.00
$1,500,000.00
$340,000.00
$300,000.00
$1,643,000.00
$2,400,000.00
$600,000.00
$6,300,000.00
$132,000.00
$23,981,000.00
$12,162,000.00
$1,793,000.00
$1,022,300.00
$5,581,000.00
$200,000.00
$4,997,000.00
$3,233,000.00
$687,000.00
$1,000,000.00
$3,000,000.00
$1,000,000.00
$2,500,000.00
$10,000,000.00
$600,000.00
$502,000.00
$100,000.00
$2,663,000.00
$8,367,000.00
$3,383,000.00
$13,400,000.00
$2,100,643.52
$2,368,948.96
$300,000.00
$148,525.00
$3,161,000.00
$1,000,000.00
$7,284,000.00
1/03/34
1/03/33
1/03/34
12/31/15
3/31/32
12/31/36
12/31/36
12/31/20
1/02/35
12/31/25
12/31/25
3/31/17
9/30/02
1/03/33
10/01/12
12/31/25
9/30/02
1/03/34
1/02/35
1/02/35
1/02/35
12/31/30
12/31/31
12/31/15
9/30/02
12/31/35
9/30/02
12/31/12
12/31/07
12/31/09
9/30/02
9/30/02
9/30/02
1/02/18
1/02/35
12/31/35
12/31/36
5.735%
5.852%
5.735%
5.273%
5.724%
5.740%
5.740%
5.552%
5.676%
5.432%
5.432%
5.147%
1.941%
5.754%
5.196%
5.570%
1.930%
5.665%
5.674%
5.648%
5.661%
5.621%
5.697%
5.206%
1.878%
5.725%
1.858%
5.017%
4.687%
4.935%
1.861%
1.861%
1.862%
5.183%
5.593%
5.603%
5.614%
S/A is a Semiannual rate.
Qtr. is a Quarterly rate.
* maturity extension or interest rate reset
+ 306C refinancing
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr
Qtr,
Qtr,
Qtr,
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 6
FEDERAL FINANCING BANK HOLDINGS
(in millions of dollars)
Monthly
Net Change
4/1/02- 4/30102
Fiscal Year
Net Change
10/1/01- 4130102
April 30. 2002
March 31, 2002
Subtotal *
$6,950.0
$6,950.0
$6 950.0
$6,950.0
$0.0
$0.0
-$4 363.0
-$4,363.0
Agency Assets:
FmHA-RDIF
FmHA-RHIF
Rural Utilities Service-CBO
Subtotal*
$1,730.0
$4,125.0
$4 270.2
$10,125.2
$1,860.0
$4,375.0
$4 270.2
$10,505.2
-$130.0
-$250.0
$0.0
-$380.0
-$705.0
-$250.0
$0.0
-$955.0
Government-Guaranteed Lending:
DOD-Foreign Military Sales
OoEd-HBCU+
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration+
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
Subtotal *
$2,036.9
$52.8
$6.7
$1,207.3
$2,236.4
$11.9
$841.2
$14,053.3
$113.7
$3.3
$20,563.5
$2,039.6
$52.2
$6.7
$1,207.3
$2,238.1
$11.9
$841.2
$14,055.1
$116.1
$3.3
$20,571. 5
-$2.7
$0.6
$0.0
$0.0
-$1.8
$0.0
$0.0
-$1.8
-$2.4
$0.0
-$8.0
-$119.8
$21.5
-$1.1
-$71. 4
-$31. 6
-$1. 2
-$100.0
$454.1
-$18.3
-$0.1
$132.1
-$388.0
-$5,185.9
Program
Agency Debt:
U.S. Postal Service
1
===---
Grand total*
* figures may not total due to rounding
+ does not include capitalized interest
-
$37,638.7
1
1
1
=====
$38,026.7
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
CONTACT:
FOR IMMEDIATE RELEASE
June 03, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
June 06, 2002
September OS, 2002
912795KZ3
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1. 720%
High Rate:
Investment Rate 1/:
Price:
1. 752%
99.565
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 50.68%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
34,416,250
1,416,630
116,000
$
17,000,214 2/
35,948,880
SUBTOTAL
$
TOTAL
6,330,041
6,330,041
Federal Reserve
42,278,921
15,467,584
1,416,630
116,000
$
23,330,255
Median rate
1.700%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.675%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
35,948,880 / 17,000,214
=
2.11
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,154,438,000
http://www.publicdebt.treas.gov
PO-3147
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
June 03, 2002
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182 -Day Bill
June 06, 2002
December OS, 2002
912795LN9
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1. 875%
High Rate:
Investment Rate 1/:
Price:
1.919%
99.052
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 52.89%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
35,629,005
1,188,604
120,000
$
5,667,745
5,667,745
Federal Reserve
$
42,605,354
13,691,470
1,188,604
120,000
15,000,074 2/
36,937,609
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
20,667,819
Median rate
1.860%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate. Low rate
1.830%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 36,937,609 / 15,000,074 = 2.46
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $962,520,000
http://www.publicdebt.treas.gov
'0-3148
D E P .\ R T \1 E :'\ T
0 F
THE
T REA S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
JUNE 3, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
Assistant Secretary Brian C. Roseboro
A Review of Treasury's Debt Management Policy:
UBS Eighth Annual Reserve Management Seminar for Sovereign Institutions
June 3,2002 (teleconference)
I would like to begin by thanking you for the opportunity to address such a distinguished
gathering.
As Assistant Secretary for Financial Markets at the Treasury, I am responsible for
advising Secretary O'Neill on the federal government's debt management policies. I am also
one of Treasury's bond salesmen. I am therefore particularly pleased to appear in front of our
biggest customers. Central banks including the Federal Reserve and other sovereign institutions
around the world now own more than half of all marketable US Treasury securities.
Today my goal is to encourage you to continue heavily investing in securities backed by
the full faith and credit of the United States. I'll spend the time you've graciously afforded me
by first outlining the core of Treasury's debt management policies - that is, to meet the U.S.
government's financing needs at the lowest cost over time. As part of that, I'll touch upon the
dynamics of the Treasury primary and secondary markets. I will close by reviewing our
improvement program: specifically, to quicken our primary market auctions, and to deepen the
market for a product that central bankers may want to look at more closely, the to-year Treasury
Inflation-Indexed Security.
Treasury's debt management policy: one objective with constraints
It's important to understand that Treasury has less influence over how much debt we
issue than do many other finance ministries. How much money we need to raise is instead a
function of decisions the Congress and President make about spending and taxes, and most
important, the level of U.S. economic activity.
PO-3149
For press releases,
speeches, public schedules and oJIicial biographies, call our 24-hour fax line at (202) 622-2f140
·u.s. Government PrintIng Office
1998 - 619-559
What we do control is how we will raise that sum of money. And here we have set a
single overarching objective for managing Treasury's marketable debt: to achieve the lowest
borrowing cost, over time, for the federal government's financing needs.
While our financing needs rise and fall, that objective remains our lodestar. From the
1970's to the mid-1990's, the U.S. faced seemingly ever-expanding deficits. Then, since 1998,
gross new issuance of Treasury coupon securities has lagged not one but three other domestic
bond markets - corporate, agency, and mortgage-backed securities. Yet even as our borrowing
needs have waxed and waned, Treasury does not "time the market." We never have.
Traders and corporate chief financial officers sometimes have trouble understanding
Treasury's mindset, but you as sovereigns will better understand. We don't hold snap
unscheduled auctions for a given maturity when yields appear low. We don't even take the yield
curve into account when we allocate how much to raise by different maturities. Instead, to
achieve our objective of lowest cost over time, Treasury commits to ''regular and predictable"
issuance across a wide range of securities.
This regularity and predictability provides certainty for investors as to the availability of
our securities. We're always there. Market participants thus have grown habituated to using
Treasury securities for pricing, hedging, and cash management, and to relying on our stable
issuance patterns. Over time, this regularity and predictability cuts our financing costs more than
any market-timing could.
Consequently, we accept the cost of occasionally borrowing when it is temporarily
inconvenient or expensive in return for the savings, over time, from providing greater certainty to
the Treasury market. Only at the margin must we deviate from regular and predictable issuance
to manage the swings in our cash balances through seasonal changes in bill issuance and the use
of cash management bills. If our financing approach requires more fundamental adjustment, we
use our regular quarterly refunding announcements to explain any changes. Market participants
gain substantial lead-time for any specific changes to our offerings, and an awareness of
problems or choices we face.
Ideally, we would like to lock down our issuance calendar through eternity. Realistically,
we can't. Our biggest constraint is uncertainty about our future financing needs: how much will
we need to borrow and when? Our financing needs, and thus auction sizes, are constantly
shifting in response to (1) seasonal changes in our cash flows, (2) structural changes in tax
policy, (3) ebbs and flows in government spending, and (4) U.S. economic activity. We do what
we can to minimize that uncertainty. We work to forecast our likely borrowing needs. We try to
anticipate how we would alter our borrowing pattern when - not if - the future does not fit our
forecast. We try to anticipate what will prove to be the lowest cost means of financing in the
future.
This leads us to an additional constraint on our overarching objective: the need to sustain
the liquidity of secondary market trading, principally by ensuring an adequate supply at each
maturity. A deep, liquid, and resilient secondary market serves our goal of lowest-cost financing
for the taxpayer by encouraging more aggressive bidding in the primary market.
2
Treasury over the past few decades has been quite successful at managing this constraint
and at fostering the deepest, most liquid securities market in the world. In 200 1~ even with
reduced issuance over the prior years, the daily average volume of transactions in the Treasury
market averaged almost $300 billion, or over three times the daily average volumes for each of
corporate debt, agency debt, mortgage-related securities, and even the New York Stock
Exchange. Only the volume of interest rate swaps compare with Treasury securities.
Some over-simplify by presuming that secondary market liquidity is a linear function of
how much debt we issue, as if we controlled secondary liquidity with ajoystick. That's not
accurate: secondary liquidity is even more dependent on what market participants do with what
we issue. We do, however, look to matching our financing needs with market needs. For
instance, at the May 2002 quarterly refunding, we announced the end of the regular re-opening
policy for the 5-year note and a return to issuing four CUSIPs a year. We expect this change will
smooth the maturity distribution of our issuance, allow for slightly larger issuance sizes, and
enhance secondary market liquidity.
Actions to improve product offerine
Secretary O'Neill insists we make excellence a habit. This insistence builds upon
Treasury's long tradition of continually adapting to changing markets and financing needs to
achieve the lowest borrowing cost over time. Over the last three decades, Treasury has
introduced and withdrawn numerous securities including the 52 week bill, 3 year note, 4 year
note, 5 year inflation index note, seven year note, twenty year bond, thirty year bond, thirty year
callable bond, thirty year inflation indexed bond, and foreign~denominated securities. This same
imperative to adapt has led to the utilization of the single price auction, promotion of the ten-year
inflation index note, debt buybacks, Internet-based auction bidding, and the 4-week bill.
More recently, we have worked to improve the efficiency of the primary market. Our top
priority has been to reduce the time it takes us to release auction results. We believe that the
faster and more predictable the release time, the less uncertainty bidders will bear - and the
lower the premium they will charge taxpayers. In the 19705 it took as much as a day to release
auction results. In 1995, the average release time was 45 minutes; by 2000, 27 minutes. Our
ultimate objective is a two-minute release with a variance of +/- 30 seconds. On the way, we are
setting interim targets and reporting on our progress. In February 2002, we started at 6 minutes
+1- 60 seconds; now we're at 5 minutes.
We will also continue to improve our technology, both hardware and software. We
especially want to make submitting tenders more user~friendly. To take one example, we have
made available technology to allow direct primary auction participation over the Internet on
TAAPSLink (Treasury Automated Auction Processing System). TAAPSLink is a safe and
reliable application that uses 128-bit encryption for security and requires no additional cost or
fees. A diverse group of approximately 900 entities currently uses it. We expect this initiative
will aid us in expanding the number of competitive bidders in our auctions.
3
As I mentione~ we are promoting the 10-year U.S. Treasury inflation-indexed note.
These notes are particularly interesting to investors because their market values move differently
from conventional securities. Their market value at any given moment is a function of the real
price and measured inflation since original issuance. Thus, their real (inflation unadjusted) price
varies inversely with real U.S. interest rates, not nominal interest rates. For example, if nominal
yields increase because of inflationary expectations for the U.S. rise, the market value of
outstanding nominal securities will fall- but the market value of inflation-indexed securities
may even mcrease.
Nothing can be as important to risk management as diversification. For us as issuers,
indexed notes diversify our portfolio of liabilities. And because Treasury Inflation-Indexed
Securities (TllS) are a unique asset class - dollar-denominated, inflation- protected, backed by
U.S. full faith and credit - we think every diversified investor should own some. We think
central banks in particular should take a close look at Treasury Inflation-Indexed Securities.
First, adding these securities to a portfolio increases diversification but does not increase credit
risk, thus potentially improving the risk/reward tradeoff. Second, these securities can be used to
mitigate exchange rate risk, since they are linked to a measure of purchasing power. Third, they
can at times provide a superior return to investments in short-term Treasury bills, which might be
viewed as an alternative investment for decreasing market risk. While the investment goals of
any particular central bank are unique, central banks should carefully consider how Treasury
Inflation-Indexed Securities could benefit their portfolios.
Over the 5 years we have been issuing inflation-indexed securities, some analysts have
said they are a more expensive fonn of borrowing than the comparable nominal securities.
(That's because most inflation forecasts are higher than the prospective inflation-rate at which
we would break-even). We've concluded that we need to take a broader and longer view of their
perfonnance. It's too early to pass judgment on the cost effectiveness of these instruments. It
takes time and effort to build a critical mass of liquidity. The right time to assess their costeffectiveness is after they have worked their way through at least an entire interest rate cycle 10 years of experience, perhaps more.
We are looking for suggestions on how to deepen the market for the 10-year inflation
indexed security. One step we are already taking in reaction to market feedback is to reduce the
when-issued period for Treasury Inflation-Indexed Security auctions beginning in July. As we
stated at our May 2002 quarterly refunding, the 10-year Treasury Inflation-Indexed Security will
be announced on July 8, be auctioned on July 10, and settle July 15 th • It will be re-opened twice,
in October 2002 and January 2003.
We invite your suggestions on how we can make this product more attractive to you as
reserve managers - and more broadly on how we can make all our products more attractive to
you. The best way to get in touch with us is at email address debt.management@do.treas.gov.
We'd welcome the chance to hear from you.
Conclusion
4
U.S. Treasury securities are the most liquid and highest quality investment available to
reserve managers. We understand the importance of effective, direct communication channels
with the holders of our securities. Weare striving to be as transparent as possible on how
changes in our financing needs will affect security issuance. As we work to manage our
financing needs, we will also be working to deliver our securities more efficiently and in a
product mix of maturities and classes that you will find appealing.
I again thank you for inviting me to speak at the conference. I would be more than happy
to answer any questions you may have about Treasury debt management policy.
5
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Wednesday, May 29, 2002
Contact: Public Affairs
(202) 622-2960
STATEMENT BY TREASURY SECRETARY PAUL H. O'NEILL
AT THE AFRICAN DEVELOPMENT BANK ANNUAL MEETINGS
IN ADDIS ABABA, ETHIOPIA
President Kabbaj, My Fellow Governors, Honored Guests, Ladies and Gentlemen:
It is a pleasure for me to be here in Ethiopia for the 37th Annual Meeting of the African
Development Bank. I extend my sincere thanks to our Ethiopian hosts for their gracious
arrangements, and to President Kabbaj and his staff for their hard work in organizing these
meetings.
At this gathering of some 50 African nations plus non-regional member countries, we
have an important opportunity to talk about how the African Development Bank can meet the
challenge of promoting more effective development on this continent.
My visit to Ethiopia concludes a ten-day journey in Africa that has included visits to
Ghana, South Africa, and Uganda. Each stop on this trip has underlined the need for the work
performed by the African Development Bank. Each stop has also provided oveIWhelming
evidence that the people of Africa have the potential to succeed greatly. The challenge for every
person, every agency of government and every non-governmental organization that cares about
Africa is to work together to accelerate the movement from human deprivation to the full
realization of individual human potential.
From the start of his administration, President Bush has been clear that the goal of the
United States is to spur economic growth and reduce poverty throughout the world. Our agenda
for the multilateral development banks is guided by a focus, first, on supporting growth in
productivity as the key to broad and deep gains in per capita incomes; second, on ensuring the
effectiveness of development assistance through close measurement and monitoring; and third,
by insisting on results.
In recent years, the African Development Bank under the leadership of President Kabbaj
has undergone one of the most far-reaching and comprehensive restructuring programs ever
undertaken by a multilateral development bank.
PO-31S0
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Our support for the Bank is demonstrated by President Bush's request to Congress for an
18% increase in the U.S. contribution to the African Development Fund.
These added resources are needed to support the continuing reforms at the Bank.
President Bush also is proposing an 18% increase in the U.S. contribution to IDA, much of
which will go to Africa.
Productivity, Growth, and Measurable Results in the AfDB
I am hopeful that the Bank can fonn strong partnerships with donors and borrowing
member countries to target its interventions in Africa more precisely on increasing human
productivity, promoting private sector development, and thereby accelerating economic growth.
Examples would include improving education and health; promoting private enterprise,
including small and medium enterprises (SMEs); expanding the rule oflaw; strengthening public
expenditure management, accountability and anti-corruption; and promoting more open trade
and investment environments. Every AtDB operation should be assessed with these goals in
mind and with a clear vision of the AtDB's comparative advantage. I applaud the Bank's Vision
Statement that makes basic education and health a priority, and I am encouraged by the recent
agreement to allocate a greater share of African Development Fund resources to these areas.
Investment by private enterprise, African as well as foreign, is critical to increasing
productivity, employment, and growth. I believe that the AFDB can do much more in the area of
private sector development, and I urge it to find new ways to support entrepreneurs in Africa,
especially small and medium-sized enterprises, which are an important source of income and
employment generation. I also would urge the AtDB to work closely with its borrowing member
countries to promote investment climate reform, spur privatization of many state-owned
enterprises, and to lay the foundation for a more vibrant private sector in Africa.
To ensure that AfDB programs support higher productivity, measurable results should be
the hallmark of all its operations, with progress tracked against a set of key objectives for each
investment, each country, and the AtDB itself. I am encouraged by the Bank's agreement under
AfDF -9 to develop a results-based management system that links project inputs with clear
measurable indicators related to improving the lives of people. Implementation of this system
will be key. as will the feedback of findings into new projects. By measuring results, we want to
see not necessarily that a school was built, but that, for example, an African child after six years
of schooling is able to read, write, and compute at grade level. If this goal has not been met, then
something must be changed, and quickly.
Grants
To be effective, assistance should be delivered on appropriate financial terms and by
appropriate instruments. President Bush's proposal for a substantial move from loans to grants
in the multilateral development banks, coupled with continued progress under HIPC, can help
African countries to increase productivity through investments in people, but without adding to
debt burdens.
2
Investments in education, health care, control of HIV/AIDS and other diseases, nutrition,
clean water, and sewerage do not directly generate the funds needed to repay loans; it makes
more sense to finance these activities with grants. We look forward to reaching final agreement
soon on a substantially increased grants program in the ninth replenishment of the African
Development Fund.
Millenium Challenge Account
On March 14, President Bush outlined a major new vision for development, based on the
common interests of developed and developing countries in peace, security, and prosperity. His
"Compact for Development" proposes an historic, shared effort to achieve substantial,
sustainable increases in the average income level in developing countries, and defines a new
partnership between the United States and governments in the developing world that are making
an effective commitment to the refonns necessary for sustained growth.
To support the US commitment, the President is proposing to create a new development
assistance account, called the Millenium Challenge Account. Beginning in 2004, it would be
funded by increases in the budget that would reach $5 billion per year by FY 2006. These
amounts would be additional to the roughly $10 billion we currently devote to official
development assistance.
To gain access to the Millenium Challenge Account, developing countries need to show
that they are implementing sound policies that promote growth and development. We will
channel these funds to countries that demonstrate a strong commitment to ruling justly and
transparently, encouraging economic freedom and a competitive environment for the private
sector, and investing in their people by improving education, health, and water supplies, and
fighting the deadly scourge of AIDS.
This initiative is based on the belief that good policies have universal application, and
that development partnerships can be effective only if rooted in a sound policy framework.
President Bush has asked Secretary Powell and me to design indicators that will govern use of
the new funds, and has asked us to reach out to the world community in the process of
developing these indicators. I have begun that effort with this trip.
Conclusion
The New Partnership for African Development (NEPAD) initiated by the Presidents of
South Africa, Nigeria, and Algeria, embodies many of the ideas that I have been discussing
today. We congratulate them, as well as the President of Senegal and other leaders who have
been involved, for providing a framework for effective action. Now there is a need to fill in the
blanks and to show how it would work.
They will find that the US commitment to support reforming countries in the region will
be substantial and unwavering.
3
The Millenium Challenge Account builds on our previous initiatives, including the
Africa Growth and Opportunity Act, the multilateral development bank grants initiative, the
increase in funding for IDA and the African Development Fund, the HIPC debt relief initiative,
establishment of the HlV/ AIDS Trust Fund, and expanding technical assistance from Treasury
and other agencies. These initiatives demonstrate that African countries that are committed to
raising productivity growth and reducing poverty will have a strong partner in the United States.
Thank you.
4
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 04, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
29-Day Bill
June 06, 2002
July OS, 2002
912795KQ3
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1. 710%
High Rate:
Investment Rate 1/:
Price:
1.739%
99.862
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 79.94%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
SUBTOTAL
Federal Reserve
TOTAL
Accepted
Tendered
Tender Type
$
39,175,000
42,658
$
17,957,600
42,658
o
o
39,217,658
18,000,258
1,732,077
1,732,077
40,949,735
$
19,732,335
Median rate
1.700%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.650%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 39,217,658 / 18,000,258
=
2.18
1/ Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
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Wednesday, June 05,2002
Contact:
Rob Nichols
202-622-2910
Deputy Treasury Secretary Kenneth W. Dam
"Strengthening Financial Sectors in Emerging Markets"
Institute for International Economics
It is a pleasure to join you today for this important and timely discussion on global
financial services liberalization.
I recently returned from the Far East, where strengthening financial sectors was at the top
of my agenda.
Beyond private talks in Malaysia, China, and South Korea, and bilateral talks with a
broad range of countries at the Annual Meeting of the Asian Development Bank, I publicly
announced a new Bush Administration international economic policy initiative. The initiative
aims to spur financial sector reform in developing economies by encouraging greater financial
sector openness and better, sounder financial regulation. Our goal is to help developing
countries transform their domestic financial sectors into economic "engines of growth ...
Financial sector reform and liberalization of financial services markets are closely
connected. So, I'd like to review with you the message of my Asia tour. And I'd like to preview
a tentative strategy for producing results in the area of financial sector reform in that region and
in others.
Our policy toward financial sector reform in emerging markets is evolving, and we are
still at an early stage in development process. Therefore, another of my goals here today is to
pose questions -- not to suggest that we have all the answers. Treasury can learn from the many
experts lIE has assembled here, and I am looking forward to an informed and spirited discussion.
In our understanding, strong, efficient financial sectors are essential for developing
countries seeking to post productivity gains and protect their economies against global shocks.
But the importance of an efficient financial sector is not up for debate. The questions how to
build such a financial sector, at what pace, in what sequence, and in what configuration are those
which require careful consideration. As a baseline judgment, we at Treasury believe that
openness to foreign direct investment in the financial sector coupled with improved financial
supervision and regulation -- is a clear path to economic growth and stability.
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Let me define my tenns. To me, financial sector openness means establishing an
environment in which foreign-owned financial finns can compete on equal footing with domestic
ones. And it means a clear and transparent financial regulatory regime. For participation will
often take the fonn of foreign direct investment in domestic financial services businesses. It may
also take the fonn of cross-border trade -- although such trade tends to account for a much
smaller portion of trade in financial services than in goods.
I should note that allowing foreign-owned financial finns to compete on equal tenns with
domestic-owned finns is distinct from a country's decision to open its capital account. It is not
U.S. policy to encourage any country to maintain capital controls. After all, no developed
country maintains them. It is countries that allow a foreign presence in banking, brokerage,
asset management, investment banking, and insurance industries stand to benefit substantially -even those countries that choose to open their capital account at a slower pace.
Perhaps some of you will disagree with my definition of openness, and certainly I expect
some debate on the significance of capital account restrictions.
Less controversial, I think, is that foreign financial institutions can introduce business
practices, technology, products, and risk management systems honed in the more developed
markets. And, of course, foreign financial institutions can bring their own financial resources to
bear as well.
Our message in Asia was that financial sector openness offers two fundamental benefits
to those who undertake it.
First, a more open and well-regulated financial sector is more efficient, more robust. It
acts as an "engine of growth" for the entire economy. The financial sector has an economy-wide
effect. All other sectors rely on financial intennediation for growth. Second, perhaps more than
in any other economic sector, a stronger, deeper financial sector can protect an economy from
external as well as domestic shocks. Therefore, financial sector openness can promote stability.
GROWTH
How does financial sector openness lead to growth? Well, we know that the world's best
financial institutions are better able to identify productive investment opportunities and then
more quickly move domestic savings into them -- in short, the better they perfonn their capital
intermediation function, the faster an economy can grow.
In our view, one of the best ways to improve financial sector intennediation is to expose
domestic finns to the best practices of world-class financial institutions, so that domestic finns
can learn from the best, and begin to compete. There are examples.
Take Spain, which opened its financial sector to freer trade in 1986. In 1986, foreign
banks held just a 9.3 percent share of the Spanish market for commercial banking, as measured
by total assets. Challenged by foreign competition, domestic financial finns were forced to
restructure, cut overhead costs and improve efficiency.
2
To compete, they expanded into new national markets and merged with other banks to
take advantage of economies of scale. They also began operating in international markets.
As a result of these and other factors associated with openness and EEe accession,
Spain's growth rate rose to 4.8% and gross capital formation rose to 14.1 % for the period from
1986-1989. Such growth stood in sharp contrast to previous five years.
Another benefit of a competitive foreign presence is that competition forces all financial
firms operating in an economy to offer the highest returns to savers, and the lowest cost of
capital to investors. Under the right conditions, competition from international firms leads to
narrower spreads, and stimulates both savings and investment.
As financial institutions aggregate capital, they must move it into the businesses and
industry sectors where they can earn the best risk-adjusted returns for their savers. That means
investing in the businesses that can make the best use of their capital-- in other words, those that
offer the highest productivity. And rising productivity -- output per worker -- is at the root of
rising living standards.
The positive effect of openness has been documented by the World Bank, another fact we
highlighted for Asian policymakers. In 2001, a World Bank study found that countries with fully
open financial service sectors grow, on average, one percentage point faster than other countries.
These results corroborate an earlier World Bank study which estimated that more open and
competitive financial services markets - in developing markets - helped increase growth rates
by 2.0 to 2.5%.
STABILITY
Another fact we asked Asian policymakers to consider was that a stronger financial
sector enhances economic stability: that is, that a financial sector reduces risks for savers and
investors, and acts as a hedge against global economic cycles.
In my view, the growing interdependence between emerging markets and developed
markets - globalization - brings new challenges to all economies, even as it opens new
opportunities. Increasingly, our economies pedal in tandem. When the United States moves
forward, so do many developing economies, especially those most dependent on exports to the
U.S. The reverse is true as well.
For emerging markets, the consequences of this economic integration are profound.
Access to markets abroad means greater exports for developing economies and greater profits for
their firms. But economic integration also has its downside, and the turbulent winds of the
global economy can swing a boom hard, fast, and unexpectedly. The slowdown in U.S. high tech
manufacturing in the last few years hit Asian electronic component manufacturers in just that
way, for example. While export-led growth is attractive to many developing countries, recent
events demonstrate its downside.
3
One way a stronger financial sector can make an economy more resilient to such shocks
is by helping to buoy domestic demand when export demand falls off. Though it has yet to be
quantified, the recent and widespread use of credit cards in Korea likely has helped drive
consumer demand. Likewise, a introduction of new home mortgage products has surely
influenced a rising demand for new housing starts.
Conversely, a weak and inefficient financial sector may limit a government's ability to
run counter-cyclical macroeconomic policies to offset shocks. This is true in developed and
developing economies alike. In some economies, most notably Japan, a significant easing of
monetary policies has not translated into significant credit growth because the banking sector is
already supporting too much bad debt, and is unable or unwilling to add new loans to balance
sheets.
By contrast, a healthy financial sector is able to inject new credit into the economy as the
central bank expands the money supply. Foreign-backed financial institutions in developing
markets often have stronger balance sheets, and a greater ability to lend, especially during
slowdowns.
For example, a recent study of emerging Latin American markets showed that during
periods of crisis, foreign banks actually increased their local lending relative to their competitors.
With an international capital base, foreign banks have the ability to continue extending credit to
local businesses, which is often essential for stabilizing the economy.
Finally, with regard to regulation, we pointed out to Asian leaders that sound and
transparent regulation and supervision, with consistent national treatment of foreign-owned
financial institutions, essential in strengthening financial systems. Every effort must be taken to
use transparent methods for drafting and applying regulations, with input from all relevant
parties. Regulators must seek out the experience of the private sector and especially
internationally active firms before creating the rules of the game.
u.s. FINANCIAL SECTOR
It is always perilous to hold up oneself as an exemplar of virtue, but I believe that the
United States has one of the most open and, therefore, competitive financial sectors in the world.
As evidence of U.S. financial sector openness, consider that U.s. imports of financial
services, including insurance, totaled $19.3 billion in 2000. This accounted for 10 percent of all
cross-border service imports into our country that year. Sales figures of foreign-owned financial
firms operating in the U.S. were even more substantial. In 1999, the latest year available, sales of
services in the U.S. by majority-owned finance and insurance affiliates of foreign companies
totaled $94 billion. These affiliates account for more than ten percent of total U.S. revenue in
these sectors.
Because the U.S. economy is open to these firms, consumers and businesses can choose
from the most advanced, best-priced financial services in the world. Entrepreneurs and major
corporations alike can finance expansion; and they can better survive periods of contraction.
4
Consider U.S. financial sector contributions to U.S. economic stability during last year's
slowdown. Clearly, the breadth and depth of our financial sector -- in addition to well-timed tax
relief and monetary easing -- abridged the contraction. In particular, widespread access to home
mortgage products and rapid, low-cost refinancing kept U.S. consumers spending until
businesses could clear their inventories and begin to rebuild.
Advanced financial risk management practices also served their purpose. As Federal
Reserve Chairman Alan Greenspan put it, "New financial products -- including derivatives,
asset-backed securities, collateralized loan obligations, and collateralized mortgage obligations,
among others -- have enabled risk to be dispersed more effectively to those willing to, and
presumably capable of, bearing it. Shocks to the overall economic system are accordingly less
likely to create cascading credit failure."
With regard to regulatory practices, the U.S. Federal Reserve regularly publishes
proposed regulations and asks for comments from the private sector in a reasonable time period.
During the implementation of our Gramm-Leach-Bliley bill-- which fundamentally reformed the
U.S. banking, securities and insurance sectors -- the U.S. Federal Reserve sought out and
received hundreds of comments from foreign banks. As a result, it made several significant
changes to accommodate the many international banks doing business in the United States.
Rules that specify how regulations will be implemented and how applications for licenses will be
granted or denied are equally as important.
QUESTIONS FOR llE CONFERENCE
The opinions I have expressed thus far are preliminary. They are reasonably wellinformed, I hope, but nonetheless subject to refinement. That is why I welcome so heartily this
lIE conference today.
We need your help in understanding the best approaches, and highest priorities, for
financial sector liberalization. How much can liberalization boost growth? And in which
sub sectors will it be most effective?
How should we look at the least developed countries in the respect? Secretary O'Neill
has just returned from a tour through Africa, where he was collecting data on how to improve
economic growth in the poorest nations. Can low-income nations benefit as much from financial
sector reform as middle-income countries? How might the approach differ for different levels of
development, and different regions?
Further, many in the developing world have, rightly or wrongly, come to associate
financial liberalization with financial crisis. Are these phenomena linked in fact, or just
perception? Here again we need to distinguish the effects of more foreign direct investment in
financial services from the question of opening the capital account. And we need to distinguish
foreign portfolio investment from foreign direct investment in financial services.
5
There are so many more questions -- but we'll get to them in time. I am glad that the
Institute is devoting an entire day to the subject.
NEXT STEPS
My Asia trip was just the beginning of our commitment. There is much more to our
strategy.
As we identify the most important target countries, we will plan more visits to raise these
issues in a bilateral context. We will also hope to promote discussion at multilateral, regional,
and bilateral economic meetings. We will continue to work with international financial
institutions such as the World Bank and the IMF to make sure financial sector openness is more
closely related to their core missions.
We are considering other approaches as well, and I welcome your input on these.
I can say, without equivocation, that the Treasury Department, and this Administration,
intend to place financial sector openness high on the international economic agenda. And we
want to do it right. Your insights today will make an impact on our policy.
CONCLUSION
In conclusion, I believe that a major challenge for emerging markets, in this decade, will
be financial sector restructuring and development. The bigger question, of course, is how to get
there.
I believe the record shows that when policymakers understand the importance of financial
sector openness, and are firmly resolved to take the necessary steps, they can succeed in
strengthening their country's financial sector. And succeed they must -- prosperity in the 21st
century will depend on it.
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Treasury Secretary Paul H. O'Neill
"Caring Greatly and Succeeding Greatly: Producing Results in Africa"
Remarks to the Carnegie Endowment for Peace
Washington, DC
June 5, 2002
Good morning. Thank you, Jack (DeGioia, President of Georgetown University),
for that kind introduction. I also want to thank the Carnegie Endowment for International
Peace for arranging this opportunity to discuss my tour of Africa. And thanks to
Georgetown University for accommodating this crowd! It's encouraging to see so much
interest in this important subject.
I went to Africa last month to listen and learn; to meet African leaders in and out
of government, to meet doctors, farmers, teachers, students, and entrepreneurs. I went to
hear their insights into the obstacles to Africa's prosperity.
I also went to find a real-world basis for recommendations to the President on
how to allocate funds from the new Millennium Challenge Account. But most of all, I
went with an open mind, and one pivotal question: How can the people of the United
States and the developed world best help Africans and their elected leaders achieve
prosperity at last?
It is too soon to announce policy recommendations from the trip, but I certainly
learned a great deal, and I want to share some of my experience with you.
Some would say my trip was a little out of the ordinary. The Treasury Secretary
traveling with the rock star. The "odd couple." Bono even had tee-shirts made
portraying Jack Lemmon and Walter Matthau. But we really weren't so odd. In fact, I
think Bono and I found a lot in common. We both desperately want to see the people of
Africa - in fact, the people of the world -living to their full potential.
I did try on the famous blue shades during the trip. And Bono sang the occasional
song. Between these lighter moments, though, I have to say this was the most intense
twelve days I've ever experienced. I met people like Sister Benedicta, who runs a
hospital and orphanage in Ethiopia. She maintained an incredible radiance, even as she
told us how many people die in her hospital every day - how many children die in her
hospital every day. To witness that strength of spirit is a truly profound experience.
PO-3153
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I can't begin to describe all the emotional moments during this trip. They
confirmed three things for me. First, a truth we've always known: All people everywhere
can do great things when they are given the tools and incentives for success. Second, that
with leadership - honest, accountable, and committed to progress - everything is
possible. Without leadership, nothing is possible. And finally, that in the right
environment focused on growth, enterprise and human development, aid works.
Knowing that it can work, we have a moral imperative to demand as much. Assistance
should make a real difference in people's lives.
We in the developed world must support African leaders who are creating the
conditions for success - ruling justly, encouraging economic freedom, and investing in
their people. And we must ourselves take a leadership role in demanding results.
The impoverished people of Africa - and in poor nations everywhere - require a
new kind of help, that goes beyond the well-intentioned but disappointing results of the
past fifty years.
If our assistance is not making a difference, or if we cannot measure our results to
know what difference we have made, then we have to change our approach. We owe that
to the people of Africa.
In Africa, I saw signs of progress everywhere. Programs are working, aid is
helping, and standards of living are improving.
But there is a long way to go. The progress I saw deserves praise, but it just isn't
enough.
Let me highlight the areas in which we witnessed progress. In particular, I saw
three kinds of investments in people that are vital to realizing Africa's potential: clean
water, primary education, and fighting HNIAIDS.
Clean water is, surely, one of the most essential elements ofa dignified, civilized
life. No aspect of infrastructure is more basic. Yet 45% of sub-Saharan Africans lack
access to clean, safe water. That's about 300 million people - more than the total
population of the United States. In Ethiopia, that figure is 78%, or 50 million people in
that country alone.
One insight from my Africa tour is that local leaders, with some engineering and
financial support, could develop clean water sources for their towns and villages fairly
quickly. For example, in one Ugandan village I saw a concrete basin installed to protect
a natural spring. The women of the village could collect the water directly from the basin
instead of collecting it after it spilled across the muddy ground. The concrete basin cost a
thousand dollars to install.
2
But the local chainnan for the project told me that the greatest hindrance to
installing the system had been local fears that a snake was protecting the spring, and that
the snake would become enraged by any tampering and would take away the water. He
had to spend considerable time persuading his fellow villagers to go ahead with the
project. It took his leadership to get the project finished.
Or consider another village, where women were trekking to a muddy river to
obtain water, even after a well was dug in the village. After the well was built, the
women wouldn't use it. It turns out that they valued their social time down by the river,
and so they chose to continue collecting dirty water from the river, rather than clean
water from the well. When the water tap was relocated further from the village,
providing an opportunity to socialize, they started to use it.
In these and other cases, only local leadership could tailor development projects
to suit local cultures and customs. And it was sometimes shocking to see the disconnect
between the aid bureaucracies with their I5-year plans and the availability of more
immediate solutions.
You cannot airdrop solutions to local problems. You can only offer air support.
Local leadership must implement the solutions on the ground and be accountable for
success.
If we can figure out a way to support African leaders in bringing clean water to
their nations - and I think we can do that much faster and cheaper than the endless
studies say we can - we can liberate hundreds of millions of people, especially women
and children, from preventable, debilitating illness and meaningless, wearisome labor.
They would be free to pursue their dreams for a better life.
The second important investment I saw was in raising primary education
enrollment. I believe that in Africa, in the United States, and in every part of the world,
children by the age of about ten years old should and can have the tools to be life-long
self-learners. But that requires that we get them into schools at an early age, and keep
them there, with adequate materials.
In Uganda, they've had tremendous success increasing primary school
enrollment. Primary school enrollment has increased from about half (55%) of the
children in 1994 to nearly all of them (94%) in 1999, and nearly half the students are
girls. Education quality is improving as well. But there is still a long way to go. I
visited schools where they have gone from a ratio of 16 students per book down to six per
book. That's progress, but it's not good enough. We must set our expectations higher.
Surely, we can get every student his or her own book.
3
Similarly, one study in Uganda found that only 2% of non-wage spending for
education was actually reaching schools in 1991. The rest was lost to corruption and
bureaucracy. Following reforms enhancing transparency and accountability for
government spending, over 90% of school spending now gets to the schools. That's a
huge improvement. But again, we can do better.
The third, perhaps most crucial area for investment in people is health care.
Nowhere is this more urgent, and more heartbreaking, than in the struggle against AIDS.
In South Africa I saw mothers with AIDS caring for babies with AIDS, even when
proven, inexpensive drugs are available to stop transmission between mother and child. I
saw the dedication of nurses and doctors treating people with AIDS, and their patients'
struggle to survive.
Certainly, prevention of further HN contagion is the utmost priority, especially to
keep the next generation of newborns free from disease. Uganda, in particular, thanks to
President Museveni's leadership on this issue, is one of the few to reduce the portion of
the population afflicted with AIDS. But among the challenges facing those who fight
AIDS in Africa is that in many countries, there is a social stigma attached to even testing
for the disease. They need more leaders to tackle this issue head-on.
This is our challenge: to focus the attention of the world on getting results.
Caring greatly is not enough. We must also succeed greatly. Starting today.
I'm glad to see progress, but we should not confuse progress with success. We
must challenge ourselves to aim higher and concentrate our efforts so that international
assistance advances the progress taking place on the ground.
Providing the framework for basic health and education is fundamental for
enabling people to realize their potential. When governments are investing in their
people, providing clean water, education, and health care, and when the other aspects of
good governance are present - just rule and economic freedom - prosperity can blossom.
In fact, the private sector is already growing in parts of Africa. I visited
entrepreneurs who are grabbing the opportunities that good governance has made
possible. They are creating jobs in industries from coffee and cut flowers to athletic wear
and data processing. By doing so they are spreading knowledge and inspiring others to
reach for their dreams.
As private enterprise expands in an economy, trade and investment grow to dwarf
official aid. Countries that won political independence years ago finally win their
economic independence as well. Government provides the conditions for growth, but it
is not the source of prosperity. Private citizens create prosperity through enterprise.
4
And in Africa, where the conditions are right, citizens are doing just that.
For example, in Ghana I visited a successful U.S. investment, called Affiliated
Computer Services, Inc. ACS sells data processing services to insurance companies in
the U.S. It opened its office there in 2000, and already it employs over 800 Ghanaians,
paying an average of three times the average wage in Ghana. 80% of the employees are
women. The company now plans to expand its operations to four new sites in Ghana and
to increase its workforce to over 1,000 people.
ACS employees start with a high school diploma and typing skills. The training
they receive creates a new knowledge base on which future employers can build. As
foreign investments like ACS show success, others are bound to follow, and I am
optimistic that increasingly advanced services, such as software development, will thrive
in Ghana and elsewhere in Africa.
In Uganda, I met a woman, Lukia Ssemonobe, who opened a restaurant with
micro-loan funding and a lot of hard work. This woman lost her husband a dozen years
ago, and had to feed four children without income. Indomitable, she borrowed $50 from
the local branch of a micro-finance NGO, and used that and subsequent loans to build
two businesses - a restaurant and then a tailoring shop. Now she employs about a dozen
of her neighbors, supports her family, owns a home, and has become a leader in the
community. Lukia shows the kind of success that is possible.
I also visited a cut-flower factory, where local entrepreneurs are diversifying
Ugandan exports by growing beautiful flowers and air-shipping them the same day to
European markets.
In Ethiopia, an entrepreneur from Chicago invested in building a garment factory
that makes sports clothes and ships them to the U.S. under the Africa Growth and
Opportunity Act. The company now employs about 200 workers, each earning between
three and 21 times the average Ethiopian income.
Jobs that deliver prosperity are created one at a time, by people like Lukia, or the
investors in ACS. They see opportunities and choose to take the risks, confident they
will reap the rewards of success.
Unfortunately, in too many cases, potential entrepreneurs and investors in Africa
are deterred by arbitrary laws, corrupt bureaucracies and government favoritism. Africa
is a continent of entrepreneurial enthusiasm - that's what I saw. But these individuals
have no chance for success without governments that fairly enforce laws and contracts,
respect human rights and property, and fight corruption. Governments also must remove
barriers to trade - both internal and external - and open their economies to investment.
They must allow companies and entrepreneurs to compete without excessive interference,
including interference from government-owned enterprises.
5
That's no small order. But as private sector production takes hold in Africa, and
incomes rise, African growth will become self-sustaining. Africa will be its own best
market.
Coming back to my original question, what can we in the U.S. do to support
African success? Here in Washington, we need to push ahead with President Bush's
reform agenda, to improve the effectiveness of wealthy nations' support for African
development and promote the best efforts of our African partners.
Many extol debt forgiveness as the path to African development. I would agree
that debt forgiveness may help, but it alone is not the solution.
Debt forgiveness solves nothing if we allow new debt to create the next
generation of heavily indebted poor countries a decade from now. President Bush has
proposed that up to 50% of World Bank and other development bank funds for the
poorest countries be provided as grants rather than as loans. This proposal acknowledges
the long-term development challenges facing these countries, their vulnerability to
economic shocks, and the reality that essential investments in social sectors, such as
education and health care - investments in people - cannot directly generate the
incremental revenue to service new debt.
Replacing loans with targeted grants will eliminate the need for governments to
repay long-term investments in people. It will thereby eliminate the next generation of
debt service problems. It is time to end the sad cycle of indebtedness for countries
committed to success.
Second, it's a simple fact that is as true about an individual as it is about a nation
- even without debt, it's impossible to prosper without income. Even if we forgave all
debts, many of these countries still could not fund their own budgets, and they would not
be much better off. In Uganda over half of the government budget comes from foreign
aid. Think about that. It is not a self-sustaining situation. The only way out of that kind
of shortfall is internal economic growth. Local leaders must create the conditions for
self-sustaining prosperity, not further dependency.
That is a premise of President Bush's New Compact for Development. In March,
the President said, "the advance of development is a central commitment of American
foreign policy" and he outlined a "new compact for global development, defined by new
accountability for both rich and poor nations alike."
The New Compact for Development creates the Millennium Challenge Account
and proposes an additional $5 billion per year in official U.S. development aid - a 50%
increase over current levels - specifically targeting poor countries that can use the money
effectively. To access the Millennium Challenge Account, a developing country must
have a government that shows a strong commitment to ruling justly, encouraging
economic freedom, and investing in people, as I have described.
6
Because results are what count, President Bush has created new incentives in our
development assistance programs to reward those that achieve real improvements in
peoples'lives. He has committed that as a reward for proven results, the U.S. will
increase funding for the African Development Bank by 18%, and will do the same for the
International Development Association (IDA), the World Bank program for the poorest
nations. To receive these additional funds, the programs need only show they are making
a difference in people's lives - a challenge these development organizations, their
supporters, and their beneficiaries should welcome.
In the long-tenn, domestic entrepreneurship as well as trade and foreign
investment are far more important for economic growth than official aid. The United
States has created the Africa Growth and Opportunity Act, or "AGOA," to open U.S.
markets to exports from sub-Saharan Africa. As Uganda's President Museveni said "If
somebody buys what Uganda produces, then he is rendering my country the best
assistance possible. n
1 would also encourage all African nations to reduce trade barriers amongst
themselves, so that all can benefit from their different comparative advantages, and
relative proximity to each other. They should be their own best markets, not their worst.
The Africa 1 saw on my journey is already changing. We stand ready to help,
eager and impatient to assist real improvement in the lives of the African people.
Consider this. Fifty-five years ago on this very date, U.S. Secretary of State
George C. Marshall gave a speech outlining the European Recovery Program, later
known as the Marshall Plan.
In it, he said: "I need not tell you that the world situation is very serious. That
must be apparent to all intelligent people. I think one difficulty is that the problem is one
of such enonnous complexity... Furthennore, the people of this country are distant from
the troubled areas of the earth and it is hard for them to comprehend the plight and
consequent reactions of the long-suffering peoples, and the effect of those reactions on
their governments in connection with our efforts to promote peace in the world."
He was talking about Europe in 1947. The words are just as true of Africa today.
1 went to those troubled lands, and I believe this: with the right combination of aid
and accountability - from both rich nations and poor ones - we can accelerate the spread
of education, clean water and private enterprise throughout Africa. We can help the
African people create vibrant, self-sustaining economies and a rising standard of living.
Development is complicated. I know that. I don't underestimate the challenge. I
just don't think we should accept complexity as an excuse for delay.
7
As Marshall said, "With foresight, and a willingness on the part of our people to
face up to the vast responsibility which history has placed upon our country, the
difficulties I have outlined can and will be overcome."
Together, we can produce results for Africa. We will tear down the walls to
prosperity. Not in the next generation, but right now. In this era of global opportunity,
no continent, no country, and no person should be left behind. President Bush said it best
- there are no second class citizens in the human race. We must make his vision into a
worldwide reality.
Thank you.
8
D E P .\ R T \1 E ~ T
0 F
THE
T REA S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
Embargoed Until 2:15 p.m. EDT
June 5, 2002
Contact: Michele Davis
202-622-2920
O'NEILL STATEMENT ON PATIENT SAFETY IMPROVEMENT ACT
Today at least 100,000 Americans every year die because of medical errors and mistakes,
despite the best efforts of the good doctors, nurses and hospitals in this country. The system they
work in is broken. Everybody knows a story about a friend or relative who went into the hospital
and had something go wrong. We can and must change that. We've tinkered long enough with
our health care system - a band-aid here, a cosmetic fix there. Mistakes and errors don't just
cost money, they cost lives.
I spent considerable time working to reform the health care delivery system in Pittsburgh,
where I saw firsthand that it is possible to make systematic and far-reaching improvements in
health care quality and safety. Every American deserves this kind of high-quality, error free
health care.
We know from other high risk industries, such as aviation, that a fundamental
requirement for improvement is that it must be safe to learn from errors. Punishment, ridicule
and legal exposure drive error reporting underground so corrective action does not occur.
Properly constructed health care quality and safety initiatives should be protected from liability.
They are not now.
Along with Secretary Thompson, our leader on national health care policy, I applaud the
sponsors of the Patient Safety Improvement Act for tearing down the barriers to quality
improvement so that we can move toward the goal of error-free health care for every American.
-30-
PO-31S4
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
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3:00 PM
June 6, 2002
Contact: Peter Hollenbach
(202) 691-3502
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR MAY 2002
The Bureau of the Public Debt announced activity for the month of May 2002, of securities within the Separate
Trading of Registered Interest and Principal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$2,120,826,266
Held in Unstripped Form
$1,956,558,228
Held in Stripped Form
$164,268,038
Reconstituted in May
$13,670,318
The accompanying table gives a breakdown of STRlPS activity by individual loan description. The 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 Form."
The Strips Table along with the new Monthly Statement of The Public Debt is available on Public Debt's
Internet site at: www.publicdebt.treas.goY.Awide range of information about the public debt and Treasury
securities is also available at the site.
000
PA-558
www.publicdebt.treas.gov
PO-3155
TABLE V. HOLDINGS OF TREASURY SECURITIES IN STRIPPEO FORM, MAY 31,2002 - Continued
Amount Outstanding In Thousands
Corpus
1 reasur; Notes:
Series:
CUSIP:
H
912827 2Y7
6F4
W
K
3C4
6HO
X
G55
B
l
3G5
6K3
Y
3J9
M
611
Z
314
N
P
303
6P2
AC
359
0
SOO
AD
3V2
656
J78
3Z3
6U1
4B5
6V9
401
C
l
A
6W7
4H2
6Y3
4K5
6Z0
7M
L83
4N9
7CO
708
7E6
4U3
7G1
7H9
71<2
N81
SA6
7M8
912828 AA8
AB6
912827 P89
5FS
912828 AD2
912827 088
5MO
R87
5S7
586
T85
609
U83
V82
6N7
W81
)(80
6X5
Y55
262
7F3
2J0
2U5
912828 AC4
912827 3EO
3)(8
4F6
4V1
5G3
SN8
5Z1
6J6
6T4
7B2
710
0
M
E
N
F
P
G
0
H
R
5
B
J
T
U
V
K
W
X
J
A
E
K
L
M
B
F
N
C
G
0
H
A
B
E
C
0
F
A
B
E
C
0
F
B
C
E
0
B
C
0
B
C
B
C
B
C
B
Maturity Date
STRIP
CUSIP
Loan Desc:tlplion
Interest Rate:
6-1/4
6-318
S
6-1/4
6-318
6-114
6·1/8
5·7/8
6
5-3/4-'
5-314
0
'
5-518
5-518
5-1/8
5-112
4-314
6-1/4
5-112
4-518
5·112
4-1/4
5-314
4
5-112
4-1/4
5-318
3-7/8
3-7/8
5-314
5-114
3-5/8
2-314
2-314
4·1/4
3
3-114
3
5·7/8
4-314
3
3-5/8
3-318
7-114
5·1/4
3-114
7·1/4
6
7-7/8
5-718
7-112
6-112
6-314
6-112
5-7/8
5-314
5-518
6-7/8
4-5/8
7
6-112
3-112
6·1/4
6-5/8
4-318
6-1/8
5-112
5-5/8
4·314
5-112
6
6-112
5-314
5
5
4·7/8
Tolal
Outslandina
912820 F05
ETO
FR3
EU7
BE6
FS1
FU6
CC9
FV4
CE5
CH8
FV8
CK1
FZ5
CN5
GB7
BF3
CS4
GD3
CU9
GE1
CW5
GF8
DA2
GH4
OC8
GJO
GK7
BG1
OE4
GMJ
001
GP6
DJ3
GR2
GSa
GU5
BHS
007
GW1
GX9
GY7
BJ5
OU8
HAS
B1<2
OZ7
BlO
EE3
BM8
BN6
ER4
BP1
B09
FXO
BR7
BSS
GG6
BT3
BUO
GQ4
eW6
eX4
GZ4
CAl
C08
CY1
OKO
OV6
EA1
EM5
FT9
GCS
Gl5
GV3
06/30102
06/30102
07131102
07131102
08115102
08131102
08131102
09130102
09130102
10131102
11I30I02
11130102
12131102
12131102
01131103
01131103
02115103
02128103
02128103
03131103
03131103
04I30I03
04130103
05131103
05131103
06130/03
06130103
07131103
08115103
08115103
08131103
09I30I03
10131103
11115103
11I30I03
12131/03
01131104
02115/04
02115104
02129104
03131104
04130/04
05115104
05115/04
05131104
08115/04
08115104
11115/04
11115/04
02115105
05115105
05115105
08115105
11115105
11115105
02115106
05115106
05115106
07115106
10/15106
11115/06
02115107
05115107
05115107
08115107
02115108
05l1SI08
11/15108
05115109
08115109
02115110
08115110
02115111
08l1SI11
02115112
Total TreasulY Notes ..........................................
Gland TOlal... ..............................................................................................................
Portion Held In
Unslriooed Fonn
13.058.694
14,320.609
12,231,057
15.057.900
23,859.015
12.731,742
15,072,214
12,806.814
15,144,335
26.593,892
12,120,580
15,058,528
12,052.433
14,822,027
13.100,640
15.452,604
23.562,691
13.670,354
14.685,095
14,172,892
14.674,853
12.573,248
13,338.528
13.132.243
13,331.937
13.126,779
14,671,070
16.003,270
28,011,028
19.852,263
18,665,038
22,675,482
25.147,960
18.625,785
26,170,526
29,666,988
30.775.555
12,955,077
17,823,228
31.746.077
32,873.508
32.654,946
14,440,372
18,925,383
33,304,334
13.346.467
18,089,806
14,373,760
32,658.145
13,834,754
14.739,504
28,562,370
1S,002,580
15.209,920
28.062,797
15.513.587
16.015,475
27.797,852
22,740,446
22,459,675
35,380,129
13,103,678
13.958,186
24.351.371
25,636,803
13,583,412
27.190,961
25,083,125
14,794,790
27,399,894
23,355,709
22,437,594
23,436,329
26,635.316
24,779,823
13,058,694
14.309.009
12,231,057
15,055,500
19.174,158
12,731,742
15,072,214
12.731,614
15,144,335
26,498,692
11,730,780
14,990,688
11,640,593
14.822.027
13.091.040
15,427.004
21.729.639
13.626,354
14,278,695
14.144,892
. 14.674.853
12.540,448
13.338,528
13,084.643
13,331,937
13.091.579
14,671.070
16.001.670
25.650,388
19.783,263
18,665.038
22,675,482
25.146.360
17,300.365
26.170,526
29.666.988
30,775,555
12.191.717
17.805,628
31.746.077
32,873.508
32.654.946
13.S11,272
18.925.383
33,304,334
11.435.067
18.089,806
14.369,160
32,658.145
13,275.784
14.739.104
28.456,170
15.002,180
14,825,320
27.703,597
15.508.107
15,208.435
27.797.852
22.700.446
22,399,675
34.873,329
12,541,634
12,962,511
24,351,371
24,562,003
13.556.712
27.123.441
25,069,125
14,741.290
27,304,894
23,351.109
22,434,594
23.430,569
26,631.316
24.179.823
1,474,273,852
2,120826266
Portion Held In
Striooed Form
0
11.600
0
2,400
4,684.857
0
0
75.200
0
95,200
389,800
67,840
411,840
0
9,600
25,600
1,833.052
44,000
406,400
28,000
0
32,800
0
47.600
0
35,200
0
1,600
2,360,640
69.000
0
0
1.600
1,325,420
0
0
0
763,360
17.600
0
0
0
929.100
0
Reconstituted
This Month t8
0
0
0
0
74,200
0
0
0
0
0
4.800
0
0
0
0
0
54.200
0
0
0
0
0
0
0
0
0
0
0
90,600
800
0
0
0
27.200
0
0
0
6.200
0
0
0
0
3S.OOO
0
0
o
1.911.400
0
4.600
0
558.970
400
106,200
400
384,600
359,200
5.480
807.040
0
40.000
60.000
506.800
562.044
995.675
0
1.074.800
26.700
67.520
14,000
4.540
0
1.600
0
61,200
0
69,600
53,500
95,000
4,600
3.000
5,760
4.000
X
0
95.680
0
0
5,440
0
0
0
78,800
39.508
1,640
0 X
400
1.200
0
0
0
0
0
0
0
0
0
0
1,452,952,854
21.320.998
652.608
1956558228
164.268036
13670318
TABLE V • HOLDINGS OF TREASURY SECURrTIES IN STRIPPED FORM MAY 31 2002
Amount 0utSIII~ In Thouuncls
Corpus
Treasury Bonds:
CUSIP:
912810 OW
008
DR6
DU9
DN5
OPO
OS4
OT2
OV7
DW5
0X3
OYI
OZ8
EA2
EBO
ECB
ED6
EE4
EFI
EG9
EH7
EJ3
EKO
EL8
EM6
EN4
EPa
E07
ES3
ET1
EV6
EW4
EX2
EYO
EZ7
FAI
FB9
FE3
FFO
FGS
FJ2
FMS
FP8
Matullly Date
STRIP
CUSIP
Loan Desettption
Interest Rate:
11·518
12
10-314
9-318
11-314
11·114
10·518
9·718
9·H4
7·114
7·112
8·3/4
8-718
9·118
9
8-718
8·118
8-1/2
8-314
8-314
7·718
8-118
8-118
8
7·1/4
7·518
7·118
6-1/4
7·112
7-518
6-718
6
6-314
6-112
6-5/8
6-318
6-118
5-112
5-1/4
5-1/4
6-118
6·1/4
5-318
912803AB9
AD5
AGe
Al2
912800AA7
912603AAI
AC7
AE3
AFO
AH6
AK9
Al7
AM5
AN3
AP8
AQ6
AR4
AS2
ATO
AU7
AV5
AW3
AXI
AYG
AZ6
BAO
BBB
BCS
B04
BE2
BF9
BG7
BH5
8Jl
BK8
BL6
BM4
BP7
aV4
aW2
CGG
CH4
CK7
11/15104
05115105
08115105
02115106
11/15114
02115115
08115115
11115115
02115116
O5fl!1116
11/1!1116
05115117
0811!1117
05115118
11115118
02115119
O8I1!1119
02115120
05115120
08115120
02115121
05115121
08115121
11115121
08115122
11/15122
02115123
08115123
11/15124
02115125
08115125
02115126
08115126
11115126
02115127
08115127
11/15127
08115128
11/15128
02115129
08115129
05115130
02115131
Tolal Treasury Bonds............................... ·.. ·······
Treasury Innation-lndexed Notes:
Interest Rate:
Series:
3-518
J
9128273A8
3-318
A
2M3
3-518
A
3T7
3-718
A
4Y5
4·1/4
A
5W8
3-112
A
6R8
3-318
A
7J5
CU SIP:
91282OBZ9
BVa
CL9
ON4
EK9
GA9
GT8
07115102
01115107
01115108
01115109
01/15110
01115111
01/15112
Totallnllation-Indexed Notes ...................... ·······
Treasury InftatioMndexed Bonds:
Interest Rate:
CU SIP:
3-518
9 12B10FD5
3-718
FH6
3-318
FQ6
Tota I Innation-Indexed Bonds.......................... -
912803 BN2
CF8
CL5
04/15128
04115129
04115132
Total
PottIon Held In
OutstandinD
Uns~Form
Portion Held i'I
StriPDed Fonn
Reconstituted
This Month "
8.301.806
4.260.758
9.269.713
4.755,916
5,015.284
10.520,299
4.023,916
5.584.859
5.431.754
18,823.551
18.787.448
15.559,169
10.968,358
6.717.439
7.174,470
13,090.498
18.940.932
9,476,268
7.582,183
17.059.306
10.075.573
10.066.788
9.506.382
30.632.194
10.127.790
7.423.626
15.782.061
22.659.044
9.604.162
9,509.170
11,187,207
12,837.916
8.810.418
10.860.177
9.521.971
9.196.756
22.021.339
11.776,201
10.947.052
11.350.341
11.178.580
17.043.162
16,427.648
4.521.807
1.891.305
6,246,413
4,375,957
1.893.700
9.032,050
3.108.250
3.415.317
5.316.248
18.695.518
17.454,148
7.824.997
7.303,955
3.062.039
3,140.947
6.878.271
17.937,571
7,324.308
2,866.438
6.626.296
9,088.093
4.708.045
7,284.566
17.328.988
8.858.191
2.965,231
10.091,261
19,287.460
3.584.762
3.971.369
8.008.045
11.447,216
6.228,400
5,238.827
6.347.916
7.049.956
12.016.039
10.946.401
10.088.252
10,821.645
10.425,180
16,174,330
16.318.848
3,779,999
2,369,453
3,023.300
379.959
3,121.584
1,488,249
915,666
2,169,542
115,506
128,033
1.333.300
7.734,172
3.664.403
3.655.400
4.033.523
6,212,227
1.003.361
2,151.960
4,715,745
10.433,010
987.480
5.358.743
2,221.816
13,303.206
1.269.599
4.458.395
5.690.800
3.371.584
6.019.400
5.537.801
3.179.162
1,390.700
2.582.018
5.621.350
3.174.055
2.146.800
10.005.300
829.800
858.800
528,696
753.400
868.832
108.800
80,400
20,400
185,400
19,200
166.600
981.760
79,680
56,000
73.600
24.800
73.760
598,880
779,400
350.400
1,035.800
358,200
376,260
225,000
22,400
685,720
68.000
725,840
581.040
2.252.650
- 40.400
202.000
353.400
89.600
298.520
197.600
402.560
53.200
135.400
401.000
211,200
161.000
535.000
10.000
39.400
16.000
20.400
29.800
0
499.889.485
357.194.556
142.694.929
13.017.710
18.771.869
17.780.191
18.602.821
17.334.408
12.028.976
11.299.494
6.044.992
18.771.869
17.780.191
18,492.166
17.334.408
12.028.976
11,299.494
6.044,992
0
0
110.655
0
0
0
0
0
101,862,751
101.752.096
110.655
0
18,550.443
21,201.713
5,048.022
18.544.916
21.065,783
5.048.022
5,526
0
135.930
0
0
0
.....800.178
44.658,722
141,456
0
0
0
0
0
0
0
I
D EPA R T \1 E
~
T
0 F
T Ii E
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL DELIVERY
June 6, 2002
Contact: Tara Bradshaw
(202) 622-2014
TESTIMONY OF PAMELA OLSON, ACTING ASSISTANT SECRETARY
(TAX POLIcy),
UNITED STATES DEPARTMENT OF THE TREASURY
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
ON CORPORATE INVERSION TRANSACTIONS
Mr. Chainnan, Congressman Rangel, and distinguished Members of the Committee, we
appreciate the opportunity to appear today at this hearing on corporate inversion transactions.
In recent months, several high-profile U.S. companies have announced plans to
reincorporate outside the United States. The documents prepared for shareholder approval and
filed with the Securities and Exchange Commission cite substantial reductions in overall
corporate taxes as a key reason for the transactions. While these so-called corporate inversion
transactions are not new, there has been a marked increase recently in the frequency, size, and
profile of the transactions.
On February 28,2002, the Treasury Department announced that it was studying the
issues arising in connection with these corporate inversion transactions and the implications of
these transactions for the U.S. tax system and the U.S. economy. On May 17,2002, the Treasury
Department released its preliminary report on the tax policy implications of corporate inversion
transactions. The Treasury preliminary report describes the mechanics of the transactions, the
current tax treatment of the transactions, the current tax treatment of the companies postinversion, the features of our tax laws that facilitate the transactions or that may be exploited
through such transactions, and the features of our tax laws that drive companies to consider these
transactions.
Inversion transactions implicate fundamental issues of tax policy. The U.S. tax system
can operate to provide a cost advantage to foreign-based multinational companies over U.S.based multinational companies. The Treasury report identifies two distinct classes of tax
reduction that are available to foreign-based companies and that can be achieved through an
inversion transaction. First, an inversion transaction may be used by a U.S.-based company to
achieve a reduction in the U.S. corporate-level tax on income from U.S. operations. In addition,
through an inversion transaction, a U.S.-based multinational group can substantially reduce or
eliminate the U.S. corporate-level tax on income from its foreign operations.
PO-3156
For press releases, speeches, public schedules and tJJicitd biographies, call our 2-MourfQJC line at (202) 622-2040
·u.s. ~ent Printing OffiCe:
1998 • 619-559
The Treasury preliminary report discusses the need for an immediate response t~ address
the U.S. tax advantages that arise from the ability to reduce U.S. corporate-level tax on mco~e
from U.S. operations. My testimony today will focus on several specific actions that we belIeve
are urgently needed to eliminate these opportunities to reduce inappropriately the U.S. tax ~n
U.S. operations and thereby to ensure continued confidence in the U.S. tax system .. We ~elIeve
that addressing these opportunities will have an immediate effect on the corpo~te mverslOn
activity that is now occurring by eliminating the substantial up front tax ~~uctJ.ons that c~ be
achieved through these transactions. This approach also addresses the sundar tax reductio~
opportunities that are available to companies that form offshore from ~e outset an? to foreIgn.
companies that acquire U.S. businesses, and therefore avoids advantagmg compames that begm
as non-U.S. companies over those that begin here in the United States.
The Treasury preliminary report also discusses the need to address the U.S. tax
disadvantages that are caused for U.S.-based companies because of the U.S. tax treatment of
their foreign operations. We must evaluate our tax system, particularly our international tax
rules, relative to those of our major trading partners, to ensure that the U.S. tax system is
competitive.
An inversion is a transaction through which the corporate structure ofa U.S.-based
multinational group is altered so that a new foreign corporation, typically located in a low- or notax country, replaces the existing U.S. parent corporation as the parent of the corporate group. In
order to provide context for consideration of the policy issues that arise, the Treasury preliminary
report includes a technical description of the forms of the inversion transaction and the potential
tax treatment of the various elements of the transaction under current law. The transactional
forms through which the basic reincorporation outside the United States can be accomplished
vary as a technical matter, but all involve little or no immediate operational change and all are
transactions in which either the shareholders of the company or the company itself are subject to
tax. This reincorporation step may be accompanied by other restructuring steps designed to shift
the ownership of the group's foreign operations outside the United States. The restructuring
steps involving movement of foreign subsidiaries are complex and varied, but, like the
reincorporation itself, are transactions that are subject to tax. When all the transactions are
complete, the foreign operations of the company will be outside of the U.S. taxing jurisdiction
and the corporate structure also may provide opportunities to reduce the U.S. tax on U.S.
operations.
Market conditions have been a factor in the recent increase in inversion activity.
Although the reincorporation step triggers potential tax at the shareholder level or the corporate
level, depending on the transactional form, that tax liability may be less significant because of
~urrent ~ono~ic and market factors. The company's shareholders may have little or no gain
Inherent In theIr sto~k and the company may have net operating losses that reduce any gain at the
company level. ~le these market conditions may help facilitate the transactions, they are not,
however, what motIvates a company to undertake an inversion. U.S.-based companies and their
shareholders ~e maki~g the d~ision to reincorporate outside the United States largely because
of the tax savIngs aVaIlable. It IS that underlying motivation that we must address.
2
The ability to achieve a substantial reduction in taxes through a transaction that is
complicated technically but virtually transparent operationally is a cause for concern as a policy
matter. As we formulate a response, however, we must not lose sight of the fact that an
inversion is not the only route to accomplishing the same type of reduction in taxes. A U.S.based start-up venture that contemplates both U.S. and foreign operations may incorporate
overseas at the outset. An existing U.S. group may be the subject of a takeover, either friendly or
hostile, by a foreign-based company. In either case, the structure that results provides taxsavings opportunities similar to those provided by an inversion transaction. A narrow policy
response to the inversion phenomenon may inadvertently result in a tax code favoring the
acquisition of U.S. operations by foreign corporations and the expansion of foreign controlled
operations in the United States at the expense of domestically managed corporations. In tum,
other decisions affecting the location of new investment, choice of suppliers, and employment
opportunities may be adversely affected. While the openness of the U.S. economy has always
made - and will continue to make -- the United States one of the most attractive and hospitable
locations for foreign investment in the world, there is no merit in policies biased against
domestic control and domestic management of U.S. operations.
The policy response to the recent corporate inversion activity should be broad enough to
address the underlying differences in the U.S. tax treatment of U.S.-based companies and
foreign-based companies, without regard to how foreign-based status is achieved. Measures
designed simply to halt inversion activity may address these transactions in the short run, but
there is a serious risk that measures targeted too narrowly would have the unintended effect of
encouraging a shift to other forms of transactions and structures to the detriment of the U.S.
economy in the long run.
An immediate response is needed to address the U.S. tax advantages that are available to
foreign-based companies through the ability to reduce the U.S. corporate-level tax on income
from U.S. operations. Inappropriate shifting of income from the U.S. companies in the corporate
group to the foreign parent or its foreign subsidiaries represents an erosion of the U.S. corporate
tax base. It provides a competitive advantage to companies that have undergone an inversion or
otherwise operate in a foreign-based group. It creates a corresponding disadvantage for their
U.S. competitors that operate in a U.s.-based group. Moreover, exploitation of inappropriate
income-shifting opportunities erodes confidence in the fairness of the tax system.
In the case of inversion transactions, the ability to reduce overall taxes on U.S. operations
through these income-shifting techniques provides an immediate and quantifiable benefit.
Because of the cost and complexity of these transactions, the immediate and quantifiable benefit
from reducing U.S. tax on U.S. operations is a key component of the cost-benefit analysis with
respect to the transaction. In other words, the decision to consummate the inversion often is
dependent upon the immediate expected reduction in U.S. tax on income from U.S. operations.
Accordingly, eliminating the opportunities to reduce inappropriately the U.S. tax on income from
U.S. operations will eliminate the up front tax reductions that are fueling the inversion transaction
activity.
3
We believe there are several specific areas in which changes are urgently needed. The
statutory rules regarding the deductibility of interest payments to related parties ~ust be .
tightened to prevent the inappropriate use of related-party debt to generate deductIons agamst
income from U.S. operations that otherwise would be subject to U.S. tax. We must ~dertake a
comprehensive review of the rules governing the transfer of assets among related partIes and
establish a revitalized compliance program to ensure adherence with the arm's-length standard
for related party transfers. We must undertake a comprehensive review of our income tax
treaties and make the modifications to particular treaties necessary to ensure that they do not
provide inappropriate opportunities to reduce U.S. taxes. We must promulgate repo~g
requirements to provide the IRS with information to ensure that shareholders are paymg the tax
owed on the gain recognized in an inversion transaction. We also are working on other areas
where further study is needed.
In addition, we must continue to work to address the U.S. tax disadvantages faced by
U.S.-based companies that do business abroad relative to their counterparts in our major trading
partners. We look forward to working closely with the Committee on this important issue.
Interest on Related Party Debt. One of the simplest ways for a foreign-based company to
reduce the U.S. tax on income from U.S. operations is through deductions for interest payments
on intercompany debt. The U.S. subsidiary can be loaded up with a disproportionate amount of
debt for purposes of generating interest deductions through the mere issuance of an
intercompany note, without any real movement of assets or change in business operations.
Interest paid by a U.S. subsidiary to its foreign parent or a foreign affiliate thereof gives rise to a
U.S. tax deduction but the interest income may be subject to little or no tax in the home country
of the foreign related party recipient. It is important to recognize that a U.S.-based company
could not achieve such a result. Indeed, the rules governing the allocation of interest expense to
which U.S.-based companies are subject can operate effectively to deny a U.S. company
deductions for interest expense incurred in the United States and paid to an unrelated third party.
The potential to use foreign related-party debt to generate deductions that reduce taxable
income in the United States is not unique to inversion transactions, and concern about this
technique is not new. Section 163(j) of the Internal Revenue Code was enacted in 1989 to
address these concerns by denying U.S. tax deductions for certain interest expense paid by a
corporation to a related party. Section 163(j) as it currently exists applies only where (l) the
corporation's debt-equity ratio exceeds l.5 to 1, and (2) its net interest expense exceeds 50
percen~ o~its adjust~ ~able incom~ (computed by adding back net interest expense,
deprecIa~lOn, amortIzation and depletIon, and any net operating loss deduction). If the
corporatIon exceeds these thresholds, no deduction is allowed for interest in excess of the 50p~rcent ~t that. is paid to.a rela~ed party and that is not subject to U.S. tax. Any interest that is
disallowed m a gI~en year ~s carned f~rward indefinitely and may be deductible in a subsequent
~able year. SectIon 1.63q) also prOVIdes a four-year carryforward for any excess limitation
(z.e., the amount by which mterest expense for a given year falls short of the 50 percent of
adjusted tax income threshold).
". . ,,~re~sion ~fthese rule~ is needed immediately to eliminate what is referred to as the real
Jwce m an mverslon transactIon.
4
The prevalent and increasing use of foreign related-party debt in inversion transactions
demonstrates the importance to these transactions of the tax reductions achieved through interest
deductions and the need to act now to eliminate this benefit. Accordingly, we propose statutory
changes to tighten the interest disallowance rules of section 1630) in several respects. Moreover,
the opportunities for generating interest deductions that reduce U.S. taxable income are not
limited to inversion transactions. These U.S. taxable income minimization strategies, which are
not available to U.S.-based companies, are possible as well in cases where a U.S. business is
structured from the outset with a foreign parent and in cases where a foreign corporation acquires
a U.S. operating group. Therefore, we believe these revisions to section 1630) should not be
limited to companies that have inverted but should apply across the board. There is no reason to
allow companies to reduce income that would otherwise be subject to U.S. tax through
deductions generated simply by putting in place debt owed to related parties.
The fixed debt-equity test of current law effectively operates as a safe harbor for
corporations with debt-equity ratios of 1.5 to 1 or lower. We propose replacing the safe harbor
protection currently available under the fixed 1.5 to 1 debt-equity test with a test that would deny
a deduction for related party interest to the extent that the corporate group's level of indebtedness
in the United States exceeds its worldwide level of indebtedness. This worldwide test would
compare (i) the ratio of indebtedness incurred by the U.S. members of the corporate group to
their assets, with (ii) the ratio of the entire corporate group's worldwide indebtedness (excluding
related party debt) to its worldwide assets. Interest that is paid to related parties and that is not
subject to U.S. tax would be denied deductibility to the extent it is attributable to indebtedness in
excess of the worldwide ratio.
With this approach, the 50-percent of adjusted taxable income test would operate as a
second, alternative test applicable in cases where the U.S. debt-to-assets ratio does not exceed
the worldwide ratio. We propose modifying the 50-percent test by revising the definition of
adjusted taxable income to eliminate the addback of depreciation, amortization and depletion.
This would have the effect of appropriately focusing the test on net interest expense as a
percentage of income rather than cash flow.
We also propose curtailing the carry over rules applicable under section 1630). Although
the current carryforwards appropriately provide relief to those taxpayers whose interest-toincome ratio may be subject to unanticipated fluctuations due to business fluctuations, an
indefinite carryforward has the effect of dampening the impact of the deduction denial. This
consequence is further exacerbated by the ability under current law to carry forward excess
limitation to shelter additional interest deductions in future years. Accordingly, we propose
eliminating the carryforward of excess limitation and limiting the carryforward period for
disallowed deductions to 5 years.
Income Shifting and Transfers of Intangibles. Another way for a foreign-based company to
reduce the U.S. tax on income from U.S. operations is through related-party transactions for
other than arm's length consideration. Many inversion transactions involve the movement of
foreign subsidiaries out of the U.S. group so that they are held directly by the new foreign parent.
Some inversion transactions involve transfers of intangible or other assets, or business
opportunities, to the new foreign parent or its foreign subsidiaries. This type of movement of
foreign subsidiaries, assets, and opportunities is not unique to inversion transactions.
5
The same sort of restructuring transactions are common whenever a multinational group
is acquired or makes an acquisition. Cross-bord~r transfers .of subsidiaries and ~sets c~ .give
rise to significant valuation issues, and the ongomg transactIons between the vanous entIties can
give rise to significant income allocation issues.
The outbound transfer of subsidiaries and assets to a related person in a taxable
transaction is subject to the transfer pricing rules of section 482 and the regulations thereunder,
which provide that the standard to be applied is that of unrelated persons dealing at arm's length.
In the case of transfers of intangible assets, section 482 further provides that the income with
respect to the transaction must be commensurate with the income attributable to the intangible
assets transferred. The magnitude of the potential tax savings at stake in substantial outbound
transfers of assets, especially intangible assets, puts significant pr~ssure on the enforcement and
application of the arm's length and commensurate with income standards. Where the arm's
length standard is not properly applied or enforced, the inappropriate income shifting that results
can significantly erode the U.S. tax base.
Treasury will undertake a comprehensive study focusing on the tools needed to ensure
that cross-border transfers and other related party transactions, particularly transfers of intangible
assets, cannot be used to shift income out of the United States. This will include a review and
appropriate revisions of the contemporaneous documentation and penalty rules and of the
substantive rules relating to transfers of intangible property and services and cost sharing
arrangements. It also will include an administrative compliance initiative. While there is much
that can and will be accomplished in this area through regulatory guidance and enhanced
enforcement efforts, Treasury will report to the Congress on any need for statutory changes or
additions.
Treasury and the IRS will undertake an initiative to review current practices related to the
examination of transfer pricing issues and the imposition of transfer pricing penalties, with a
particular emphasis on transactions in which intangibles are transferred. The volume and
complexity of cross-border related party transactions have grown significantly in recent years,
and a number of U.S. trading partners have undertaken broad compliance initiatives relative to
transfer pricing. The purposes of this comprehensive review will include ensuring that
contemporaneous documentation from taxpayers is utilized effectively by the IRS and that
transfer pricing penalties are imposed where warranted on a fair and consistent basis. This
foc~~ review al~o will he~p identify. potential improvements to existing rules, including the
prOVISIOns regarding penaltIes, reportmg, and documentation, that would enhance transfer
pricing compliance.
We ~11 revise the current section 482 cost sharing regulations with a view to ensuring
that cost-s~armg ~gements c.annot be used to facilitate a disguised transfer of intangible
as~ets outside the Uruted States m ~ m.anner inconsistent with the arm's length standard, as
reinfo~ed b.y the co.~ensurate Wl~ mcome standard. The purpose of the cost sharing
regula~lons I~ to facilItate t!te allocatIon among related taxpayers of future income attributable to
future mtangIble property m a manner that reasonably reflects the actual economic activity
undertaken by each related taxpayer to develop that property.
6
This work will focus initially on the effectiveness of the current rules intended to apply
the arm's length standard to taxpayers that contribute to the cost sharing arrangement the right to
use existing intangible property, such as know-how or core technology, which often constitutes
the most important and valuable input into the development of future intangible property.
We also will review the section 482 regulations applicable to transfers of intangible
assets to ensure they do not operate to facilitate the transfer of intangible property outside the
United States for less than arm's length consideration. These regulations relating to the transfer
of intangible assets implement the arm's length and commensurate with income standards by
allowing periodic adjustments to transfer prices in limited circumstances based on objective
standards. While these objective standards have provided certainty and minimized disputes in
this otherwise contentious area, focus is needed on ensuring the proper operation of the periodic
adjustments provisions.
Finally, as part of an ongoing project to update the 482 regulations applicable to services,
we will work to mitigate the extent to which the structuring or characterization of a transfer of
intangible assets as the provision of services can lead to inappropriate transfer pricing results.
The differences between the section 482 regulations relating to the provision of services and
those relating to the transfer of intangible property could be exploited through the
characterization of a transfer of intangible property as a provision of services. While a transfer
of intangibles through a license in return for royalty payments and the provision of technical
services utilizing the intangibles in return for a service fee, for example, may be similar from an
economic perspective, the transfer pricing results may differ depending on whether the transfer
pricing regulations related to services or intangible property are applicable. The transfer pricing
rules should reach similar results in the case of economically similar transactions regardless of
the characterization or structuring of such transactions.
Because the potential to use related party transactions to reduce the U.S. tax on income
from U.S. operations is not unique to inversion transactions, our proposals in this area are not
limited in scope to corporations that have inverted.
Income Tax Treaties. The United States imposes a withholding tax at a rate of 30 percent on
payments of interest and royalties (as well as dividends) from a U.S. corporation to a foreign
affiliate. This withholding tax may be reduced or eliminated in certain circumstances under an
applicable income tax treaty. The cost advantage achieved by shifting income by means of
deductible payments to foreign related parties is most effective when the payments are to a
foreign related party that is eligible for benefits under a comprehensive U.S. income tax treaty
and, in addition, is not subject to significant local tax on the income.
Most inversion transactions have involved a reincorporation into a foreign jurisdiction
either that does not have a tax treaty with the United States or whose treaty with the United
States does not generally reduce U.S. withholding tax rates. However, many of the newly
created foreign parent corporations may be considered resident for treaty purposes in a country
that has a comprehensive tax treaty with the United States and that does not subject certain
payments received by its corporations to significant local income tax. Through such a structure,
the cost advantage achieved by shifting income can be maximized. Similar results may be
obtained through the use of finance subsidiaries located in certain treaty jurisdictions.
7
We must review and evaluate our tax treaties to identify any inappropriate reductions in
U.S. withholding tax that provide opportunities for shifting income out of the United States.
U.S. income tax treaties are intended to prevent the double taxation by the United States and its
treaty partner of income earned by residents of one country from sources within the other. Thus,
the United States does not enter into income tax treaties that lower the rates of U.S. withholding
tax on U.S.-source income (e.g., U.S.-source interest and royalties) with jurisdictions that do not
have a comprehensive income tax system. In such a case, there is no need to reduce the U.S.
withholding tax because there is no risk of double taxation. We must make certain that the
operation of our treaties is consistent with the expectation of the United States and its treaty
partners that treaties should reduce or eliminate double taxation of income, not eliminate all
taxation of income. If a current or prospective treaty partner does not tax a particular category of
U.S.-source income earned by its residents, either because of a general tax exemption or a special
tax regime, reduction of U.S. withholding tax on that category of income may not be appropriate.
We also must consider whether anti-abuse mechanisms already within our treaties are
operating properly. Because U.S. tax treaties are intended to benefit only residents of either the
United States or the treaty partner, U.S. income tax treaties include detailed limitation on
benefits provisions, to prevent the misuse of treaties by residents of third countries. Those
limitation on benefits provisions are important for ensuring that a resident of a third country
cannot benefit inappropriately from a reduction in U.S. withholding tax by structuring a
transaction, including a transaction designed to generate deductible payments, through a treaty
country. One of Treasury's key tax policy goals in modernizing our network of existing tax
treaties is to bring the limitations on benefits provisions in all our treaties up to current model
standards so as to remove the opportunity for such misuse.
Reporting Requirements. In many inversion transactions the company's shareholders are
required to recognize gain. Current Treasury regulations generally require Form 1099 reporting
to the IRS of the gross proceeds from any sale for cash effected by a broker in the ordinary
course of its business. However, ther:e are no similar reporting obligations in the case of an
inversion where a shareholder exchanges stock of one corporation for stock in another
corporation. We intend to establish a Form 1099 reporting requirement for stock transfers in
inversions and other taxable reorganization transactions. Requiring reporting of these
transactions will increase the IRS's access to information about the transactions. It also will
serve to remind shareholders of the tax consequences to them from the company's transaction
and of their obligation to report any gain.
Other Areas of Further Study. There are two other areas where we believe that further study is
needed and we have begun careful consideration of these areas.
. A com?reh~ive review of the corporate organization and reorganization rules is needed
~ lIght ?fthe mcreasm.g pressure ~ut on these rules through the larger and more complicated
mtem~t1o.na1 restructunng transactIOns that are becoming commonplace. The corporate
org.aruzatlon and r~rganization rules, as well as the other related rules affecting corporations and
theIr stock and optIon holders, were written largely for purely domestic transactions.
.
8
Section 367, and the lengthy regulations thereunder, modify those rules for application in
the case of cross-border transactions. With the increasing globalization of both U.S. companies
and foreign companies, these rules are being applied more frequently and to larger and more
complicated cross-border transactions. It is critical that the rules governing cross-border
reorganizations keep up with these developments. The current cross-border reorganization rules
are something of a patchwork, developed and revised over the last twenty years. One focus in
this reconsideration of the current-law rules will be on achieving greater consistency in treatment
across similar transactions, in order to avoid both traps for the unwary and opportunities for
taxpayers to exploit the rules to reach results that are not intended. Moreover, clearer rules will
help provide greater certainty to taxpayers and the government in this complex area
A careful review also is needed of the income-shifting issues that arise in the context of
the several inversion transactions that have involved insurance and reinsurance companies. The
initial reincorporation outside the United States typically has been accompanied by a shift of
some portion of the existing U.S. insurance business through reinsurance with a related foreign
affiliate. An evaluation must be made as to whether the use of related party reinsurance permits
inappropriate shifting of income from the U.S. members ofa corporate group to the new foreign
parent and its foreign affiliates, and whether existing mechanisms for dealing with such related
party transactions are sufficient to address these opportunities. In this regard, further analysis is
appropriate to consider and evaluate the approaches used by our trading partners in taxing
insurance companies, including, for example, the use by some countries of a premium-based tax
that captures within the country's tax base all business written on risks within the country.
* * * * *
Finally, we must continue our work to address the U.S. tax disadvantages for U.S.-based
companies that do business abroad relative to their counterparts in our major trading partners.
The U.S. international tax rules can operate to impose a burden on U.S.-based companies with
foreign operations that is disproportionate to the tax burden imposed by our trading partners on
the foreign operations of their companies. The U.S. rules for the taxation of foreign-source
income are unique in their breadth of reach and degree of complexity. Both the recent inversion
activity and the increase in foreign acquisitions of U.S. multinationals are evidence that the
competitive disadvantage caused by our international tax rules is a serious issue with significant
consequences for U.S. businesses and the U.S. economy. A comprehensive reexamination of the
U.S. international tax rules and the economic assumptions underlying them is needed. As we
consider appropriate refonnulation of these rules we should not underestimate the benefits to be
gained from reducing the complexity of the current rules. Our system of international tax rules
should not disadvantage U.S.-based companies competing in the global marketplace.
As we work to address these important issues, we must keep our focus on the overarching
goal of maintaining the attractiveness of the United States as the most desirable location in the
world for incorporation, headquartering, foreign investment, business operations, and
employment opportunities, in order to achieve an ever higher standard of living for all
Americans.
-30-
9
OFFICE OF PURLlC AFFAIRS -1500 PENNSYLVANIA AVENUE. N.W. _ WASHINGTON, D.C.- 20220. (202) 622·2960
EMBARGOED UNTIL 2:30 P.M.
June 6, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $28,717 million of publicly held 13-week and 26-week
Treasury bills maturing June 13, 2002, and to raise new cash of approximately $3,283
million.
Also maturing is an estimated $25,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced June 10, 2002.
The Federal Reserve System holds $13,119 million of the Treasury bills maturing
on June ·i3, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held June 11, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign "~d International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
TreasuryDirect customers have requested that we reinvest their maturing holdings
of approximately $1,027 million into t:~e 13-week bill and $642 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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
Attachment
PO-3157
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HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED JUNE 13, 2002
June 6, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . . $ 4,300 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . . .
CUSIP nwnber. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .
Auction date..
. .......................
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original issue date . . . . . . . . . . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . . . . . . . . . . .
Minimum bid amount and multiples ............
91-day bill
912795 LA 7
June 10 2002
June 13, 2002
September 12,2002
March 14, 2002
$17,649 million
$1,000
$15,000 million
$15,000 million
None
182-day bill
912795 LP 4
June 10, 2002
June 13, 2002
December 12, 2002
June 13, 2002
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
.~
Noncompetitive bids:
Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FlMA) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FlMA accounts. Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FlMA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit. However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate wit" three decimals in increments of .005%, e.g., 7.100%, 7.105%.
(2) Net long position (NLP) 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 daylight saving time on auction day
Competitive tenders ........ Prior to 1:00 p.m. eastern daylight saving 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.
Treas~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 E P .\ R T :\, E ' T
() F
THE
T R E :\ S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 9:30 A.M. EDT
June 7, 2002
CONTACT: BETSY HOLAHAN
202-622-1997
REMARKS OF UNDER SECRETARY OF THE TREASURY PETER R. FISHER
TO THE BOND BUYER'S FINANCIAL INNOVATIONS
AND DERIVATIVES CONFERENCE
NEW YORK, NY
My purpose today is to ask you to focus more attention and more thought - to do
an even better job - promoting the transparency, depth and resilience of the interest rate
volatility market. This is a challenge for all participants in the markets to price and
transfer the risk of likely and unlikely outcomes for interest rates.
There is a stale debate about "whether derivatives are good or bad." There is the
never-ending story in Washington about ''who should regulate derivatives." I fear that
these questions have diverted attention from the underlying subject matter. What is the
volatility market? Is it healthy and robust? How will it and should it evolve over the
coming years?
In the fourth quarter of last year, fixed-income markets experienced
extraordinarily high levels of volatility. With the benefit of hindsight, this high volatility
seems paradoxically to have been due, at least in part, to the resilience of our economy.
Market participants came to realize, rather abruptly, that the economy was withstanding
the slowdown in manufacturing, the rapid inventory adjustment, the bursting of the
technology and energy bubbles, and the shock of 9-11.
At the same time, of course, the market had to adjust to the greater-thananticipated near-tenn refinancing needs of the federal government, our suspension of the
30-year bond, and the exercise by millions of Americans of the options embedded in their
mortgages to refinance at lower rates. While the markets adapted to this extraordinary set
of events, we learned, once again, how dependent we are upon the volatility market to
attenuate the transmission of shocks.
Those ofus who believe, as I do, that an over-the-counter market in interest rate
volatility is a vital part of our capital markets, may need to spend more time going back
over the basics. To launch such a discussion, let me suggest two questions that have led
me to question some of the assumptions on which my own perception of the volatility
market are based.
PO-3158
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speeches, public schedules and oJficUd biographies, call our 24-1wurfax line at (202) 622-2040
·u.s. Government Printong Office: 1998 -
619-559
2
First, do we understand the interaction of volatility risk and credit risk? And,
second, looking at the structure of the volatility market, is it a "complete" market?
Credit matters - now even more
Credit matters and, in my opinion, it matters more now that it did a few years ago.
We all can read the headlines and understand the truth of that statement, but I believe
there is also more subtle, macroeconomic reason for the change. I think that the rise of
credit concerns is a natural consequence of a transition from a world of volatile output
and inflation expectations, which characterized the 1980s and early 1990s, to a world of
more stable output and prices.
In the old environment, you made money in fixed-income markets by anticipating
the rapid swings in real and nominal interest rates. The big macro-economic events were
relatively more important than the particular circumstances of individual borrowers. In
that environment, it was good enough for market participants to form a consensus on
credit by using rough rules of thumb for spreads - both corporate and sovereign - as long
as you could hang on for the ride as the underlying interest rates gyrated.
In a period of more stable output and prices, by definition, it becomes relatively
less important to anticipate the changes in underlying rates and relatively more important
to assess accurately the credit standing of individual borrowers. Even in the recent brief
downturn and the recovery now underway, we have seen much less volatility in real
output and prices than most observers expected. In this environment, we have all
discovered that fixed-income markets are a little bit less about macro-economics and little
bit more about micro-economics - about whether, behind the balance sheet and the
corporate disclosures, the borrower has the real cash flow to meet its payment obligations
in the event of either likely or unlikely outcomes.
Forgive me for this digression, but digging a little deeper, one reason output
growth has been steadier and inflation more subdued and predictable is that the U.S.
economy has enjoyed a remarkable step-up in growth of productivity in the past half
decade. I believe that this improvement is owed in part to an intensification of the
process of creative destruction. Simply put, our economy now punishes weaker
performers more swiftly and rewards better performers more richly. The implications for
credit risk, of course, are obvious.
The transition to this world where credit matters a-little-bit-more has been an
expensive learning process for some. The habits of the 1980s and early 1990s, of
tracking indexes and trading off rule-of-thumb spreads, have been hard to shed. To do
so, we had all better be sure that we understand the interaction of volatility risk and credit
risk. What if the periodic peaks that punctuate the volatility time line are a depiction of
credit cycles or credit concerns? How should we be pricing volatility if that's the case?
Market structure matters - Is the volatility market complete?
3
That leads me to my second question. Looking at the market's structure, is the
volatility market "complete", particularly with respect to price discovery? Now, let me
confess that market structure may not be quite the right term but it does convey a
"holistic" approach and my intent is to focus attention on the overall structure, dynamics
and flow of the interest rate volatility market.
We should recognize that the volatility market, while increasingly important, is
quite young. While the major instruments we rely upon have been around for 20 years or
so, the market as we now know it is really only about 10 years old, and is continuing to
develop.
The bond market, of course, has been around for a long time. But we should
recognize that the interest rate volatility market has become a major market in its own
right and, at least at present, it is not at times clear, as between the bond market and the
volatility market, which is the tail and which is the dog - or even whether that's the right
metaphor for their relationship.
In looking at the overall structure of the volatility market, we need to address
some important questions: Where is the demand for volatility coming from? Are the
correct players pricing, trading, and eventually owning volatility? Is there a healthy price
discovery process?
These questions are inter-related and I am not going to try to answer them
definitively both because I do not have the answers and because I think that their
resolution should be driven by you in the private sector. But I will identify some issues
associated with just one of these questions - whether we are getting good price signals.
Is there a primary market for volatility?
Two major players hold positions that require the rest of the market systematically
to be short volatility. One is the federal government, and the other is the American
homeowner, through the mortgage market.
The federal government absorbs volatility from the economy through its tax and
expenditure policies. One way of thinking about this is to view the Treasury as holding a
short volatility position. In effect, we pass this along to the markets, without the benefit
of explicit pricing, through changes in our cash balances in the banking system and
changes in our debt issuance.
We think that for a borrower of our size and long-term focus, our commitment to
financing entirely through regular and predictable auctions of straight debt is more costeffective, and more effectively promotes efficient capital markets, than attempting to
arbitrage across different interest rate markets or retaining or separately pricing and
transfering the variance in our refinancing needs.
4
We do not think we can better judge where and how to transfer the volatility in
our refinancing needs between markets and across time - other than by trying our best to
spread all of our financing needs across a curve of liquid instruments.
As a consequence, we pay for the uncertainty associated with our borrowing
needs, the old fashioned way, in the yield on our debt. You all trade this volatility among
yourselves very efficiently and that, undoubtedly, has an impact on the yields in our
auctions. But we do not help provide a primary market for volatility. We leave price
discovery entirely to the secondary market.
The American homeowner, through the mortgage market, is in a roughly similar
position: a potential source of market volatility but not helping in the explicit pricing of
that volatility. The normal thirty-year mortgage allows homeowners to refinance if
interest rates move lower. This option is not explicitly priced but paid for implicitly in
the mortgage interest payments. Homeowners could choose to forgo this option, and
presumably pay lower interest rates, but apparently are quite content not to.
In the rational desire to put a ceiling on our most important monthly cash flows,
we take out fixed-rate mortgages and pay for the option to refinance if rates move lower.
While the price homeowners pay for the option can be extracted, it is not explicit or
separately priced.
Do we have a healthy price discovery process? We do have an extraordinarily
efficient secondary market for volatility. But we don't have much of a primary market,
do we?
Neither the homeowner nor the federal government is aiding in price discovery.
Some corporate borrowers and some other sovereign borrowers engage in explicit pricing
and sale of volatility risk. But they take their prices from the secondary markets that you
trade, not the other way around. So, the price discovery process is certainly not ailing but
the more I think about it, the more the market seems to me to be incomplete.
• Do we have the right set of players, the right flow of volatility, and do we have
enough capital? Again, I do not know but I doubt that the market structure we have now
for this relatively young market is the one that we are likely to have 10 or 20 years from
now.
Looking forward
I have only scratched the surface of the questions that I think we need to ask
ourselves about the structure and the dynamics of the volatility market. But given the
extreme events oflast year, and of the preceding years, it seems to me that we all have
been a little slow to question some of the assumptions on which our current
understanding of the volatility market are based.
5
Going forward, we need to know whether there are sufficient investors, in
aggregate, willing to commit the capital needed to bear the risk of holding the shortvolatility position. We need to better understand all of the different ways that volatility
risk and credit risk can interact. We need to work hard to promote an efficient volatility
market place, one in which there are a sufficient number of sufficiently strong market
participants to withstand the periodic shocks.
I do not have the answers to these questions, nor do I think it is the role of the
federal government to provide the answers. But we all had better be working on them.
To begin this process, you need to focus more of your attention on the structure
and the dynamics of the volatility market to be sure that it has the transparency, depth and
resilience that are commensurate with the risks that you trade and hold.
-30-
D E P :\ R T 'I E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • ZOZZO • (ZOZ) 6ZZ-Z960
For Immediate Release
Thursday, June 06, 2002
Treasury Secretary and Relevant Bureaus Praise President Bush For His Plan To Create A
New Cabinet Agency: The Department Of Homeland Security
Statement by Treasury Secretary Paul O'Neill
"I applaud President Bush for his bold plan to concentrate our homeland security
resources in a single Cabinet department. The President has demonstrated real leadership,
recognizing the new challenges we face and redesigning our system to rise to those challenges. I
fully support this plan to integrate our resources into one collaborative, efficient and nimble
structure to focus solely on protecting the American people. I look forward to working closely
with the Congress and acting quickly to make America safer."
Statement by Undersecretary for Enforcement Jimmy Gurule
"President Bush's plan to consolidate homeland security resources in one cabinet
department reflects his strong leadership in America's war against terrorism. This bold proposal
demonstrates that protecting the American people is of the highest priority to this
Administration. I look forward to working with Secretary O'Neill and the Congress to ensure a
speedy implementation of the President's plan."
Statement by Commissioner of Customs Robert C. Bonner
til applaud the vision of President Bush and unequivocally support his bold proposal to
create a Department of Homeland Security, which will include the entire U.S. Customs Service.
I am proud of the vital role the employees of the U.S. Customs Service have played and will
continue to play in defending our nation's homeland."
Statement by United States Secret Service Director Brian L. Stafford
"The Secret Service wholeheartedly supports President Bush's new plan and is excited to
join the ranks of this new agency that will work in a coordinated effort to make America safe.
Since 1865, we have had a proud history of serving America as a bureau of the Department of
Treasury, and we look forward to building on that legacy with the Department of Homeland
Security."
-30-
PO-3159
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·U,S, Gowmment Pnnting Office' 1998 - 619-559
D EPA R T :\1 E :\ T
0 F
THE
T R E :\ SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
For Immediate Release
Thursday, June 6, 2002
Contact: Tony Fratto
(202) 622-2960
New Policies for Economic Developmentl
Remarks by
John B. Taylor
Under Secretary for International Affairs
United States Treasury
at the
Bretton Woods Committee
Annual Meeting
Omni Shoreham Hotel
Washington, DC
Thank you for inviting me to speak at this year's Bretton Woods Committee
Annual Meeting. Nearly one year ago at a luncheon talk spons<?red by the Bretton
Woods Committee I outlined the Bush Administration's policy plans regarding emerging
markets, developing countries, and the Bretton Woods Institutions in particular. I believe
we have made much progress since then.
For example, at that time President Bush's IDA grants proposal had just been
announced; now we are on the verge of an historic agreement with other donors to
increase grants significantly in IDA. We have also made progress in forging an historic
agreement among the G-7 on an Action Plan to improve predictability and prevent crises
in emerging markets, starting with the incorporation of contingency clauses in sovereign
debt contracts.
But rather than give a broad survey of our entire international economic agenda
today I would like to focus on economic development. Our economic development
agenda itself is huge. It stresses ownership and good policies for economic growth in
developing countries. It demands measurable results from the international financial
institutions. And it includes substantial increases in development funding for the first
time in many years.
I Slides to accompany this talk are posted on the Treasury web site. Previous versions of the talk were
given at Princeton University (Apri122), the World Bank (April 30) and the University ofGbana (May 20).
PO-3160
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·U.S. Government Printing Office: 1998· 619-559
Before describing the specific policies, I first want to define the problem we are
trying to solve. I then want to discuss in simple, straightforward terms the economic
principles that underlie the policies. In doing so I will draw on economic development
research completed in the last dozen years.
The Problem
The problem that we are all trying to deal with, of course, is that many people and
many countries around the world are still very poor. Despite remarkable economic
progress in many parts of the world, over 1.3 billion people live on less than $1 a day,
and half the world's population lives on less than $2 a day. As color-coded world maps
dramatically illustrate, many of the poorest countries are in Sub-Saharan Africa, Central
Asia, and Central America
The Goal of Productivity Growth
The first question is why are these countries so poor? Low productivity is the
proximate answer. Productivity is the amount of goods and services that a worker
produces per unit of time with the skills and tools available. If you want to reduce the
number of poor countries-to make the all countries on those color-coded world maps
the same color as the United States, Europe, Japan-then you have no choice but to
increase productivity growth in poor countries. And the higher the rate of productivity
growth, the faster those colors will change. Simply put, the ticket out of poverty is higher
productivity jobs.
This is why Secretary O'Neill has argued that program and loan decisions by the
World Bank and the other Multilateral Development Banks should focus on raising
productivity. It is important to note that when the International Development Association
(IDA) was first proposed by the Eisenhower administration in 1959 higher productivity
was the key goal. In the words of the very first article of IDA's Articles of Agreement,
"The purposes of the Association are to promote economic development, increase
productivity and thus raise standards of living in the less-developed areas of the
world .... The Association shall be guided in all its decisions by the provisions of this
Article." Unfortunately, I've seen too few examples where increasing productivity has
been the key goal for IDA decisions in recent years. Let's follow the provisions of the
IDA articles or else amend them.
Let me say a few more words about goals. The Millennium Development Goals
are a very useful set of objectives. But there is something missing from these goals as
stated: the goal of higher productivity growth. What might such a goal look like? As I'll
discuss in a few minutes, we should expect that countries with lower productivity than
the United States should have a productivity growth rate higher than the United States.
But we could be more specific, stating that the greater the productivity gap between a
2
country and the United States the greater should be the productivity growth rate in that
country.
In fact, we could be even more specific by stating numerical goals for
productivity growth. For example, empirical studies indicate that a reasonable annual
productivity growth rate goal for a country with productivity 1I5th that of the United
States is 3 percentage points greater than the productivity growth rate of the United
States. For a country with 1I10th the productivity of the United States, a reasonable goal
would be 5 percentage points greater productivity growth than the United States. And
extrapolating, for a country with 11100th of U.S. productivity, perhaps a goal of9
percentage points greater growth than the United States could be set.
These are ambitious goals. But seriously addressing global poverty demands
nothing less. And make no mistake, raising productivity growth is the only way of
achieving substantial and sustained reductions in poverty. Empirical studies confirm this.
Higher growth increases the income per capita of the lowest quintile by about the same
amount as the other quintiles.
Impediments to Catching Up
If low productivity is the proximate cause of poverty, then we need to answer
another question: why is productivity so low in so many areas of the world? According
to basic economic growth theory, productivity depends on two things: capital per worker
and the level of technology. If there are no impediments to the flow and accumulation of
capital and technology, then countries or areas that are behind in productivity should have
a higher productivity growth rate. Capital will flow to where it is in short supply relative
to labor and, with more capital, higher productivity jobs can be created. Similarly
technology can spread through education and training-perhaps through on-the-job
training via foreign direct investment, or education via the Internet. For these reasons,
poor areas or countries should be catching up to rich areas or countries.
There is evidence for such "catch up" when there are few impediments to the use
and accumulation of capital (including human capital) and technology. For example, an
examination of the productivity growth rates in states in the United States shows that
states that were relatively poor in the late 19th century, such as Texas and Florida, grew
more rapidly in the 20th century than richer states such as New York or California.
Similar evidence of catch up exists in the OECD countries. Among the countries that
were founding members of the OECD in the 1960s, lower productivity countries have
grown more rapidly than higher productivity countries.
Unfortunately there is little evidence of such catch up in the world as a whole.
While some countries that were very poor in the 1960s have grown more rapidly than the
rich countries, many other poor countries have grown more slowly. Why has there not
been more catch up? Is economic growth theory wrong? Many answers have been given
to these difficult questions-indeed the questions have been on the minds of development
economists for years. But more and more evidence has been accumulating that the laws
of economics have not been repealed, but rather that there are significant impediments-
3
in the broadest sense--to investment and the adoption of technology that are holding
countries and people back.
One can group these impediments into three areas. First, poor governance-the
lack of rule of law or enforceable contracts and the prevalence of corruption creates
disincentives to invest, to start up new finns, and to expand existing finns with highproductivity jobs. This has a negative impact on capital formation and entrepreneurial
activity. Second,poor education, which impedes the development of human capital.
Workers without adequate education do not have the skills to take on high-productivity
jobs or to adopt new technologies to increase the productivity of the jobs they do have.
Third, too many restrictions on economic transactions, which prevent people from
trading goods and services or adopting new technologies. Lack of openness to trade,
state monopolies, and excessive regulation are all examples of restrictions that reduce
incentives for innovation and investment needed to boost productivity.
The Specific Policies
With these ideas and facts as background, let me now discuss the Bush
Administration's new economic development agenda.
First, the agenda calls for a much greater emphasis than in the past on policies that
reduce the impediments to higher productivity growth. Countries that follow good
economic policies are to receive more aid, and the actual results of the aid are to be
quantitatively measured.
Second, the agenda calls for an increase in funding for economic development.
President Bush has proposed an 18 percent increase in the U.S. contribution to the
African Development Fund and to IDA. He has called for a larger fraction of IDA
assistance to the poorest countries to be provided in the form of grants rather than loans.
And he has called for the creation a Millennium Challenge Account, a new separate
account for development assistance.
The Millennium Challenge Account
Consider first the Millennium Challenge Account. This account will be funded
by increases in the budget beginning in fiscal year 2004. The account is designed to
increase to $5 billion a year starting in 2006 - which is a 50 percent increase over and
above the approximately $10 billion in existing U.S. development assistance. The idea
behind the Millennium Challenge Account is to channel aid to those poor countries that
have good economic policies that increase economic growth and reduce poverty. To
access the account, developing countries must demonstrate strong commitments in three
policy areas: (1) "ruling justly"-upholding the rule of law, rooting out corruption,
protecting human rights and political freedoms; (2) "investing in people"-education and
health care; and (3) "encouraging economic freedom"--open markets, sound fiscal and
monetary policies, appropriate regulatory environments, and support for private
4
enterprise. Note that these are exactly the three policy areas I mentioned above when
listing the impediments to economic growth.
President Bush has assigned Secretary O'Neill and Secretary Powell the task of
developing the objective criteria for measuring countries' policies in these areas, and we
are hard at work on this task now. We are using empirical research on economic growth
over the last 10 years and performing our own research. We place a premium on
simplicity and robustness. We want something that can be easily understood. Indeed,
President Bush has asked us to reach out to the world community in the process of
developing these indicators.
Results-Based IDA Replenishments.
As I mentioned, the President's budget proposes a significant increase in the U.S.
contribution to IDA-13. Under President Bush's proposal, funding would be 18 percent
higher than the IDA-II and IDA-12 replenishments in the 1990s. The proposal
incorporates an $850 million contribution in the first year, $950 million in the second
year, and $1,050 million in the third year. However, the increases in the last two years
are explicitly linked to improvements in IDA's performance in areas such as combating
disease and improving education.
Linking the size of the IDA replenishment to results is a new idea. I am glad to
say that it appears to be having a good impact on other areas of the World Bank. Already
we are hearing more about a greater focus on measurable results in the World Bank's
operations.
IDA Grants
As many of you know, President Bush has proposed converting part of IDA loans
to results-based grants. IDA loans have highly favorable terms. Yet the burden of
repayment on some of the poorest countries has meant that the international community
has to forgive many of these loans. The objective of the U.S. grants proposal is to
prevent such problems, with all its disruptive consequences for economic growth, from
ever occurring again. We want to "stop the debt."
A recent study by the U.S. General Accounting Office demonstrates that grants
promote debt sustainability better than 100 percent debt forgiveness of old IFI debt. And
consistent with the Millennium Challenge Account and results-based IDA replenishment
proposals, grants can be tied to performance measures, such as test scores in basic skills.
Conclusion
Today I have tried to describe how recent advances in research on economic
growth have informed the Bush Administration's policies on foreign assistance. But
there is still much that we do not know about economic growth and development. For
example, while studies demonstrate that aid is most effective when provided to countries
5
with good policies, there is more work to be done on what kinds of assistance are most
effective in promoting productivity growth in poor countries. If we are going to achieve
the productivity growth goals I suggested in this talk, we are going to need more ideas.
As Secretary O'Neill and Bono both stated on their recent tour of Africa, ''we still
haven't found what we're looking for."
6
D E P .\ R T \1 E
~
T
0 F
THE
T REA S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622-2960
For Immediate Release
Wednesday, June 5, 2002
Contact: Tony Fratto
(202) 622-2960
Remarks at the International Roundtable
on "Better Measuring, Monitoring, and Managing for Development Results"
John B. Taylor
Under Secretary for International Affairs
United States Treasury
World Bank
Washington, DC
Good evening. Thank you, Jim Wolfensohn, for the kind introduction. It is a pleasure to
be here tonight to say a few words about the very important work you all are doing at this
conference on measuring the results of development assistance.
Measuring results is a very important priority for Secretary O'Neill at all the multilateral
development banks. In fact, it goes beyond the development banks. Measuring results is a very
high priority for the entire Bush Administration. President Bush is insisting that we measure
results in all government programs, domestic as well as international. For Secretary O'Neill,
measurement of results encompasses all aspects of Treasury's mission, from closing our books,
to worker safety, to combating terrorist financing. So I want you to know how vital your work is
to us. We appreciate the effort the World Bank and its shareholders are putting into this
endeavor.
By measuring results we can focus our efforts on what really matters: helping poor
people around the world escape from poverty and lead better lives. The approach helps us cut
through bureaucratic layers, ignore non-essentials, and concentrate on development problems
that must be solved. It is a way to maximize the benefits of our funds.
We talked a lot about measuring results on the recent trip of Secretary O'Neill and Bono
to Africa. The first time I met Bono I gave him one of my textbooks on economics. Economics,
of course, is all about maximizing the benefits one can achieve with limited resources. When
Bono boarded the plane to Africa, he told me he had read my book. And after spending some
time with him, I knew he did read it. Like the rest of us, he has a sense of curiosity that showed
how much reducing poverty and helping the poor meant to him. It means a lot to me too. And it
means a lot to Secretary O'Neill. That is why we care about measuring results.
PO-3161
Forpress releases, speeches, public schedules and official biographies, call our 24-hoor fax line:at (202) 622-2040
·U.S. Government Printing Office: 1998 - 619-559
How should you go about measuring results of development assistance in practice? I
would like to use an example of what I have in mind. The example is from Nemat Shafik, the
World Bank's Vice President for Vice-President for Private Sector Development, Infrastructure
and Guarantees.
There is a local NGO in Bangladesh called the Bangladesh Rural Advancement
Committee, or BRAe. BRAC wanted to teach mothers in remote rural areas how to administer
oral rehydration salts to children suffering from diarrhea. Absent such therapy, children
frequently die from diarrhea.
BRAC worked with instructors who taught mothers how to administer the oral
rehydration salts. Like us, the people at BRAC were interested in measuring results. They could
have simply based the measurements on the number of mothers that the instructors taught. But
they went further than this. They went directly to see of the mothers learned the technique.
Instead of paying the instructors for every household they visited, BRAC actually went to the
households to see whether the mothers that the instructors taught were administering the oral
rehydration treatments properly. The instructors were paid according to whether or not the
mothers they taught were actually able to perform the action. The result was more mothers being
able to give the medicine and fewer children dying from diarrhea.
I think this example illustrates how a focus on results has to permeate every level of what
the World Bank and others do in development. If we focus on these very simple measures, we
can really get to the heart of the matter. I like to compare it to monetary policy, where you have
a single target of inflation and you craft policy on the basis of achieving that result. Sometimes
you may have two objectives (growth/low inflation) that may conflict; then there has to be a
weighting to come up with a single performance measure. But if we can hone in our focus on
simple areas -- the areas that really matter to the living standards of poor people around the world
- we can do a lot for development.
Measuring results is a key part of our contribution to IDA-13. As you may know,
President Bush has proposed an increase of 18 percent in our contribution to the IDA-13
replenishment. A portion of this increase is based on measurable results in the second and third
years, $100 million and $200 million, respectively. This is very important to us. Based on what
our very capable team at Treasury working on IDA-13 has told me, it is also an increasingly
integral component of the World Bank's own work. We welcome that. We would also
encourage other donors to come on board and consider attaching a portion of their contributions
to the outcomes that have been identified. Now I know a large part of it is just getting the system
up and running - after all, it is very difficult to ask for much after only one year. I think a lot has
already been accomplished. I hope others will build on this approach and support through their
contribution to IDA-13.
I understand that you are also working on measurements of policy performance at this
conference. Policy performance is a key component of the Millennium Challenge Account,
President Bush's proposal to dramatically increase U.S. bilateral assistance to the poorest
countries based on quantitative and qualitative measures of policy performance. At every stop
on our trip to Africa, people asked about this new initiative.
2
I had the chance to talk to mid-career, public servants and other students at the
University of Ghana a little bit about the program. Essentially, there are three policy
components: ruling justly, investing in people, and promoting economic freedom. We are now
working on a set of criteria based on these ideas and we are looking closely at which countries,
for example, have reduced barriers to trade and provide education for their people.
Let me conclude by saying how very much I appreciate being here and having the
opportunity to talk to you about this initiative. Joanne Salop has been doing great work and I
thank her and her staff for taking this on. I am certain it will be an effort that will help increase
the effectiveness of our work. Thank you.
3
D E P .\ R T :\ I E ~ T
0 F
THE
T REA S II I{ Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C•• 20220. (202) 622-2960
For Immediate Release
Wednesday, June 5, 2002
Contact: Tony Fratto
(202) 622-2960
Remarks at the International Roundtable
on "Better Measuring, Monitoring, and Managing for Development Results"
John B. Taylor
Under Secretary for International Affairs
United States Treasury
World Bank
Washington, DC
Good evening. Thank you, Jim Wolfensohn, for the kind introduction. It is a pleasure to
be here tonight to say a few words about the very important work you all are doing at this
conference on measuring the results of development assistance.
Measuring results is a very important priority for Secretary O'Neill at all the multilateral
development banks. In fact, it goes beyond the development banks. Measuring results is a very
high priority for the entire Bush Administration. President Bush is insisting that we measure
results in all government programs,.domestic as well as international. For Secretary O'Neill,
measurement of results encompasses all aspects of Treasury's mission, from closing our books,
to worker safety, to combating terrorist financing. So I want you to know how vital your work is
to us. We appreciate the effort the World Bank and its shareholders are putting into this
endeavor.
By measuring results we can focus our efforts on what really matters: helping poor
people around the world escape from poverty and lead better lives. The approach helps us cut
through bureaucratic layers, ignore non-essentials, and concentrate on development problems
that must be solved. It is a way to maximize the benefits of our funds.
We talked a lot about measuring results on the recent trip of Secretary O'Neill and Bono
to Africa. The first time I met Bono I gave him one of my textbooks on economics. Economics,
of course, is all about maximizing the benefits one can achieve with limited resources. When
Bono boarded the plane to Africa, he told me he had read my book. And after spending some
time with him, I knew he did read it. Like the rest of us, he has a sense of curiosity that showed
how much reducing poverty and helping the poor meant to him. It means a lot to me too. And it
means a lot to Secretary O'Neill. That is why we care about measuring results.
PO-3161
For-press releases, speeches, public schedules and official biographies, call (Jur 24-hour fax line at (202) 622-2040
---
·u.s. Government Pnntlng Office:
1998· 619·559
How should you go about measuring results of development assistance in practice? I
would like to use an example of what I have in mind. The example is from Nemat Shafik, the
World Bank's Vice President for Vice-President for Private Sector Development, Infrastructure
and Guarantees.
There is a local NGO in Bangladesh called the Bangladesh Rural Advancement
Committee, or BRAe. BRAe wanted to teach mothers in remote rural areas how to administer
oral rehydration salts to children suffering from diarrhea. Absent such therapy, children
frequently die from diarrhea.
BRAC worked with instructors who taught mothers how to administer the oral
rehydration salts. Like us, the people at BRAC were interested in measuring results. They could
have simply based the measurements on the number of mothers that the instructors taught. But
they went further than this. They went directly to see of the mothers learned the technique.
Instead of paying the instructors for every household they visited, BRAe actually went to the
households to see whether the mothers that the instructors taught were administering the oral
rehydration treatments properly. The instructors were paid according to whether or not the
mothers they taught were actually able to perform the action. The result was more mothers being
able to give the medicine and fewer children dying from diarrhea.
I think this example illustrates how a focus on results has to permeate every level of what
the World Bank and others do in development. If we focus on these very simple measures, we
can really get to the heart of the matter. I like to compare it to monetary policy, where you have
a single target of inflation and you craft policy on the basis of achieving that result. Sometimes
you may have two objectives (growth/low inflation) that may conflict; then there has to be a
weighting to come up with a single performance measure. But if we can hone in our focus on
simple areas - the areas that really matter to the living standards of poor people around the world
- we can do a lot for development.
Measuring results is a key part of our contribution to IDA-l3. As you may know,
President Bush has proposed an increase of 18 percent in our contribution to the IDA-13
replenishment. A portion of this increase is based on measurable results in the second and third
years, $100 million and $200 million, respectively. This is very important to us. Based on what
our very capable team at Treasury working on IDA-13 has told me, it is also an increasingly
integral component of the World Bank's own work. We welcome that. We would also
encourage other donors to come on board and consider attaching a portion of their contributions
to the outcomes that have been identified. Now I know a large part of it is just getting the system
up and running - after all, it is very difficult to ask for much after only one year. I think a lot has
already been accomplished. I hope others will build on this approach and support through their
contribution to IDA-13.
I understand that you are also working on measurements of policy performance at this
conference. Policy performance is a key component of the Millennium Challenge Account,
President Bush's proposal to dramatically increase U.S. bilateral assistance to the poorest
countries based on quantitative and qualitative measures of policy performance. At every stop
on our trip to Africa, people asked about this new initiative.
2
I had the chance to talk to mid-career, public servants and other students at the
University of Ghana a little bit about the program. Essentially, there are three policy
components: ruling justly, investing in people, and promoting economic freedom. We are now
working on a set of criteria based on these ideas and we are looking closely at which countries,
for example, have reduced barriers to trade and provide education for their people.
Let me conclude by saying how very much I appreciate being here and having the
opportunity to talk to you about this initiative. Joanne Salop has been doing great work and I
thank her and her staff for taking this on. I am certain it will be an effort that will help increase
the effectiveness of our work. Thank you.
3
D EPA R T :\ I E :\ T
0 F
THE
T REA S l! R Y
NEWS
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
For Immediate Release
Wednesday, June 5, 2002
Contact: Tony Fratto
(202) 622-2960
The Essential Role of Private Enterprise in Reducing Poverty
Remarks by John B. Taylor
Under Secretary for International Affairs
United States Treasury
at the
International Finance Corporation
Participants Meeting
Washington, DC
Thank you for inviting me to speak at the annual participants meeting of the
International Finance COIporation (IFC). The pUIpose of the IFC, as stated in its charter,
is ''to further economic development by encouraging the growth of productive private
enteIprise." So I would like to use this speaking opportunity to discuss the role of private
enteIprise in the Bush Administration's economic development agenda.
To illustrate my points I would like to draw on some examples from the recent
trip by Treasury Secretary Paul O'Neill and Bono to Africa. I was part of that trip, which
included four countries, Ghana, South Africa, V ganda, and Ethiopia. Much of the press
pUblicity of that trip focused on the visits to schools, hospitals, community projects, and
government agencies. We also visited many private firms-small and large, domestic
and global. These private firms are playing an important role in reducing poverty and
raising incomes in the places we visited. But they represent a tiny fraction of what the
private sector could be, what it should be, and what it must be if we are to be successful
in reducing poverty in Africa and other regions of the world.
President Bush's economic development agenda includes substantial increases in
V.S. government funding for foreign aid for the first time in many years. It insists on
ownership and good economic policy by developing country governments. It demands
measurable results from the aid provided by the World Bank and other agencies.
To explain the role of private enteIprise in this economic development agenda let
me first be specific about the problem that we are trying to solve and how we are trying
to solve it.
PO-3162
For press releases, speeches, public schedules and oJJicial biographies, mll oor 24-1wur/tJ% line at (202) 622-2040
The problem, of course, is that many people and many countries around the world
are still very poor. Despite remarkable economic progress in many parts of the world,
over 1.3 billion people live on less than $1 a day, and half the world's population lives on
less than $2 a day. Many of these poor countries are in Sub-Saharan Africa. But many
are also in Asia and Latin America.
Why are these countries so poor? The simple answer is that there is a lack of
high-productivity jobs. Productivity is the value of the goods or services that a worker
produces per unit of time. High productivity jobs are the source of high wages, high
income per capita, and lasting reductions in poverty. If there are only a few high
productivity jobs in a country-as in the countries visited by Secretary O'Neill and
Bono-then the country is poor. If the number of high productivity jobs in a country is
rising, then the country is becoming less poor. If there are already a lot of high
productivity jobs-as in the countries of Westem Europe, the United States and Japanthen the country is rich. If you want to reduce the number of poor countries then you
have no choice but to increase productivity in poor countries.
And this is where private enterprise becomes essential to any successful economic
development policy. The role of the private sector is to create higher productivity jobs
and thereby raise productivity growth. Productivity may seem like an abstract concept,
but if you look, you can see it growing all around you, and you can see it reducing
poverty in the countries Secretary O'Neill and Bono visited in Africa.
In Ghana, for example, a U.S. Fortune 500 firm, Affiliated Computer Services
(ACS), recently opened an office. That of course is an example of foreign direct
investment. So far ACS has created jobs for 900 Ghanaian workers in this new office.
The workers produce services. They process insurance forms that are transmitted via
satellite from the United States and then sent back via satellite once the forms are
completed. The value of the services produced by these workers is much higher than
average labor productivity in Ghana. As a result these workers can be paid, and are being
paid, many times the average wage in Ghana. They are all earning more than they
previously earned so they have more to spend on food, housing, and clothing for
themselves and their children or even to save for the future. When I asked a young single
female employee what she was doing with her higher wages she said she was investing in
Ghanaian Treasury Bills! By creating higher productivity jobs in Africa, ACS is
reducing poverty. ACS has similar operations in Guatemala and Mexico employing
about 5,500 in total in the three countries.
Of course it is not only global firms like ACS that create higher productivity jobs
in Africa. Consider an example of a domestic firm, Mukwano Industries, operating in
Uganda. President Museveni made a special request that I visit this fast-growing firm,
and I can see why. In the late 1980s Mukwano employed 100 workers and produced one
product line-soap. Now it employees over 7,000 workers producing nearly 25 different
products from vegetable oils to plastic cups. The firm produces mainly for the Ugandan
domestic market, with some exports to Kenya and Tanzania.
2
On top of all this, the firm is effectively employing over 100,000 fanners in
Northern Uganda in the production of vegetable seeds. Formerly these farmers were only
doing subsistence farming. Now they are able to raise their standard of living well above
subsistence.
I could go on and on-textile firms, fish smokers, small restaurant owners, green
coffee processors, cut flower producers, tuna processing and canning firms, small dairy
fanns. In each case jobs were being produced by the private sector. And the vast
majority of these jobs had higher than typical productivity levels, causing average
productivity to rise and poverty to fall. Of course examples such as these are only a
beginning, a demonstration that much more can happen. Thus far there is far too little
productivity growth in Africa. In fact, for the continent as a whole productivity actually
fell during the last dozen years with conflict and disease in many areas offsetting the
small gains elsewhere. In order to reduce poverty significantly many more high
productivity jobs must be created in Africa and other poor regions. Productivity growth
must rise significantly. But how?
Broadly speaking productivity depends on two things: the amount of capital
(machines, tools, computers) that workers have to work with and the level oftechnology,
including general know-how. The more capital and the more technology, the higher is
productivity. So if you want to raise productivity, somehow you have to raise capital or
technology. If there were no impediments to the flow and accumulation of capital and
technology, then countries or areas that are behind in productivity would have a higher
productivity growth rate. Capital would flow to where it is in short supply relative to
labor, such as the countries visited on the O'Neill-Bono trip. Similarly, without
impediments, technology would spread through education, foreign investment, or even
the Internet. For these reasons, poor areas or countries should be catching up to·rich
areas or countries.
Consider again some more examples from the O'Neill-Bono trip. Consider two
green coffee processing firms that we visited in Africa-one in Kampala, Uganda, and
one in Addis Abba, Ethiopia-a distance about the same as between New York and
Chicago. Both these firms select and sort green coffee coming off the fanns and prepare
it for export or roasting. The Ethiopian finn had recently installed a new conveyer belt to
bring green coffee more efficiently to workers for sorting. That new conveyer belt-a
piece of capital with a new technology-substantially increased productivity at that firm.
In fact, to illustrate the improvement, the owner of that finn was kind enough to show us
how coffee was sorted before he bought and installed the conveyer belt. In contrast, the
Ugandan firm had no such conveyer belt. It was still sorting by the old method;
productivity was much lower at that firm despite the available technology. In some
sense, therefore there was an impediment for the flow of capital and technology.
3
Historical evidence shows that when there are few impediments to the use and
accumulation of capital and technology, there is evidence for "catch up" in productivity.
Productivity growth data in states in the United States-where there have been few
impediments-shows that states that were relatively poor in the late 19th century, such as
Texas and Florida, grew more rapidly in the 20th century than richer states such as New
York or California. Historical evidence of catch up exists in the OECD countries.
Among the countries that were founding members of the OECD in the 1960s, lower
productivity countries have grown more rapidly than higher productivity countries since
the 1960s.
Such catch up does not exist for the world as a whole, however, and certainly not
for Africa. While some countries that were very poor in the 1960s have grown more
rapidly than the rich countries, many other poor countries have grown more slowly. The
reason is that there are significant impediments-in the broadest sense--to investment
and the adoption oftechnology in poor countries that are holding private enterprise back.
The example of the Ugandan coffee processing plant with the old sorting method is
unfortunately the rule rather than the exception.
One can group these impediments into three areas:
Poor governance, including the lack of rule of law or enforceable contracts and
the prevalence of corruption, raises the cost of doing business and creates disincentives
for the private sector to create high-productivity jobs. For example, it costs $230 to ship
cattle from the Sahel area in Burkina Faso to the coast of Ghana compared to only $80 to
ship cattle all the way from Europe to the same point. According to International
Livestock Research Institute, which I visited in Africa, "numerous checkpoints and
bribes" factor into this large cost difference.
Inadequate education impedes the development of human capital. Workers
without adequate education do not have the skills to take on high-productivity jobs or to
adopt new technologies to increase the productivity of the jobs they do have. The
workers in the ACS facility in Ghana had good writing, reading, and computation skills
and could thereby use the new computer technology to raise productivity.
Restrictions on economic transactions prevent people from buying or selling
goods or capital, or adopting new technologies. Lack of openness to international trade,
monopolistic state marketing boards, and excessive regulations and red tape are all
examples of restrictions that create disincentives for the private sector to invest and
innovate so as to boost productivity. For example, until recently the government of
Uganda operated a marketing board, which controlled most of the buying and selling in
the Ugandan green coffee market. The marketing board held down the price paid to
farmers for their coffee. After the government eliminated the marketing board, income to
coffee farmers increased by nearly a factor of four-from 20 percent of the world price to
70 percent of the world price. So even with the drop in world coffee prices in recent
years, many coffee farmers have begun to have higher standards of living.
4
But there are still many similar restrictions in other markets, in other countries,
and between countries. Restrictions on imports into developed countries still reduce the
opportunities to create jobs in the export sectors of developing countries. And there are
also significant barriers to international trade in developing countries. In Uganda, for
example, there is a 45 percent tariff on the import of specialty coffee bags needed for
shipping more perishable roasted beans. This tariff is a factor in keeping Ugandan firms
out of the roasted coffee market.
To deal with these problems, the Bush Administration's economic development
agenda calls for a much greater emphasis than in the past on policies that reduce the
impediments to the creation of high productivity jobs by the private sector. Countries
that follow good economic policies are to receive more aid, and the actual results of the
aid are to be quantitatively measured.
Consider, for example, the Millennium Challenge Account. This account would
amount to about $5 billion a year, a 50 percent increase over and above the
approximately $10 billion in existing U.S. development assistance. The Millennium
Challenge Account would channel aid to poor countries that have chosen to adopt good
policies that reduce the impediments to increasing productivity growth. To access the
account, developing countries must demonstrate strong commitments to (1) ''ruling
justly"-upholding the rule of law, rooting out corruption, protecting human rights and
political freedoms; (2) "investing in people"-education and health care; and (3)
"encouraging economic freedom"-open markets, sound fiscal and monetary policies,
appropriate regulatory environments, and support for private enterprise. Of course, these
are exactly the ways to reduce the three types of impediments I mentioned above.
Another example is President Bush's proposal to increase the U.S. contribution to
the next IDA replenishment (IDA-I3) and to tie part of the increase to measurable results.
Under this proposal, funding would be 18 percent higher than either the IDA-II or the
IDA-12 replenishments in the 1990s. The proposal incorporates an $850 million
contribution in the first year, $950 million in the second year, and $1,050 million in the
third year. The increases in the second and third years are explicitly linked to measurable
results of the aid, such as in improving education. Linking the size of the IDA
replenishment to measurable results is a new idea. I am glad to say that it appears to be
having a good impact on other areas of the World Bank. Already we are hearing more
about a greater focus on measurable results in the World Bank's operations. In fact today
there is a conference on this topic at the World Bank where I will be speaking later.
How much of an increase in productivity growth can we expect if the right
policies are chosen and if the results of our aid are successful? What might we hold out
as a goal? We should, of course, expect that poor countries should have productivity
growth rates much higher than countries like the United States. But I think we can be
more specific. There is currently a huge gap between the productivity of poor countries
and rich countries. That means that there is a gap between the levels of capital per
worker and the levels of technology. But those huge capital and technology gaps
represent huge opportunities.
5
The International Livestock Research Institute operating in Ethiopia
demonstrated some of those opportunities for us. By breeding Ethiopian cattle with
European stock, they found it is possible to increase milk productivity by over 700
percent. And, if adopted on a large scale, that 700 percent increase in productivity could
occur in Ethiopia in a short period of time.
Some simple calculations suggests that countries with huge productivity gapslike the gap between Ghana or Uganda or Ethiopia and the United States-could achieve
productivity growth rates of 10 percent per year on a sustainable basis. That is an
ambitious goal, and it requires a much greater growth of the private sector than we have
at present. But the 700 percent example shows that it could be a reality.
In conclusion, I hope that I have shown how private enterprise is essential to our
economic development goals. I realize that many of the examples I have given are of
smaller finns or projects, at least when compared to the large-scale infrastructure projects
many IFC participants are interested in. Of course, large infrastructure projects are also
essential. For example, the Bujagali project-consisting of a 200-megawatt hydropower
station in Uganda-is a sorely needed infrastructure project which has been delayed too
long already. But a thriving private sector in general-small, medium, and large size
firms-is what is needed to attain the productivity goals I have outlined.
What more could be done for the smaller and medium sized private enterprises?
Lack of access to credit is key obstacle. In many developing economies, special
connections are needed in order to have access to credit from financial institutions. In
many countries, governments use the financial sector to channel resources to inefficient
state-owned enterprises.
Financial intermediation is often hampered by a lack of credit ratings, high
collateral requirements, and underdeveloped financial management skills. For new finDs
and small- and medium-sized private enterprises, these factors are often compounded by
the inherent unwillingness of banks to serve them due to their perceived riskiness and the
higher costs of servicing such clients. Inadequate access to credit inhibits productivity
growth. New, entrepreneurial finns have a more difficult time starting up and continuing
operations. All businesses have less capital to make productivity-enhancing investments.
The IFC is looking for ways to boost such lending in Africa and I commend Peter
Woicke and his colleagues for doing so. Ultimately the private enterprise sector will
require the development of full-fledged financial markets to thrive in the developing
world.
6
D E P \ R T \1 E '\ T
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T II E
T R F \ S
r
R Y
NEWS
oma OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlDNGTON, D.C. -
20220 - (202) 622-2960
Contact: Rob Nichols
(202) 622-2910
For Immediate Release
Saturday, June 8, 2002
THE FINANCIAL FRONT OF THE WAR ON TERRORISM - THE NEXT
PHASE
Kenneth W. Dam
Deputy Secretary of the Treasury
DeUvered to the COBDCn on Foreign Relations
New York, New York
The financial front of the war on terrorism has entered a new phase. This new
phase is characterized by increased leadership by OlD' coalition partners and increased
focus on means of financing terrorism outside the mainstream financial system. At the
same time, the United States must and will remain vigilant in preventing terrorists from
abusing its financial system.
Today, I shall describe how the financial front of the war on terrorism has evolved
toward this new phase.
The first phase of the financial front of the war on terrorism was dominated by
public designations of terrorists and terrorist supporters and attempts to freeze their
accounts. To be sure, this was - and remains - an important aspect of the fight. We must
close the world's financial system to known terrorists and their financiers.
To date, we have had considerable success. Since September 11, we and OlD' coalition
partners have publicly designated 210 terrorists or terrorist supporters. We have frozen
over S11 5 million around the world. 166 countries and jurisdictions have blocking orders
in force.
We still have work to do on this effort. Not every country has joined us in
blocking every identified terrorist or terrorist supporter. Also, we have to make sure that
countries do more than just add names to a list. We need to - and we do - continually
follow up with them to ensure that their regulators and financial institutions are out there
giving teeth to their blocking orders.
P0-3163
•
·U S Government Pn.m"q OtIoce" 1998 - fl19-!i!i9
Designations and blackings dominated the early phase of the financial front of the
war on terrorism for several reasons.
First, the United States and many other countries (but by no means all) could
quickly put in place a legal infrastructure to carry out the designations and blockings. In
the United States, all that was immediately necessary was to promulgate an executive
order invoking the President's authority under the International Emergency Economic
Powers Act to go after not just terrorists but also their financial supporters, to announce
the designations, and to transmit the blacking orders to U.S. financial institutions.
Second, public designations highlighted the need for countries without adequate
legal infrastructures to enact laws and regulations that would allow them to close their
financial systems to terrorists. When we started our effort even countries like Canada
and Japan did not have legislation crimjnalizjng teITorist fimdraising. Many countries
lacked the legal infrastructure to adopt and implement blocking orders on terrorist assets.
Public designations by the U.S. and our allies highlighted these deficiencies and
prompted countries to address them.
Third, joint designations provided an opportunity to highlight international
cooperation in the financial front of the war. We were pleased, for example, when the
EU independently designated several new terrorists and terrorist organizations at the end
of200t. (The EU made another such designation on May 2,2002.) We were also
pleased by the joint designation we made with Saudi Arabia on March 11 and another
joint designation with the G7 on April 19. These have been no insignificant
accomplishments. The public sees the end-product - joint designations. But what the
public doesn't see is the intense consultations and exchanges going on before and after
the events.
The opportunity to highlight international cooperation is particularly important
because the financial front of the war on terrorism cannot be won without it. As I have
said many times, you can't bomb a foreign bank account. You need the cooperation of
the host government to investigate and freeze that foreign account. Increasingly, our
strategy to enlist the aid of foreign governments is working.
This brings me to a fourth reason why public designations and blockings
dominated the first phase: other actions take time. It takes time to persuade other
governments to take a leadership role in the effort. The United States made its first
public designation on September 24, 2002. It took even the EU another three months to
take the lead with its own independent designation. It also takes time for governments to
adopt laws and implement regulations that they need to curtail terrorist financing. In
addition, it takes time to cultivate new sources of information about terrorist finances that
will lead us to terrorist financiers and, even more valuably, sometimes to terrorists
themselves. So, the ulong sales cycle" of these other actions is another reason why public
designations and asset freezings dominated the first phase of the financial front of the
war.
Before descoDing the next phase of the war, let me be clear. Public designations
remain an important - an essential - weapon in the fight against terrorism. We will
continue to make them and we will continue to scour our financial system for terrorist
assets. Likewise, we will continue to encourage our coalition partners to take the lead in
making their own designations. We will also continue to encourage our partners to
ensme that they follow through on their blocking orders and give them teeth.
While public designations will remain important, we are entering a new phase of
the war. This new phase will be dominated by greater leadership by our coalition
partners and greater focus on means of financing terrorism outside of the mainstream
financial system. Public designations and blockings will not dominate this new phase to
the degree that they did the early phase.
There are several reasons why public designations and blockings should not be
expected to dominate the next phase.
First, public designations are, by their very nature, public. Terrorists learn about
them and adapt their behavior accordingly. They will avoid keeping their money in the
United States or other financial centers with effective rules and regulations to thwart
them. They will use informal methods of moving their money. They may avoid storing
value in currency at all, instead preferring commodities like gold or diamonds, converting
the commodities to cash only as needed. Provided the United States and the
international community remain vigilant in policing their financial systems, we expect
that terrorists increasingly will avoid keeping their money in large amounts in single
accounts in the mainstream financial system. Over time, therefore, we anticipate that
public designations will not "catch" as much money as they did initially.
Second, those "long sales cycles" are coming to an end. We are seeing foreign
governments increasingly play leadership roles in taking action against terrorist
financiers.
Foreign governments have acted privately to stop individuals from donating
money to suspect groups.
Foreign governments have arrested terrorist financiers Of, as in the case of
Pakistan, cooperated in successful U.S. efforts to capture them.
Foreign governments are taking steps to regulate hawala dealers. Hawala systems
(in some countries called hundi systems) are efficient, inexpensive, trust-based methods
of moving money that do not leave large paper trails.
Foreign governments are making progress in preventing terrorists from using
hawalas to move money. During a conference on hawalas in the UAB on May 15-16, a
number of governments agreed to take steps to regulate and monitor hawalas to ensure
that they are not abused. After the conference, on May 28, the Dubai Gulf News reported
that the UAB will soon require hawalas to be licensed and regulated. The Times of India
also reported that India is taking steps to crack down on unlicensed money transmitters.
I wish to emphasize one point We do not think that banning hawalas altogether
is the answer. Hawala dealers provide an important service. They transfer money at low
cost to populations that are not supported by formal financial services. We are working
with our coalition partners to preserve the benefits of the hawala system while at the
same time preventing their abuse by terrorists.
Along with hawalas, charities will be the subject of increasing focus. This is an
important and sensitive issue. As many of you know, charity is a central pillar of Islam.
Indeed, in many parts of the world charities provide much of the social infrastructure orp~ hospitals, and schools. At the same time, there is no denying that some
legitimate charities have been penetrated by terrorists or terrorist supporters - possibly by
only a few managerial employees - who misdirect a portion of the charity's funds for
terrorist ends. There are also organizations that are primarily organized and directed to
abuse charitable status for terrorist ends. Some groups threaten not only their targets, but
their donors, extracting "donations" as ''protection'' against reprisals. Our challenge is to
prevent terrorists from using charities as a cover for supporting terrorism while ensuring
that charitable giving and charitable works continue.
We are pursing these two goals by freezing the flow of funds through charities
that have been corrupted by terrorist supporters and increasing the transparency and
oversight of charities around the world. Thus far, a number of charities around the world
have been designated and their assets frozen - our joint designation with Saudi Arabia of
two regional AI Haramain offices is a good example of what is beginning to occur. Also,
we are asking countri~ bilaterally and through multilateral bodies, to evaluate their
regulatory and enforcement oversight of non-profits. Indeed, the multilateral Financial
Action Task Force or FATF will take up this issue at its meeting later this month. In
addition, we are working to disseminate international best practices for ensuring the
accountability of charitable organizations. Finally, we are calling upon private watchdog
groups to continue and expand their important work on ensuring transparency in
charitable operations, and to broaden their focus beyond their historical emphasis on
fraud and waste to include the threat posed by terrorist abuse of charities. We have been
gratified by the positive response that these initiatives have received from other
governments and the charitable community.
We are also beginning to make some progress in preventing terrorists from using
otherwise legitimate trade in goods and services as a means to funnel money to terrorists.
Our Customs Service uses techniques developed in the drug war to look for movements
of goods at abnormal prices. Customs used this technique to support the designations of
three Yemen-based honey businesses tied to Osama Bin Laden. In addition to
designating businesses linked to terrorism, we also work to ensure that legitimate
merchants are able to identify suspicious transactions so that they can report the
transactions and take steps to prevent such transactions in the future. We work to educate
the business community, especially those industries that are particularly wlnerable to this
type of trade-based laundering activity, just as we have done in the drug war through our
program to fight the Colombian-based Black Market Peso Exchange.
Finally, across the world, the international coalition is acting to improve the
regulatory climate more generally.
We have taken important steps in this regard in the United States with the passage
in October 2001, of the USA PATRIOT Act. The Act gives us important new tools in the
fight against terrorism. I shall highlight just three.
First, the Act requires U.S. financial institutions to tennjnate couespondent
accounts maintained for foreign shell banks and to take reasonable steps to ensure that
they do not indirectly provide banking services to foreign shell banks. Treasury provided
interim guidance on this requirement, suggesting that financial institutions obtain
certification from all foreign banks with correspondent accounts in the U.S. to the effect
that (1) those foreign banks are not themselves shell banks; and (2) those foreign banks
do not maintain accounts for shell banks. We worked closely with the private sector to
make this interim guidance as effective as possible, and the final rule, when issued, will
benefit considerably from this input
Second, the Act required most financial institutions to have an anti-money
laundering program in place by April. Money service businesses, broker-dealers in
securities, and credit card operators are now all required to have comprehensive antimoney laundering programs in place. We are now working with the insurance industry,
hedge funds and other financial sectors to develop appropriate rules for those businesses
as well.
Another point worth noting is that the Act allows for in camera judicial review of
any classified information we use to freeze terrorist assets. This gives us greater ability
to freeze terrorist assets without fear that intelligence sources and methods will become
compromised during judicial review.
I should mention one very important partner in om effort to clean up the
regulatory environment in the United States - the private sector. Many of the leaders of
financial services companies in New York lost employees or friends in the September 1I
attacks. They understand that the terrorists targeted the World Trade Center in an effort
to strike at our financial nerve-center. The cooperation we have received from these
business leaders and their employees has been invaluable. Among other things, they
have worked with us to maximize the effectiveness of the new regulations while
minimizing their impact on legitimate transactions.
Another way in which we have acted to improve the regulatory climate generally
is to reach Tax lnfolDlation Exchange Agreements with several tax haven jurisdictions:
the Bahamu , the British Virgin Islands, the Cayman Islands, the Netherlands Antilles,
and Antigua & Barbuda. We expect to enter into more of these bilateral agreements in
the coming months. As we make it harder for tax evaders to find safe haven in off shore
financial centers, those centers move toward cleaner, better regulated systems and
improve their regulatory climate generally. The end result is fewer places where
terrorists can hide their money.
Another important effort is the work of the Financial Action Task Force, which
established eight Special Recommendations for terrorist financing. The FATF action
pIan requires jurisdictions to engage in a self-assessment and to take steps to bring their
systems up to these standards. As in the money laundering context, we expect that these
recommendations and the FATF process will prompt countries to make substantive
changes to their laws and regulations or risk being "named and shamed" as noncooperative.
Other nations have joined us in raising the regulatory hurdles to terrorist
financing. Here is just a sampling of one day's activity based on a search of foreign
media on June S, 2002. On June 4, 2002, Belgrade's Politika reported that Sebia's law on
the prevention of money laundering will go in effect on July 1, and require the reporting
of currency transactions over 600,000 dinars to a newly-established Federal Commission
for the Prevention of Money Laundering. Bucharest's Rompres reported on June S, 2002,
that customer identification and suspicious activity reporting requirements are in force as
of June 4, 2002. On June S, Tokyo's Jiji Press reported that Japan enacted a law
crimioaljziog terrorist financing. On June 4, Seoul's Yonhap reported that Korea's
Financial Intelligence Unit joined the 58 member Egmont Group - an international
association of financial intelligence units dedicated to sharing infolDlation about financial
crimes. This is just a sampling. Every day, the international press contains similar items
about the progress other countries are making in improving the regulatory climate. Just
yesterday, the Washington Post reported that Qatar has just adopted an anti-money
laundering law.
Public designations will, however, remain and important weapon in our arsenal.
For one thing, public designations reinforce our private diplomatic efforts. Governments
who fear the political consequences of public designation of one of their citizens have a
strong incentive to do something privately about. that citizen's behavior. In some cases,
we have seen governments act to stop citizens from supporting groups associated with
terrorism so as to avoid the domestic and international political consequences that public
designation of that citizen would have. Since our goal is to prevent and disrupt - not to
build a long public list - we have not only accepted that result but have made it clear that
our goal is results, not public announcements.
I have reviewed what is, to be sure, a lot of activity. But our objective is not to
generate a lot of activity. Our objective is to prevent attacks and disrupt terrorist
operations.
So how are we doing?
We know that we are having an impact. We have frozen over $115 million
dollars. We know that AI Qaida is having some financial difficulty. We know that some
potential donors to terrorists are reluctant to give money for fear of the consequences.
We see encouraging signs that the world is erecting regulatory bmiers to terrorist
financing. Almost daily, we receive word of a new money laundering law, a new arrest, a
new regulation that will make life more difficult for terrorists and root them out so that
they can be captured or otherwise disrupted.
At the same time, we know that AI Qaida's financial needs are greatly reduced they no longer have to support the Taliban government and they no longer bear the cost
of maintaining training camps. We have also not made enough progress against people
who donate funds to charities knowing that their donations will be used to supporttem>rism. In addition, although we have made some progress on groups other than AI
Qaida, we still have much more work to do against other terrorist groups of global reach.
In the physical war, the Vice President and others have made clear that there is
nothing that a free and open society like the United States can do to protect itself 100010
against future attacks.
The same is true in the financial front of the war. We can never be 100010 sure
that terrorists are not transferring money one way or another. Doing so would come at
too great a cost to the economies of our interdependent world.
Accordingly, just as in the pbysical war, we must take the battle to the tenorists
themselves. We cannot limit ourselves to improving the protections of the U.S. financial
system, or even to improving the protections of the world's mainstream financial
systems. While those are necessary, they are not sufficient We must also searcb out
terrorist finances outside of the mainstream financial systems '" in the bawala networks, in
colTUpted NGOs, and in fraudulent trade patterns. And, more than ever, this effort must
be led by our coalition partners.
D EPA R T ;\1 E :\ T
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TREASURY
T REA SUR Y
NEWS
OFFICE OF PUBLIC AFFAIRS e1500 PENNSYLVANIA AVENUE, N.W. e WASHINGTON, D.C.e 20220 e (202) 622.2960
EMBARGOED UNTIL 11:30 A.M.
June 10, 2002
Contact:
Office of Pinancing
202/691-3550
TREASURY OPPERS CASH MANAGEMENT BILLS
The Treasury will auction approximately $21,000 million of 6-day
Treasury cash management bills to be issued June 12, 2002.
Tenders for Treasury cash management bills to be held on the book-entry
records of TreasuryDirect will ~ be accepted.
Up to $1,000 million in noncompetitive bids from Poreign and International
Monetary Authority (PIMA) accounts bidding through the Pederal Reserve Bank of
New York will be included within the offering amount of the auction. These
noncompetitive bids will have a limit of $100 million per account and will be
accepted in the order of smallest to largest, up to the aggregate award limit
of $1,000 million.
Note: The closing times for receipt of noncompetitive and competitive
tenders will be at 11:00 a.m. and 11:30 a.m. eastern daylight saving time,
respectively.
The allocation percentage applied to bids at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g.,
17.13\.
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 CPR Part 356, as
amended) •
Details about the new security are given in the attached offering
highlights.
000
Attachment
'0-3164
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFBRING
OF 6 -DAY CASH MANAGBMBNT BILLS
June 10, 2002
Offering Amount ..••.•••••••••••••••• $21,000 million
Public Offering ..••.•••••••••••••••• $21,000 million
Description of Offering:
Term and type of security ••• ~ ••.•..• 6-day Cash Management Bill
CUSIP number ..•..•..•.•...•••••••••• 912795 MU 2
·uction date •...•..•.•••••••••.••••• June 11, 2002
laue date . . . . . . . . . . . . . . . . . . . . . . . . . . J'Ulle 12, 2002
aturity date ......•.••.•••••••••••• June 18, 2002
riginal issue date •.••••.•••••••••• June 12, 2002
urrently outstanding ...••••.•••••••
inimum bid amount and multiples •••• $1,000
ubmission of Bids:
oncompetitive bids: Accepted in full up to $1 million at the highest discount
rate of accepted competitive bids.
oreign and International Monetary Authority (FIMA) bids: Noncompetitive bids
submitted through the Federal Reserve Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account. The total noncompetitive amount awarded to
Federal Reserve Banks as agents for FIMA accounts will not exceed $1,000
million. A single bid that would cause the limit to be exceeded will be
partially accepted in the amount that brings the aggregate award total to the
$1,000 million limit. However, if there are two or more bids of equal amounts
that would cause the limit to be exceeded, each will be prorated to avoid
exceeding the limit.
~ompetitive 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.
:axtmum Recognized Bid at a Single Rate .•. 35\ of public offering
:aximum Award ......•••...••••••••••••••.•• 35\ of public offering
ecei2t of Tenders:
oncompetitive tenders:
Prior to 11:00 a.m. eastern daylight saving time on auction day
ompetitive tenders:
Prior to 11:30 a.m. eastern daylight saving time on auction day
Payment Terms:
date.
By charge to a funds account at a Federal Reserve Bank on issue
D EPA R T :\1 E 1\ T
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T REA SUR Y
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS e1500 PENNSYLVANIA AVENUE, N.W. e WASHINGTON, D.C.e 20220 e (202) 622·2960
IMBARGOBD UNTIL 11:30 A.H.
June 10, 2002
Contact:
Office of Pinancing
202/691-3550
TRBASURY OPPERS 4 -WBmt BILLS
The Treasury will auction 4-week Treasury bills totaling $18,000 million to
refund an estimated $25,000 million of publicly held 4-week Treasury bills maturing
JUDe 13, 2002, and to pay down approximately $7,000 million.
Tenders for 4-week Treasury bills to be held on the book-entry records of
will ~ be accepted.
Treas~Direct
The Pederal Reserve System holds $13,119 million of the Treasury bills maturing
on June 13, 2002, in the System Open Karket Account (SOIlA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOIlA will be in addition to the offering amount.
up to $1,000 million in noncompetitive bids from Poreign and International
Monetary Authority (FrKA) accounts bidding through the Pederal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
This offering of Treasury securities is governed by the terma and conditions
set forth in the Unifor.m Offering Circular for the Sale and Issue of Karketable BookIDtry Treasury Bills, Notes, and Bonds (31 CPR Part 356, as amended).
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-3165
For press relellses, speeches, public schedules and officilll biographies, call our 24-hour fax line lit (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WBBK BILLS TO BB ISSUED JUNE 13, 2002
June 10, 2002
Offering Amount •••••.••.••••••••••• $18,000 million
Public 0 ff er i ng ................... . $ 18,000 million
NLP Exclusion Amount ...•.•••.•••••• $ 8,200 million
Description of Offering:
Term and type of security ..••••••..
COSIP number •••••.•.•.•.•.•.•••••••
Auction date •.••••••.•.•.•••••••.••
Issue date •••••••••••.•••••••••••••.
Maturity date •••••••••.••••••••••••
Original issue date .•.••••••••.••••
CUrrently outstanding ....••..••••••
Minimum bid amount and multiples •••
28-day bill
912795 KR 1
June 11, 2002
June 13, 2002
July 11, 2002
January 10, 2002
$32,537 million
$1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FIMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005\, e.g., 4.215\.
(2) Net long position (NLP) 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.
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 eastern daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.
D E P :-\ R T 'I E l\ T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIHNGTON, D.C. - %0%%0 - (%0%) 6%%-%960
For Immediate Release
June 10, 2002
Contact: Bill Luecht
(202) 622-8042
Betsy Holahan
(202) 622-1997
Treasury Announces First Round of Competition for New Markets Tax Credit Program
Treasury Secretary Paul O'Neill today announced the first competitive round for the
allocation of tax credits under the New Markets Tax Credit (NMTC) program.
"The NMTC program is designed to stimulate private sector investment in the economic
development of low-income communities - and we hope to see a real difference in the lives of
the people in these communities," said O'Neill. "President Bush's vision of a more prosperous
America for all of its citizens can only be achieved through results-oriented programs."
The NMTC program, established by Congress in December 2000, permits taxpayers to
receive a credit against Federal income taxes for making Qualified Equity Investments in
designated Community Development Entities (CDEs). Substantially all of the taxpayer's
investment must in turn be used by the CDE to make qualified investments in low-income
communities. The credit to the taxpayer totals 39% of the investment and is claimed over a
seven-year credit period.
NMTCs will be allocated annually by the Treasury Department's Community
Development Financial Institutions (CDFD Fund to CDEs under a competitive application
process. With the pUblication of this first Notice of Allocation Availability in the Federal
Register on June 11, the CDFI Fund invites CDEs, and those entities seeking CDE designation,
to submit an application to compete for tax credit allocations. The application deadline is August
29,2002.
During the first round, allocations of up to an aggregate total of $2.5 billion in qualified
equity investments in CDEs will be made. This $2.5 billion in allocations represents the
combined allocations for 2001 and 2002, as the legislation permits. The remaining allocations
will be made available as follows: $1.5 billion in 2003; $2 billion in each of 2004 and 2005; and
$3.5 billion in each of2006 and 2007.
"The NMTC Program has the potential to make a significant impact in the targeted areas
because of the wide variety of investments that can be made," said Tony T. Brown, Director of
the CDFI Fund.
PO-3166
Fur press releases,
speeches, public schedules and official bWgraphies, call our 24.Jwurfax line at (202) 622-2040
·u.s. ~ment Printlno Office·
19QR. /;1Q. ....a
"This program will catalyze new economic activity - ranging from loans to small
businesses to the development of grocery stores, from charter schools to manufacturing plants.
This flexible tool will enable urban and rural areas alike to attract private capital to expand their
community development efforts."
Additional information can be found on the CDFI Fund's web site, www.cdfifund.gov .
-30-
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
June 10, 2002
The Honorable Trent Lott
Senate Republican Leader
United States Senate
vVashington, DC 20510
Dear Senator Lott:
The War on Terrorism must be fought on many fronts. From an economic perspective,
we must minimize the risks and consequences associated with potential acts of terror. No
measure is more important to mitigating the economic effects of terrorist events than the passage
of terrorism insurance legislation.
Last November 1, the Administration publicly agreed to bipartisan legislation negotiated
with Chainnan Sarbanes, Chainnan Dodd, Senator Gramm and Senator Enzi. While the House
of Representatives quickly responded to this urgent need by passing appropriate legislation, the
Senate did not act and has not passed any form of terrorism legislation in the intervening seven
months.
The absence of federal legislation is having a palpable and severe effect on our economy
and is costing America's workers their jobs. In the first quarter of this year, commercial real
estate construction was dO\vn 20 percent The disruption of terrorism coverage makes it more
difficult to operate, acquire, or refinance property, leading to diminished bank lending for new
construction projects and lower asset values for existing properties. The Bond Market
Association has said that more than $7 billion worth of commercial real estate activity has been
suspended or cancelled due to the lack of such insurance. Last week, Moody's Investors Service
announced that 14 commercial mortgage-backed transactions could be downgraded due to a lack
of such insurance.
Without such insurance, the economic impact of another terrorist attack would be much
larger, including major bankruptcies, layoffs and loan defaults. While we are doing everything
we can to stop another attack, we should minimize the widespread economic damage to our
economy should such an event occur.
One important issue for the availability of terrorism insurance is the risk of unfair or
excessive litigation against American companies following an attack. Many for-profit and
charitable entities have been unable to obtain affordable and adequate insurance, in part because
of the risk that they will be unfairly sued for the acts of international terrorists.
To address this risk at least two important provisions are essential. First, provisions for
an exclusive federal cause of action and consolidation of all cases arising out of terrorist attacks,
like those included in the Air Transportation Safety and System Stabilization Act, are necessary
to provide for reasonable and expeditious litigation.
PO-3167
2
Second, the victims of terrorism should not have to pay puniti ve damages. Punitive
damages are designed to punish criminal or near-criminal wrongdoing. Of course such sanctions
are appropriate for terrorists. But American companies that are attacked by terrorists should not
be subject to predatory lawsuits. The availability of punitive damages in terrorism cases would
result in inequitable relief for injured parties, threaten bankruptcies for Anlerican companies and
a loss of jobs for American workers.
It is also clear that the potential for massive damages imposed on companies that suffer
from acts of terror would endanger our economic recovery from a terrorist attack. Indeed, the
added risks and legal uncertainty hanging over the economy as a result of last September 11 th are
major factors inhibiting a business wi11ingness to invest and to create jobs. It makes little
economic sense to pass a terrorism insurance bill that leaves our economy exposed to such
inappropriate and needless legal uncertainty.
The bipartisan public agreement reached between the Administration and Chairman
Sarbanes, Chainnan Dodd, Senator Gramm and Senator Enzi last fall provided these minimwn
safeguards. We would recommend that the President not sign any legislation that leaves the
American economy and victims of terrorist acts subject to predatory lawsuits and punitive
damages.
The American people and our economy have waited seven months since our public
agreement on legislation. The process must move forward. Prompt action by the Senate on this
vitally important legislation is needed now.
Sincerely,
PIML'NfJk
Paul H. O'Neill
Secretary of the Treasury
cr~~ ~.Gfwth;
Lawrence Lindsey
Director,
National Economic Council
11A['~t
1vlitchell E. Daniels
Director
Office of Management and Budget
cc:
Senator Daschle
R. Glenn Hubbard
Director
Council of Economic Advisors
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 11, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28 -Day Bill
June 13, 2002
July 11, 2002
912795KR1
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.710%
High Rate:
Investment Rate 1/:
Price:
1.736%
99.867
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 97.64%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FlMA (noncompetitive)
$
$
17,973,530
26,666
°
°
SUBTOTAL
Federal Reserve
$
TOTAL
34,515,850
26,666
34,542,516
18,000,196
1,894,839
1,894,839
36,437,355
$
19,895,035
Median rate
1.700%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.660%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
34,542,516 / 18,000,196 = 1.92
1/ Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
)-3168
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 11, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 6-DAY BILLS
6-Day Bill
June 12, 2002
June 18, 2002
912795MU2
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1. 715%
High Rate:
Investment Rate 1/:
Price:
1.765%
99.971
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 74.98%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
60,990,000
50
$
21,001,280
50
°
°
SUBTOTAL
60,990,050
21,001,330
o
o
Federal Reserve
TOTAL
Accepted
Tendered
Tender Type
$
60,990,050
$
21,001,330
Median rate
1.715%: 50% of the amount of accepted competitive tenders
aas tendered at or below that rate.
Low rate
1.680%:
5% of the amount
)f accepted competitive tenders was tendered at or below that rate.
3id-to-cover Ratio = 60,990,050 / 21,001,330 = 2.90
L/ Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
)-3169
D E P .\ R T \1 E ~ T
0 F
THE
T REA S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
EMBARGOED UNTIL 4:30 P.M. EDT
Tuesday, June 11, 2002
Contact: Tasia Scolinos
(202) 622-2960
TESTIMONY OF ASSISTANT SECRETARY FOR ENFORCEMENT
KENNETH LAWSON
AND
BRADLEY A. BUCKLES
DIRECTOR BUREAU OF ALCOHOL, TOBACCO AND FIREARMS
BEFORE
SUBCOMMITTEE ON CRIME, TERRORISM AND HOMELAND SECURITY
HOUSE JUDICIARY COMMITTEE
Thank you, Mr. Chairman, Mr. Scott and members of the
Subcommittee.
I am grateful to Chairman Smith for
scheduling this hearing.
I welcome the opportunity to
discuss this important legislation addressing explosives.
The legislation before you contains practical, common
sense provisions, which, if enacted into law, will
significantly strengthen current Federal oversight
responsibilities on explosives controls.
It will also
enhance our ability to deter, prevent, and identify
individuals who illegally misuse or acquire explosives.
This proposal provides new and strong measures to ensure
that only persons who are legally entitled to possess
explosives can do so, thereby enhancing our overall
National efforts to combat terrorism.
NEED FOR ADDITIONAL AUTHORITY
We know that firearms, arson, and explosives are the
most common tools of violent criminals and terrorists.
However, under current Federal law, we have an "honor U
system for explosives acquisition. Any individual may go
into an explosives dealer's place of business within a
State of residence and purchase virtually any quantity or
type of explosives without a background check. As you
know, background checks are currently required by law for
PO-3170
Fm-press releases, speeches, public schedules and official biographies, call vur 24;;"our fax line at (202) 622-2040
2
firearms purchases.
Federal firearms laws also prohibit
non-immigrant or illegal aliens from purchasing or
possessing firearms.
It is not unlawful for these aliens to acquire or
possess explosives. The legislation being considered by
the Subcommittee would address both of these weaknesses in
the Federal explosives laws.
Specifically, H.R. 4864 would require all purchasers
of explosives to obtain a permit from ATF. A permit would
be issued only to individuals who are properly identified
and subjected to a thorough background check. This will
ensure that prohibited categories of persons cannot acquire
or possess explosives through legal distribution channels.
Permits under existing law are required only for interstate
purchases.
This bill would extend the permit requirement
to intrastate transactions. Although some States have
enacted controls over intrastate purchases, they are not
uniform and do not present a comprehensive solution as does
the legislation before you today.
H.R.4864 will also provide for additional screening of
all employees who will possess explosive materials, so that
ATF can verify that these individuals are not prohibited
from receiving or possessing explosives. Under current
law, it is possible for terrorists and criminals to obtain
access to explosive materials by obtaining jobs (such as
driving trucks) with companies or individuals who are
explosives licensees.
The legislation further recognizes the distinction
between occasional users of explosives and frequent users
by creating a new "limited user U permit for those who
anticipate only infrequent purchases. Occasional users
with an intrastate purchaser's permit would be allowed to
make no more than four purchases of explosives within a 12month period and the permit would only be valid for
purchases within the purchaser's State of residence. While
limited permit holders must pass the background check like
all other license or permit applicants, they would not be
subject to warrantless compliance inspections that are
required for holders of regular user permits.
This legislation also expands the list of individuals
who are prohibited from purchasing or possessing explosives
to include mental incompetents, certain aliens other than
lawful permanent residents, persons dishonorably discharged
3
from the military, and persons who have renounced their
U.S. citizenship.
Congress has already determined that the possession
of firearms by the above categories of people is dangerous
to society.
In order to combat terrorism and other violent
crime, it is essential that Federal law prohibit the
receipt or possession of explosive materials by such
individuals already deemed too dangerous to possess
firearms.
These additions to the list of prohibited
persons brings the explosives law in line with most
categories of prohibited persons under the Gun Control Act.
The legislation also would enhance ATF's ability to
solve criminal cases involving explosives by requiring
explosives manufacturers and importers, as well as persons
who manufacture or import ammonium nitrate, to provide to
ATF, upon request, samples of, or chemical information on,
the products they manufacture or import.
This will
essentially enable us to create a library with which to
identify explosives materials, increase our investigative
capabilities, and produce a greater body of scientific and
research data available for use by the law enforcement and
intelligence communities, nationwide and worldwide. Such
information is essential to ATF's ability to prevent and
solve bombings and to trace explosive materials used in
terrorist activities and other violent crimes by matching
residue with the manufacturers' samples.
This provision would further augment the capabilities
of ATF's National Arson and Explosives Repository, in that
it will assist us in analyzing unusual sales and thefts for
trends and patterns that may indicate criminal misuse of
explosives or illegal trafficking. This proactive approach
will complement existing homeland security efforts.
Finally, the legislative package includes a provision
restoring the ability of ATF and Federal law enforcement to
investigate and prosecute those who use explosives to,
damage the property of institutions receiving Federal
financial assistance, such as hospitals and laboratories.
We fully anticipate the need for additional resources to
implement this legislation, if enacted. We are currently
evaluating what those specific needs will be and will
continue to coordinate the resource requirements with OMB
for submission to Congress.
4
In summary, we believe the legislative package under
consideration today would greatly enhance our current
efforts to prevent the illegal and criminal diversion and
misuse of explosive materials.
REGULATION AND INSPECTION OF THE EXPLOSIVES INDUSTRY
In order to put these legislative proposals in
context, I would like to provide some background on ATF's
current regulatory and investigative efforts involving
explosives.
ATF regulates the commerce in explosives by licensing
and inspecting importers, manufacturers, dealers, and
persons acquiring or transporting explosive materials in
interstate or foreign commerce. As a part of its regular
inspection program, ATF inspects explosives storage
facilities and the records of acquisition and disposition
that licensees and permittees are required to maintain.
ATF is able to trace explosive materials using these
records.
Explosives storage facilities are inspected to ensure
that explosive materials are properly secured against theft
and located at minimum prescribed distances from inhabited
buildings, public roads, and passenger railroads.
Under current law, any person who has knowledge of the
theft or loss of explosive materials from his stock must
report the theft or loss to ATF within 24 hours of
discovery.
Following the September 11 terrorist attacks, ATF sent a
letter urging all explosives licensees and permittees to
take immediate measures to secure their explosives
inventories.
Between October and December 2001, ATF field
personnel conducted 7,459 inspections of explosives
licensees/permittees (out of a total of 9,400). ATF
personnel encouraged the proprietors to report thefts,
losses, or suspicious activity to ATF and the appropriate
local authorities.
ATF carried out these inspections to
gauge internal security controls and report any unusual
purchase attempts, break-ins, or any other anomalies that
would indicate a breach to security.
5
In connection with the 7,459 inspections, ATF
uncovered over 200 possible criminal violations.
We also
found 1,763 violations in recordkeeping, storage, and the
conduct of business.
Follow-up inspections will be
required to ensure that corrective actions have been taken.
In one instance, we revoked the license of a company which
did not properly store approximately 4 million pounds of
explosives materials. During the first half of Fiscal
Year (FY) 2002, ATF identified and corrected 486 violations
as a result of these inspections.
In addition to the inspections of explosives industry
members after the September 11 attacks, ATF inspectors
carried a considerable workload throughout the year,
helping to ensure the lawful storage of explosives
materials.
In FY 01, inspectors completed 5,032 full
inspections, which encompassed explosives application and
compliance inspections. ATF opened investigations on 58
explosives thefts in FY 01, and ATF's Arson and Explosives
National Repository Branch (AENRB) recorded the thefts of
nearly 50,000 pounds of explosives and the recovery of over
12,000 pounds.
ATF'S ROLE IN COMBATING TERRORISM
As with all law enforcement agencies in the United
States today, ATF faces an unprecedented challenge. Our
world in 2002 is very different than it was a year ago.
The magnitude and effect of the attacks of September 11
cannot be measured, but we are committed to doing
everything in our power to ensure the safety of all
Americans from future attacks.
In response, ATF has aligned its priorities to the
current priorities of the President and the Nation--antiterrorism. ATF is charged with the responsibility of
preventing terrorists from acquiring firearms and
explosives. ATF's statutory mandates and unparalleled
investigative expertise place us in the forefront of this
National effort.
6
Before and since September 11, ATF has been an active
partner with other Federal, State and local law enforcement
agencies in combating terrorism.
From illegal arms smuggling cases, to virtually every
major bombing such as the 1993 World Trade Center bombing,
the Oklahoma City Federal building bombing, and the Atlanta
Olympics Centennial Park Bombing, ATF has played a
significant role, lending its unique expertise to these
investigations.
ATF's role in investigating the illegal use of
firearms and explosives dates back to 1934, with the
enactment of the National Firearms Act. Under this law,
the Secretary of the Treasury was directed to impose
controls on machine guns, short-barreled weapons, other
dangerous weapons, and "destructive devices." The term
"destructive device" includes bombs, grenades, and mines.
This authority was delegated to ATF's predecessor bureau
within the Internal Revenue Service.
Subsequently, the
Organized Crime Control Act of 1970, under 18 U.S.C.
Section 846, gave the Secretary of the Treasury
investigative jurisdiction with respect to Federal
explosives laws, also delegated to ATF.
ATF RESOURCES IN COMBATTING TERRORISM
ATF employs a wide array of resources in the
investigation of explosives incidents.
ATF is addressing violent arson and explosives-related
crimes through enforcement and training. ATF's arson and
explosives programs provide a comprehensive proactive and
reactive force in the fight to protect the American public
from the criminal use of fire and explosives.
Through
these programs, ATF personnel work to prevent criminal and
terrorist activity involving explosives at nearly every
level of the regulatory and investigative process. ATF's
focus on arson and explosives crimes continues to be a
major Bureau priority.
Explosives Enforcement
7
In FY 01, ATF submitted 220 explosives cases for
prosecution, of which 303 defendants were recommended for
prosecution.
Highlighted below are examples of ATF expertise and
resources brought to bear in support of explosives
investigations.
Our National Response Teams (NRTs) are comprised of
highly trained and well-equipped professionals that can be
deployed within 24 hours to major explosion and fire scenes
anywhere in the United States.
The teams are comprised of
ATF's most experienced fire and explosives investigators
and supported by state-of-the art forensic laboratory
equipment, chemists, accelerant or explosives-detecting
canines, and intelligence resources.
There have been 521
activations of the NRTs since 1978, the year of their
inception.
The NRTs were activated 26 times in FY 01 to
investigate major fire and explosives incidents.
These 26
activations involved 194 deaths, 24 injuries, and nearly
$35.8 million in estimated property damages. An ATF NRT
responded to the September 11, attack on the Pentagon as
well. As of May 3, 2002, there have been 19 NRT
activations.
In addition to investigating fire and explosives
incidents, the NRTs provide assistance to other Federal,
State, and local law enforcement agencies during special
events.
In fiscal years 2001 and 2002, the NRT provided
support at the Special Olympics in Anchorage, the Asian
Bank Conference in Honolulu, the Presidential Inauguration,
and most recently,
the Winter Olympics in Salt Lake City.
ATF's International Response Team (IRT) participates
with the Diplomatic Security Service of the Department of
State to provide investigative assistance at international
explosives and fire incidents.
There have been 21 IRT
activations since its inception in 1991. The team has
responded to vehicle bombings in Peru and Macedonia,
explosions in Argentina targeting the Israeli EmbassYr and
incidents in El Salvador, Ecuador r Surinam r Pakistan,
Grenada, and Korea.
In 2001 r the IRT was activated three
times to assist foreign governments in explosives
investigations and fire scene examinations.
8
Also participating in many of these incidents were
ATF/s Explosives Enforcement Officers (EEOs).
EEOs conduct
explosives operations in support of ATF investigative
efforts.
They conduct render-safe procedures of improvised
explosive devices/ perform underwater explosives
recoveries/ make destructive device determinations and
testify about these determinations in court/ as well as
participate in foreign country explosives capability
assessments.
These EEOs operate the "ARTS-V/II the only
fully functional remote transport vehicle-bomb disruption
system designed to disrupt/ at a safe distance/ car and
truck bombs too large to defeat by traditional methods.
In
FY 01/ ATF EEOs traveled with the Department of State/s
Antiterrorism Assistance Team to assess the capabilities of
10 foreign countries to respond to terrorist or explosives
incidents.
In addition/ the EEOs participated in each
National and International Response Team callout/ testified
in criminal proceedings 24 times/ rendered 237 technical
assists, wrote 389 technical statements, and performed many
other tasks in support of ATF/s explosives mission.
ATF also relies on our Special Agent Certified
Explosives Specialists (SACES) in combating terrorism and
violent crime.
Our SACES are trained to identify explosive
devices. Additionally/ they provide explosives technical
support and assistance in explosives-related matters in the
field/ and are trained to assess destructive devices.
The ATF laboratories support investigations by
offering scientific forensic services in the areas of
alcohol/ tobacco/ arson/ explosives/ trace evidence,
questioned documents/ fingerprints, firearms, toolmarks,
and automated ballistic identification (NIBIN)
ATF has forensic laboratories in Atlanta, San
Francisco, and the Washington, DC, metro area. A new Fire
Research Center under construction in the Washington, DC,
metro area is scheduled for completion in March of 2003.
ATF's laboratory service is composed of over 130 chemists,
forensic examiners, and support personnel. ATF
laboratories, the first Federal accredited laboratories,
are the only Federal accredited explosives laboratories in
the United States, accredited by the American Society of
Crime Laboratory Directors.
9
ATF has more personnel trained and experienced in
examining fire and explosives evidence than any other
laboratory in the United States. Over 70 chemists and
forensic examiners are available to provide support from
their respective laboratory sites.
The personnel from these laboratories assist in the
collection of evidence at fire and explosives scenes and
examine it to identify accelerants, incendiary devices
components, and destructive device components.
Evidence
collected at the site of an explosion is examined to
identify the explosives used and to identify blasting caps,
leg wires, fuses, timing mechanisms, energy sources,
igniters, tape, and other components used to construct the
device.
The ATF laboratories house the only complete
library of smokeless powder samples in existence.
In 1996, Congress, recognizing ATF's expertise in the
investigation of fire/arson and explosives-related
incidents, passed legislation authorizing the Secretary of
the Treasury to establish a National Repository for
information regarding arson incidents and the actual and
suspected criminal misuse of explosives throughout the
United States.
The Arson and Explosives National Repository Branch
(AENRB) maintains a state-of-the-art database that contains
detailed information on over 112,000 arson and explosives
incidents.
This database, the Arson and Explosives
Incidents System (AEXIS), is used to trace stolen and
recovered explosive material and military ordnance.
In
addition to providing vital investigative services to law
enforcement personnel worldwide, the AENRB uses information
from AEXIS to provide threat assessment support to Federal
agencies and major event security task forces.
The AENRB
contains data on not only arson and explosives incidents,
but destructive devices and their components, and
information on the criminal use of explosives.
This
database is an investigative tool that can be queried and
analyzed to provide information on trends in criminal use
of explosives, similarities between different explosive
devices, and other investigative leads.
In spring 2001, the AENRB embarked on a focused
program to connect the Nation's fire and explosion
10
investigators to the latest in information communications
and management technology.
The project, known as the Bomb Arson Tracking System
(BATS), is designed to facilitate and promote the
collection and dissemination of fire, arson, and explosives
information among participating agencies. As presently
envisioned, participating law enforcement agencies and
members with established National Crime Information Center
(NCIC) access will be able to access BATS via desktop
computer and Internet.
Once connected to the ATF-secured
and maintained extranet server, participants will be able
to enter information, query information (both locally and
across agencies), and produce relevant reports.
The AENRB coordinates explosives intelligence
internationally with 12 Bomb Data Centers throughout the
world and is involved in planning and coordinating the
establishment of Explosive Repository Centers in Mexico and
Colombia.
In FY 01, AENRB personnel provided presentations
on the Repository's capabilities to 2,158 representatives
of Federal, State, local, and foreign law enforcement or
explosives industry representatives.
Explosives Training
ATF continues to vigorously enforce the Federal
explosives and arson law by providing state-of-the-art
training and expertise to Federal, State, local, and
foreign law enforcement partners. This training is
instrumental in preparing our law enforcement partners for
the fight against terrorists who use explosives.
ATF's Office of Training and Professional Development
(TPD) provides the highest level of training available
anywhere on the investigation of explosives and firearmsrelated incidents. ATF courses related to counterterrorism include the Advanced Explosives Investigative
Techniques, International Firearms and Explosives
Identification, the Seminar on Terrorism and Explosives
(SEMTEX), and the Post-blast Investigation Course, for
foreign, Federal, State, and local law enforcement
students.
11
ATF has trained hundreds of law enforcement officers
from the United States and abroad in the techniques of
conducting explosives-related investigations.
This type of training is ongoing and the
international courses are funded through cooperative
agreements with the State Department Anti-Terrorism
Assistance Program and International Narcotics and Law
Enforcement Affairs.
For the past several years, to protect the Nation's
largest airports, the Federal Aviation Administration (FAA)
and ATF have joined together to conduct SEMTEX and field
training exercises that better prepare and train aviation,
security, and law enforcement personnel in explosives
countermeasure techniques.
In FY 01, ATF trained 312 FAA
personnel. ATF and FAA are currently updating this
curriculum in light of September 11.
In FY 02, 300
additional personnel are expected to be trained.
During FY 02, ATF, in conjunction with the U.S.
Department of Education, is developing a CD-ROM training
platform titled, "Bomb Threat Management and Response."
This training CD-ROM will provide a standardized bomb
threat management and response template that can be used by
school administrators to develop a customized response
program for their schools. This CD-ROM will be completed
in the summer of 2002 and distributed to all school
districts, local law enforcement offices, and ATF offices.
It is anticipated that ATF field personnel will be called
upon by the school districts to help establish and
implement these management and response plans.
Additionally, ATF developed a course for bomb
technicians on the safe destruction and disposal of
explosive materials.
The Advanced Explosives Destruction
Techniques (AEDT) course was developed in response to the
fact that far more injuries and deaths of bomb technicians
occur during disposal operations than during render-safe
operations.
Over the course of a year and a half, ATF
worked with many State and local bomb technicians, along
with representatives from the Environmental Protection
Agency, the Department of Transportation, the Consumer
Product Safety Commission, and others to develop the
course.
Together, we developed a course that covers the
12
safety, legal, logistical, operational, and health facets
of explosives disposal/destruction operations.
Explosive Detection Canines
ATF-certified accelerant and explosives detection
handler/canine teams support ATF's fire and explosives
investigations.
In FY 01, ATF's six special agent/canine
teams searched 10,356 vehicles, buildings, or items during
the execution of Federal, State, or local search warrants,
or in conjunction with searches or sweeps during ATF or
Federal security details.
Our canines supported preventive
security efforts at such diverse events as the response to
the September 11 attack on the Pentagon, the Special
Olympics, the 2001 and 2002 Superbowl, the 2002 Winter
Olympics, and many others.
The ATF Canine Training Center in Front Royal,
Virginia, trains explosives and accelerant detection
canines.
In a training arrangement with the U.S.
Department of State, ATF trains explosives detection
canines for foreign countries to be used in the war against
terrorism and to protect American travelers abroad. ATF
has also trained and certified 310 explosives-detection
canine teams for deployment in 13 countries around the
world. Additionally, ATF has trained 47 explosives
detection canine teams for other Federal, State, and local
agencies, including the Federal Bureau of Investigation,
the Central Intelligence Agency, and the Internal Revenue
Service. With the funding provided in the FY 02 AntiTerrorism Supplemental Appropriations Act we will be
expanding the canine training center to meet the increasing
demand for these resources.
Since the start of the
program, ATF has also trained and certified 94 accelerantdetection canines for State and local agencies.
Explosives Study Group
ATF's Explosives Study Group (ESG) is examining: 1)
the feasibility of tagging explosive materials for purposes
of detection and identification; 2) possibilities for
rendering inert common chemicals used to manufacture
explosive materials; 3) imposing controls on certain
precursor chemicals used to manufacture explosives; 4)State
licensing requirements for the purchase and use of
13
commercial high explosives; and 5) the possible use of new
prevention (explosives detection) technologies, as directed
by section 732 of the Antiterrorism and Effective Death
Penalty Act of 1996, as amended by the Omnibus Consolidated
Appropriations Act for FY 97. A report on these findings
is in the final stages of review.
The ESG has also compiled a comprehensive list of State
licensing requirements for the purchase and use of
commercial high explosives, and is currently consulting
with State regulators and industry members to develop
recommendations for consideration by Congress that would
advance public safety.
The ESG has worked with The Fertilizer Institute (TFI) to
expand the "Be Aware for America" program to address areas
of vulnerability for distributors of ammonium nitrate
fertilizer and agricultural chemicals. This expansion, the
"Be Secure for America" program, is aimed at ensuring the
security of the transportation, storage, and manufacturing
of agricultural chemicals.
Additionally, ATF is conducting promising research at the
Oak Ridge National Laboratory, including prototype
development, engineering, and training on advanced sensing
technologies for explosives detection.
The objective is
the development of a portable explosives detector that will
function with a short, real-time response rate for trace
amounts of explosives.
The ESG has continued to communicate and work with other
Federal agencies such as the FAA, the Customs Service, the
Department of Justice, and the Department of Energy. The
goal is to achieve a coordinated effort to identify and
direct resources toward the most promising technologies for
both the detection of additives and the detection of
explosive materials.
Dipole Might
ATF, the Army Corps of Engineers, and the Defense Special
Weapons Agency have been jointly conducting a multi-year
research project called Dipole Might to create a database
of information and a protocol for investigating large-scale
vehicle bombs.
This project analyzes blast effects of
large vehicle bombs to allow for a more effective
deployment of investigative resources and quicker analysis
14
of recovered evidence following bombing events such as the
World Trade Center, the Oklahoma City bombing, and the U.S.
embassies in Kenya and Tanzania. Dipole Might is funded by
the National Security Council.
Partnerships
ATF continues its tradition of partnering with other
Federal, State, and local agencies on developing protocols
and partnerships to efficiently utilize our resources in
the fight against terrorism and violent crime.
Some of the
agencies we have partnered with include the Central
Intelligence Agency, the Department of State, the Customs
Service, the Secret Service, the National Transportation
Safety Board, the Department of Justice, Federal Bureau of
Investigation, the United States Department of Agriculture,
the Chemical Safety and Hazard Investigation Board, and the
new Transportation Security Administration.
Additionally, ATF has worked to establish a rapport with
industry organizations such as the International Society of
Explosives Engineers, the Institute of Makers of
Explosives, the American Pyrotechnics Association, and the
National Shooting Sports Foundation.
ATF's criminal investigative analysts (Profilers) assigned
to the FBI's National Center for the Analysis of Violent
Crime (NCAVC), spent two years conducting research and
interviewing 38 imprisoned bombing offenders.
In June
2001, they published the findings of their joint study with
the NCAVC.
The study, "Behavior and Characteristics of
Bomb Related Offenders," will serve as a catalyst for
further research into understanding the motivations and
characteristics of subjects who use explosives for criminal
intent.
Our profilers are also assisting in our Nation's war on
terrorism, and they are working with their FBI counterparts
to conduct ongoing threat assessments, such as that for the
G-8 Summit in Canada.
CONCLUSION
In summary, let me once again express my appreciation for
the opportunity to appear before the Committee.
It has
15
been a privilege to provide you with background on ATF's
explosives resources and programs, as well as this
legislative package which we believe will greatly enhance
our Nation's safety and homeland security.
I would be
happy to answer any questions you may have.
D E P .\ R T :\ I E ~ T
0 F
THE
T REA S II I{ Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W• • WASIDNGTON, D.C.• 20220. (202) 622-2960
For Immediate Release
Wednesday, June 12,2002
Contact: Tara Bradshaw
(202) 622-2960
Statement of Secretary Paul O'Neill Urging Senate Passage of the Gramm-Kyl Amendment
to Permanently Repeal the Death Tax
America's prosperity comes from the millions of individuals who spend their time, their
energy and their resources pursuing ideas, setting up new businesses and creating value. Last
year, the Congress phased out the death tax, recognizing that innovative entrepreneurs deserve to
pass their life's work to their children, not to the government.
Unfortunately, the death tax repeal enacted last year expires in 2011, after which
Washington will step in once again to take part of the legacy created by the individuals who are
the backbone of our economy. And because the death tax reappears, too many small business
owners today are forced to spend money on estate planning that could instead be invested in jobcreating business expansions.
I urge the Senate today to repeal the death tax once and for all, so that today's small
business owners can pass their legacies to their families and thriving enterprises can continue 10
employ American workers and create prosperity.
-30PO-3171
Far press releases, speeches, public schedules and official biographies, call our 24-hoor fax line at (202) 622-2040
D E P .\ R T \1 E ~ T
0 F
THE
T REA S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
Embargoed Until Delivery
Thursday June 13,2002
Contact: Tara Bradshaw
202-622-2014
TESTIMONY OF
BARBARA ANGUS, INTERNATIONAL TAX COUNSEL,
UNITED STATES DEPARTMENT OF THE TREASURY
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON SELECT REVENUE MEASURES
ON INTERNATIONAL TAX POLICY AND COMPETITIVENESS
Mr. Chairman, Congressman McNulty, and distinguished Members of the Subcommittee,
I appreciate the opportunity to appear today at this hearing focusing on international tax policy
and competitiveness issues. The issues that the Subcommittee has explored in this series of
hearings on the recent WTO decision regarding the U.S. extraterritorial income exclusion
provisions are critically important as we work toward meaningful changes in our tax rules that
will protect the competitive position of American businesses and workers and honor our WTO
obligations.
Introduction
The pace of technological advancement around the world is awe inspiring. Computer
processing abilities are expanding at exponential rates, roughly doubling every year or two.
Innovations in pharmaceuticals and biotechnology are providing breakthroughs in treating
disease, permitting dramatic improvements in the quality of life. Today, the keys to production
in even basic commodity industries like oil, paper, and steel are found in better knowledge and
innovation: the ability to produce more with less waste.
The concern facing this Subcommittee today is that our tax code has not kept pace with
the changes in our real economy. International tax policy remains rooted in tax principles
developed in the 1950s and 1960s. That was a time when America's foreign direct investment
was preeminent abroad and competition from imports to the United States was scant. Today, we
have a truly global economy, in terms of both trade and investment. The value of goods traded
to and from the United States increased more than three times faster than GDP between 1960 and
2000, rising to more than 20 percent of GDP. The flow of cross-border investment, both inflows
and outflows, rose from a scant 1.1 percent of GDP in 1960 to 15.9 percent of GDP in 2000.
The globalization of the world economy has provided tremendous benefits to consumers
and workers. Those who can build a better mousetrap now can sell it to the world.
PO-3i72
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®
The potential for a world market encourages companies to invest in research that leads to
continuous innovation. At one time, the strength of America's economy was thought to be tied
to its abundant natural resources. Today, America's strength is its ability to innovate: to create
new technologies and to react faster and smarter to the commercialization of these technologies.
America's preeminent resource today is its knowledge base.
A feature of a knowledge-driven economy is that unlike physical capital, technological
know-how can be applied across the world without reducing the productive capacity of the
United States. For example, computer software designed to enhance the efficiency of a
manufacturing process may require substantial investment, but once developed it can be
employed around the world without diminishing the benefits of the know-how within the United
States. Foreign direct investment by companies in a knowledge-driven economy provides
opportunities to export this know-how at low cost and incentives to undertake greater domestic
investment in developing these sources of competitive advantage.
There are many reasons to believe that the principles that guided tax policy adequately in
the past should be reconsidered in today's highly competitive, knowledge-driven economy. In
this regard, it is significant that the U.S. tax system differs in fundamental ways from those of
our major trading partners. In order to ensure the ability of U.S. workers to achieve higher living
standards, we must ensure that the U.S. tax law does not operate to hinder the ability ofthe U.S.
businesses that employ those workers to compete on a global scale.
Competitiveness and U.S. Tax Policy
There are several different ways in which tax policy can affect the ability of firms to
compete. It may be helpful to consider the ways in which commercial operations based in
different countries compete in the global marketplace.
Competition may be among:
•
•
•
•
•
U.S.-managed firms that produce within the United States;
U.S.-managed firms that produce abroad;
Foreign-managed firms that produce within the United States;
Foreign-managed firms that produce abroad within the foreign country in which they are
headquartered; and
Foreign-managed firms that produce abroad within a foreign country different from the
one in which they are headquartered.
These entities may be simultaneously competing for sales within the United States, within a
foreign country against local foreign production (either U.S., local, or other foreign managed), or
within a foreign country against non-local production. Globalization requires that U.S.
companies be competitive both in foreign markets and at home.
Other elements of competition among firms exist at the investor level: U.S.-managed firms
may have foreign investors and foreign-managed firms may have U.S. investors.
2
Portfolio investment accounts for approximately two-thirds of U.S. investment abroad and a
similar fraction of foreign investment in the United States. Firms compete in global capital
markets as well as global consumer markets.
In a world without taxes, competition among these different firms and different markets
would be determined by production costs. In a world with taxes, however, where countries make
different determinations with respect to tax rates and tax bases, these competitive decisions
inevitably are affected by taxes. Assuming other countries make sovereign decisions on how to
establish their own tax systems and tax rates, it simply is not possible for the United States to
establish a tax system that restores the same competitive decisions that would have existed in a
world without taxes.
The United States can, for example, attempt to equalize the taxation of income earned by
U.S. companies from their U.S. exports to that of U.S. companies producing abroad for the same
foreign market. However, in equalizing this tax burden, it may be the case that the U.S. tax
imposed results in neither type of U.S. company being competitive against a foreign-based
multinational producing for sale in this foreign market.
The manner in which balance is achieved among these competitive concerns changes over
time as circumstances change. For example, as foreign multinatiomils have increased in their
worldwide position, the likelihood of a U.S. multinational company competing against a foreign
multinational in a foreign market has increased relative to the likelihood of U.S. export sales
competing against sales from a U.S. multinational producing abroad. The desire to restore
competitive decisions to those that would occur in the absence of taxation therefore may place
greater weight today on U.S. taxes not impeding the competitive position of U.S. multinationals
vis-a-vis foreign multinationals in the global marketplace. Similarly, while at one time U.S.
foreign production may have been thought to be largely substitutable with U.S. domestic
production for export, today it is understood that foreign production may provide the opportunity
for the export of firm-specific know-how and domestic exports may be enhanced by the
establishment of foreign production facilities through supply linkages and service arrangements.
Given the significance today of competitiveness concerns, it is important to understand the
major features of the U.S. tax system and how they differ from those of our major trading
partners. The primary features of the U.S. tax system considered here are: (i) the taxation of
worldwide income; (ii) the current taxation of certain types of active foreign-source income; (iii)
the limitations placed on the use of foreign tax credits; and (iv) the unintegrated taxation of
corporate income at both the entity level and the individual level.
Taxation of Worldwide Income
The United States, like about half of the OEeD countries, including the United Kingdom
and Japan, operates a worldwide system of income taxation. Under this worldwide approach,
U.S. citizens and residents, including U.S. corporations, are taxed on all their income, regardless
of where it is earned.
3
Income earned from foreign sources potentially is subj ect to taxation both by the
country where the income is earned, the country of source, and by the United States, the country
of residence. To provide relief from this potential double taxation, the United States allows
taxpayers a foreign tax credit that reduces the U.S. tax on foreign-source income by the amount
of foreign income and withholding taxes paid on such income. As discussed below, detailed
rules apply to limit the foreign tax credit. A U.S. corporation generally is subject to U.S. tax on
the active earnings of a foreign subsidiary if and when such income is repatriated as a dividend.
However, the U.S. parent is subject to current U.S. tax on certain income earned by a foreign
subsidiary, without regard to whether that income is distributed to the U.S. parent. As discussed
further below, while these current taxation rules are focused on passive, investment-type income
earned by a foreign subsidiary, their reach extends to active business income in certain cases.
The U.S. worldwide system of taxation is in contrast to the territorial tax systems
operated by the other half of the OECD countries, including Canada, Germany, France, and the
Netherlands. Under these territorial tax systems, domestic residents and corporations generally
are subject to tax only on their income from domestic sources. A domestic business is not
subject to domestic taxation on the active income earned abroad by a foreign branch or on
dividends paid from active income earned by a foreign subsidiary. A domestic corporation
generally is subject to tax on other investment-type income, such as royalties, rent, interest, and
portfolio dividends, without regard to where such income is earned; because this passive income
is taxed on a worldwide basis, relief from double taxation generally is provided through either a
foreign tax credit or a deduction allowed for foreign taxes imposed on such income. This type of
territorial tax system sometimes is referred to as a "dividend exemption" system because active
foreign business income repatriated in the form of a dividend is exempt from taxation. By
contrast, a pure territorial system would provide an exemption for all income received from
foreign sources, including passive income such as royalties, rent, interest, and portfolio
dividends. Such pure territorial systems have existed only in a few developing countries.
Differences between a worldwide tax system and a territorial system can affect the ability
of U.S.-based multinationals to compete for sales in foreign markets against foreign-based
multinationals. Under a worldwide tax system, repatriated foreign income is taxed at the higher
of the source country rate or the residence country rate. In contrast, foreign income under a
territorial tax system is subject to tax at the source country rate.
Consider a U.S.-based company and a foreign-based company established in a country
with a territorial tax system. Each company is considering investment in a new foreign
subsidiary to establish a manufacturing operation for the local foreign market. The effect of the
worldwide system on this form of competition depends on the relationship of the foreign rate of
tax on corporate income to that of the United States.
Let us first assume that the effective tax rate on corporate income of this foreign country
is lower than the effective U.S.-tax rate on corporate income (because the foreign country has a
lower statutory rate on corporate income or because it has investment incentives such as
accelerated depreciation). If the foreign subsidiary ofthe U.S.-based company repatriates on a
current basis its economic profits to its U.S. parent, it will effectively be subject to the higher
U.S. tax rate on its income.
4
The foreign subsidiary of the company established in the territorial country, however,
will be subject to the lower foreign rate of tax. If the U.S. company cannot garner sufficient
efficiency advantages relative to its foreign competitor, it will be unable to compete since it must
sell its product in this market at prices competitive with that of its foreign competition.
An alternative outcome results if the foreign country in which the foreign investment is being
considered has a higher effective corporate tax rate than the United States. In this case, the U.S.
parent is not disadvantaged relative to the company established in a country with a territorial tax
system. Income earned by the U.S.-owned foreign subsidiary will be subject to tax at only the
source country tax rate, the same result as under a territorial system.
The foregoing examples assumed that the U.S. parent company had no other foreignsource income. The presence of other foreign-source income can affect the rate of tax paid on
additional foreign-source income under U.S. tax rules because credits for taxes paid to one
foreign country can effectively be pooled with credits for taxes paid to another foreign country.
Consider for example the case of a U.S. parent that has other foreign-source income that
is taxed at foreign rates higher than the U.S. tax rate. In this case, the U.S. parent will have
excess foreign tax credits before considering its decision to invest in a new foreign subsidiary. If
the U.S. parent is considering establishing its new foreign subsidiary in a country with a tax rate
lower than the U.S. rate, these excess credits generally may be used to offset the additional U.S.
tax that would be levied on the income of this new investment. The presence of excess foreign
tax credits thus reduces the tax burden imposed by the United States on income from the new
lower-taxed foreign location. As a result, a U.S. parent in this position will be relatively less
disadvantaged by the U.S. tax system. If it has sufficient excess foreign tax credits, the U.S.
parent can offset all of its U.S. corporate tax on the income from the new investment and its tax
burden will be just the taxes paid in the foreign country -- the same result as under a territorial
system.
A different competitive result occurs when the U.S. parent has other foreign-source
income that is taxed at foreign rates lower than the U.S. tax rate. In such a case the U.S. tax rate
is the effective tax rate on such foreign income. If the U.S. parent is now considering
establishing its new foreign subsidiary in a country with a tax rate higher than the U.S. rate, the
income earned from this new investment will generate excess foreign tax credits that can offset
the additional U.S. tax paid on its preexisting foreign-source income. As a result, in this case the
U.S. parent receives a tax advantage from making the new investment in the high-tax country
relative to the treatment of such investment under a territorial system.
These examples illustrate that the use by the United States of a worldwide tax system
may disadvantage the competitiveness of U.S. foreign direct investment in countries with
effective corporate tax rates below those of the United States. The use of a worldwide tax
system does not disadvantage investment in countries with effective corporate tax rates above
those of the United States, and in some instances may actually result in more favorable treatment
for incremental U.S. investment relative to investment from companies headquartered in
territorial countries. Of course, these results are based just on the distinction between a territorial
and worldwide tax system, and ignore other key features of the U.S. tax system.
5
The complexities present in taxing income generally are heightened in determining the
taxation of income from multinational activities, where in addition to measuring the income one
must determine its source (foreign or domestic). This complexity affects both tax administrators
and taxpayers. Indeed, the U.S. international tax rules have been identified as one of the largest
sources of complexity facing u.s. corporate taxpayers.
The distinction in the treatment under a territorial tax system of foreign-source income
relative to domestic-source income puts particular pressure on the determination of the source of
items of income and expense. While classification of income as foreign source is important
under a worldwide tax system because it determines availability of foreign tax credits, in a
territorial system classification as foreign-source income gives rise to an exemption from tax.
Similarly, under a territorial tax system, expenses allocable to foreign-source income would not
be deductible for tax purposes while expenses so allocated in a worldwide tax system would
reduce the availability of foreign tax credits.
Under most territorial systems, certain investment-type income is subject to tax without
regard to where that income is earned. This raises the further issue of classification of income as
subject to tax under this exception from the generally applicable territorial principles. Moreover,
to the extent that this income is eligible for a foreign tax credit, the computational steps that are
required to determine the amount of foreign-source income for purposes of applying foreign tax
credit rules in a worldwide tax system would be built into the territorial system as well.
Given the complexity of the task of taxing multinational income under a worldwide or
territorial system on top of the general complexity of the income tax system, some consideration
might be given to alternative tax bases other than income. Other OECD countries typically rely
on taxes on goods and services, such as under a value added tax, for a substantial share of tax
revenues. In the European OEeD countries, for example, these taxes raise nearly five times the
amount of revenue as does the U.S. corporate income tax as a share ofGDP.
Differences in Worldwide Tax Systems
As described above, about half of the OECD countries employ a worldwide tax system as
does the United States. However, even limiting comparison of competition among multinational
companies established in countries using a worldwide tax system, U.S. multinationals may be
disadvantaged when competing abroad. This is because the United States employs a worldwide
tax system that, unlike other worldwide systems, may tax active forms of business income earned
abroad before it has been repatriated and may more strictly limit the use of the foreign tax credits
that prevent double taxation of income earned abroad.
Limitations on Deferral
Under the U.S. international tax rules, income earned abroad by a foreign subsidiary
generally is subject to U.S. tax at the U.S. parent corporation level only when such income is
distributed by the foreign subsidiary to the U.S. parent in the form of a dividend.
6
An exception to this general rule is provided with the rules of subpart F of the Code,
under which a U.S. parent is subject to current U.S. tax on certain income of its foreign
subsidiaries, without regard to whether that income is actually distributed to the U.S. parent. The
focus of the subpart F rules is on passive, investment-type income that is earned abroad through
a foreign subsidiary. However, the reach of the subpart F rules extends well beyond passive
income to encompass some forms of income from active foreign business operations. No other
country has rules for the immediate taxation of foreign-source income that are comparable to the
U.S. rules in terms of breadth and complexity.
Several categories of active business income are covered by the subpart F rules. Under
subpart F, a U.S. parent company is subject to current U.S. tax on income earned by a foreign
subsidiary from certain sales transactions. Accordingly, a U.S. company that uses a centralized
foreign distribution company to handle sales of its products in foreign markets is subject to
current U.S. tax on the income earned abroad by that foreign distribution subsidiary. In contrast,
a local competitor making sales in that market is subject only to the tax imposed by that country.
Moreover, a foreign competitor that similarly uses a centralized distribution company to make
sales into the same markets also generally will be subject only to the tax imposed by the local
country. While this subpart F rule may operate in part as a "backstop" to the transfer pricing
rules that require arms' length prices for intercompany sales, this rule has the effect of imposing
current U.S. tax on income from active marketing operations abroad. U.S. companies that
centralize their foreign distribution facilities therefore face a tax penalty not imposed on their
foreign competitors.
The subpart F rules also impose current U.S. taxation on income from certain services
transactions performed abroad. In addition, a U.S. company with a foreign subsidiary engaged in
shipping activities or in certain oil-related activities, such as transportation of oil from the source
to the consumer, will be subject to current U.S. tax on the income earned abroad from such
activities. In contrast, a foreign competitor engaged in the same activities generally will not be
subject to current home-country tax on its income from these activities. While the purpose of
these rules is to differentiate passive or mobile income from active business income, they operate
to subject to current tax some classes of income arising from active business operations
structured and located in a particular country for business reasons wholly unrelated to tax
considerations.
Limitations on Foreign Tax Credits
Under the worldwide system of taxation, income earned abroad potentially is subject to
tax in two countries - the taxpayer's country of residence and the country where the income was
earned. Relief from this potential double taxation is provided through the mechanism of a
foreign tax credit, under which the tax that otherwise would be imposed by the country of
residence may be offset by tax imposed by the source country. The United States allows U.S.
taxpayers a foreign tax credit for taxes paid on income earned outside the United States.
7
The foreign tax credit may be used only to offset U.S. tax on foreign-source income and
not to offset U.S. tax on U.S.-source income. The rules for determining and applying this
limitation are detailed and complex and can have the effect of subjecting U.S.-based companies
to double taxation on their income earned abroad. The current U.S. foreign tax credit regime
also requires that the rules be applied separately to separate categories or "baskets" of income.
Foreign taxes paid with respect to income in a particular category may be used only to offset the
U.S. tax on income from that same category. Computations of foreign and domestic source
income, allocable expenses, and foreign taxes paid must be made separately for each ofthese
separate foreign tax credit baskets, further adding to the complexity of the system.
The application of the foreign tax credit limitation to ensure that foreign taxes paid offset
only the U.S. tax on foreign-source income requires a determination of net foreign-source
income for U.S. tax purposes. For this purpose, foreign-source income is reduced by U.S.
expenses that are allocated to such income. Under the current rules, interest expense of a U.S.
affiliated group is allocated between U.S. and foreign-source income based on the group's total
U.S. and foreign assets. The stock of foreign subsidiaries is taken into account for this purpose
as a foreign asset (without regard to the debt and interest expense of the foreign subsidiary).
These rules thus treat interest expense of a U.S. parent as relating to its foreign subsidiaries even
where those subsidiaries are equally or more leveraged than the U.S. parent. This overallocation of interest expense to foreign income inappropriately reduces the foreign tax credit
limitation because it understates foreign income. The effect can be to subject U.S. companies to
double taxation. Other countries do not have expense allocation rules that are nearly as extensive
as ours.
Under the current U.S. rules, if a U.S. company has an overall foreign loss in a particular
taxable year, that loss reduces the company's total income and therefore reduces its U.S. tax
liability for the year. Special overall foreign loss rules apply to recharacterize foreign-source
income earned in subsequent years as U.S.-source income until the entire overall foreign loss
from the prior year is recaptured. This recharacterization has the effect oflimiting the U.S.
company's ability to claim foreign tax credits in those subsequent years. No comparable
recharacterization rules apply in the case of an overall domestic loss. However, a net loss in the
United States would offset income earned from foreign operations, income on which foreign
taxes have been paid. The net U.S. loss thus would reduce the U.S. company's ability to claim
foreign tax credits for those foreign taxes paid. This gives rise to the potential for double
taxation when the U.S. company's business cycle for its U.S. operations does not match the
business cycle for its foreign operations.
These rules can have the effect of denying U.S.-based companies the full ability to credit
foreign taxes paid on income earned abroad against the U.S. tax liability with respect to that
income and therefore can result in the imposition of the double taxation that the foreign tax credit
rules are intended to eliminate.
8
U.S. Corporate Taxation
While concern about the effects of the U.S. tax system on international competitiveness
may focus on the tax treatment of foreign-source income, competitiveness issues arise in very
much the same way in terms of the general manner in which corporate income is subject to tax in
the United States.
One aspect of the U.S. tax system is that the income from an equity-financed investment
in the corporate sector is taxed twice. Equity income, or profit, is taxed first under the corporate
income tax. Profit is taxed again under the individual income tax when received by the
shareholder as a dividend or as a capital gain on the appreciation of corporate shares. In contrast,
most other OECD countries offer some form of integration, under which corporate tax payments
are either partially or fully taken into consideration when assessing shareholder taxes on this
income, eliminating or reducing the double tax on corporate profits.
The non-integration of corporate and individual tax payments on corporate income
applies equally to domestically earned income or foreign-source income of a U.S. company.
This double tax increases the "hurdle" rate, or the minimum rate of return required on a
prospective investment. In order to yield a given after-tax return to an individual investor, the
pre-tax return must be sufficiently high to offset both the corporate level and individual level
taxes paid on this return .
. Whether competing at home against foreign imports. or competing abroad through exports
from the United States or through foreign production, the double tax makes it less likely that the
U.S. company can compete successfully against a foreign competitor.
An example may help to clarify matters. Suppose that a corporation earns $100 of pretax profit. Consider the tax burden imposed by the present U.S. tax system. On its $100 profit,
the corporation must pay corporate income tax of $35 assuming a 35 percent corporate tax rate,
leaving $65 to be distributed to shareholders or reinvested in the firm. If the money is distributed
as a dividend, shareholders also must pay tax under the individual income tax. If shareholders
are subject to an average tax rate of 20 percent, they pay tax of $13, leaving them $52 of aftertax income. In this example, the $100 profit is taxed twice - $35 in tax payments are collected
under the corporate income tax and an additional $13 are collected under the individual income
tax. In total, the tax system collects $48 in tax and so imposes a 48 percent "effective" tax rate
on corporate profits distributed as dividends.
Now consider how integration reduces the tax burden on income from corporate equity.
Full integration of the partnership type eliminates the corporate income tax and imputes the $100
of pre-tax profit directly to the shareholders, where it is taxed at the shareholders' 20 percent tax
rate under the individual income tax. Full integration reduces the total tax on $100 in profits
from $48 under present law to $20.
9
A simple form of partial integration is a dividend exclusion, which exempts dividends
from the shareholders' taxable income. A dividend exclusion reduces the total tax burden to
$35, entirely paid under the corporation income tax.
Because the unintegrated tax system results in a higher effective tax rate on income
earned in the corporate sector, it is more difficult for a given investment to achieve a desired
after-tax return (after both corporate and individual taxes are paid) than in an integrated tax
system. As a result, projects that could attract equity capital in an integrated tax system may not
be sufficiently profitable to attract equity capital in the present unintegrated system. In the
context of competitiveness, this may mean that a project that would otherwise be undertaken by a
U.S. company, either at home or abroad, is instead undertaken by a foreign competitor.
As noted above, most OEeD countries offer some form of tax relief for corporate profits.
This integration typically is provided by reducing personal income tax payments on corporate
distributions rather than by reducing corporate level tax payments. International comparisons of
corporate tax burdens, however, sometimes fail to account for differences in integration across
countries and consider only corporate level tax payments. To be meaningful, comparisons
between the total tax burden faced on corporate investments by U.S. companies and those of
foreign multinational companies must take into account the total tax burden on corporate profits
at both the corporate and individual levels.
* * * * *
Both the increase in foreign acquisitions of U.S. multinationals and the recent corporate
inversion activity are evidence that the potential competitive disadvantage created by our
international t3..,( rules is a serious issue with significant consequences for U.S. businesses and the
U.S. economy. The urgency of this issue is further heightened by the recent WTO decision
against our extraterritorial income exclusion provisions and the need to respond promptly to that
decision to come into compliance with the WTO rules.
A reexamination of the U.S. international tax rules is needed. It is appropriate to question
the fundamental assumptions underlying the current system. We should look to the experiences
of other countries and the choices that they have been made in designing their international tax
systems. Consideration should be given to fundamental reform of the U.S. international tax
rules. Consideration also should be given to significant reforms within the context of our current
system.
The many layers of rules in our current system arise in large measure because of the
difficulties inherent in satisfactorily defining and capturing income for tax purposes, particularly
in the case of activities and investments that cross jurisdictional boundaries. However, the
complexity of our tax law itself imposes a significant burden on U.S. companies. Therefore, we
also must work to simplify our international tax rules.
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EMBARGOED UNTIL 12:00 P.M. EDT
Thursday, June 13, 2002
Contact: Michele Davis
(202) 622-2920
Treasury Secretary Paul H. O'Neill
"Supporting American Small Business with Economic Freedom"
Remarks to the National Federation of Independent Business
Washington, DC
Thank you for your introduction, Jack (Ferris, President ofNFffi). Thank you for
inviting me to address the National Small Business Summit of the National Federation of
Independent Business. It's always a pleasure for me to talk to small business leaders, the
people who are on the ground, who are making things happen in the United States'
economy. Your organization reminds us that our economy is built not on the swirl of
activity in Washington, but rather on the hard work and creativity of entrepreneurs and
innovators. Prosperity is built one job at a time.
Some of you know that I just returned from a tour through Africa, traveling with
the rock star Bono. My kids think I'm "cool" now. But the trip was a lot more than cool.
The things I saw in Africa, both the human suffering and human triumphs, deeply
affected me. Among the most moving experiences were meetings with African
entrepreneurs, individuals who are changing their lives and their communities for the
better through their own hard work. I was reminded that small businesses and individual
enterprise are the key to economic growth and development not just here at home, but
around the world.
For example, in Uganda I met a woman named Lukia, a single mother, who
started a restaurant with a $50 micro-loan and now employs a dozen of her neighbors,
pays for school for her children, owns her home, and cares for babies orphaned by AIDS.
Lukia, like so many entrepreneurs around the globe, impressed me with her
courage and can-do spirit. But many more, not just in Africa but all around the
developing world, are prevented from realizing the same dreams. They are frustrated by
corruption, bad laws, and good laws that go un-enforced. In too many cases, they suffer
from leaders who steal rather than lead. They lack an environment with good governance
and economic freedom that would allow them to make real their ambitions for a better
life.
P0-3173
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Seeing what I saw there also makes me appreciate what we have in the United
States. In Africa, I met with Lukia and other successful entrepreneurs but their successes
are too rare, even as aspirations for success are universal.
In the United States, we enjoy the greatest economic freedom in the world.
Entrepreneurial success, while never easy, is an experience that millions share. Too often
we take that for granted. The bedrock of the American way of life, and the foundation of
our economy, is that any person with vision and courage can make his or her dream real.
Our laws, and our government, at their best, let people do just that. They let
business owners decide how to invest their money -- in hiring and training new
employees, or buying better equipment, or advancing research and development. It's not
a perfect system, but we're trying to make it better every day.
We are fortunate to have a President, George W. Bush, who understands that
private enterprise is the real source of American prosperity, and that economic freedom
isn't only a true and just principle -- it is also the best policy. He understands, and I
understand, that economic freedom is a principle that we have to fight for every day, to
keep America prosperous.
Thanks to your efforts making good use of your economic freedom, our economy
today is far ahead of where pessimists even six months ago thought it could be.
The underlying statistics are remarkably positive, and I believe we are on track to
reach a 3-3.5% growth rate by the end of this year. In fact, the slowdown that started in
2000 is now officially the only single-quarter recession since World War II. Total GDP
loss was 0.3%, compared to a 2.2% average drop for other recessions. Some credit for
the shallowness of the slowdown goes to President Bush for advancing tax reform last
summer at exactly the time our economy needed it most.
President Bush's first tax relief package, passed a year ago last week, has allowed
business owners to put more money into productive endeavors and new jobs, instead of
sending it to Washington. Over 30 million business owners who are taxed on their
business income at individual rates stand to benefit. Tax relief came at just the right time
for consumers, putting cash in their pockets right at the low point of the slowdown, last
summer and fall.
I am also pleased to say that with President Bush's direction, the Treasury
Department has altered the tax rules for service-oriented businesses with less than $10
million revenue, so that these organizations can use cash accounting rather than accrual
accounting methods. This allows you to spend more time on your business, and less
worrying about needless paperwork.
Government doesn't fix the economy, we just give you better tools to do what you
do best.
2
You all, with your ingenuity, turned the economy around quickly. In fact, small
businesses provide two-thirds to three-quarters of the net new jobs in America, represent
more than 99 percent of all employers, and generate more than 50 percent of America's
private sector output. You are the ones who make things happen in our economy.
And largely because of America's indomitable spirit, the fundamentals of our
economy continue to be strong. Housing and consumer demand remain strong, and auto
sales are ahead of industry expectations for the year, even coming off of all-time highs
late last year. And there are signs that business investment, a necessary ingredient in this
recovery, is picking up.
The Job Creation Act, passed this March, provides new incentives for investment
and job creation by allowing partial expensing of equipment. Now we are seeing that
declines in business investment in capital goods have been narrowing, and new orders for
capital goods have been increasing for the past several months.
For example, new orders for non-defense capital goods, excluding aircraft,
increased by 4% in April. Excess inventories have been largely eliminated and capacity
utilization is rising. As the latest NFffi survey indicates, deterioration in investment
demand seems to be ending.
In a welcome sign of strength last month, unemployment fell to 5.8%, and the
number of new jobs grew for the second month in a row. Nothing matters more to this
Administration than keeping Americans working. Most encouraging to me is the
ongoing boom in productivity growth. Non-farm labor productivity has risen 4.2% over
the past four quarters. The 8.4% annualized productivity growth last quarter -- the
strongest quarterly gain in almost 19 years -- has helped boost profit margins for
businesses. Higher productivity means America is working smarter -- creating more
value in the same amount of time. Higher productivity means that individual business
owners like you are taking advantage of your economic freedom to produce results. You
are putting new ideas to work, and putting people to work in the process.
I'm an optimist about our economy, but I'm no Pollyanna. The numbers are
telling a positive story these days, but that's not always the story people are telling each
other. Too many are still out of work, and we need to see more business investment to
maintain the recovery.
Clearly there is more we can do to add vitality to our recovery. First, the
President has called on Congress to make his tax refonn pennanent. The House has
voted to make the death tax repeal penn anent, and it will vote this week to make
marriage penalty relief pennanent. Unfortunately, yesterday the Senate voted down
permanent repeal of the death tax.
America's prosperity comes from the millions of individuals who spend their
time, their energy and their resources pursuing ideas, setting up new businesses and
creating value.
3
Innovative entrepreneurs deserve to pass their life's work to their children, not to
the government. NFIB has been a tireless advocate of this cause, and I want to thank you
for that.
We will continue to fight to ensure that you can pass on to your families the
results of your life's labor, and to ensure that your thriving enterprises can continue to
employ American workers and create prosperity.
And there's more to be done in the tax arena, especially in simplifying the tax
code. Taxpayers spend as much as $125 billion each year, or about 1% ofGDP, trying to
comply with the tax code, and small businesses suffer disproportionately. You taxes are
as complicated as a big company's, but you can't afford a whole tax department to take
care of them.
My dream is that we will succeed in simplifying the tax code, and make it worthy
of the principles of our nation. Then the tax lawyers and accountants will have to be
retrained, so they can work at something that adds value to our economy - start a new
business, maybe.
There is another disgrace in this country right now: the unethical behavior of a
few notorious company executives.
Small business owners know that, at the end of the day, they have to make good
on their obligations to suppliers, employees, investors and customers. It is your
reputation and your bank account on the line. You either make the sales and pay the
bills, or you go home hungry. There's no hiding from that truth.
But we've seen instances lately of executives who don't seem to have lived by the
same standard. I believe these cases are infrequent, but even a few bad cases can poison
confidence in our system, which depends on entrusting public company managers with
investors' capital. We will never be able to write rules that anticipate every possible
subterfuge. Nonetheless, we must take action to restore investor confidence in the
accuracy of public company information.
President Bush has proposed a ten-point plan for strengthening corporate
responsibility and renewing investor confidence in public companies, and I support it
strongly. Much of the plan can be implemented by the SEC, without congressional
action. Corporations themselves have taken corrective action, as boards get together and
members speak up demanding to know that their accounting standards are beyond
reproof. The Business Roundtable has recommended actions that all responsible
corporations should take to improve their disclosure practices and better assure the
independence of auditors. And the New York Stock Exchange has also put forward
recommendations to improve the information available to investors about companies
traded there. Some needed changes do require legislative action, and I look forward to
working with Congress to improve accountability and avoid hastily constructed reforms
that will have hannful unintended consequences.
4
In addition to calling on Congress to support further tax reforms, an end to the
death tax, and better rules for corporate governance, there are several other issues on the
table in Congress that need legislative action.
First, Congress should support the President's plan for creating the Department of
Homeland Security. No business person can invest for the future if the future is not
secure. No government function is more important than defending our Homeland. A
corollary is that Congress should pass federal terrorism risk insurance, which offers
financial protection for businesses against the risk of future terrorism. I'm pleased the
Senate is taking up this legislation today.
Businesses, especially those in development, cannot bear this risk alone, and
insurers cannot price it. As a result, inaction on terrorism risk insurance is starting to
impede economic growth.
Also, I want to thank the Senate for voting to support an increase to the debt limit
on Tuesday. Now House leaders must join the Senate in recognizing that the good credit
of the United States is essential for financing the war on terrorism, meeting the
government's obligation to Social Security recipients, supporting our men and women in
uniform and many other important functions. The House should vote to increase the debt
limit right away.
Congress must also complete work on Trade Promotion Authority, so the
President can negotiate to open more markets abroad to US goods and services. All of
you have a stake in that.
Ag~
I want to thank the National Federation of Independent Businesses for
inviting me to speak today. It is wonderful of you to take time away from running your
enterprises, creating value in America, to come to Washington. This Administration
respects and admires your good work. We do not take your economic freedom for
granted, just as, by coming to Washington, you show that you do not take good
governance for granted.
Our job together is to protect and expand that freedom, so that you can keep on
building a prosperous America. Thanks for your support.
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EMBARGOED UNTIL 2:30 P.M.
June 13, 2002
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $27,449 million of publicly held 13-week and 26-week
Treasury bills maturing June 20, 2002, and to raise new cash of approximately $4,551
million. Also maturing is an estimated $18,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced June 17, 2002.
The Federal Reserve System holds $13,036 million of the Treasury bills maturing
on June 20, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held June 18, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction.
These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
TreasllryDirect customers have requested that we reinvest their maturing holdings
of approximately $1:050 million into the 13-week bill and $837 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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
Attachment
PO-3174
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
TO BE ISSUED JUNE 20, 2002
June 13, 2002
Offering Amount ....... .
Public Offering ....... .
NLP Exclusion Amount .. .
....... $17,000 million
....... $17,000 million
....... $ 4,300 million
Description of Offering:
..... 91-day bill
Term and type of security.
..... 912795 LB 5
CUSIP number .......... .
.......... June 17 2002
Auction date .. .
Issue date....................
. ...... June 20, 2002
Maturity date.................
. ...... September 19, 2002
Original issue date . . . . . . . . . . . . . . . . . . . . . . . . . March 21, 2002
Currently outstanding . . . . . . . . . . . . . . . . . . . . . . . $17,716 million
Minimum bid amount and multiples ............ $1,000
$15,000 million
$15,000 million
None
182-day bill
912795 LQ 2
June 17, 2002
June 20, 2002
December 19, 2002
June 20, 2002
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Rese~ve
Banks as ag~nts for FlMA accounts. Accepted in order of size from smallest to largest with no more than $100
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for FIMA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
However,
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prora.:.ed
to avoid exceeding the limit.
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 (NLP) 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 daylight saving time on auction day
Competitive tenders ........ Prior to 1:00 p.m. eastern daylight saving 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.
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Contact: Tara Bradshaw
(202) 622-2014
For Immediate Release
June 13, 2002
TREASURY SECRETARY PAUL O'NEILL STATEMENT ON HOUSE PASSAGE OF
BILL TO MAKE MARRIAGE PENALTY TAX RELIEF PERMANENT
"I applaud the House for voting to prevent a tax hike on hard-working married couples. We are
one step closer to allowing more than 30 million people keep more of their own money to help
pay for their children's education, invest for their retirement, and spend as they see fit. I hope
the Senate acts quickly to end the marriage penalty and provide millions of Americans with the
permanent tax relief they deserve," stated Treasury Secretary Paul O'Neill.
-30PO-3175
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·U.S. Government Printlno Oltice: 1998 - 619·559
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omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220 • (202) 622·2960
For immediate release
June 15,2002
Contact: Michele Davis
(202) 622-2920
Statement of Secretary Paul O'Neill Following the Meeting of G-7 Finance
Ministers in Halifax:
First let me thank Minister Manley for hosting a productive session of the G-7
Finance Ministers here in Halifax. I enjoyed meeting him and Minister Mer of France,
and look forward to working closely with each of them.
During our meetings here today, I reported to my colleagues that I believe the US
economy is on track to reach a 3 to 3.5% rate of growth by the end of this year. And I
was encouraged by the reports of several of my fellow ministers on the outlook for
growth in their economies. There is no question that global growth has strengthened.
We also devoted some time today to discussing measures that could further enhance
medium-tenn growth prospects in our economies.
I am very pleased that we have reached agreement that the International
Deyelopment Association (IDA) should increase substantially the amoul1t of. _
development assistance delivered to the poorest countries from loans to grants. We will
now work with the other IDA donors to complete the IDA replenishment. Last summer,
President Bush called on the development banks to provide 50% of the funds to poorest
countries "as grants for education, health, nutrition, water supply, sanitation and other
human needs." The agreement by the G-7 Finance Ministers would do more than that,
with grants for nearly 100% of the assistance to the poorest countries in these key social
sectors. This is a victory for poor nations around the world. Countries like Ethiopia,
Ghana and Uganda -- which I visited last month -- have up until now been required to
take out loans to finance their HNI AIDS programs. Under this new agreement, they will
receive those funds as grants - avoiding the need to tax their citizens who earn less than a
dollar a day in order to pay back the funds borrowed for this crucial protection of human
capital. By moving from loans to grants, we can prevent the poorest nations from
building up suffocating debt and we can avoid the next generation of debt relief.
We had a useful discussion of debt relief today, and I reiterated my point that debt
relief is not a cure-all. The ultimate success of the RIPC Initiative will be measured not
by the weight of a poor nation's debt but by that nation's ability to create economic
growth. A debt-free nation still needs income to be prosperous. I urged my colleagues to
focus our international assistance on getting results, so that poor nations develop their
own private economies to generate self-sustaining prosperity.
PO-3176
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·u.s. Government Prinllng Office:
1998 - 619-559
Last month in Romania I saw remarkable success from the European Bank for
Reconstruction and Development's (EBRD) small business program, and in Africa I met
entrepreneurs backed with micro-finance assistance who were building the health and
wealth of their communities. I urged my fellow ministers today to increase the focus of
the development banks on supporting small and medium-sized enterprises.
We also discussed the World Bank's Education for All proposal, and I reiterated
what I said to the Development Committee in April: "We believe the World Bank and
other donors should be prepared to significantly increase funding for basic education in
those countries with strong policy and financial commitment to this sector. Bank plans to
'fast-track' universal primary completion in some ten countries is a welcome first step as
long as countries are selected on the basis of credible performance and donor efforts are
well coordinated." I requested that the World Bank's proposal start with the measurable
results to be achieved, for example a specified improvement in the numbers of children
demonstrating strong functional competencies in reading, writing and computing by the
age of 10.
We reviewed progress since our last meeting on combating of terrorism financing.
We continue to make progress in preventing the abuse of our global financial system by
those who would destroy innocent lives. The Ministers also discussed the importance of
having the IMP and World Bank begin conducting integrated and comprehensive
assessments to combat money-laundering and the financing of terrorism.
We similarly reviewed progress on our spring statement on the creation of an
orderly sovereign debt restructuring process. We were pleased to note that the private
sector is already putting forward clauses consistent with our April 20 th Action Plan. \Ve
also continue to support the IMF's work on a sovereign debt restructuring mechanism.
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For immediate release
June 15,2002
Contact: Michele Davis
(202) 622-2920
GRANTS AGREEMENT A VICTORY FOR POOR NATIONS
President Bush proposed last summer "that up to 50 percent of the funds provided by the
development banks to the poorest countries be provided as grants for education, health, nutrition,
water supply, sanitation and other human needs." The recent agreement among G-7 donors
achieves the President's goaL The agreement also takes a major step towards addressing the debt
sustainability problem in the poorest countries and, as President Bush noted, the proposal
"doesn't merely drop the debt, it helps stop the debt."
Within the next few weeks, the principle of substantially increased grant financing for the
poorest countries will be embodied in an agreement among donors to the thirteenth
replenishment of the International Development Association (IDA), the arm of the World Bank
that lends to the poorest countries.
As a result of the President's initiative, IDA - for the first time in its history - will provide
grants instead ofloans for urgent human needs beyond RIPe debt relief and post-conflict
assistance. These results-based grants will be provided based on country performance and
commitment to economic reforms. This landm3rk agreement will mean that:
•
IDA will provide nearly 100% of its assistance on grant terms for education, health,
nutrition, potable water and sanitation (the key social sectors) in countries whose
people live on less than a dollar a day;
•
IDA's assistance for HIV/AIDS will be in grant form for all IDA-only countries;
•
All of IDA's assistance for natural disaster reconstruction will be in grant form; and
•
Up to 40% oflDA's assistance to post-conflict countries will now be delivered on grant
terms.
Results Based Lending. The US initiated, and now IDA will establish, a monitoring and
evaluation system that measures borrowing countries' progress against a set of key development
indicators. The measurement system serves two important functions to improve development
effectiveness: an accountability function to better position lDA to demonstrate more precise
results from resources invested, and a learning function to improve proj ect design and direct
resources to what works.
PO-3I77
For press releases, speeches, public schedules and official biographies, call our 24-hoor fax line ~t (202) 622-2040
·U.S. Government Pnntlng Office: 1998 - 619-559
In recognition of the importance of this initiative, the President's budget conditioned a
portion of US assistance during the second and third years of the replenishment period on
satisfactory progress towards select, high-development impact objectives in areas such as health,
education and private sector development.
These hallmark reforms are a significant achievement for the poorest countries and fulfill a
pledge by President Bush that the U.S. will stand shoulder-to-shoulder with "all nations
promoting democratic government and the rule of law so that trade and aid can succeed."
D E P .\ R T " E :\ T
0 F
THE
T R E :\ S lJ
l~
Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 62%-2960
Contact:
EMBARGOED UNTIL 11:30 A.M.
June 17, 2002
Office of Financing
202/691-3550
TREASURY OFFERS 4 -WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $18,000 million to
refund an estimated $18,000 million of publicly held 4-week Treasury bills maturing
June 20, 2002.
Tenders for 4-week Treasury bills to be held on the book-entry records of
TreasuryDirect will not be accepted.
The Federal Reserve System holds $13,036 million of the Treasury bills maturing
on June,~20, 2002, in the System Open Market Account (SOMA).
This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions.
Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign,~nd International
Monetary Authority (FIMA) account.s bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction.
These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation pcrcentag8 applied to bids a~...arded at the high8st discount rate
will be J:"ounded up to the next hundredth of a whole percentage point, e. g. I 17.13%.
This offering of Treasury secur{ties is governed by the terms and conditions
set forth in the Uniform Offering Circular for the Sale and Issue of Marketable BookEntry T~easury Bills, Notes, and Bonds (31 CFR Part 356, as amended) .
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-3178
For press releases, speeches, public schedules and official biographies, call our 24-llOur fax fine at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED JUNE 20, 2002
June 17, 2002
Offering Amount .................. ·· .$18,000 million
Public Offering .................. ·· .$18,000 million
NLP Exclusion Amoun t ................ $ 8 , 000 million
Description of Offering:
Term and type of security ........... 28-day bill
CUSIP number ........................ 912795 KS 9
Auction date ........................ June 18, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . June 20, 2002
Maturity date ....................... July 18, 2002
Original issue date ................. January 17, 2002
Currently outstanding ............... $31,866 million
Minimum bid amount and multiples .... $1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FlMA accounts will not exceed $1,000 million. A single bid that
would cause the limit tb be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit.
However, if there are two.or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) 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 daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.
D E P .\ R T :\ I E :\ T
0 F
THE
T REA S lJ I{ Y
I
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
F or Immediate Release
Saturday, June 15, 2002
Contact: Michele Davis
(202) 622-2920
Statement of G-7 Finance Ministers
Halifax, June 15, 2002
Since we last met, growth in our economies has strengthened and should continue to
consolidate throughout the year. Weare thus confident about our future prospects.
Looking forward, this foundation for stronger and sustainable productivity growth can be
enhanced globally by policies and institutions that support people, markets, and ideas. These
include sound macroeconomic policies, measures that support well-functioning labour, capital
and product markets, a policy environment that fosters innovation and entrepreneurship, and a
commitment to trade liberalization through a strong and effective multilateral trade system.
Continued attention must be paid to strengthening the financial sector to ensure the most
productive use of resources as well as tq strengthen the resilience of the domestic economy to
external shocks. We emphasize the importance of transparency, including in the private sector, to
well functioning markets everywhere. We welcome the work of the Financial Stability Forum
and International Accounting Standards Board responding to financial and related vulnerabilities.
We recognize the difficult circumstances facing the people of Argentina, and that the way
forward is for Argentina itself to develop a plan to build a credible and sustainable economic
recovery. We are encouraged by the significant progress made by Argentina in reforming the
fiscal framework encompassing the provinces, and addressing their bankruptcy and economic
subversion laws. However, much more needs to be done, especially regarding the monetary
framework and bank restructuring. We welcome the decision to invite an IMF mission to
Argentina this week. We call on the Argentine Government to work with the IMF on a new
program to implement such a plan; we will continue to support Argentina and the IMF in this
effort.
We are actively pursuing the Action Plan we adopted in April to improve predictability in
emerging markets by strengthening crisis prevention and resolution. Weare working with the
Fund and others to advance all of its elements, including the active pursuit of contractual clauses.
We welcome the interest many in the private sector have shown in this approach.
PO-3179
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
At the IMF, we are pursuing more objective and transparent surveillance, mcluding the
assessment of debt sustainability, and consideration of greater independence between the IMP's
surveillance and lending roles. We will continue to work to enhance discipline on the size of
IMF assistance packages, and define more precisely the circumstances where exceptions might
be justified. We strongly support the Fund's continuing work on a sovereign debt restructuring
mechanism.
We reiterate the call made at Monterrey for a Global Development Compact between
developed and developing countries based on mutual accountability for results. We emphasize
that development assistance is most effective when recipient countries have sound economic
policies, strong institutions and good governance, and agree that priority in development
assistance should be given to poor countries that meet these criteria. We agree that developed
countries have a responsibility to improve development cooperation in support of country-owned
poverty reduction and growth strategies, increase technical assistance, provide appropriate aid
and debt relief, and expanding market access.
We welcome the progress achieved by the Multilateral Development Banks in
implementing the proposals for refoITIl discussed last year, but more needs to be done. We urge
the MDBs to continue to increase their collaboration and the effectiveness of their assistance,
including through increased priority on improving governance in recipient countries, an
enhanced focus on measurable results, and greater transparency in program decisions.
We also examined several key development issues in more detail, including the Heavily
Indebted Poor Countries (HIP C) initiative, education, and the International Development
Association (IDA). With regard to the HIPC initiative, we will work with the IFrs and other
donors to promote the participation of all creditors that have not yet done so, in particular some
multilateral institutions, to fully participate in the initiative; to complete the financing of the
HIPC Trust Fund; and thus to deliver on our commitment to help, achieve debt sustainability for
the world's poorest countries.
We also endorse full replenishment of IDA, the cornerstone of multilateral support for
low-income countries. We welcome the increased use of results measurement to track
development outcomes. We support an increase in the use of grants, in the range of 18 per cent to
21 per cent of the IDA13 program, to enhance the effectiveness of IDA in helping the poorest
and debt vulnerable countries combat HIV/AIDS, support the social sectors, including education,
and overcome the effects of devastating conflict. We will work with our fellow IDA donor
governments to finalize the negotiation as soon as possible along these lines.
We also note the World Bank's Education Action Plan and strongly endorse the
expeditious implementation of a plan focused on program quality and measurable results. Each
of us in tum will work to support the Education for All goals with countries that have credible
education plans and strong policy commitments in place. We urge other donor governments and
the multilateral development banks to join us.
Following the tragic events of September 11, 2001, we issued an Action Plan to Combat
the Financing of Terrorism and committed to work with the broader international community to
achieve results. Our Action Plan has fostered international cooperation to stop the flow of funds
to terrorists, protect the international financial system from abuse, and enhance transparency.
In this regard, we welcome the work underway to combat the abuse of charities and
Hawalas. Over 160 countries and jurisdictions have taken action to freeze terrorist assets. The
implementation of UN instruments has intensified and countries are working diligently to
comply with the FATF's Special Recommendations. We call on the FATF-member countries to
comply quickly with these recommendations. To encourage the broadest possible participation in
this fight, we call on the FATF to identify countries for follow-up assessment and technical
assistance, by the IMF, the World Bank, and the United Nations. We urge the IMF and World
Bank to begin conducting integrated and comprehensive assessments of standards to combat
money laundering and financing of terrorism.
We agree that the administration and enforcement of tax laws depend increasingly on
transparency and effective international exchange of information. We call on all countries to
permit access to, and exchange, bank and other information for all tax purposes; OECD countries
should lead by example. Progress in this area is urgently needed and we intend to review
developments at our next meeting.
A stable and more prosperous Afghanistan is important to the Afghan people and to the
world. We are determined to ensure that the international community supports Afghanistan, and
delivers on the commitments pledged at the Tokyo Conference in January 21-22,2002.
We discussed with the Finance Minister of Russia the progress made by this country
toward structural reforms. We encourage further efforts to strengthen the financial sector,
improve corporate governance and the investment climate, and combat money laundering and
terrorist financing. We agree on the importance of Russia's early accession to the World Trade
Organization (WTO).
We will be reporting on a number of subjects discussed at this meeting to our Leaders in
connection with the June 26-27 Kananaskis Summit. We welcomed the participation in, and
contributions to, our discussions preparatory to the Summit, the Finance Minister of Spain
representing the Presidency of the European Union and the European Commissioner for
Economic and Monetary Affairs.
PUBLIC DEBT NEWS
)epartment of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 18, 2002
Contact: Office of Financing
202-691-3550
TREASURY'S INFLATION-INDEXED SECURITIES
JULY REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price fudex (CPI) numbers and daily
index ratios for the month of July for the following Treasury inflation-indexed securities:
(1)
(2)
(3)
(4)
(5)
(6)
3-3/8% 10-year notes due January 15,2007
3-5/8% 5-year notes due July 15, 2002
3-5/8% 10-year notes due January 15,2008
3-5/8% 30-year bonds due April 15,2028
3-7/8% 10-year notes due January 15,2009
3-7/8% 30-year bonds due April 15, 2029
(7) 4-114% 10-year notes due January 15,2010
(8) 3-1/2% 10-year notes due January 15,2011
(9) 3-3/8% 30-1I2-year bonds due April 15, 2032
(10) 3-3/8% lO-year notes due January 15,2012
This information is based on the non-seasonally adjusted U.S. City Average All Items Consumer Price
fudex for All Urban Consumers (CPI-U) published by the Bureau of Labor Statistics of the U.S.
Department of Labor.
In addition to the publication of the reference CPI's (RefCPI) and index ratios, this release
provides the non-seasonally adjusted CPI-U for the prior three-month period.
This information is available through the Treasury's Office of Public Affairs automated fax
system by calling 202-622-2040 and requesting document number 3180. The information is also
available on the futemet at Public Debt's website (http://www.publicdebt.treas.gov).
The information for August is expected to be released on July 19,2002.
000
Attachment
http://www.publicdebt.treas.gov
PO-31S0
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 18,2002
Contact: Office of Financing
202-691-3550
TREASURY'S INFLATION-INDEXED SECURITIES
JULY REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and daily
index ratios for the month of July for the following Treasury inflation-indexed securities:
(1) 3-3/8% 10-year notes due January 15,2007
(2)
(3)
(4)
(5)
(6)
3-5/8% 5-year notes due July 15,2002
3-5/8% 10-year notes due January 15,2008
3-5/8% 30-year bonds due April 15,2028
3-7/8% 10-year notes due January 15,2009
3-7/8% 30-year bonds due Apri115, 2029
(7) 4-114% 10-yearnotes due January 15,2010
(8) 3-112% 10-year notes due January 15,2011
(9) 3-3/8% 30-1I2-year bonds due April 15, 2032
(10) 3-3/8% 10-year notes due January 15,2012
This information is based on the non-seasonally adjusted U.S, City Average Allltems 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 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 3180. The information is also
available on the Internet at Public Debt's website (http://www.publicdebt.treas.gov). .
The information for August is expected to be released on July 19,2002.
000
Attachment
http://www.publicdebt.treas.gov
PO-3180
TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
July 2002
Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date(s):
3-3/8% 10-Year Notes
Series A-2007
9128272M3
January 15, 1997
February 6, 1997
April 15, 1997
3-5/8% 5-Year Notes
Series J-2002
9128273A8
July 15, 1997
July 15, 1997
October 15,1997
3-5/8% 10-Year Notes
Series A-2008
9128273T1
January 15,1998
January 15, 1998
October 15,1998
3-5/8% 30-Year Bonds
Bonds of April 2028
912810FD5
April 15, 1998
April 15, 1998
July 15, 1998
Maturity Date:
Ref Cpr on Dated Date:
January 15, 2007
158.43548
July 15, 2002
160.15484
January 15, 2008
161.55484
April 15, 2028
161.74000
Date
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
1
2
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
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
CPI-U (NSA) for:
Ref CPI
Index Ratio
Index Ratio
Index Ratio
Index Ratio
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.90000
179.80000
179.80000
179.90000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.60000
179.80000
179.60000
179.60000
179.80000
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13495
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13485
1.13465
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.12266
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1:11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11293
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
1.11166
178.8
March 2002
-~~
-~
April 2002
179.8
May 2002
I
I
i
I
I
I
I
179.8
I Ht:ASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
July 2002
Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date(s):
3-7/8% 10-Year Notes
Series A-2009
9128274Y5
January 15,1999
January 15, 1999
July 15,1999
Maturity Date:
Ref CPI on Dated Date:
January 15, 2009
164.00000
Date
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
1
2
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
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
CPI·U (NSA) for:
----
-~
3-718% 30-Year Bonds
Bonds of April 2029
912810FH6
April 15, 1999
April 15, 1999
October 15, 1999
October 15, 2000
April 15, 2029
164.39333
4-1/4% 10·Year Notes
Series A-2010
9128275W8
January 15, 2000
January 18, 2000
July 15, 2000
3-1/2% 10-Year Notes
Series A-201l
9128276R8
January 15, 2001
January 16, 2001
July 16, 2001
January 15, 2010
168.24516
January 15, 2011
174.04516
RefCPI
Index Ratio
Index Ratio
Index Ratio
Index Ratio
179.80000
179.80000
179.BOOOO
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.BOOOO
179.80000
179.80000
179.80000
179.BOOOO
179.80000
179.BOOOO
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.BOOOO
179.BOOOO
179.80000
179.80000
179.80000
179.80000
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09634
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.09372
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.0686B
1.06B68
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.06868
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
1.03307
March 2002
178.8
April 2002
179.8
May 2002
---
---~
--
---_.-
179.8
TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
July 2002
Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Addilionallssue Date(s):
3-3/8% 30·1/2-Year Bonds
Bonds of April 2032
912810FQ6
October 15, 2001
October 15, 2001
3-3/8% 10-Year Notes
Series A-2012
9128277J5
January 15, 2002
January 15, 2002
Maturity Date:
Ref cpr on Dated Date:
April 15, 2032
177.50000
January 15, 2012
177.56452
Date
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
1
2
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
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
2002
CPI-U (NSA) for;
Ref CPI
Index Ratio
Index Ratio
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.60000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
179.80000
1.01296
1.01296
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
1.01259
March 2002
1.01~96
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
1.01296
178.8
April 2002
i
:
179.8
May 2002
---
-
179.8
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 17, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
June 20, 2002
September 19, 2002
912795LB5
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
1.700%
Investment Rate 1/:
Price:
1.732%
99.570
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 27.61%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
29,860,922
1,376,078
173,000
$
17,000,054 2/
31,410,000
SUBTOTAL
TOTAL
5,720,766
5,720,766
Federal Reserve
$
37,130,766
15,450,976
1,376,078
173,000
$
22,720,820
Median rate
1.680%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.655%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
31,410,000 / 17,000,054
=
1.85
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,138,046,000
http://www.publicdebt.treas.gov
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FOR IMMEDIATE RELEASE
JUNE 17, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
Treasury Postpones Announcement of June 2-Year Note Auction
The Treasury Department is postponing announcement of the June 2-year note, originally
scheduled to be announced on June 19, auctioned on June 26, and settled on July 1. Treasury
will announce plans for this auction once Treasury is assured that it has sufficient borrowing
authority.
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EMBARGOED UNTIL 1:15 P.M. EDT
Tuesday, June 18,2002
Contact: Public Affairs
(202) 622-2960
Treasury Secretary Paul H. O'Neill
Remarks to the New York Treasury Securities Luncheon
New York City
Thank you for that introduction, Jimmy (Lee, Vice Chairman of J.P. Morgan
Chase and 2002 Greater New York Volunteer Committee Chair). Before I begin my
remarks, I would like to recognize several individuals and organizations who have made
special contributions to the Greater New York Volunteer Committee's efforts.
The first one is you, Jimmy. Because of efforts by you and your other volunteers,
more people know about the value and benefits of Treasury securities, and that is really a
service to our country.
I would like to present you with this certificate appointing you Chair of the
Greater New York Volunteer Committee. And I want to thank you and the members of
your committee for your leadership on behalf of Treasury securities here in New York.
I would also like to recognize two organizations for their achievements in last
year's savings bond effort. First I'd like to thank Johnson & Johnson. Eighty-two
percent of Johnson & Johnson employees bought savings bonds last year, making J&J the
country's participation leader. For that achievement, I would like to present them with
Treasury's Golden Eagle award. Fred Rush has been a leader in J&J's savings bond
efforts for many years, and I would like to invite him up to accept this award. Great job,
Fred.
Finally, I would like to present the Honor Roll Award to the City of New York.
More than 4,000 city employees chose to invest in savings bonds last year. I would like
to invite Martha Hirst, Commissioner for Administrative Services, to receive the award
for the City. Martha, thank you, and thanks to your colleagues, for your tremendous
support.
I want to give you a brief report on our economy, as I see it. The fundamentals
of our economy continue to be strong. The recent economic slowdown proved to be the
briefest and shallowest in post-War history.
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Thanks to President Bush's well-timed tax relief package last year, the Fed's
monetary easing, and the resilience of American consumers, businesses, and the fmancial
sector, I believe we are on track to reach 3 to 3.5% growth by the end of this year.
There are signs that business investment, so far the missing ingredient in this
recovery, is picking up. Most encouraging to me, American productivity growth
continues to soar. Productivity is, essentially, a measure of Americans' ability to turn
new ideas for doing things better into real world practice, increasing value and increasing
living standards.
Most important to the President and this Administration, unemployment fell to
5.8% last month, and the number of new jobs grew for the second month in a row.
Nothing in our economy matters more to President Bush than keeping Americans
working. Last month's improvement is welcome, but we believe we can do much better.
You know I'm a self-identified optimist about our economy. My optimism comes
from direct observation and from being a value-creating participant in the private sector
for 24 years. During that period I had the opportunity to travel the world and to see
economic activity - or the lack of it - everywhere.
It is easy to conclude in 2002 that no other economy in the world matches the
delivery of income and wealth produced by the US system. But even in our lifetime say in the 1970s and early 80s - that conclusion would not have been so easily agreed as,
for example, we witnessed Japan powering its way from the devastation of World War II
to the position of second largest economy in the world and gaining rapidly on the US.
Reflecting on the period since the Second World War, it is possible to identify
events and episodes that contributed to the status of the US economy that we enjoy today,
but as I think about the prime general cause of our success the name I give it is
Flexibility.
By flexibility I mean this: We know our system is not perfect but, as fitful as it
may seem or be at times, we keep adjusting and adapting at the level of individual
companies as they strive to meet the best of national and international competition and at
the governmental level we take action when the need arises.
In a nutshell, we know our system is not perfect, but we keep changing and
reacting to make it better. If you look at other economies, this is their missing ingredient.
A case in point is the changes that are being made to counter the actions taken by some
so-called business leaders who abused their position of trust by deceiving their
employees, shareholders and the general pUblic. The Enron case began to unfold last
October, and other cases have followed.
th
On March 7 , the President urged the implementation of a ten-part plan to
improve corporate governance and disclosure, and today a large part of that plan is being
put in place.
2
I would note first that business leaders - CEOS and Boards of Directors - have
responded by re-examining their practices to ensure that they can attest to the accuracy,
transparency and completeness of their financial statements. This is critical, because our
system depends on millions of business leaders operating to high standards of
truthfulness.
I believe almost all business leaders strive to meet this responsibility, but from
recent cases it is clear we need to adjust our system and that is what the President's plan
seeks to do.
The President's plan has three planks: holding corporate officers accountable,
ensuring better information for investors, and bolstering our auditing and accounting
system.
Beginning at the top, the President's plan would require that chief executive
officers and chief financial officers personally certify the veracity, timeliness and
completeness of their companies' public disclosures including their financial statements.
This new requirement will eliminate the ambiguities of the current certifications while
creating a clear pathway to punish those who abuse the trust that is placed in them. The
premise must be very clear: with the highest position in a company comes the highest
responsibility, to know what's going on and to inform investors of everything that's
important to know. A companion provision will require outside auditors to make
essentially the same independent certification.
The SEC, under Harvey Pitt's leadership, is putting these provisions in place
along with the other steps that can be implemented under their existing enforcement
powers. For example, the SEC has the power to force those who mislead to give up any
earnings gained from misleading investors. We are working with the Congress to expand
that authority, so that the SEC can bar corrupt officers and directors from serving again in
any corporate leadership positions.
The SEC also has issued new proposed rules to improve information available to
investors. Companies would have to illustrate the impact of their critical accounting
choices on their financial statements, and to tell investors in near real-time of a much
more comprehensive list of significant events. And, perhaps most central, in its
enforcement action against Edison Schools the SEC has put teeth behind its policy that
technical GAAP compliance does not equal sufficient disclosure.
In a country that prizes individual freedom and initiative-taking, issuers, financial
analysts, and investors also have a role in setting best practices. Both the NASD and the
NYSE have heeded that call, showing again the merits of our hybrid public/private
regulatory model. The NASD has proposed a first set of stricter listing standards.
3
And the NYSE has published a forceful, thoughtful paper as a prelude to farreaching refonns. Similarly the Business Roundtable has recommended actions that all
responsible corporations should take to improve their disclosure practices and better
assure the independence of auditors.
Finally, in the area of strengthening the audit system. On Thursday, the SEC will
propose rules to create an independent private-sector body with the power to review audit
finns' professional conduct and competence, and to discipline those that fall short.
Congress is also considering bills along these lines. We will work with the SEC and
Congress to build a regulatory body consistent with those principles.
Realistically, we cannot devise rules that will stop every aspiring crook. Not
without crushing economic freedom. And some businesses will fail for good reason,
even with the best of accounting and disclosure practices. The President has made the
goal crystal-clear: we must hold corporate leaders and professionals "to the highest
standards of conduct." To do that, we must ensure that the regulators maintain the
authority to constantly adapt the rules to address changes in rapidly evolving financial
markets.
As I said earlier, the flexibility of individuals, companies and governments in the
US is the key to our continued prosperity. We've shown resilience in responding to the
devastating attacks of September 11 and rebounded faster than anyone thought possible.
We are integrating the need for increased security and alertness without dampening
productivity growth. And in the area of corporate governance, the changes occurring
today in corporate board rooms, on Wall Street, in SEC rules and in the law will ensure
that we overcome today's uncertainties about corporate financial information, so that
investors can have the confidence they need to allocate capital where it can best
contribute to US economic growth and prosperity.
4
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 18, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28 -Day Bill
June 20, 2002
July 18, 2002
912795KS9
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
1.695%
Investment Rate 1/:
Price:
1.723%
99.868
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 58.71%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIEF. \Uuw:':'-""pet:.itive)
$
$
17,970,170
29,919
o
°
SUBTOTAL
Federal Reserve
$
TOTAL
44,064,030
29,919
44,093,949
18,000,089
1,665,279
1,665,279
45,759,228
$
19,665,368
Median rate
1.680%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.660%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
44,093,949 / 18,000,089
=
2.45
1/ Equivalent coupon-issue yield.
http://www .publicdebt.treas.gov
)0-3184
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FOR IMMEDIATE RELEASE
June 18, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
Treasury Statement on Debt Ceiling Deadline
Treasury Secretary Paul O'Neill, in response to speculation that June 28 is not the deadline for
hitting the statutory debt ceiling, today said:
th
"Since May 16 we have had to engage in a series of extraordinary accounting measures to avoid
breaching the statutory debt ceiling.
Using all of the accounting devices that I described to Congress in my letter of May 14t \ we
project that we can continue to avoid breaching the debt ceiling until the end of June. At that
time we will be required to credit an interest payment of approximately $67 billion to various
federal trust funds, including Social Security. We are also scheduled to make $54 billion in
payments in the first few days of July, including approximately $30 billion of payments to Social
Security beneficiaries and other trust fund beneficiaries.
It is important that Congress act on a bipartisan basis to increase the statutory debt ceiling before
':r?, e':1~ ()f.Tu~~. It's time to put politics aside and d0 thp ::-ight ~hi!lg for thE' couniJ"y"
PO-3I85
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FOR IMMEDIATE RELEASE
June 18, 2002
CONTACT: BETSY HOLAHAN
202-622-2960
Statement of Treasury Secretary Paul O'Neill
on Senate Passage of Terrorism Insurance Legislation
"I commend the Senate for moving forward with legislation to provide a federal backstop
for terrorism insurance. Such legislation is vitally needed to mitigate the economic drag we are
currently experiencing due to the scarcity of terrorism insurance and to minimize adverse
economic consequences from possible future attacks.
"I am deeply disappointed, however, that the Senate rejected Senator McConnell's
amendment to provide for litigation management procedures to protect against abusive litigation
and punitive damages claims. Such procedures are crucial to the protection of American
taxpayers' interests and needs to be included in any final legislation."
PO-3186
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omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622-2960
u.s. International Reserve Position
06/19/02
u.s.
The Treasury Department today released
reserve assets data for the latest week As indicated in this table, U.S. reserve
assets totaled $69,675 million at the end of the latest week, compared to $69,163 million at the end of the prior week
(in US millions)
May 24,2002
69,163
I. Official U.S. Reserve Assets
TOTAL
1. Foreign Currency Reserves
a. Securities
I
1
Euro
5,736
Yen
11,330
May 31. 2002
69,675
TOTAL
17,066
Euro
5,814
Yen
TOTAL
11,383
o
Of which, issuer headquartered in the U. S.
17,197
o
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 U.S.
9,681
3,815
13,496
0
0
9,812
3,833
0
0
13,644
0
0
0
0
,
.. IMF R(:serv(; Positiun
?
· Special Drawing Rights (SDRs)
· Gold Stock
2
3
· Other Reserve Assets
16,355
,·5.'~·211
11,203
11,297
11,044
11,044
0
0
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account (SOMA),
"alued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and deposits reflect
;arrying values.
U The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are valued in dollar
erms at the official SDRJdoliar exchange rate for the reporting date. The entries in the table above for latest week (shown in italics) reflect any
lecessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. The IMF data for the prior week are final.
:/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
0-3187
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For Immediate Release
Wednesday, June 19,2002
Contact: Michele Davis
(202) 622-2920
Statement by Secretary PaulO 'Neill following President Bush's announcement of the
$500 million International Mother and Child HIV Prevention Initiative:
I congratulate President Bush for committing funds today to prevent the transmission of
AIDs from mothers to children in Africa and the Caribbean. When I traveled to South Africa last
month, I went to a hospital that uses the nevirapine drug therapy to prevent transmission of the
AIDs virus from mother to child. I met women there who were filled with joy that their infant
children were HIV -free, and would live a longer, healthier happy life because of this drug
treatment. The initiative President Bush announced today will bring treatment to a million
additional mothers each year, and will bring children into the world with the potential for a
longer, healthier life.
President Bush has said that our development assistance must get results and today he put
our resources behind techniques proven to free infant children from near certainty of dying
before the age of 5. Today's announcement is an example of effective development assistance,
and I hope our partners in development around the world will join us in this commitment to save
children from a life shortened by AIDs. We have the technology. We know it works. Now is
the time to bring it to those who need it most.
-30-
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CONTACT: Rob Nichols
(202) 622-2910
FOR IMMEDIATE RELEASE
June 19, 2002
Statement by Treasury Under Secretary for International Affairs John B. Taylor Following
Actions Taken Today by Turkey's Bank Regulation and Supervision Agency
We welcome the forceful actions taken today by Turkey's Bank Regulation and Supervision
Agency (BRSA). These actions are critical steps in the plan to recapitalize the private banking
system and they demonstrate the on-going commitment of the Turkish authorities to implement
the economic program. Turkey's reform measures are strengthening the prospects for economic
growth.
-30PO-3189
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omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622-2960
For immediate release -June 20, 2002
Contact: Michele Davis
(202) 622-2920
Statement by Under Secretary Taylor on Uruguay's Change in Exchange Rate Regime
Today, Under Secretary for International Affairs John Taylor made the following statement:
We welcome the progress made by the Uruguayan authorities in recent weeks and months. The
government has acted swiftly to strengthen the banking system, open key sectors of the
economy, and reform the tax code. Today's decision to change the exchange rate regime is part
of Uruguay' s strengthened policy strategy.
The demonstrated commitment to good policy in Uruguay has paved the way for the proposed
augmentation of the IMF program, which will be presented to the executive board of the IMF
next week.
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·u.s. Government Pnntlna Office:
1998 - 619-559
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EMBARGOED UNTIL 2:30 P.M.
June 20, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week and 26-week Treasury bills totaling $32,000
million to refund an estimated $26,750 million of publicly held I3-week and 26-week
Treasury bills maturing June 27, 2002, and to raise new cash of approximately $5,250
million. Also maturing is an estimated $16,000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced June 24, 2002.
The Federal Reserve System holds $13,130 million of the Treasury bills maturing
on June 27, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held June 25, 2002. Amounts
awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and wi11 be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
Trea~uryDirsct customers.have requested. that we reinvest their matur~g holdings
of approximately $994 million into the 13-week bill and $607 million into the 26-week
bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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
Attachment
PO-3192
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HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED JUNE 27, 2002
June 20, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 ~i11ion
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . $ 4,200 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 LC 3
June 24, 2002
June 27, 2002
September 26, 2002
March 28, 2002
$16,740 ~illion
$1,000
$15,000 million
$15,000 million
None
182-day bill
912795 LR 0
June 24, 2002
June 27, 2002
December 26, 2002
June 27, 2002
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FI~~) bids: Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts. Accepted in order of size from smallest to largest with no more than $100
million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for FIMA
accounts will not exceed $1,000 million. A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit. However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
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 (NLP) 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.
Recognized Bid at a Single Rate ........ 35% of public offering
aximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
eceipt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders .•...... Prior to 1:00 p.m. e~stern daylight saving time on auction day
~ayment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
1th 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.
I
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THE
T REA S II
I~
Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
CONTACT: Tara Bradshaw
(202) 622-2014
FOR IMMEDIATE RELEASE
June 21, 2002
TREASURY SECRETARY PAUL O'NEILL STATEMENT ON HOUSE PASSAGE OF
BILL TO MAKE RETIREMENT SECURITY PERMANENT
"I applaud the House for voting to make the pension and individual retirement provisions in the
Economic Growth and Tax Relief Reconci1iation Act of2001 permanent. This legislation
enhances the retirement security of the more than 170 million workers in the labor force in 2011.
I hope the Senate acts quickly to ensure that millions of hardworking Americans will continue to
have greater opportunity to save for their retirement," stated Treasury Secretary Paul O'Neill.
-30-
PO-3193
Far 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
OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE
Contact:
Friday, June 21, 2002
Rob Nichols
202-622-1260
STATEMENT BY TREASURY SECRETARY PAUL O'NEILL
To clarify my earlier comments, the Brazilian government is implementing the right economic
policies to address the current difficulties. Because of these policies, we have consistently
supported Brazil, including through its current IMF program launched last summer and last
week's $10 billion drawing on that program. Brazil has not requested any new funds and its
economic fundamentals are strong. Brazil is a critical regional and global partner of the United
States.
-30·· .
PO-3195
OFl<'ICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 20220 - (202) 622-2960
EMBARGOED UNTIL 11:30 A.M.
June 24, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $16,000 million to
refund an estimated $16,000 million of publicly held 4-week Treasury bills maturing
June 27, 2002.
Tenders for 4-week Treasury bills to be held on the book-entry records of
will not be accepted.
Treasu~Direct
The Federal Reserve System holds $13,130 million of the Treasury bills maturing
on June 27, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders in this auction
up to the balance of the amount not awarded in today's 13-week and 26-week Treasury
bill auctions. Amounts awarded to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New York
will be included within the offering amount of the auction. These noncompetitive bids
will have a limit of $100 million per account and will be accepted in the order of
smallest to largest, up to the aggregate award limit of $1,000 million.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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 BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-3196
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED JUNE 27, 2002
June 24, 2002
Offering Amount ...••.•••.•.•••..•.•. $16,000 million
Public Offering ..•......•..•........ $16,000 million
NLP Exclusion Amount •............... $ 8,200 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 ....
28-day bill
912795 KT 7
June 25, 2002
June 27, 2002
July 25, 2002
January 24, 2002
$33,413 million
$1,000
Submission of Bids:
Noncompetitive bids: Accepted in full up to $1 million at the highest
discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids submitted through the Federal Reserve Banks as agents for
FIMA accounts. Accepted in order of size from smallest to largest
with no more than $100 million awarded per account. The total noncompetitive amount awarded to Federal Reserve Banks as agents for
FlMA accounts will not exceed $1,000 million. A single bid that
would cause the limit to be exceeded will be partially accepted in
the amount that brings the aggregate award total to the $1,000
million limit. However, if there are two or more bids of equal
amounts that would cause the limit to be exceeded, each will be
prorated to avoid exceeding the limit.
Competitive bids:
(1) Must be expressed as a discount rate with three decimals in
increments of .005%, e.g., 4.215%.
(2) Net long position (NLP) 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 daylight saving time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern daylight saving time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 24, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
June 27, 2002
September 26, 2002
912795LC3
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
1.680%
Investment Rate 1/:
Price:
1.712%
99.575
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 59.23%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
32,648,534
1,360,118
311,000
$
6,265,061
6,265,061
Federal Reserve
$
40,584,713
15,328,894
1,360,118
311,000
17,000,012 2/
34,319,652
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
23,265,073
Median rate
1.665%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.640%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 34,319,652 / 17,000,012 = 2.02
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,088,585,000
http://www .publicdebt.treas.gov
PO-3197
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 24, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
June 27, 2002
December 26, 2002
912795LRO
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.765%
High Rate:
Price:
1.805%
Investment Rate 1/:
99.108
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted
2.60%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (non~nmr~~itive)
24,962,182
872,041
490,000
$
-
____
-
o·
_____
$
4g0,Onn
._
15,000,123 2/
26,324,223
SUBTOTAL
$
TOTAL
5,739,170
5,739,170
Federal Reserve
13,638,082
872,041
32,063,393
$
20,739,293
Median rate
1.740%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.700%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
26,324,223 / 15,000,123
=
1.75
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $670,539,000
http://www.publicdebt.treas.gov
>0-3198
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THE
T REA S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C•• 20220. (202) 622-2960
For Immediate Release
June 25, 2002
Contact: Tara Bradshaw
(202) 622-2014
TREASURY AND IRS EXTEND FICA AND FUTA TAX MORATORIUM
FOR STATUTORY STOCK OPTIONS
Today the Treasury Department and the Internal Revenue Service announced it will
extend the administrative moratorium on FICA and FUT A taxes for incentive stock options
(ISOs) and options under employee stock purchase plans (ESPPs). ISOs and ESPPs are
commonly referred to as "statutory stock options."
"We have decided to extend the moratorium indefinitely," stated Pam Olson, acting
Assistant Secretary for Tax Policy. "Given the significant administrative changes that would be
required of employers to implement the proposed withholding, it is clear that a delay in the
effective date is necessary to provide employers with adequate time to make the required
changes. In addition, Treasury and the IRS need additional time to consider the many comments
we received on the proposed regulations and to decide on an appropriate course of action.
Consequently, employers will not be required to implement the changes until at least two years
. after the regulations have been issued in final fonn."
Under Notice 2002-47, the IRS will not assess FICA or FUT A taxes, or impose federal
income tax withholding, on the exercise of any statutory stock option or the disposition of any
stock acquired by exercising a statutory stock option. This moratorium will remain in place until
the IRS completes its review of comments on recent proposed regulations and issues future
guidance, which would apply only on a prospective basis.
Notice 2001-14, issued by Treasury and the IRS in January of2001, imposed an
administrative moratorium on the assessment of FICA and FUT A taxes for statutory stock
options exercised before January 1, 2003. In November 2001, Treasury and the IRS issued
proposed regulations applying FICA and FUTA taxes to statutory stock options exercised on or
after January 1, 2003. At the same time, Notices 2001-72 and 2001-73 proposed rules of
administrative convenience for employers and employees and clarified an employer's income tax
withholding and reporting obligations. Treasury and the IRS are continuing their review of the
comments received on the proposed regulations and on Notices 2001-72 and 2001-73.
Notice 2002-47 indicates that individuals still must include any compensation in income
on a disqualifying disposition of stock acquired by exercising a statutory stock option, and the
notice does not relieve employers of their reporting obligations.
PO-3199
-.!!!! press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
:1LS..£OYllfllIIIllDtEuotioQDffjce; 1998 - 619-559
Other types of stock options - "nonqualified" or "nonstatutory" options - are not affected
by the notice. These options have always been, and continue to be, subject to FICA and FUT A
at exercise.
The text of Notice 2002-47 follows.
Part III - Administrative, Procedural, and Miscellaneous
Application of Employment Taxes to Statutory Stock Options
Notice 2002-47
I. Purpose and Overview
This notice provides that until Treasury and the Service issue further guidance, in the
case of a statutory stock option, i.e., an incentive stock option (ISO) described in section
422(b) of the Internal Revenue Code (Code) or an option granted under an employee
stock purchase plan (ESPP) described in section 423(b), the Service will not assess the
Federal Insurance Contributions Act (FICA) tax or Federal Unemployment Tax Act
(FUTA) tax, or apply federal income tax withholding obligations, upon either the
exercise of the option or the disposition of the stock acquired by an employee pursuant
to the exercise of the option. This notice further announces that Treasury and the
Service anticipate that any final guidance that would apply employment taxes to
statutory stock options will not apply to any exercise of a statutory stock option that
occurs before the January 1 of the year that follows the second anniversary of the
publication of the final guidance. This notice does not relieve individual taxpayers of the
obligation to include compensation in income upon a disposition of stock acquired
pursuant to the exercise of a statutory stock option and does not relieve employers of
any of their reporting obligations.
II. Background
A. Notice 2001-14
On January 18, 2001, the Internal Revenue Service (Service) issued Notice 2001-14,
2001-6 I.R.B. 516, addressing the application of employment taxes to statutory stock
options. Notice 2001-14 provides that, in the case of a statutory stock option exercised
before January 1, 2003, the Service will not assess FICA or FUTA taxes upon the
exercise of the option, and will not treat the disposition of stock acquired by an
employee pursuant to the exercise of the option as subject to federal income tax
withholding. The notice further provides that information reporting requirements
continue to be applicable. The notice also announced the intention to issue
administrative guidance clarifying the application of employment taxes to statutory stock
options.
B. Proposed Regulations and Related Guidance
On November 13, 2001, the Service and the Treasury Department issued proposed
regulations addressing the application of employment taxes to statutory stock options
(66 Fed. Reg. 57023 (Nov. 14, 2001 )). The proposed regulations provide that FICA and
FUTA taxes apply when an individual exercises a statutory stock option and that federal
income tax withholding does not apply when an individual exercises a statutory stock
option. As proposed, the regulations would have been effective for exercises of
statutory stock options occurring on or after January 1, 2003.
On November 13, 2001, the Service also issued two related notices containing
proposed guidance: Notice 2001-72,2001-49 I.R.B. 548, and Notice 2001-73,2001-49
I.R.B. 549. In Notice 2001-72, the Service provides proposed rules regarding an
employer's federal income tax withholding and reporting obligations upon the disposition
of stock acquired by an individual pursuant to the exercise of a statutory stock option.
The rules would exempt the employer from any federal income tax withholding in such
cases. However, under the proposed rules, an employer generally would still be
required to make reasonable efforts to report any income on an employee's or former
employee's Form W-2.
In Notice 2001-73, the Service provides proposed rules of administrative
convenience intended to lessen the administrative burdens related to the application of
FICA and FUTA taxes at the time of exercise of a statutory stock option. The rules
would allow employers to deem the wages paid due to the exercise of a statutory stock
option as being paid at any subsequent date or dates during the calendar year of the
date of exercise. In addition, under the proposed rules, an employer would be allowed
to spread the deemed wage payments over a period of dates. Notice 2001-73 also
proposes-other rules of administrative convenience that are intended to assist
employers and employees in meeting their employment tax obligations.
III. Comments Received
The Service requested comments as to the proposed regulations and the proposed
rules in the accompanying notices. Comments were submitted on a wide variety of
issues raised by the application of employment taxes to statutory stock options,
including whether imposition of the FICA and FUTA taxes upon an exercise of a
statutory stock option was the correct interpretation of the law, and the extent of the
administrative burdens upon employers and employees in administering the payments
of the taxes. Recognizing the complexity of the issues raised by the proposed guidance
and comments, Treasury and the Service have determined that an extension of the
moratorium is needed to provide adequate time to consider those issues.
IV. Interim Guidance
The Service and Treasury will continue to consider all of the comments received on
the proposed regulations. However, until that review is completed and further guidance
is issued, the Service (1) will not assess FICA or FUT A taxes upon the exercise of a
statutory stock option or the disposition of stock acquired by an employee pursuant to
the exercise of a statutory stock option, and (2) will not treat the exercise of a statutory
stock option, or the disposition of stock acquired by an employee pursuant to the
exercise of a statutory stock option, as subject to federal income tax withholding.
This Part IV does not relieve individual taxpayers of the obligation to include any
compensation in income upon a disposition of stock acquired pursuant to the exercise
of a statutory stock option and does not relieve employers of any of their reporting
obligations. Regarding the reporting obligations, §1.6041-2(a)(1) of the Income Tax
Regulations requires that, under certain circumstances, a payment made by an
employer to an employee be reported on Form W-2 even if the payment is not subject to
income tax withholding. Specifically, §1.6041-2(a)(1) generally requires reporting of a
payment on the Form W-2 if the total amount of the payment, and any other payment of
remuneration (including wages, if any) made to the employee (or former employee) that
are required to be reported on Form W-2, aggregate at least $600 in a calendar year.
Therefore, a disqualifying disposition of stock acquired pursuant to the exercise of a
statutory stock option which results in ordinary income generally will result in a reporting
obligation on the Form W -2.
v.
Effect on Other Documents
In recognition of the need of employers and statutory stock option plan
administrators for adequate time to implement any guidance that may be forthcoming,
the Service and Treasury anticipate that any final guidance that would apply
employment taxes to statutory stock options will not apply to- exercises of statutory stock
options that occur before the January 1 of the year that follows the second anniversary
of the publication of the final guidance.
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 25, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
28 -Day Bill
June 27, 2002
July 25, 2002
912795KT7
1.700%
High Rate:
Investment Rate 1/:
1.723%
Price:
99.868
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 42.32%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
rH-lA (Doncorncetit';'ve)
36,030,600
30,790
$
15,969,400
30,790
o
o
----..-----
SUBTOTAL
Federal Reserve
TOTAL
$
$
---
36,061,390
16,000,190
1,126,249
1,126,249
37,187,639
$
17,126,439
Median rate
1.685%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.660%:
5% of the amount
f accepted competitive tenders was tendered at or below that rate.
~s
id-to-Cover Ratio
= 36,061,390 / 16,000,190
~
2.25
/ Equivalent coupon-issue yield.
)-3200
http://www.publicdebt.treas.gov
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NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W• • WASIDNGTON, D.C.• 20220. (202) 622-2960
CONTACT: BETSY HOLAHAN
202-622-2960
FORIMlVIEDIATE RELEASE
June 25, 2002
TREASURY TO DELAY 2-YEAR NOTE AUCTION
The Treasury Department is postponing the June 2-year note auction, scheduled for June
26, 2002, until further notice.
-30-
PO-3201
For press releasiNi,
&jI~~~,bq>~ j:wbJ.iJ: :;ii:J&duJes and
official biographies, r:aUlJur 24..fl{JUT fa:: line at (202) 622-2{}4{)
I
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THE
T R E :\ S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 62%-2960
Contact: Public Affairs
(202) 622-2960
For Immediate Release
Tuesday, June 25, 2002
MEDIA ADVISORY
U.S. Treasury Signs Debt-for-Nature Swap with Peru
Treasury Under Secretary of International Affairs John Taylor and Peruvian Ambassador Allan
Wagner will participate in a signing ceremony on Wednesday, June 26,2002 in the Department
of the Treasury's Diplomatic Reception Room. The debt-for-nature swap, a provision of the U.S.
Tropical Forest Conservation Act of 1998, will relieve Peru of debt payments in exchange for the
preservation of its tropical forests. Representatives from Conservation International, The Nature
Conservancy, and the World Wildlife Fund will also be present for the signing.
Media without Treasury or White House 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.
What:
Peru Debt Swap Signing Ceremony
Time:
12:15pm EDT
Where:
U.S. Department of the Treasury,
Diplomatic Reception Room
1500 Pennsylvania Ave., NW
Washington D. C
-30-
PO-3202
Fur press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
TEXT OF A LETTER FROM THE PRESIDENT
TO THE SPEAKER AND THE DEMOCRATIC LEADER
OF THE HOUSE OF REPRESENTATIVES
June 25, 2002
Dear Mr. Speaker:
(Dear Mr. Leader:)
I am writing to ask that the bipartisan cooperation you have shown in
our war
against terror and creation of a new Department of Homeland Security be
extended
to another important priority: maintaining the full faith and credit
of the
United States Government.
Because of the economic slowdown that began in the summer of 2000, the
terrorist
attacks of September 11, and the ongoing expense of the war, the
Secretary of
the Treasury last December asked the Congress to increase the statutory
ceiling
on the Government's ability to raise funds.
Seven months later, the
Congress
has still not acted, although it has routinely fulfilled this
responsibilily in
the past.
The Treasury has had to take extraordinary measures to allow the United
States
Government to continue to function normally as a result of the failure
of the
Congress to act.
These are only temporary measures, not an excuse for
the
Congress to fail to fulfill its duties.
I urge you and Minority Leader Gephardt to show the same spirit of
bipartisan
cooperation that Senate Majority Leader Daschle and Senate Minority
Leader Lott
showed 2 weeks ago with their bipartisanship on this important issue.
As we fight for freedom, we must not imperil the full faith and credit
of the
United States Government and the soundness and strength of the American
economv_
Sincerely,
PO-3203
GEORGE W. BUSH
Rob Nichols
Deputy Assistant Secretary for Public Affairs
Department of the Treasury
(202) 622-2910
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T REA S II R Y
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omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
For Immediate Release
June 26, 2002
Contact: Tara Bradshaw
(202) 622-2014
TREASURY AND IRS ISSUE GUIDANCE ON
HEAL TH REIMBURSEMENT ARRANGEMENTS
Today the Treasury Department and the Internal Revenue Service issued guidance that
clarifies the tax treatment of health reimbursement arrangements (HRAs) in which the
employee's health benefit arrangement provides for employee-controlled reimbursement of
medical costs.
"With this new guidance, we clear the way for employers to adopt health plans with
patient-directed features so that employees have more choice and greater control over their
health care coverage," stated Treasury Secretary Paul O'Neill.
The guidance., consisting of a notice and a revenue ruling, provides that medical benefits
paid by Health Reimbursement Arrangements (HRAs) that meet certain requirements are not
taxable. The guidance also clarifies that HRAs generally are not subject to the complex design
requirements for health Flexible Spending Arrangements funded through salary reduction under
a cafeteria plan.
The primary requirements for an HRA are that (1) the plan must be funded solely by the
employer and cannot be funded by salary reduction, and (2) the plan may only provide benefits
for substantiated medical expenses. If the plan provides for payments or other benefits
irrespective of medical expenses, all amounts paid by the plan become taxable, including prior
medical reimbursements.
Under this guidance HRAs can:
•
•
Allow the carryover of unused amounts to later years (i.e., the "use-it-or-Iose-it rule" does
not apply) and
Reimburse employees for the purchase of health insurance.
In addition, the guidance provides that:
•
HRAs may allow former employees, including retirees, continued access to unused
reimbursements;
PO-3204
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
•
•
HRAs may provide that an FSA funded by salary reduction reimburses expenses before
the HRA; and
HRAs are group health plans subject to the COBRA continuation requirements.
The text of the notice and revenue ruling are attached.
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THE
T R E :\ SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622-2960
For Immediate Release
Wednesday, June 26, 2002
Contact: Tasia Scolinos
(202) 622-2960
Statement of Jimmy Gurule, Under Secretary for Enforcement
Department of the Treasury
Hearing on the U.S. Customs Service and the Department of Homeland
Security
House Committee on Ways and Means
Chairman Thomas, members of the Committee, thank you for this
opportunity to testify. Let me at the outset say that we want to work closely with
you, Congressman Rangel, and the Members of the Committee to address your
questions and concerns as we move through the legislative .process on this
important issue. We appreciate the Committee's historical role on trade and tariff
matters which, along with Customs itself, dates back to 1789. We also recognize
the highly compressed schedule you are operating under, and we will make
every effort to be responsive to you and do so in a timely manner.
I am proud to be here on behalf of the Administration to discuss President
Bush's proposal to create a Homeland Security Department. As you know,
President Bush's proposal includes moving the entire U.S. Customs Service into
the new Department, which is the subject of today's hearing. Secretary O'Neill,
Customs Commissioner Bonner and I fully support the President's proposal and
strongly believe that the new Department of Homeland Security will playa key
role in safeguarding the American people.
In his June 6th address to the Nation, President Bush called for the
creation of "a single, permanent department with an overriding and urgent
mission: securing the homeland of America, and protecting the American
people." The President also stated, "The reason to create this department is not
to [increase] the size of government, but to increase its focus and effectiveness."
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After the President's announcement on June 6th, Treasury Secretary
O'Neill applauded President Bush for his bold plan to concentrate our homeland
security resources in a single Cabinet department. The Secretary said, "The
President has demonstrated real leadership, recognizing the new challenges we
face and redesigning our system to rise to those challenges. I fully support for
this plan to integrate our resources into one collaborative, efficient and nimble
structure to focus solely on protecting the American people."
Two days ago, President Bush toured Port Elizabeth, New Jersey, and
commended employees of the Customs Service, Coast Guard, and the New
York/New Jersey Port Authority for their vital work in keeping dangerous cargo
from entering our country. The President told the employees that his proposed
Homeland Security Department would make their jobs easier. President Bush
said, "It'll make our Federal government more responsive. It will allow us to
communicate better" to more effectively secure the homeland.
For over 200 years, the U.S. Customs Service has defended our country's
borders and facilitated legitimate international trade and travel. Since September
11 th, at the direction of the President, the top priority of Customs has been
responding to the continuing terrorist threat at our land borders, seaports, and
airports. The Customs Service is working diligently to protect homeland security
by keeping terrorists and terrorist weapons from entering the United States, while
enhancing our economic security by moving goods and people efficiently across
the borders.
The Customs Service has implemented several key programs since
September 11 th that respond to the new threat our country faces. "Operation
Green Quest," a Customs-led multi-agency initiative that targets terrorist
financing, has already initiated hundreds of investigations, aggressively moved
against terrorist funding sources, and led to the seizure of suspected terrorist
assets. With the Container Security Initiative (CSI), Customs is entering into
partnerships with foreign seaports to conduct pre-screening and more effective
risk targeting of sea containers, before they are shipped to our ports. Under
"Project Shield America," Customs agents monitor exports of strategic weapons
and materials from the U.S. to prevent international terrorist groups from
obtaining sensitive U.S. technology, weapons, and equipment that could be used
in a terrorist attack on ou r nation.
On April 16th of this year, Secretary O'Neill, Governor Ridge and
Commissioner Bonner launched the Customs-Trade Partnership Against
Terrorism (C-TPAT) in Detroit. C-TPAT is a unique partnership with U.S.
importers, carriers, brokers, and others to improve security along the entire
supply chain, while expediting the flow of legitimate commerce into the United
States.
2
The success of programs like CSI and C-TPAT demonstrates how
Customs seeks to balance its important dual missions of security enforcement
and trade facilitation, dual missions that are inextricably linked. With C-TPAT, for
example, Customs has been successful in recruiting companies to join the
program and make additional investments in supply chain security solely
because Customs is able to offer those companies the benefit of expedited
clearance at the borders. The same is largely true for CSI, which offers
expedited processing at U.S. ports for pre-screened cargo from its partner ports.
These programs underscore how Customs is capable of effectively increasing
security at the borders while facilitating the critical flow of trade into and out of the
United States. These programs also reflect how Customs has effectively
established partnerships with private industry to work together to protect our
borders.
Another example of how Customs' trade and enforcement functions are
intertwined can be seen in the way Customs inspectors, import specialists, and
special agents currently work closely with each other to enforce trade and antismuggling laws. When Customs inspectors make a substantial bulk cash seizure
at the border using resources such as canine enforcement teams and nonintrusive inspection equipment, they hand the case over to Customs special
agents. These agents then conduct a follow-up investigation, such as an
investigation into the source of the funds or the destination of the funds. This
cooperative effort between inspectors and special agents is a seamless one
precisely because of Customs' dual missions. The same is true with other
border-related enforcement matters, such as intellectual property piracy. What
begins as an infringement identification is often directly turned into an
investigative effort.
There are three additional points that may be self-evident, but cannot be
overlooked in describing the link between Customs' dual missions. First, many
trade enforcement functions are carried out by the same Customs personnel who
ensure border security. Second, Customs uses the information it receives from
trade compliance examinations and manifests also to assess security risks for
shipments. This information is the cornerstone of many of Customs' antiterrorism efforts. Third, Customs relies on the expertise of its trade enforcement
personnel to recognize anomalies in their review and processing of commercial
transactions information associated with the admissibility and entry of imported
goods that assist law enforcement in developing targeting criteria as well as
targeting suspect shipments and initiating investigations.
Recognizing these links, the President has proposed that the Customs
Service as a whole be transferred intact into the new Department of Homeland
Security. Under the President's plan, Customs will continue to administer and
enforce our Customs laws, protect our borders from terrorists, and facilitate the
flow of legitimate commerce.
3
The President's plan strikes the appropriate balance between
enforcement and trade facilitation that is so critical to our nation's economy and
security.
Mr. Chairman, the Department of the Treasury is proud of the vital role the
men and women of the Customs Service have played, and will continue to play
under the President's plan, in defending our homeland. Thank you again, Mr.
Chairman and the members of the Committee, for this opportunity to testify. I
would be happy to answer any questions you may have.
4
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Wednesday, June 26, 2002
Contact: Tasia Scolinos
(202) 622-2960
The Global Fight Against the Financing of Terror:
Prevention - A New Paradigm
Jimmy GuruIe
Under Secretary of the Treasury (Enforcement)
Speech Delivered to the Heritage Foundation
Washington, D.C.
It is a pleasure to be here today to discuss what for me, the Treasury Department, and United
States government has been our top priority since September 11 th; combating global terrorism and, more
specifically, terrorist financing. As we watched in utter horror the mass murder of innocent civilians at
the World Trade Center and the Pentagon, we all understood that we are at war with an enemy whose sole
purpose is to destroy our country and way of life, and terrorize the American people. On that fateful day,
the world changed forever; our national security is threatened from a stateless enemy willing to use
catastrophic means to create terror. Now, the principal goal of Government is to prevent future
calamitous attacks. Thus, our strategy must be proactive in nature - prevention is now our guiding
principle.
That is why immediately after September 11 th , President Bush marshaled the resources of the
Government to attack the scourge of terrorism in a bold and preventative way. He ordered the military to
take the fight to the heart of al Qaida in the Taliban-controlled Afghanistan. He directed the Justice
Department to bring the perpetrators to justice. And he ordered the Treasury Department to identify,
disrupt, and dismantle the global terrorist financial networks.
Proactive Prevention Using All Financial Tools
The mission of disrupting terrorist financing is proactive and preventative. We cannot afford to
wait for further terrorist attacks to occur before acting. Simply stated, we are trying to save human lives.
We are therefore targeting our intelligence, law enforcement, regulatory, and financial expertise and
resources to ferret out those who support, facilitate, and fuel the activities of terrorist groups. In doing so,
we seek to achieve three goals:
(1) We are making it more difficult for terrorist groups to transfer money that kills;
(2) We are deterring fundraisers, donors, and sympathizers from giving support and money to
terrorist groups; and
(3)We are uncovering terrorist networks that will provide the footprints for sleeper cells.
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I would like to read to you a portion of the al-Qaida Manual. It is instructive as to why it is
important to follow and cut the flow of money to terrorist groups. The Manual was discovered during a
search of an al Qaida member's home in England and introduced into evidence during the Embassy
bombings trial in New York. The Third Lesson in the Manual, entitled "Counterfeit Currency and Forged
Documents," discusses "Financial Security Precautions" that al Qaida members should take to secure
their operations. AI Qaida terrorists are instructed to:
1.
2.
3.
4.
5.
Divid[ e] operational funds into two parts: One part is to be invested in projects that offer financial
return, and the other is to be saved and not spent except during operations.
Not plac[ e] operational funds all in one place.
Not tell[] the Organization members about the location of the funds.
Hav[ e] proper protection while carrying large amounts of money.
Leav[e] the money with non-members and spend[] it as needed.
As you can see, this is an enemy that understands the need to cover their financial tracks while
simultaneously funneling funds to finance new acts of terror. While twisted ideology fuels their fervor,
money is the lifeblood of their activities. By cutting off or freezing their funds, we are striking at the
heart of their operations. Because we are facing an enemy with malignant cells planted around the world,
we must employ all our assets and resources to track and disrupt al-Qaida fundraising globally.
To that end, we have followed the President's directives and marshaled the Treasury
Department's unique financial forensic expertise in financial and electronic crimes, as well as our
contacts with the financial community both here and abroad to fulfill this mission.
On September 23, 2001, the President issued Executive Order 13324 that granted the Secretary of
the Treasury broad powers to freeze the assets of terrorist financiers and supporters. This authority has
given Treasury the ability to attack terrorist groups - not with bombs or criminal prosecutions, but with
financial actions based on the President's constitutional authorities. We have followed the money trail
and swiftly frozen the assets of 210 specially designated terrorist groups, individuals and entities who
comprise the support networks for terrorism. Worldwide we have blocked over $112 million of al Qaida,
TaIiban, and other terrorist funds and dismantled networks for channeling funds to terrorist groups.
These blocking actions have been the most public of our activities, and we think they have proven
effective. We have received the support of nearly the entire world in this effort, and 166 countries
currently have blocking orders in effect. The United Nations, under Security Council Resolution 1373,
has made the freezing, without delay, of terrorist-related assets mandatory on all Member States.
These actions will continue to be an essential part of our global strategy. The process of
identifying and investigating targets is ongoing. We have currently identified other financial entities,
businesses, groups, and persons for potential listing. Moreover, we are focusing on high-impact financial
intermediaries that act as financial conduits and facilitators for terrorist groups. Our ultimate goal is to
use this unique tool the President has authorized to prevent the perpetration of terrorist acts by attacking
the financial substructure of terrorism.
The United States government has also directed its law enforcement resources to attack terrorist
financing. On October 25, 2001, we created a Treasury-led task force known as Operation Green Quest
(OGQ). OGQ brings together the financial forensic expertise of the Customs Service, IRS-CI, Secret
Service, the Bureau of Alcohol, Tobacco and Firearms (ATF) , Financial Crimes Enforcement Network
(FinCEN), the Office of Foreign Assets Control (OFAC), the FBI, Postal Service, and the Naval Criminal
Investigative Service. This task force has taken a multi-jurisdictional approach to investigate and disrupt
terrorist financing schemes. Whether it's using our authorities to investigate cigarette smuggling and
2
trade violations or exploiting our access to Bank Secrecy Act data, we are tracking money flows
aggressively. Much in the same way that the Treasury was able to bring down Al Capone by use of the
tax laws, we are using our financial authorities to follow the money to uncover terrorist financing
networks.
At the same time, our efforts are not solely operational. We are also strengthening domestic and
global financial systems to make them more transparent and thereby prevent abuse by terrorist financiers.
At home, with the passage of the USA PATRIOT Act, we have engaged in an expansion and broadening
of the existing anti-money laundering regulations and laws. Financial institutions, like broker/dealers,
that once fell outside the anti-money laundering regulatory framework are now subject to appropriate
reporting requirements. We have also targeted high-risk systems, like shell banks, by prohibiting U.S.
banks from operating correspondent accounts for such institutions.
It is important to emphasize that we have made this effort global in nature. In late October,
Treasury hosted a meeting of the 29-member Financial Action Task Force on Money Laundering, which
has set international standards for creating anti-money laundering regimes. With our leadership, FATF
redirected its attention and expertise to the issue of terrorist financing and established eight Special
Recommendations for anti-terrorist financing. These Recommendations have quickly become the
international standard, recognized by the international financial institutions and regional organizations, by
which countries are evaluating their respective regulations and laws.
Two areas on which F ATF has concentrated attention are the abuse of charities and the potential
use of alternative remittance systems, like hawalas, to move money for terrorist groups. Terrorist groups
can abuse charities and use them to raise, conceal, and transfer money globally. Terrorists prey on the
goodwill of people throughout the world and use the images of hungry orphans and lonely widows to
raise money to pay for lethal arms and weapons and fund terrorist training camps. The United States
government, the FATF members, and countries around the world are reassessing how charities can be
regulated to prevent the misuse of donations and the corruption of charities.
.
With respect to alternative remittance systems, we have recognized that unregulated, informal
ways of moving money across borders, like the hawala system, pose a threat in the context of terrorism.
When a terrorist cell leader in one country can quickly effect the movement of money to an operative in
another country without physically transferring the funds, there is grave potential for abuse. Thus, the
expansion of regulations to all money service businesses, as has been done under the U.S.A. PATRIOT
Act, is an important step to ensure that such sectors are more accountable and transparent worldwide.
The international community has recognized this by endorsing the FATF principles and calling for
regulation of hawalas at a recent global conference in Abu Dhabi.
These efforts are critical in the war against terrorist financing. As we squeeze terrorist financiers,
making it more difficult for them to transfer funds through more traditional western banking systems,
they will resort to less conventional, less regulated ways of moving money. Smuggling cash or
commodities are certainly ways to move money or value surreptitiously. Thus, the Customs Service,
through Operation Green Quest, has engaged in increased vigilance at the borders to prevent bulk-cash
smuggling. Since September 11 t\ Customs inspectors have seized millions of dollars from individuals
trying to smuggle money out of the country.
To ensure the success of our global strategy, we need to encourage and assist countries to
improve their regulatory and financial systems and enhance their law enforcement capabilities. The
United Nations, F ATF, and other multilateral organizations have recognized the importance of delivering
technical assistance and training to countries around the world. The United States has been providing
3
needed assistance in the anti-terrorist financing and anti-money laundering fields, but the international
community is just starting to develop efficient means to deliver needed assistance.
At the same time, efforts to starve terrorist of funds will not be successful unless there is
continued cooperation with our international allies. Since September 11 th , foreign governments and
multi-national regional groups have been engaged in a global campaign to freeze the assets of terrorist
financiers. On March 11th, for example, the United States joined with the Kingdom of Saudi Arabia to
designate two branches of a Saudi-based charity as supporting terrorism. On April 19th , the G7 jointly
designated 10 targets in the first multi-lateral designation. The European Union has now published three
lists of terrorist groups and members. Additionally, law enforcement agencies from Asia to Europe are
moving aggressively against terrorist cells. Finally, multi-lateral and regional groups, like the G-20 and
APEC, have committed to action plans to address terrorist financing. This is truly a global undertaking
Greater Security Requires Creative Solutions
The threat of terrorism requires that we devise new and creative strategies to more effectively
utilize existing resources, expertise, and technology to attack this problem. This new focus demands a
recalculation of how the government will devote and target its resources, but it does not mean that
government has to be bigger.
Instead, this involves a reprioritization of existing expertise and resources, as well as enhanced
information sharing. For example, when we embarked on the mammoth task of freezing terrorist assets,
the President redirected intelligence resources to uncover these terrorist networks. At Treasury, we
employed the existing talents of the Office of Foreign Assets Control to quarterback the world-wide effort
to freeze assets. On the law enforcement front, we redirected the expertise of the Treasury Department's
financial investigators and the use of our financial and trade databases to focus on terrorist financing
schemes.
This reprioritization also requires greater cooperation and new ways of sharing information
among government agencies. Our efforts have been aided by the PATRIOT Act that has given the
Departments of Treasury and Justice the authority to share financial information with the intelligence
community in a way unavailable prior to September 11 tho The sharing of information and pooling of
resources and expertise is critical to identifying, disrupting, and dismantling terrorist networks. This is
plainly good government and represents improved efficiencies in the way we conduct our business.
Moreover, we must call upon the private sector to be vigilant. In this new type of war, our
financial institutions are on the front lines and the attentiveness of their employees, much like the
passengers who captured Richard Reid, is essential to our national security. From bank tellers to pawn
shop owners, attentiveness to anomalies in transactions is essential to uncovering illicit financial
networks. Soon after September 11 t\ the Treasury's FinCEN established a 24-hour toll-free number for
banks and financial institutions to call in suspicious transactions, as opposed to waiting for the normal
filing procedure. The response from the private sector has been outstanding, and several leads called into
this number have proven valuable to law enforcement.
The P ATRlOT Act ~lso allows for financial institutions to share financial information with each
other, and we are seeing the private sector take the onus of identifying suspicious customers upon
themselves. Tracking terrorist funds is a complex undertaking and we will need to rely more on the
ability of financial institutions to construct better ways of identifying suspicious activities, more efficient
ways of sorting through voluminous financial records and more effective ways of sharing information.
4
In short, the challenge to those of us in government is to think creatively. Simply stated, the
answer to every problem confronting our nation isn't more federal funding or another government
program. The hallmark of good governance in this era will be our ability to use existing resources in the
public and private sector, and abroad to attack terrorism.
Conclusion
As I previously stated, Treasury's principal mission is prevention -- to disrupt terrorist financial
networks and to permanently shut the doors on these bankers of death and destruction. By doing so, we
believe that we can prevent future terrorist attacks and save lives. Although the task at hand is not an
easy one, I am pleased to report that the Administration's strategy has realized some success. We know
that Al Qaida members are having difficulty moving money globally. Potential donors are reluctant to
donate money for fear of having their assets frozen and their names blacklisted by the international
community. In sum, our strategy has forced al Qaida fundraisers out of their comfort zone.
Moreover, there are other encouraging signs including almost daily reports of foreign
governments enacting new anti-money laundering and terrorist funding legislation, terrorist funds being
blocked abroad, and al Qaida cell members being rooted out and arrested by foreign law enforcement
officers.
Most importantly, the Bush Administration's efforts have mobilized the international community
against terrorism. As I have stated, prevention is the goal. This new paradigm for security requires that
we use all available resources to prevent the next terrorist attack, because the consequences are too
horrific to imagine. This means working smarter, cooperatively and sharing information between federal,
state and local law enforcement and the intelligence communities, as well as working more effectively
with members of the private sector, and our partners abroad. Only working together can we defeat the
global threat of terrorism.
5
DEP,A~TMENT OF THE' TRE'ASURY
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NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. 9 20220
FOR IMMEDIATE RELEASE
Wednesday, June 26, 2002
II
(202) 622-2960
Contact: Tony Fratto
(202) 622-2960
U.S. SIGNS DEBT-FOR-NATURE AGREEMENT WITH PERU
REMARKS BY UNDER SECRETARY JOHN B. TAYLOR
Good afternoon, and thank you for joining us today for the signing of the debt-for-nature
agreements for Peru under the Tropical Forest Conservation Act (TFCA).
I would like to welcome Ambassador Wagner and Minister Kuczynski, Roberto Roca from
Conservation International, Gregory Miller from the Nature Conservancy, David Sandalow from
the World Wildlife Fund, and Representative Portman. Representative Portman's work on the
TFCA, as well that of Senators Biden and Lugar, has been an essential part of the bipartisan
support that has made today's agreement possible.
As President Bush said at last year's Summit of the Americas, "We are committed to protecting
this hemisphere'S natural resources. That's why I am committed to using the Tropical Forest
Conservation Act to help countries redirect debt payment towards local projects that will protect
biodiversity and tropical forests." That is exactly what today's agre-ements do. U.S. debt
forgiveness will allow Peru to devote $10.6 million to finance tropical forest conservation
activities in Peru over a 12-year period. These funds will go toward the establishment,
restoration and maintenance of parks, protected areas, and reserves, as well as train scientists,
technicians, and managers involved in conservation.
These activities will help protect Peru's natural riches for future generations. From the top of the
Andes to the Amazon basin, Peru is home to 84 of the 103 types of "life zones" found on Earth,
with nine "life zones" in Machu Picchu alone. The funds generated will go towards protecting
rainforests in Peru, including the Peruvian Amazon. This area is home to dozens of endangered
species, such as the jaguar, harpy eagle, the giant river otter, black caiman, and several species of
macaws and rare plants such as walking palms and giant water lilies.
This agreement would not be possible without the important financial contribution of
Conservation International, the Nature Conservancy, and the World Wildlife Fund. Together,
these three groups made a contribution of $1.1 million to this debt swap. We are grateful for their
support and tireless efforts to aid this U.S. agenda.
PO-3207
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This isn't the first time the Treasury worked to fulfill this mission, and it won't be the last.
Today's agreements mark the second U.S. debt-for-nature swap, and the fifth agreement
concluded under the Tropical Forest Conservation Act. Weare still looking to extend the
benefits of the program. We have already seen agreements with Bangladesh, Belize, El Salvador,
and Thailand, we expect to conclude an agreement with the Philippines this year.
Before signing, I invite the Finance Minister from Peru, Mr. Pedro Paulo Kuczynski to say a few
words about the agreement. Let me introduce Pedro Pablo by commenting on how well he has
served Peru. He has been an effective leader and advocate of strong economic policies. Earlier
this year, his Finance Ministry brought the first sovereign issuance to the international capital
markets in over 70 years. And they are doing fine work in the local market as well, where the
country is creating a formal, periodic local-currency debt market that we all hope will begin to
serve the corporate sector as well. It gives me great pleasure to sign this deal with my colleague.
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STATEMENT OF PAUL SPELTZ
NOMINEE FOR UNITED STATES EXECUTIVE DIRECTOR FOR THE
ASIAN DEVELOPMENT BANK
BEFORE THE COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
Thank you, Mr. Chairman, Senator Allen and Members of the Committee. I am
deeply honored for having the privilege of sitting here before you to be considered for
confinnation by your esteemed committee. I, of course, also feel very honored to have
been nominated by President Bush to serve as the Executive Director of the Asian
Development Bank (ADB).
Before proceeding, and with the Chairman's permission, may I introduce you to,
and comment on my family members? My wife Renee is the stabilizing force in my life,
helping me to keep my feet on the ground, family priorities in order, and my shirt collars
properly turned down. A difficult task for her, at best, many times, and I thank her for
many years of love and support. Also, with your indulgence Mr. Chairman, although not
present due to work obligations and long travel, I thank our three grown children,
Matthew, Alec and Jessica, spread across the State of Texas and into California, my sister
Karen, brother, David and father, Eugene, spread across the east coast ofthe US for their
long distance support this important date. I also wish to note my mother, Elizabeth, who,
with my father, was a guiding light in my life, as it is the case with most of us. She was
totally committed to be here with us today in this Chamber, but most unfortunately she
died recently. I am however, confident, that she is here in spirit.
The ADB is a very important partnership for the United States, especially during
these critical times. The responsibilities of this institution include over half of the world's
population and such countries as Afghanistan, Pakistan, and India, all of which figure so
predominantly in today's headlines. The underlying role of the ADB is to reduce poverty
and increase economic growth. It must do so through economic programs that enhance
human development, private sector growth, good governance, transparency, and the
environment.
PO-3208
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Mr. Chainnan, I have witnessed first hand heart wrenching poverty. However, I
have also been encouraged over the decades by the growth in the standard of living of
many of the countries in which I have worked. Additionally, I hope to continue to see a
move to many of the principles and freedoms that we enjoy and advocate in the USA.
If confinned for this position, I would utilize the skills and lessons learned over
some 30 years of working, living and traveling throughout much of this region of the
world. I am an experienced multinational, culturally sensitive negotiator, and hands on
executive.
Thank you again Mr. Chairman for your time and the privilege of appearing here
today. I would be pleased to answer any questions you or the members of the Committee
may wish to ask of me.
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STATEMENT OF MARK SULLIVAN
NOMINEE FOR UNITED STATES EXECUTIVE DIRECTOR FOR THE
EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT
BEFORE THE COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
Thank you very much, Mr. Chairman, Senator Allen and Members of the
Committee, for the opportunity to appear before you today. It is a great honor to have
been nominated by President Bush to be the United States Executive Director for the
European Bank for Reconstruction and Development (EBRD), and I am particUlarly
grateful to have the privilege of appearing before you.
Before proceeding with my statement, and with your permission Mr. Chairman, I
would like to acknowledge two members of my family who are here with me today.
They are my son, Jamie, who is currently engaged in government service, and my
daughter, Abby, who recently graduated from college and is interested in pursuing a
career in international relations. My wife of thirty years, Susan, could not be here. today.
She is studying for her comprehensive exams for her Masters degree in special education
focusing on children with learning disabilities.
The agreement establishing the EBRD provides that the purpose of the Bank is to
foster the transition towards market-oriented economies and to promote private sector
and entrepreneurial initiative in its countries of operations that are committed to and
applying the principles of multi-party democracy and pluralism. The President and
Secretary O'Neill have articulated an agenda for enhancing development in such
countries, with a focus on productivity growth and stressing the importance of private
investment and human capital. At the Bank's annual meeting in Bucharest last month,
the Secretary said that the EBRD was well designed and well positioned to advance that
agenda. I share the Secretary's conviction that the Bank has a positive role to play in the
twenty-seven transition countries. If I am fortunate enough to be confirmed, it would be
a great privilege and honor to represent the United States on the Board of Directors of the
European Bank for Reconstruction and Development.
My career includes both public and private sector experience. As an attorney, the
majority of my work has been in the financial services area where I have represented a
variety of financial services providers in transactional and policy matters.
PO-3209
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"" S Ggyernment prjolioQ Office 199L6~9
My practice also i.Q.volved a successful effort to include a consumer finance-.
chapter in the N~h Aniericiki.Fif'C Trade Agreement and representing clients on projects
in Central America, the Middle East and Romania. More recently, I have been involved'
in working on the development of secondary market mechanisms for the securitization of
the unguaranteed portions of Section 7(a) SBA guaranteed loans.
During my government service, I was privileged to have the Senate confirm me as
the General Counsel of the Department of the Treasury and I dealt with issues including
foreign debt restructurings, sanctions programs, foreign investment in the United States
and foreign military sales among many others. I also served on the board of the Federal
Financing Bank and as a member of the Council of the Administrative Conference of the
United States and was a member of its Special Committee on Financial Services.
I am particularly grateful to President Bush for the opportunity to serve my
country. If confirmed, I hope that each of my experiences over the last thirty years will
enable me to serve as an effective U.S.E.D. to the EBRD and advance the interests of the
United States.
Thank you again, Mr. Chairman, for the opportunity to appear before you and the
Committee today. I would be pleased to answer any questions that you and the other
members of the Committee may have.
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • \Vashington, DC 20239
FOR Jly1MEDJATE RELEASE
June 26,2002
Contact: Peter Hollenbach
(202)691-3502
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS O\VNERS
AFFECTED BY WILDFIRES IN COLORADO
The Bureau of Public Debt took action to assist victims of wildfires in Colorado by expediting the
replacement or payment of United States Savings Bonds for mvners in the affected areas. The
emergency procedures are effective immediately for paying agents and ovmers in those areas of
Colorado affected by the storms. These procedures will remain in effect through the end of August
2002.
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. 1\10st financial institutions serve as paying agents for savings bonds.
~>
Colorado jurisdictions involved are: Adams, Alamosa, Arapahoe, Archuleta, Baca, Bent, Bou1der,
Broomfield and the city of Broomfield, Chaffee, Cheyenne, Clear Creek, Conejos, Costilla,
Crowley, Custer, Delta, Denver and the city of Denver, Dolores, Douglas, Eagle, Elbert, El Paso,
Frcrnonl, Garficld~Gilpin, Grand, Gunnison, HinsJde, IIuer[:,il:J, Jefferson, Kiov/a,- K~t C::Yr'SOD,
Lake, La Plata, Las Animas, Lincoln, Mesa, Mineral, Moffat, Montezuma, Montrose, Otero,
Ouray, Park, Pitkin, Pueblo, Rio Blanco, Rio Grande, Rontt, Saguache, San Juan, San Miguel,
Summit, Teller, Vlashington and Yuma, and the Southern Ute and Ute Mountain reservations.
Should additional counties be declared disaster areas the emergency procedures for savings bonds
owners will go into effect for those areas.
Public Debt 'will also expedite the replacement of bonds lost or destroyed. Bond owners should
complete fOlm PD-1048, available at most financial institutions or by writing the Kansas City
Federal Reserve Bank's Savings Bond Customer Service Department, 925 Grand Boulevard,
Kansas City, Missouri 64198; phone (816) 881-2000. This fOlTI1 can also be downloaded from
Public Debt's website at: www.publicdebttreas.gov. Bond owners should include as much
infonnation as possible about the lost bonds 011 the form. This infonnation should include how the
bonds were inscribed, social secmity number, and approximate dates of issue, bond denominations
and selial numbers if available. A notary public or an officer of a financial institution must certify
the completed fonn. Completed forms should be fOlwarded to Public Debt's Savings Bond
Operations Office located at 200 Third St., Parkersburg, West Virginia 26106-1328. Bond owners
should write the word "DISASTER" on the front of their envelopes, to help expedite the processing
of claims.
PO-3210
000
PA-560
PUBLI'C DEBT NEWS
Department of the Treasury
0
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 26, 2002
Contact: Peter Hollenbach
(202)691-3502
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS O'VNERS
AFFECTED BY FLOODING IN MINNESOTA AND IOWA
The Bureau of Public Debt took action to assist victims of flooding in Minnesota and Iowa 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 Minnesota and Iowa affected by the storms. These procedures will remain in effect through
the end of August 2002.
Public Debt's action waives the nom1al 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.
Minnesota counties involved are: Beltrami, Kittson, Koochiching, Lake of the Woods, Marshall,
Norman, Pennington, Polk, Red Lake and Roseau. In Iowa the counties are Clayton, Clinton,
Delaware, Dubuque, Jackson, Jones and Linn. Should additional counties be declared disaster areas
the emergency procedures for savings bonds owners will go into effect for those areas.
Public Debt will also expedite the replacement of bonds lost or destroyed. Bond owners should
complete form PD-1048, available at most financial institutions or by writing the Milmeapolis
Federal Reserve Bank's Savings Bond Customer Service Department, 90 Hennepin Avenue,
Minneapolis, Minnesota 55401; phone (612) 204-5000. This foml 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 foml. This information should include how the
bonds were inscribed, social security number, and approximate dates of issue, bond denominations
and serial numbers if available. A notary public or an officer of a financial institution must certify
the completed form. 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 "DISASTER" on the front of their envelopes, to help expedite the processing
of claims.
000
PA-561
PO-3211
D E P .\ R T \1 E :\ T
0 F
T Ii E
T R E :\ SUI{ \'
NEWS
omCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C.. !GHO. (202) 622-2960
EMBARGOED UNTIL 10 A.M. EDT
VVednesday, June 27, 2002
Contact: Michele Davis
(202) 622-2960
Treasury Secretary Paul H. O'Neill
Testimony to the House International Relations Committee
Regarding Economic Development in Africa
Chairman Hyde, Ranking Member Lantos, and Members of the Committee, thank
you for inviting me to talk to you today about my recent trip to Africa, and the
President's initiatives to improve conditions in the developing world.
I went to Africa last month to listen and learn; to meet African leaders in and out
of government, to meet doctors, farmers, teachers, students, and entrepreneurs. I went to
hear their insights into the obstacles to Africa's prosperity.
I also went to find a real-world basis for recommendations to the President on
how to allocate funds from the new Millennium Challenge Account. But most of all, I
went with an open mind, and one pivotal question: How can the people of the United
States and the developed world best help Africans and their elected leaders achieve
prosperity at last?
I learned a great deal, and I want to share some of my experience with the
Members of the Committee.
I have to say these were the most intense twelve days I've ever experienced. I
met people like Sister Benedicta, who runs a hospital and orphanage in Ethiopia. She
maintained an incredible radiance, even as she told us how many people die in her
hospital every day - how many children die in her hospital every day. To witness that
strength of spirit is a truly profound experience.
This trip confinned three things for me. First, a truth we've always known: All
people everywhere can do great things when they are given the tools and incentives for
success. Second, that with leadership - honest, accountable, and committed to progress everything is possible. VVithout leadership, nothing is possible. And finally, that in the
right environment - focused on growth, enterprise and human development - aid works.
Knowing that it can work, we have a moral duty to demand as much. Assistance should
make a real difference in people's lives.
PO-3212
For press releases, speeches, public schedules and tdJicialipographies, coll our 24.J&our fax line at (202) 622-2040
·U.S. Government Printing Office: 1998 - 619-559
We in the developed world must support African leaders who are creating the
conditions for success - ruling justly, encouraging economic freedom, and investing in
their people. And we must ourselves take a leadership role in demanding results.
In Africa, I saw signs of progress everywhere. Programs are working, aid is
helping, and standards of living are improving. But there is a long way to go. The
progress I saw deserves praise, but it just isn't enough.
Let me highlight the areas in which we witnessed progress.. In particular, I saw
three kinds of investments in people that are vital to realizing Africa's potential: clean
water, primary education, and fighting HIV/AIDS.
Clean water is, surely, one of the most essential elements of a dignified, civilized
life. No aspect of infrastructure is more basic. Yet 45% of sub-Saharan Africans lack
access to clean, safe water. That's about 300 million people - more than the total
popUlation of the United States. In Ethiopia, that figure is 78%, or 50 million people in
that country alone.
One insight from my Africa tour is that local leaders, with some engineering and
financial support, could develop clean water sources for their towns and villages fairly
quickly. For example, in one Ugandan village I saw a concrete basin installed to protect
a natural spring. The women of the village could collect the water directly from the basin
instead of collecting it after it spilled across the muddy ground. The concrete basin cost a
thousand dollars to install.
But the local chairman for the project told me that the greatest hindrance to
installing the system had been local fears that a snake was protecting the spring, and that
the snake would become enraged by any tampering and would take away the water. He
had to spend considerable time persuading his fellow villagers to go ahead with the
project. It took his leadership to get the project finished.
Or consider another village, where women were trekking to a muddy river to
obtain water, even after a well was dug in the village. After the well was built, the
women wouldn't use it. It turns out that they valued their social time down by the river,
and so they chose to continue collecting dirty water from the river, rather than clean
water from the well. When the water tap was relocated further from the village,
providing an opportunity to socialize, they started to use it.
In these and other cases, only local leadership could tailor development projects
to suit local customs and culture. And it was sometimes shocking to see the disconnect
between the aid bureaucracies with their grand, expensive, multi-year plans and the
availability of more immediate, practical solutions. It made me wonder how much was
going to aid, and how much to bureaucracy.
2
Compounding the problem are the changing demographics in Africa, especially
the fast growing urban populations. Africa's urban infrastructure, including water and
sanitation systems, is antiquated and overextended.
If we can figure out a way to support African leaders in bringing local solutions
for clean water to their nations - and I think we can do that much faster and cheaper than
the endless studies say we can - we can liberate hundreds of millions of people,
especially women and children, from preventable, debilitating illness and meaningless,
wearisome labor. They would be free to pursue their dreams for a better life.
The second important investment I saw was in raising primary education
enrollment. I believe that in Africa, in the United States, and in every part of the world,
children by the age of about ten years old should and can have the tools to be life-long
learners. But that requires that they get into schools at an early age, and stay in school,
with well-trained teachers and adequate materials.
In Uganda, they've had tremendous success increasing primary school
enrollment. Primary school enrollment has increased from about half (55%) of the
children in 1994 to nearly all of them (94%) in 1999, and nearly half the students are
girls. Education quality is improving as well. But there is still a long way to go. I
visited schools where they have gone from a ratio of 16 students per book down to six per
book. That's progress, but it's not good enough. We must set our expectations higher.
Surely, we can get every student his or her own book.
That is why President Bush committed last week to doubling funds for the .
African Education Initiative, which was first announced last July. This will raise our
total spending on the initiative to $200 million over the next 5 years. The program will
train more teachers, provide scholarships for girls - who are disproportionately excluded
from schooling today - and work with historically Black colleges in the U.S. to supply
millions more books to African children. It will also promote accountability and
transparency in the school systems, so that communities can ensure that all the funds that
are supposed to reach teachers and children are really reaching them.
The third, perhaps most crucial area for investment in people is health care.
Nowhere is this more urgent, and more heartbreaking, than in the struggle against AIDS.
In South Africa I saw mothers with AIDS caring for babies with AIDS, even when
proven, inexpensive drugs are available to stop transmission between mother and child. I
saw the dedication of nurses and doctors treating people with AIDS, and their patients'
struggle to survive.
Prevention of further HN contagion is the utmost priority, especially to keep the
next generation of newborns free from disease.
3
The President has therefore stated his intention to provide $500 million in
funding for the International Mother and Child HN Prevention Initiative. This initiative
will increase our commitment to preventing infant HIV infection abroad by almost $200
million next year alone, up from less than $20 million last year. It will increase another
50% in 2004. We will start with the hardest-hit countries in Africa and the Caribbean,
and expand the program as it shows progress.
In addition to promoting nevirapine dosing at birth, which can reduce mother-tochild mv transmission by up to 50 percent, the Presidenfs initiative will introduce more
advanced combination antiretroviral therapy and best-practice postnatal care where local
healthcare infrastructure permits. At least as important, it will improve healthcare
training and delivery systems throughout the affected regions, bringing public and private
resources to bear.
This is our challenge: to focus the attention of the world on getting results.
Caring greatly is not enough. We must also succeed greatly.
Providing the framework for basic health and education is fundamental for
enabling people to realize their potential. When governments are investing in their
people, providing clean water, education, and health care, and when the other aspects of
good governance are present - just rule and economic freedom - prosperity can blossom.
In fact, the private sector is already growing in parts of Africa. I visited
entrepreneurs who are grabbing the opportunities that good governance has made
possible. They are creating jobs in industries from coffee and cut flowers to athletic wear
and data processing.
Government provides the conditions for growth, but it is not the source of
prosperity. Private citizens create prosperity through enterprise.
And in Africa, where the conditions are right, citizens are doing just that.
For example, in Ghana I visited a successful U.S. investment, called Affiliated
Computer Services, Inc. ACS sells data processing services to insurance companies in
the U.S. It opened its office there in 2000, and already it employs over 800 Ghanaians,
paying an average of three times the average wage in Ghana 80% of the employees are
women. The company now plans to expand its operations to four new sites in Ghana and
to increase its workforce to over 1,000 people.
As foreign investments like ACS show success, others are bound to follow, and I
am optimistic that increasingly advanced services, such as software development, will
thrive in Ghana and elsewhere in Africa.
In Uganda, I met a woman, Lukia Ssemonobe, who opened a restaurant with
micro-loan funding and a lot of hard work. This woman lost her husband a dozen years
ago, and had to feed four children without income.
4
Indomitable, she borrowed $50 from the local branch of a lDlcro-finance NGO,
and used that and subsequent loans to build two businesses - a restaurant and then a
tailoring shop. Now she employs about a dozen of her neighbors, supports her family,
owns a home, and has become a leader in the community, caring for AIDS orphans.
In Ethiopia, an entrepreneur from Chicago invested in building a garment factory
that makes sports clothes and ships them to the U.S. under the Africa Growth and
Opportunity Act. The company now employs about 200 workers, each earning between
three and 21 times the average Ethiopian income.
Jobs that deliver prosperity are created one at a time, by people like Lukia, or the
investors in ACS. They see opportunities and choose to take the risks, confident they
will reap the rewards of success.
Unfortunately, in too many cases, potential entrepreneurs and investors in Africa
are deterred by arbitrary laws, corrupt bureaucracies and government favoritism. Africa
is a continent of entrepreneurial enthusiasm - that's what I saw. But these individuals
have no chance for success without governments that fairly enforce laws and contracts,
respect human rights and property, and fight corruption. Governments also must remove
barriers to trade - both internal and external- and open their economies to investment.
They must allow companies and entrepreneurs to compete without excessive interference,
including interference from government-owned enterprises.
That's no small order. But as private sector production takes hold in Africa, and
incomes rise, African growth will become self-sustaining. Africa will be its own best
market.
Coming back to my original question, what can we in the U.S. do to support
African success? In addition to supporting President Bush's new initiatives for stopping
the spread of HN and broadening access to education in Africa, we need to push ahead
with the rest of his reform agenda, which includes restructuring, increasing, and
improving the effectiveness of wealthy nations' support for African development.
On March 14, 2002 President Bush announced that the United States will increase
its core assistance to developing countries by 50% over the next 3 years, resulting in a $5
billion annual increase over current levels by FY 2006. This increased assistance will go
to a new Millennium Challenge Account that funds initiatives to improve the economies
and standards of living in qualified developing countries. The goal of the Millennium
Challenge Account is to reward sound policy decisions that support economic growth and
reduce poverty.
The Millennium Challenge Account recognizes that economic development
assistance can be successful only if it is linked to sound policies in developing countries.
The President therefore instructed Secretary of State Colin Powell and myself to develop
a set of clear, concrete, and objective criteria for measuring progress in three key areas:
rulingjustly, investing in people and encouraging economic freedom.
5
Treasury has been working with State and an interagency group to investigate
options for criteria and country selection.
The same policies that make a country eligible for Millennium Challenge grants
will also make other official aid more effective. We are not setting out to pile one more
program on the layers already present. We aim to improve them all, and streamline the
aid process wherever we can. Too many of the responsible developing countries already
labor under the demands of countless bilateral, multilateral and NGO aid bureaucracies.
These organizations mean well, but poor countries end up consuming a large part of their
aid allocations - and then some - just trying to qualify for the next helping. Sometimes it
seems that more money goes to administration than assistance.
Also, international donors have sometimes knowingly made loans to poor
countries for programs that could never generate a return sufficient to pay back the
principal and interest due. The reality is that essential investments in sectors such as
education and health care - investments in people - cannot directly generate the
incremental revenue to service new debt. Of course, in many other cases, loans simply
financed corrupt leaders, who stole the money and left their impoverished citizens
saddled with the debt.
As a result, many caring people now extol debt forgiveness as the path to African
development. I would agree that debt forgiveness may help, but it alone is not the
solution.
First, debt forgiveness solves nothing if we allow new debt to create the next
generation of heavily indebted poor countries a decade from now. To prevent this
situation in the future, President Bush proposed a year ago that up to SO percent of the
multilateral development funds to the poorest countries be provided as grants instead of
loans. President Bush's proposal led to intensive discussions with our development
partners, and the principle of substantial grant financing for the poorest countries will be
embodied in an agreement among the donors to the thirteenth replenishment of the
International Development Association (IDA-l3). African nations will be the largest
beneficiaries of this initiative, under which all financing to the poorest countries for
H1VIAIDS, and nearly all for other key social sectors, will be provided with grants.
The United States is also increasing its financial contribution to IDA-I3 and to the
replenishment of the African Development Fund by 18 percent. IDA programs need only
show they are making a difference in people's lives to receive a portion of these
additional funds - a challenge development organizations, their supporters, and their
beneficiaries should welcome.
Replacing loans with targeted grants will eliminate the need for governments to
repay long-term investments in people. It will thereby help eliminate the next generation
of debt service problems. It is time to end the sad cycle of indebtedness for countries
committed to success.
6
But it is also a simple fact that even without debt, it is impossible to prosper
without income. Even if we forgave all debts, many of these countries still could not
fund their own budgets, and they would immediately have to borrow more. In Uganda,
over half of the government budget comes from foreign aid. Half the budget! That is not
a sustainable situation. The only way out of that kind of shortfall is internal economic
growth. Local leaders must create the conditions for self-sustaining prosperity, not
further dependency.
In the long-term, domestic entrepreneurship as well as trade and foreign
investment are far more important for economic growth than official aid. The purpose of
aid is to speed the transition to economic independence. But we are using other
mechanisms to help as well. For example, the United States created the Africa Growth
and Opportunity Act to open U.S. markets to exports from sub-Saharan Africa. As
Uganda's President Museveni said ''If somebody buys what Uganda produces, then he is
rendering my country the best assistance possible."
The Africa I saw on my journey is already changing. And we in America stand
ready to help, eager and impatient to support real improvement in the lives of the African
people.
I believe this: with the right combination of aid and accountability - from both
rich nations and poor ones - we can accelerate the spread of clean water, education, and
healthcare throughout Africa. We can help the African people create vibrant, selfsustaining economies founded on private enterprise, which will generate a rising standard
of living.
With the support of the Members of this Committee, and the United States
Congress, we can help Africa achieve prosperity at last. Not in the next generation, but
right now. In this era of global opportunity, no continent, no country, and no person
should be left behind. President Bush said it best - there are no second class citizens in
the human race. We must make his vision into a worldwide reality.
Thank you.
7
D E P .\ R T " E :\ T
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T REA S lJ
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Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
CONTACT: BETSY HOLAHAN
202-622-2960
FOR IlVIMEDIATE RELEASE
June 27, 2002
TREASURY TO DELAY ANNOUNCElVIENT OF WEEKLY BILLS
The Treasury Department is postponing announcement of its weekly 13-week and 26week bill auctions, scheduled to be announced June 27, 2002, until further notice.
-30-
PO-3213
For press reierues, 5pe&ches, ~lJublic schedules and {}fficial biographies, callouT 24-fwur fa:: line at (202) 522-2040
~li c: GQilemmegt 85'9$:09
OWC@" 199B .
519-558
D E P .\ R T :\, E :\ T
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THE
T REA S II
ny
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 27,2002
Contact: Rob Nichols
(202) 622-2960
STATEMENT BY TREASURY SECRETARY PAUL O'NEILL
ON HOUSE PASSAGE OF LEGISLATION
TO INCREASE THE STATUTORY DEBT CEILING
I applaud House Speaker Dennis Hastert for bringing to the floor legislation to increase the
statutory debt ceiling. The bipartisan House Members who voted for this legislation heeded the
President's call to put politics aside and did the right thing for the country_ They stood up for the
soundness and strength of the American economy and preserved the full faith and credit of the
United States Government.
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PO-3214
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (2()2) 622-2040
'U S Government Printing Office: 1998 - 619-55(>
OFFICE OF PUBLIC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.' WASHINGTON, D.C., 20220' (202) 622-2960
EMBARGOED UNTIL 8:15 A.M.
June 28, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 2-YEAR NOTES
The Treasury will auction $27,000 million of 2-year notes to refund $20,334
million of publicly held notes maturing June 3D, 2002, and to raise new cash of
approximately $6,666 million. The announcement of this offering, originally
scheduled for June 19, 2002, was postponed on June 17, 2002.
The auction date has been changed from the scheduled date of June 26, 2002 to
today, June 28, 2002, with closing times for receipt of noncompetitive and
competitive tenders at 10:30 a.m. and 11:00 a.m. eastern daylight saving time,
respectively.
In addition to the public holdings, Federal Reserve Banks hold $7,046 million
of the maturing notes for their own accounts, which may be refunded by issuing
an additional amount of the new security.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of the auction. These
noncompetitive bids will have a limit of $100 million per account and will be
accepted in the order of smallest to largest, up to the aggregate award limit of
$1,000 million.
Treasu~Direct
customers requested that we reinvest their maturing holdings
of approximately $848 million into the 2-year note.
The auction will be conducted
tive and noncompetitive awards will
tenders. The allocation percentage
be rounded up to the next hundredth
in the single-price auction format. All competibe at the highest yield of accepted competitive
applied to bids awarded at the highest yield will
of a whole percentage point, e.g., 17.13%.
The notes 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 BookEntry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as amended).
Details about the new security are given in the attached offering highlights.
000
Attachment
)... 3215
'1'or press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING TO THE PUBLIC OF
2-YEAR NOTES TO BE ISSUED JULY 1, 2002
June 28, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . ······ $27,000 million
Description of Offering:
Term and type of security ................ ·.···
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ··
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ··
Dated date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2-year notes
P-2004
912828 AE 0
June 28, 2002
July I, 2002
June 30, 2002
June 30, 2004
Determined based on the highest
accepted competitive bid
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
Interest payment dates . . . . . . . . . . . . . . . . . . . . . . . . December 31 and June 30
Minimum bid amount and multiples . . . . . . . . . . . . . . $1,000
Accrued interest payable by investor .......... Determined at auction
Premium or discount . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
STRIPS Information:
Minimum amount required . . . . . . . . . . . . . . . . . . . . . . . $1,000
Corpus CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . 912820 HB 6
Due date(s) and CUSIP number(s)
for additional TINT(s) . . . . . . . . . . . . . . . . . . . . . . June 30, 2004 - - 912833 YV 6
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $5 million at the highest accepted yield.
Foreign and International Monetary Authority (FIMA) bids: Noncompetitive bids
submitted through the Federal Reserve Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $100
million awarded per account. The total noncompetitive amount awarded to Federal
Reserve Banks as agents for FIMA accounts will not exceed $1,000 million. A
single bid that would cause the limit to be exceeded will be partially accepted
in the amount that brings the aggregate award total to the $1,000 million limit.
However, if there are two or more bids of equal amounts that would cause the
limit to be exceeded, each will be prorated to avoid exceedi?g the limit.
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 10:30 a.m. eastern daylight saving time on auction day.
Competitive tenders:
Prior to 11:00 a.m. eastern daylight saving 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.
D E P .\ R T \1 E ~ T
0 F
THE
T REA S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
EMBARGOED UNTIL 8:15 A.M.
June 28, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction 13-week ~nd 26-week Treasury bills totaling $32,000
million to refund an estimated $27,793 million of publicly held 13-week and 26-week
Treasury bills maturing July 5, 2002, and to raise new cash of .approximately $4,207
million. The announcement of these offerings, originally scheduled for yesterday,
June 27, 2002, was postponed yesterday. Also maturing is an estimated $18,000 million
of publicly held 4-week Treasury bills, the disposition of which will be announced
July 1, 2002.
The Federal Reserve System holds $12,768 million of the Treasury bills maturing
on July 5, 2002, in the System Open Market Account (SOMA). This amount may be
refunded at the highest discount rate of accepted competitive tenders either in these
auctions or the 4-week Treasury bill auction to be held July 2, 2002. Amounts awarded
to SOMA will be in addition to the offering amount.
Up to $1,000 million in noncompetitive bids from Foreign and International
Monetary Authority (FIMA) accounts bidding through the Federal Reserve Bank of New
York will be included within the offering amount of each auction. These
noncompetitive bids will have a limit of $100 million per account and will be accepted
in the order of smallest to largest, up to the aggregate award limit of $1,000
million.
Treasu~Direct
customers have requested that we reinvest their maturing holdings
of approximately $1,018 million into the 13-week bill and $859 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be rounded up to the next hundredth of a whole percentage point, e.g., 17.13%.
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
Attachment
PO-3216
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 JULY 5, 2002
June 28,
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . $ 3,800 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 . . . . . . . . . . .
90-day bill
912795 LD 1
July 1, 2002
July 5, 2002
October 3" 2002
April 4, 2002
$15,022 million
$1,000
2002
$15,000 million
$15,000 million
None
181-day bill
912795 LS 8
July I, 2002
July 5, 2002
January 2, 2003
July 5, 2002
$1.,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids:
Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bids:
Noncompetitive bids submitted through the Federal Reserve
Banks as agents for FIMA accounts.
Accepted in order of size from smallest to largest with no more than $108
million awarded per account.
The total noncompetitive amount awarded to Federal Reserve Banks as agents foriFIMA
accounts will not exceed $1,000 million.
A single bid that would cause the limit to be exceeded will
be partially accepted in the amount that brings the aggregate award total to the $1,000 million limit.
However,
if there are two or more bids of equal amounts that would cause the limit to be exceeded, each will be prorated
to avoid exceeding the limit.
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 (NLP) 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.
~ximum Recognized Bid at a Single Rate . . . . . . . . 35% of public offering
loI3.ximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders . . . . . Prior to 12:00 noon eastern daylight saving time on auction day
Competitive tenders . . . . . . . . Prior to 1:00 p.m. eastern daylight saving time on auction day
~yment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
~th tender.
Treasu~Direct customers can use the Pay Direct feature which authorizes a charge to their account of
:Qacord at their financial institut'ion 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:
FOR IMMEDIATE RELEASE
June 28, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
Issue Date:
Dated Date:
Maturity Date:
2 7/8%
P-2004
912828AEO
High Yield:
Price:
2.970%
July 01, 2002
June 30, 2002
June 30, 2004
99.817
All noncompetitive and successful competitive bidders were awarded
securities at the high yield.
Tenders at the high yield were
allotted 69.04%.
All tenders at lower yields were accepted in full.
Accrued interest of $ 0.07813 per $1,000 must be paid for the period
from June 30, 2002 to July 01, 2002.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type·
------------~.~--
Competitive
Noncompetitive
FIMA (noncompetitive)
$
34,295,564
1,142,627
27,000,243 1/
35,438,191
7,046,300
7,046,300
Federal Reserve
$
42,484,491
25,857,616
1,142,627
o
o
SUBTOTAL
TOTAL
$
$
34,046,543
Median yield
2.900%:
50% of the amount of accepted competitive tenders
vas tendered at or below that rate.
Low yield
2.839%:
5% of the amount
)f accepted competitive tenders was tendered at or below that rate.
lid-to-Cover Ratio = 35,438,191 / 27,000,243 = 1.31
/ Awards to TREASURY DIRECT = $1. 036, 919, 000
http://www.publicdebt.treas.gov
0-3217
DEPARTIVIENT
OF
THE
TREASURY
NEWS
TREASURY
OFI?ICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE. N.W.
FOR IMMEDIATE RELEASE
June 28, 2002
II
WASHINGTON, D.C .• 20220. (202) 622·2960
CONTACT:
Office of Financing
202/691-3550
INDEPENDENCE DAY HOLIDAY SCHEDULE FOR
TREASURY'S WEEKLY BILL ANNOUNCEMENT
In view of the Independence Day holiday next week, the offering
details for the 13-week and 26-week bills to be issued on July 11,
2002, will be announced on Wednesday, Jul'y 3, 2002 at 11: 30 a om.
This
is consistent with the Bond Market Association's recommendations for a
full market closing on
Indepen<:ienc~. I?~¥
and an ea,rly closing on
Wednesday, July 30
000
PO-321S
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
D E P .\ R T \1 E
~
T
0 F
THE
T R E :\ S II
I~
Y
I
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C•• 20220. (202) 622-2960
For Immediate Release
June 28, 2002
Contact:
Betsy Holahan
202-622-2960
Shari James (FinCEN)
703-905-3770
Treasury Announces Final Suspicious Activity Reporting Rule for Broker-Dealers
The Treasury Department and its Financial Crimes Enforcement Network (FinCEN) today
announced a new final rule requiring brokers and dealers in securities to report suspicious
activity to FinCEN.
These firms will be obligated to report suspicious transactions that are conducted or attempted
by, at, or through a broker-dealer and involve or aggregate at least $5,000 in funds or other
assets. The rule will be published in the Federal Register on July 1, 2002 and becomes effective
January 1, 2003.
Specifically, the final rule requires brokers and dealers in securities to report to FinCEN a
transaction if the broker-dealer knows, suspects, or has reason to suspect that it falls within one
of four classes:
• transactions involving funds derived from illegal activity or intended or conducted in order
to hide or disguise funds derived from illegal activity;
• transactions designed, whether through structuring or other means, to evade the
requirements of the Bank Secrecy Act;
• transactions that appear to serve no business or apparent lawful purpose or are not the sort of
transactions in which the particular customer would be expected to engage, and for which
the broker dealer knows of no reasonable explanation after examining the available facts; or
• transactions intended to further a criminal purpose, but apparently involving legally-derived
funds. (This category involves the use of the broker-dealer to facilitate criminal activity,
including terrorism).
The final rule was drafted in consultation with the Securities and Exchange Commission (SEC).
Broker-dealers already are required to establish anti-money laundering programs that, among
other things, are designed to detect suspicious transactions, under recently promulgated selfregulatory organization (SRO) rules. The SEC has the authority to examine broker-dealers for
compliance with the rule, and it is expected that the SROs will also be reviewing compliance as
part of the enforcement of their rules.
PO-3219
F()T press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·u.s. Govemment Pnntlnq Office:
1998 - 619-559
"The SEC and the SROs have taken important steps to address money laundering concerns at
broker-dealers," said James F. Sloan, Director ofFinCEN. "It was critical that we all work
together to strike the appropriate balance and I believe in drafting the final rule we have
benefited from their efforts in this area. We look forward to our continued dialogue as we move
forward toward implementation of the rule."
The USA Patriot Act addresses the issue of suspicious transaction reporting by broker-dealers in
Section 356 of Title III. Both the proposed rule, which was published on December 31, 200l and
the final rule, to be published July 1, 2002, have met the deadlines specified by the USA Patriot
Act.
Depository institutions have been required to report suspicious activity since April 1, 1996.
Broker-dealers that are affiliates of banks or bank holding companies have also been required to
report suspicious activity since that time. Certain money services business fell under SAR
requirements beginning January 1, 2002. In addition, FinCEN has proposed a SAR rule for
casinos and card clubs.
A copy of the final rule maybe found at www.treas.gov/press
###
I
D E P .\ R T :\1 E :\ T
0 F
THE
T REA S U
I~
Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
For Immediate Release
Thursday, June 27, 2002
Contact: Rob Nichols
(202) 622-2910
Treasury as a Foreign Policy Institution"
Remarks by Kenneth W. Dam
Deputy Secretary of the Treasury
Delivered to the Council on Foreign Relations Chicago
Tonight, I'd like to say a few words about the ways in which the United States
Treasury Department implements U.S. foreign policy. Some of these will be familiar to
you; some may not be. Certainly, I did not fully appreciate the many ways in which
Treasury functions as a foreign policy institution until well after I joined the Department
last year.
As a former Deputy Secretary of State, I came to Treasury intent on more fully
integrating Treasury into all aspects of our foreign policy, not just the aspects that are
traditionally recognized as economic. I was pleased when the President directed that
"[tJhe National Security Council shall have as its regular attendees ... the Secretary of
the Treasury" in addition, of course, to the President, the Vice-President, the National
Security Advisor, and the Secretaries of State and Defense. The President wisely
recognized that few international issues are exclusively political or military in scope.
There is almost always an economic angle as well. Conversely, few issues in what we
might call international economic policy are purely economic affairs.
There are also important tactical benefits to integrating international economic
policy with other aspects of our foreign policy. For example there are some countries
with which the United States has difficult relations. Economic and financial diplomacy
through the Treasury can provide channels for positive interaction when other channels
become strained.
PO-3220
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"II
s. Government Printing Office:
1qq~ -
fi19-559
For these reasons, one of my first acts at Treasury was to create a national security
office within the Department. We've staffed this office with a senior foreign service
officer and a senior intelligence analyst. They help ensure that the United States
develops and implements an integrated foreign policy.
So, how is Treasury a foreign policy institution? Let me count the ways.
The U.S. Economy. First and foremost, we are stewards of the U.S. economy.
This may sound like a counter-intuitive place to begin. But consider. The U.S. Gross
Domestic Product in 2000 was nearly $10 trillion dollars.
That was more than one-fifth of the total world Gross Product. Economic
conditions in the United States have a lot to do with economic conditions around the
globe. When we grow, the rest of the world grows with us. The converse also is true.
The impact of the U.S. economy on the rest of the world is especially pronounced now,
given the continued underperformance of Japan, the world's second largest economy.
The United States, therefore, has much to contribute to the state of the world
economy simply by getting things right at home.
International Financial Institutions. Second, Treasury leads U.S. participation in
international financial institutions like the International Monetary Fund and the World
Bank. Since we are the biggest contributor to most of these institutions, and since the
executive boards use weighted voting, we have considerable voice in whether, when, how
much, and under what conditions they lend to countries like Argentina or Turkey. That is
a tremendous responsibility. Not only are the loan programs important to the countries
that benefit from them, but they can have implications for other, associated countries as
well. We have worked hard - as have many in the private sector - to dispel the notion
that contagion necessarily and automatically spreads when one emerging market
economy has difficulties. Now, we believe that markets are making more considered
judgments about individual emerging markets. Investors are not allowing conditions in
one to determine conditions in all the others. Weare also working to improve the
transparency and predictability of the way in which sovereign debt is restructured -- if a
restructuring proves necessary -- by including collective action clauses in sovereign debt
agreements.
Development. Third, together with the State Department, Treasury implements
the President's economic development agenda. Development is a difficult issue. Short
of touring Africa with a rock star, it is difficult to generate sustained interest in the media,
Washington, or the public for improving development. But we are determined to make a
difference and to implement the President's development agenda.
The President's development agenda is to focus on countries that are committed
to ruling justly, promoting economic freedom, and investing in their people. We will
measure performance based on changes in GDP, productivity, and other quantitative
measures.
2
We are already putting money behind our ideas for change, with a 50% increase
in bilateral assistance through the Millennium Challenge Account; more money for
primary education programs and AIDS prevention in Africa; and increasing support for
small and medium sized enterprises modeled on successful efforts in post-communist
Eastern Europe. The President's approach is a bottom-up approach. While the specifics
are still being worked out, my personal prediction is that you will see even greater
emphasis on results-oriented clean water programs, universal education, and HIV -AIDS
prevention and treatment.
There will also be an element of our development agenda that is driven, in part,
by national security considerations, as in the case of our efforts to assist in the
reconstruction of Afghanistan.
In addition, we are also seeking to leverage private sector resources to promote
our development agenda. As the President has said, "most funds for development do not
come from international aid -- they come from domestic capital, from foreign investment,
and especially from trade." Together with Under Secretary of State Alan Larson, I chair
a Presidential initiative called the Partnership for Prosperity, which is a U.S./Mexico,
public/private partnership to spur investment in the parts of Mexico where growth has
been lagging.
Trade. Fourth, Treasury promotes trade. Of course, the United States Trade
Representative has the lead in most aspects of trade negotiations. Treasury, however,
takes the lead in promoting trade in financial services. In my view, such trade is crucial
to international economic development and stability. East Asia and other regions have
learned the limits of export-led growth. Financial services are key to countries that wish
to diversify away from an export-based strategy and develop the domestic demand to
sustain them when an international economic downturn causes exports to lag.
We facilitate trade in other ways as well. The USTR may negotiate trade
agreements, but Treasury, which includes the Customs Service, implements the
agreements. I learned this all too well as I sat hostage for months awaiting confinuation,
due to concerns that Senators Helms and Hollings had with how the Customs Service
interprets tenus like "dyeing and finishing" and "knit to shape" with respect to textile
imports from certain Caribbean and African countries.
Treasury also takes the lead in negotiating international rules in the OEeD that
govern the provision of official trade financing, most prominently, financing provided by
official export credit agencies and aid agencies. These rules govern some $60 billion a
year of official export financing. By reducing the scope for export subsidies in this
official financing, Treasury helps open markets and complements USTR's work in the
WTO. There is also an important side benefit of this trade finance work, and that is
budget savings. Treasury's negotiating success has reduced the need for matching U.S.
financing subsidies and produced an annual budget savings of about $800 million.
3
International Tax Policy. Fifth, together with Congress, we set the rules that
govern the taxation of foreign income earned by U.S. corporations. Our challenge is to
do so in a way that is fair both to taxpayers without foreign operations and to taxpayers
with foreign operations, so that multi-national companies headquartered in the United
States are not disadvantaged competing in the global marketplace. When you stop to
think about it, this is an extremely important component of our international economic
policy. Increasingly, the flow of goods and services is not through purchases between
exporters and importers, but through transfers between affiliates of multinational
corporations. The rules governing transfer pricing, interest allocation, withholding rates,
foreign tax credits, and the taxation of actual or deemed dividends impacts these flows.
Also, Treasury negotiates international tax treaties. These play an important role
in increasing the amount of investment flowing from the United States to other countries.
In addition to tax treaties, we negotiate tax information exchange agreements. These
agreements provide for the exchange of information upon request for use in civil or
criminal tax cases. We've signed five of these and more such agreements are on the way.
The agreements - such as the ones we've entered into with Barbuda & Antigua, the
Bahamas, the British Virgin Islands, the Cayman Islands, and the Netherlands' Antilleshelp clean up the international financial system.
Transnational Financial Crime. Sixth, we work to police the international
financial system. In addition to negotiating the tax information exchange agreements I
just mentioned, Treasury combats international financial crime bilaterally through
undercover criminal investigations, usually with the cooperation of foreign governments.
We also work multilaterally, through such organizations as the Financial Action Task
Force, FATF. In my view, FATF has been a particularly effective. FATF's 40
recommendations have become the international benchmark in anti-money laundering
regimes. Its Eight Special Recommendations have set the standard in fighting terrorist
financing. FATF has proven highly effective at extracting commitments from nations to
implement such recommendations, assessing compliance with the commitments, and
"naming and shaming" nations that fail to keep their commitments.
Terrorist Finances. Seventh, we lead the nation's fight against terrorist finances.
We chair another interagency committee that sets the strategic priorities for the financial
front of the war. We chair another interagency committee that implements these
priorities through actions such as public designation and blocking, law enforcement
action, diplomatic action, or other means. We work with foreign governments to ensure
that they are doing all they can to stop the financing of terror. We work to promote the
regulation and accountability of informal methods of moving money, such as hawala
systems. And we work to increase the transparency of charities so that they cannot be
used as fronts for terrorist support.
Well, that's a good list to start with. We work on the U.S. economy, international
financial institutions, development, trade, international tax policy, financial crime, and
terrorist finances.
4
There are other areas as well. And, of course, I could delve much more deeply
into anyone of these areas. But considering this list, I am struck by two observations.
The first observation is the great importance of the first item on my listpromoting growth in the U.S. economy. With the United States representing more than
one-fifth of the world's GDP and with the Japanese economic ship of state in irons, no
single thing matters more for international economic policy than the health of the U.S.
economy. Ironically, the U.S. economy is precisely the part of the world economy on
which international policymakers spend the least amount of time. U.S. fiscal, tax, and
monetary policy are driven by domestic institutions with a predominantly domestic focus.
The second observation concerns the importance of the private sector. For
example, we don't look to loans and grants from the World Bank in themselves to
advance the economies of poor countries. Rather, we try to dedicate aid where it can help
establish minimal conditions for local enterprises to grow, prosper, and attract foreign
investment. Our efforts in development, trade, and tax policy all center around the
recognition that the most important player in international economic policy is the private
sector. This is true, to a degree, even in the hunt for terrorist finances. We cannot be
successful in that sphere without the cooperation of the private sector. Incidentally, I am
pleased to say that we have been getting that cooperation in abundance.
These are humbling observations for students of foreign relations. There can be
no denying that economic policy is an important component of foreign relations. At the
same time, the things that matter most in international economic policy are one or two
steps removed from the attention of most foreign policyrnakers, and are often outside
their control.
These observations also suggest a prescription. As we study foreign relations, we
need to be keenly aware of the role ofthe private sector. Foreign service officers must be
trained in the language and culture of business, in addition to the languages and cultures
of the countries in which they work. And we must reward efforts to facilitate the growth
of the private sector. It is sometimes hard to perceive the effects of these efforts. They
don't culminate in grand treaties. They occur incrementally, as trade, tax, and regulatory
conditions improve, encouraging growth. You can't promise foreign service officers a
Rose Garden ceremony every time a new plant opens in Ghana or every time a country
manages to control inflation or bring its sovereign debt rating to investment grade.
Nonetheless, we must reward international economic policymakers who succeed
in the hard, incremental work of establishing the right conditions for global growth. I
think organizations such as the Chicago Council on Foreign Relations can play an
important role in recognizing those contributions, and educating constituencies on the
true nature of international economic policy.
5
@FedFRASER