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Treas.
HJ
10
.A13
P4
v.396
Department of the Treasury
PRESS RELEASES
FROM THE OFFICE OF PUBLIC AFFAIRS
November 1, 2002
PO-3591
Media Advisory: United States and Jersey will sign Tax Information Exchange
Agreement on Monday
will
Treasury Secretary Paul H. O'Neill
hold the United States-Jersey tax
information exchange agreement signing ceremony at 4:00 p.m. EST on Monday,
November 4, 2002 in the Treasury Department's Diplomatic Reception Room
(Room 3311), 1500 Pennsylvania Avenue, NW. Treasury Secretary O'Neill and
Senator Pierre Horsfall, President of Jersey's Policy and Resources Committee, will
be signing the tax information exchange agreement.
The Room will be available for pre-set at 3:30 p.m.
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.
http://w~·w.treas.gov/prc5slreleflses/po3640.htm
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
November 04, 2002
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
91-Day Bill
November 07, 2002
February 06, 2003
912795LX7
High Rate:
1.410%
Investment Rate 1/:
1.433%
Price:
99.644
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 72.15%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Tendered
Competitive
Noncompetitive
FlMA (noncompetitive)
$
SUBTOTAL
38,210,590
1,600,762
250,000
Accepted
$
40,061,352
Federal Reserve
TOTAL
17,000,225 2/
5,795,696
$
45,857,048
15,149,463
1,600,762
250,000
5,795,696
$
22,795,921
Median rate
1.400%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate. Low rate
1.370%:
5* of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
40,061,352 / 17,000,225
=
2.36
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,284,729,000
http://www.publicdebt.treas.gov
PO-3592
OFFICE OF PUBLIC AFI<'AIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 20220 _ (202) 622-2960
EMBARGOED UNTIL 11:00 A.M.
November 4, 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 $14,000 million of publicly held 4-week Treasury bills maturing
November 7, 2002, and to raise new cash of approximately $2,000 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 $13,282 million of the Treasury bills maturing
on November 7, 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.
Note: The closing times for receipt of noncompetitive and competitive tenders
will be at 11:00 a.m. and 11:30 a.m. eastern standard 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 amended).
Details about the new security are given in the attached offering highlights.
000
Attachment
PO-3594
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 NOVEMBER 7, 2002
November 4, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . $16,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . $16,000 million
NLP Exclusion Amount ..............• $10,400 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 ...
2a-day bill
912795 LN 9
November 5,.2002
November 7, 2002
December 5, 2002
June 6, 2002
$41,465 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 (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
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:
{I) 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 deter.mined 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
ReceiEt of Tenders:
Noncompetitive tenders:
Prior to 11:00 a.m. eastern standard time on auction day
Competitive tenders:
Prior to 11:30 a.m. eastern standard time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.
FROM THE OFFICE OF PUBLIC AFFAIRS
November 4, 2002
PO-3595
Treasury Secretary O'Neill Signing Ceremony Statement
United States and Jersey Sign
Agreement to Exchange Tax Information
Today Treasury Secretary Paul O'Neill signed a new agreement with Jersey that
will allow for exchange of information on tax matters between the United States and
Jersey. The agreement was signed by Treasury Secretary Paul O'Neill and Senator
Pierre Horsfall, President of the Policy and Resources Committee of the States of
Jersey, the Island's parliament.
At the signing ceremony, Treasury Secretary Paul O'Neill delivered the following
remarks:
I would like to thank you all for being here today and welcome our friends from
Jersey, especially the President of Jersey's Policy and Resources Committee,
Senator Pierre Horsfall. I also want to extend a very warm welcome to Mr. John
Mills, who is chief executive to Jersey's Policy and Resources Department.
Today cooperation between governments is more important than ever before as we
work to ensure that no safe haven exists anywhere in the world for the funds
associated with illicit activities, including terrorism, money laundering, and tax
evasion. The United States and Jersey already have a close and cooperative
relationship on law enforcement matters, including criminal tax matters. We are
well aware of Jersey's commitment to cooperation in targeting criminal abuse of the
world's financial systems.
This new agreement will formalize and streamline our current cooperation in
criminal tax matters and will allow exchange of information on specific request in
civil tax matters as well. This agreement is an important development, and further
demonstrates Jersey's long standing commitment to cooperating with the United
States on law enforcement matters and to upholding international standards in this
area.
I have'spoken on numerous occasions about our obligation to enforce our tax laws,
because failing to do so undermines the confidence of honest taxpayers in the
fairness of our tax system. Access to needed information is vital to our efforts to
ensure enforcement of our laws.
As many of you know, last summer I made a public commitment in Congressional
testimony, to expand our network of tax information exchange relationships.
The significant progress we have made toward that goal, with recent agreements
with the Cayman Islands, Antigua and Barbuda, The Bahamas, the British Virgin
Islands, the Netherlands Antilles, Guernsey, and the Isle of Man, demonstrates the
depth of our commitment.
Today's agreement with Jersey, an important financial center of Europe, further
demonstrates our commitment to securing cooperation from around the world. We
will ~ontin~e to work vigorously to improve our tax information exchange
relationshIps, and I look forward to gathering here again in the coming weeks to
announce additional agreements with other countries.
http://w~·w.treas.gov/prc5slreleflses/po3640.htm
EMBARGOED U~TIL
4 PM Thursday November 4,2002
AGREEMENT BETWEEN THE GOVERNMENT OF THE
UNITED STATES OF AMERICA AND THE
GOVERNMENT OF THE STATES OF JERSEY
FOR THE EXCHANGE OF INFORMATION RELATING TO TAXES
Whereas Jersey has long been active in international efforts in the fight against financial and
other crimes, including recent efforts involving terrorist financing;
Whereas the Internal Revenue Service of the United States has detennined Jersey's "know your
customer" rules to be acceptable for purposes of the Qualified Intennediary regime, which
provides simplified withholding and reporting obligations for payments of income from the
United States to an account holder through one or more foreign intennediaries;
Whereas the Government of the United States and the Government of the States of Jersey ("the
parties") recognise that present legislation already provides for the exchange of information in
criminal tax matters, which under current practice is conducted by the United States through the
Department of Justice and by Jersey through its Attorney General;
Whereas the parties wish to establish the terms and conditions governing the exchange of
information relating to taxes;
Now, therefore, the parties have agreed as follows:
ARTICLE 1
SCOPE OF THE AGREEMENT
The parties shall provide assistance through exchange of information that is foreseeably
relevant to the administration and enforcement of the domestic laws of the parties concerning the
taxes covered by this Agreement, including information that is foreseeably relevant to the
determination, assessment, enforcement or collection of tax with respect to persons subject to
such taxes, or to the investigation or prosecution of criminal matters in relation to such persons.
ARTICLE 2
JURISDICTION
To enable the scope of this Agreement to be implemented, infonnation shall be provided
in accordance with this Agreement by the competent authority of the requested party without
regard to whether the person to whom the information relates is, or whether the information is
held by, a resident of a party. A requested party is not obliged to provide information which is
neither held by its authorities nor in the possession of persons who are within its territorial
jurisdiction.
ARTICLE 3
TAXES COVERED
I.
This Agreement shall apply to the following taxes imposed by the parties:
in the case of the United States, all federal taxes,
(a)
(b)
in the case of Jersey, all insular taxes.
2.
This Agreement shall apply also to any identical or substantially similar taxes
imposed after the date of signature of the Agreement in addition to or in place of the existing
taxes if the parties so agree. The competent authority of each party shall notify the other of
changes in laws which may affect the obligations of that party pursuant to this Agreement.
3.
This Agreement shall not apply to the extent that an action or proceeding
concerning taxes covered by this Agreement is barred· by the requesting party's statute of
limitations.
4.
This Agreement shall not apply to taxes imposed by states, municipalities or other
political subdivisions, or possessions of a party.
ARTICLE 4
DEFINITIONS
1.
In this Agreement:
"competent authority" means, for the United States, the Secretary of the Treasury or his delegate,
and for Jersey, the Comptroller of Income Tax or his delegate, except that until a date not later
than January 1, 2006, Her Majesty's Attorney General for Jersey may act as the competent
authority in respect of criminal tax matters;
"criminal laws" means all criminal laws designated as such under domestic law, irrespective of
whether contained in the tax laws, the criminal code or other statutes;
"criminal tax matters" means tax matters involving intentional conduct which is liable to
prosecution under the criminal laws of the requesting party;
"infonnation gathering measures" means judicial, regulatory, criminal or administrative
procedures enabling a requested party to obtain and provide the infonnation requested;
"infonnation" means any fact, statement, document or record in whatever fonn;
"person" means a natural person, a company or any other body or group of persons;
"requested party" means the party to this Agreement which is requested to provide or has
provided infonnation in response to a request;
"requesting party" means the party to this Agreement submitting a request for or having received
infonnation from the requested party;
"resident" means:
(a)
in the case of the United States, any United States citizen and any legal person,
partnership, corporation, trust, estate, association, or other entity deriving its
status as such from the laws in force in the United States; and
(b)
in the case of Jersey, any person resident in Jersey for the purposes of the Income
Tax (Jersey) Law 1961, as amended.
"tax" means any tax covered by this Agreement.
2.
For purposes of determining the geographical area within which jurisdiction to
compel production of information may be exercised, the term "United States" means the United
States of America, including Puerto Rico, the Virgin Islands, Guam, and any other United States
possession or territory.
For purposes of determining the geographical area within which jurisdiction to compel
production of information may be exercised, the term "Jersey" means the island of Jersey.
3.
Any term not defined in this Agreement, unless the context otherwise requires or
the competent authorities agree to a common meaning pursuant to the provisions of Article 10,
shall have the meaning which it has under the laws of the parties relating to the taxes which are
the subject of this Agreement.
ARTICLE 5
EXCHANGE OF INFORMATION UPON REQUEST
1.
The competent authority of the requested party shall provide upon request by the
requesting party information for the purposes referred to in Article 1. Such information shall be
exchanged without regard to whether the requested party needs such information for its own tax
purposes or the conduct being investigated would constitute a crime under the laws of the
requested party if it had occurred in the territory of the requested party. The competent authority
of the requesting party shall only make a request for information pursuant to this Article when it
is unable to obtain the requested information by other means, except where recourse to such
means would give rise to disproportionate difficulty.
2.
If the information in the possession of the competent authority of the requested
party is not- sufficient to enable it to comply with the request for information, the requested party
shall take all relevant information gathering measures to provide the requesting party with the
information requested, notwithstanding that the requested party may not, at that time, need such
information for its own tax purposes.
3.
If specifically requested by the competent authority of the requesting party, the
competent authority of the requested party shall provide information under this Article, to the
extent allowable under its domestic laws, in the form of depositions of witnesses and
authenticated copies of original records.
4.
Each party shall ensure that it has the authority, for the purposes referred to in
Article 1 of this Agreement and subject to Article 2 of this Agreement, to obtain and provide,
through its competent authority and upon request:
(a)
information held by banks, other financial institutions, and any person, including
nominees and trustees, acting in an agency or fiduciary capacity;
(b)
information regarding the beneficial ownership of companies, partnerships and
other persons, including in the case of collective investment funds, information on
shares, units and other interests; and in the case of trusts, information on settlors,
trustees and beneficiaries, provided that this Agreement does not create an
obligation for a party to obtain or provide ownership information with respect to
publicly traded companies or public collective investment funds, unless such
information can be obtained without giving rise to disproportionate difficulties.
5.
Any request for information made by a party shall be framed with the greatest
degree of specificity possible. In all cases, such requests shall specify in writing the following:
(a)
the identity of the taxpayer under examination or investigation;
(b)
the period of time with respect to which the information is requested;
(c)
(d)
(e)
(f)
(g)
(h)
(i)
the nature of the information requested and the form in which the requesting party
would prefer to receive it;
the matter under the requesting party's tax law with respect to which the
information is sought;
the reasons for believing that the information requested is foreseeably relevant or
material to tax administration and enforcement of the requesting party, with
respect to the person identified in subparagraph (a) of this paragraph;
reasonable grounds for believing that the information requested is present in the
requested party or is in the possession of a person within the jurisdiction of the
requested party;
to the extent known, the name and address of any person believed to be in
possession or control of the information requested;
a statement that the request conforms to the law and administrative practice of the
requesting party and would be obtainable by the requesting party under its laws or
in the nonnal course of administrative practice in similar circumstances, both for
its own tax purposes and in response to a valid request from the requested party
under this Agreement;
a statement that the requesting party has pursued all reasonable means available in
its own territory to obtain the information, except where that would give rise to
disproportionate difficulty.
ARTICLE 6
TAX INVESTIGATIONS ABROAD
1.
By reasonable notice given in advance, a party may request that the other party
allow officials of the requesting party to enter the territory of the requested party, to the extent
pennitted under its domestic laws, to interview individuals and examine records with the prior
written consent of the individuals concerned. The competent authority of the requesting party
shall notify the competent authority of the requested party of the time and place of the intended
meeting with the individuals concerned.
2.
At the request of the competent authority of the requesting party, the competent
authority of the requested party may permit representatives of the competent authority of the
requesting party to attend a tax examination in the territory of the requested party.
3.
If the request referred to in paragraph 2 is granted, the competent authority of the
requested party conducting the examination shall, as soon as possible, notify the competent
authority of the requesting party of the time and place of the examination, the authority or person
authorised to carry out the examination and the procedures and conditions required by the
requested party for the conduct of the examination. All decisions regarding the conduct of the
examination shall be made by the requested party conducting the examination.
1.
(a)
(b)
ARTICLE 7
POSSIBILITY OF DECLINING A REQUEST
The competent authority ofthe requested party may decline to assist:
where the request is not made in conformity with this Agreement;
where the requesting party has not pursued all means available in its own territory
to obtain the information, except where recourse to such means would give rise to
disproportionate difficulty; or
(c)
where the disclosure of the information requested would be contrary to the public
policy of the requested party.
2.
This Agreement shall not impose upon a party any obligation:
(a)
to provide items subject to legal privilege, nor any trade, business, industrial,
commercial or professional secret or trade process, provided that information
described in Article 5(4) shall not by reason of that fact alone be treated as such a
secret or trade process; or
(b)
to carry out administrative measures at variance with its laws and administrative
practices, provided that nothing in this subparagraph shall affect the obligations of
a party under Article 5(4).
3.
A request for information shall not be refused on the ground that the tax liability
giving rise to the request is disputed by the taxpayer.
4.
The requested party shall not be required to obtain and provide information which
the requesting party would be unable to obtain in similar circumstances under its own laws for
the purpose of the administration/enforcement of its own tax laws or in response to a valid
request from the requested party under this Agreement.
ARTICLE 8
CONFIDENTIALITY
1.
All information provided and received by the competent authorities of the parties
shall be kept confidential.
2.
Information provided to the competent authority of a requesting party may not be
used for any purpose other than for the purposes stated in Article 1, without the prior express
written consent of the requested party.
3.
Information provided shall be disclosed only to persons or authorities (including
judicial, administrative and Congressional oversight authorities) officially concerned with the
purposes specified in Article 1, and used by such persons or authorities only for such purposes or
for oversight purposes, including the determination of any appeal. For these purposes,
information may be disclosed in public court proceedings or in judicial proceedings.
4.
Information provided to a requesting party under this Agreement may not be
disclosed to any third party, including an agency or employee of any other government.
ARTICLE 9
COSTS
The requesting party shall reimburse the requested party for all direct costs incurred in
providing information pursuant to this Agreement. The respective competent authorities shall
consult from time to time with regard to this Article, and in particular the competent authority of
the requested party shall consult with the competent authority of the requesting party if the costs
of providing informatim with respect to a specific request are expected to be significant.
ARTICLE 10
MUTUAL AGREEMENT PROCEDURE
Where difficulties or doubts arise between the parties regarding the implementation or
interpretation of this Agreement, the respective competent authorities shall use their best efforts
to resolve the matter by mutual agreement.
ARTICLE 11
MUTUAL ASSISTANCE PROCEDURE
If both competent authorities of the parties consider it appropriate to do so they may
agree to exchange technical know-how, develop new audit techniques, identifY new areas of noncompliance, and jointly study non-compliance areas.
ARTICLE 12
ENTRY INTO FORCE
This Agreement shall enter into force when each party has notified the other of the
completion of its necessary internal procedures for entry into force. Upon entry into force, it
shall have effect for criminal tax matters forthwith and, in respect of other matters covered in
Article 1, on January 1,2006, or such earlier date as may be agreed in an exchange ofletters by
the competent authorities.
ARTICLE 13
TERMINATION
1.
This Agreement shall remain in force until terminated by either party.
2.
Either party may terminate this Agreement by giving notice of termination in
writing. Such termination shall become effective on 1he first day of the month following the
expiration of a period of three months after the date of receipt of notice of termination by the
other party.
3.
A party which terminates this Agreement shall remain bound by the provisions of
Article 8 with respect to any information obtained under this Agreement.
IN WITNESS WHEREOF the undersigned being duly authorised in that behalf by the
respective parties, have signed the Agreement.
DONE at Washington in duplicate this fourth day of November, 2002.
FOR THE GOVERNMENT OF THE
UNITED STATES OF AMERICA:
FOR THE GOVERNMENT OF THE
STATES OF JERSEY:
FROM THE OFFICE OF PUBLIC AFFAIRS
November 4, 2002
PO-3596
James Carter Joins Treasury's Economic Team as Deputy Assistant
Secretary for Policy Coordination
Treasury Assistant Secretary for Economic Policy Richard Clarida today announced
that James Carter will join the Office of Economic Policy on Monday, November 4th
as the Deputy Assistant Secretary for Policy Coordination.
"James brings an extensive background in economic policy to the Treasury
Department," stated Richard Clarida, Assistant Secretary for Economic Policy. "His
previous experience at the National Economic Council combined with his tenure on
Capitol Hill makes him an invaluable asset to the Office of Economic Policy."
Most recently, Mr. Carter served as an Associate Director for the National
Economic Council where he assisted with the formulation and implementation of
economic policy. He also managed policy coalitions and served on a White House
working group on government waste and business subsidies.
Before joining the NEC in February 2001, Mr. Carter served as a senior economist
on the staff of Congress' Joint Economic Committee. He has also served as an
economic and budget advisor to Senator John Ashcroft (R-MO) and RNC Chairman
Haley Barbour. In early 2000, at the invitation of the Russian government, Mr.
Carter traveled to Moscow as part of a small international advisory team to assist
President Vladimir Putin's transition staff with economic and budget matters.
Mr. Carter's extensive writings have appeared in more than two dozen publications,
including USA Today, The Washington Times, Investor's Business Daily, National
Review, and The Weekly Standard.
He holds a B.S. in Political Science from Truman State University and a Master of
Public Administration from George Mason University.
http://w~·w.rreas.gov/prc5slreleflses/po3640.htm
FROM THE OFFICE OF PUBLIC AFFAIRS
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November 5, 2002
PO-3597
Air Transportation Stabilization Board
Conditionally Approves Application by Aloha Airlines, Inc.
WASHINGTON, DC - The Air Transportation Stabilization Board (the Board)
announced today its conditional approval of the application by Aloha Airlines, Inc.
for a $40.5 million loan guarantee under the Air Transportation Safety and System
Stabilization Act and implementing regulations promulgated by the Office of
Management and Budget. The Board's decision was unanimous. The Board's
approval is subject to several conditions, including certain structural and financial
enhancements and other conditions identified in the Board's letter to Aloha Airlines,
Inc., which is attached below.
Related Documents:
http://w~·w.rreas.gov/prc5slreleflses/po3640.htm
AIR TRANSPORTATION STABILIZATION BOARD
November 5, 2002
Mr. Glenn Zander
President
and Chief Executive Officer
Aloha Airlines, Inc.
Two Waterfront Plaza, Suite 500
500 Ala Moana Boulevard
Honolulu, Hawaii 96813
Re: Application for a Loan Guarantee Under the Air
Transportation Safety and System Stabilization Act
Dear Mr. Zander:
We refer to the application of Aloha Airlines, Inc. (the "Applicant"), dated June 27,
2002 as supplemented (the "Application"), for a Federal loan guarantee under the Air
Transportation Safety and System Stabilization Act, Pub. L. No. 107-42,115 Stat. 230 (the
"Act") and the regulations promulgated thereunder, 14 CFR Part 1300 (the "Regulations").
The Applicant has requested a Federal guarantee in connection with a $45 million [mancing.
The Air Transportation Stabilization Board (the "Board") is asked to participate by providing
a Federal government guarantee of $40.5 million, representing 90 percent of the total
[mancing.
The Board has carefully considered the Application under the standards set out in the
Act and RegUlations. The Board's consideration has included a review and analysis of the
Application by the Board's staff and the Board's financial and industry consultants. Based on
its review, the Board ms determined that, except as noted below, the Application meets the
requirements for a Federal loan guarantee under the Act and the Regulations. In particular,
the Board has determined that the Applicant has demonstrated a reasonable assurance that it
will be able to repay the loan according to its terms. Some members of the Board also noted
the Applicant's role in the unique Hawaiian aviation market.
Relying upon the information set forth in the Application and information conveyed to
Board staff during recent discussions with the Applicant, the Board has determined to extend
an offer of a guarantee, subject to satisfaction, as determined by the Board in its sole
discretion, of all the conditions in the Act and the Regulations and the following:
> Terms must include certain structural and financial enhancements acceptable to the Board.
Mr. Glenn Zander
November 5,2002
Page 2
>
Final loan documents, guarantees, certifications, the warrant and registration rights
agreement, and appropriate opinions of counsel, all in form and substance satisfactory to
the Board, remain to be negotiated by the Board. We note that the Board may require
control rights, representations, warranties, covenants (including, without limitation,
covenants relating to the Applicant's fmancial ratios), anti-dilution protections and
registration rights in connection with the warrants, and other customary lending provisions
which are different from or in addition to those described in the Summary of Indicative
Terms and Conditions included in the Application. All the conditions referred to in the
Summary of Indicative Terms and Conditions must be satisfied.
The Board will continue to perform business and legal due diligence as the transaction
progresses. The Board's willingness to issue the guarantee, and the specific terms it may
require in the loan documents, are subject, therefore, to on- going due diligence and the
Board's satisfaction with the results thereof. In the event that the Board discovers any
materially negative information concerning the Applicant not currently known to it, the Board
in its sole discretion may decline to issue its guarantee. The issuance of the Board's guarantee
is subject also to the absence, in the sole judgement of the Board, of any material adverse
change in the condition (financial or otherwise), business, property, operations, prospects,
assets or liabilities of the Applicant, or in the Applicant's ability to repay the loan, or in the
value of the collateral between the date of the Application and the date the guarantee is issued.
The Board and Board staff look forward to working with you toward the successful
completion of this transaction.
Sincerely,
Daniel G. Montgomery
Executive Director
Cc:
Edward Gramlich
Kirk Van Tine
Peter Fisher
)-3598: Air Transportation Stabilization Board Conditionally Approves Application by Frontier Airlin... Page 1 of 1
PR[SS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
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November 5, 2002
PO-3598
Air Transportation Stabilization Board
Conditionally Approves Application by Frontier Airlines, Inc.
WASHINGTON, DC - The Air Transportation Stabilization Board (the Board)
announced today its conditional approval of the application by Frontier Airlines, Inc.
for a $63 million loan guarantee under the Air Transportation Safety and System
Stabilization Act and implementing regulations promulgated by the Office of
Management and Budget. The Board's decision was unanimous. The Board's
approval is subject to several conditions, including increased fees and warrants and
other conditions identified in the Board's letter to Frontier Airlines, Inc., which is
attached below.
Related Documents:
•
Fron1ier Letter
http://w~·w.rreas.gov/prc5slreleflses/po3640.htm
7/17/2003
AIR TRANSPORTATION STABILIZATION BOARD
November 5, 2002
Mr. Paul Tate
Vice President
and Chief Financial Officer
Frontier Airlines, Inc.
7001 Tower Road
Denver, Colorado 80249
Re: Application for a Loan Guarantee Under the Air
Transportatio n Safety and System Stabilization Act
Dear Mr. Tate:
We refer to the application of Frontier Airlines, Inc. (the "Applicant"), dated June 28,
2002 as supplemented (the "Application"), for a Federal loan guarantee under the Air
Transportation Safety and System Stabilization Act, Pub. L. No. 107-42, 115 Stat. 230 (the
"Act") and the regulations promulgated thereunder, 14 CFR Part 1300 (the "Regulations").
The Applicant has requested a Federal guarantee in connection with a $70 million financing.
The Air Transportation Stabilization Board (the "Board") is asked to participate by providing
a Federal government guarantee of $63 million, representing 90 percent of the total financing.
The Board has carefully considered the Application under the standards set out in the
Act and Regulations. The Board's consideration has included a review and analysis of the
Application by the Board's staff and the Board's financial and industry consultants. Based on
its review, the Board has determined that, except as noted below, the Application meets the
requirements for a Federal loan guarantee under the Act and the Regulations. In particular,
the Board has determined that the Applicant has demonstrated a reasonable assurance that it
will be able to repay the loan according to its terms.
Relying upon the information set forth in the Application and information conveyed to
Board staff during recent discussions with the Applicant, the Board has determined to extend
an offer of a guarantee, subject to satisfaction, as determined by the Board in its sole .
discretion, of all the conditions in the Act and the Regulations and the following:
>
The Board must receive additional fees and warrants in amounts and on terms acceptable
to the Board.
> Final loan documents, including related collateral security documents and filings,
certifications, the warrant and registration rights agreement, and appropriate opinions of
counsel, all in form and substance satisfactory to the Board, remain to be negotiated by the
Mr. Paul Tate
November 5,2002
Page 2
Board. We note that the Board may require control rights, representations, warranties,
covenants (including, without limitation, covenants relating to the Applicant's financial
ratios), anti-dilution protections and registration rights in connection with the warrants,
and other customary lending provisions which are different from or in addition to those
described in the Summary of Terms and Conditions included in the Application. All the
conditions referred to in the Summary of Terms and Conditions must be satisfied.
The Board will continue to perform business and legal due diligence as the transaction
progresses. The Board's willingness to issue the guarantee, and the specific terms it may
require in the loan documents, are subject, therefore, to on- going due diligence and the
Board's satisfaction with the results thereof. In the event that the Board discovers any
materially negative information concerning the Applicant not currently known to it, the Board
in its sole discretion may decline to issue its guarantee. The issuance of the Board's guarantee
is subject also to the absence, in the sale judgement of the Board, of any material adverse
change in the condition (financial or otherwise), business, property, operations, prospects,
assets or liabilities of the Applicant, or in tre Applicant's ability to repay the loan, or in the
value of the collateral between the date of the Application and the date the guarantee is issued.
The Board and Board staff look forward to working with you toward the successful
completion of this transaction.
Sincerely,
Daniel G. Montgomery
Executive Director
Cc:
Edward Gramlich
Kirk Van Tine
Peter Fisher
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
November 05, 2002
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
28-Day Bill
November 07, 2002
December OS, 2002
912795LN9
1.430%
High Rate:
Investment Rate 1/:
Price:
1.449%
99.889
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 39.07%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
46,119,400
30,443
$
15,969,851
30,443
o
°
SUBTOTAL
Federal Reserve
TOTAL
Accepted
Tendered
Tender Type
$
46,149,843
16,000,294
1,327,932
1,327,932
47,477,775
$
17,328,226
Median rate
1.420%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate. Low rate
1.400%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 46,149,843 / 16,000,294
=
2.88
1/ Equivalent coupon-issue yield.
http;//www.publicdebt.treas.gov
PO-3599
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
November OS, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF S-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
Issue Date:
Dated Date:
Maturity Date:
3%
G-2007
912828ANO
High Yield:
3.030%
Price:
November IS, 2002
November 15, 2002
November 15, 2007
99.862
All noncompetitive and successful competitive bidders were awarded
securities at the high yield.
Tenders at the high yield were
allotted 56.30%. All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Tendered
Competitive
Noncompetitive
FIMA (noncompetitive)
$
Accepted
42,945,049
171,044
$
171,044
°
SUBTOTAL
°
43,116,093
Federal Reserve
22,000,063 1/
1,308,121
TOTM
$
44,424,214
21,829,019
1,308,121
$
23,308,184
Median yield
2.990%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low yield
2.945%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
43,116,093 I 22,000,063
1/ Awards to TREASURY DIRECT
PO-3600
=
=
1.96
$101,189,000
http://www . publicdebt.treas.gov
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3:00 PM
November 6, 2002
Contact: Stephen Meyerhardt
(202) 691-3792
PUBLIC
DEBT ANNOUNCES ACTIVITY FOR
.
SECURITIES IN THE STRIPS PROGRAM FOR OCTOBER 2002
The Bureau of the Public Debt announced activity for the month of October 2002, of securities within the
Separate Trading of Registered mterest and Principal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Secmities)
$2,173,632,496
Held in Unstripped Fonn
$2,004,833,229
Held in Stripped Fonn
Reconstituted in October
$168,799,266
$16,238,413
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 Deb~ entitled "Holdings of Treasury Securities in Stripped Fonn."
The Strips Table along with the new Monthly Statement of The Public Debt is available on Public Debt's
Internet site at: www.publicdebt.treas.gov.Awide range of infonnation about the public debt and Treasury
securities is also available at the site.
www.publicdebUreas.gov
PO-3601
TABLE V • HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM OCTOBER 31 2002
Amount Outstandin9 in Thousands
Corpus
Loan Description
SrRI~
Maturity Date
Tolal
Outstandlng_
CUSIP
TreasIJry Bonds:
tUSIP:
9128100M7
oas
DR6
DU9
DN5
OPO
OS4
OT2
DV7
OW5
OX3
OYI
DZ8
EA2
EBO
EC8
ED6
EE4
EFI
EG9
EH7
EJ3
EKO
EL8
EM6
EN4
EP9
E07
ES3
ET1
EV6
EW4
EX2
EYO
EZ7
FAl
Fe9
FE3
FFO
FG8
FJ2
FM5
FP8
Interest Rate:
11-5/8
12
10-3/4
9-318
11-3/4
11-1/4
10-5/8
9-718
9-1t4
7-114
7-1/2
8-3/4
8-7/8
9-1/8
9
8-718
8-1/8
8-1/2
8-3/4
8-3/4
7-7/8
8-1/8
8-118
8
7-1/4
7-5/8
7-1/8
6-114
7-1/2
7-5/8
6-7/8
6
6-3/4
6-1/2
6-518
6-3/8
6-1/8
5-112
5-1/4
5-1/4
6-1/8
6-1/4
5-3'6
912803 AS9
AD5
AG8
AJ2
912800 M7
912803 Ml
AC7
AE3
AFO
AH6
AK9
Al7
AM5
AN3
APB
A06
AR4
AS2
ATO
AU7
AV5
AW3
AX1
AY9
Al6
BAO
888
BC6
SD4
BE2
BF9
BG7
BH5
8J1
BK8
Bl6
BM4
BP7
BV4
aW2
CGS
CH4
CK7
11/15/04
05115/05
08115/05
02115/06
11/15/14
02115/15
08/15115
11115115
02115116
05115/16
11115/16
05/15117
08/15117
05/15/18
11/15/18
02115119
08115/19
02115120
05115/20
08/15/20
02115121
05'15/21
08115/21
11/15121
08/15122
11/15122
02115123
081.15123
11115/24
02115/25
08115125
02/15126
08115126
11115126
02115127
08115/27
11115/27
08l1S128
11115128
02115/29
08115/29
OS/15/30
02/15/31
Total Treasury SOnds., ...... ,..... _............. -........ --..
Treasury Inflation-Indexed Notes;
Interest Rate:
CUSIP:
Series:
3-318
9128272M3
A
3-5/8
3T7
A
3-7/8
4Y5
A
4-1/4
5W8
A
3-112
6R8
A
3-3/8
7J5
A
3
912828AF7
C
912820 BV9
Cl9
ON4
EK9
GA9
GT8
HC4
01115/07
01115108
01/15109
01/15'10
01115111
01115/12
07115(12
olal Inflation-Indexed Notes.._... ,.. _., .. _., ... ,.. _"·,,
Portion Held in
Unstripped Form
Portion Held in
Stripped Form
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,S51
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
17,059.305
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
16.427.646
4,847,127
1,959.099
5.913.152
4.188,587
1,830.884
9.131,809
3,448.395
3,516,878
4.607,414
18,449,438
17,685.499
8,455,570
7,524.573
2.827.338
2.880.311
7,856.999
17.803,748
6.512.465
3.105,754
8,388,269
8.876.783
4,392,299
6,992.592
15.809.568
9,434,380
4.035,482
10.629.047
19,492.580
3,811,984
3,308,769
6,900,90S
11,921.757
5,656,635
4,794,1165
5,552.514
6.469,226
8,961.466
10,524,401
10.149,122
10.946.345
10,379.580
16.176.818
16,215.246
3.454,679
2.301,659
3,356,561
567,329
3,184,400
1,388,490
575,521
2,067.981
824,340
374.113
1.101.949
7,103,599
3,443,785
3.890.101
4,294.159
5.233,499
1,137.184
2,963,803
4,476.429
8,(\71.037
1.198,790
5,674.489
2.513,790
14.822,626
693.410
3.388.144
5.153,014
3.166,464
5,792.178
6.200,401
4,286,302
916.159
3,153,783
6.065.312
3,969,457
2,727.530
13,059.853
1.251,800
797,930
403,996
799,000
866.344
212.400
89,400
18,100
117,805
25,880
499.889,485
352.365,695
147,523,790
15.236,690
17.970,548
18,801,869
17,519.830
12,157.695
11.420.506
6.109.658
17.096,066
17.970.548
18,690.030
17,519.830
12,157.695
11,420,506
6.109.656
17.096.066
0
111.839
0
0
0
0
0
0
101.076,172
100,964.333
111.839
0
18.748.991
21.428.657
5.102.054
18.743,406
21,291.272
5,102,054
5,586
137.385
0
0
0
45.279,703
45,136,732
142,971
0
78,684
321,500
198,840
266,800
133.795
194,120
536.391
1,337,580
475,400
555.830
188.500
622,400
183,360
80.400
313.795
733.400
102.800
508.480
306,OBO
1;448,450
308,400
792,400
829,200
319,560
457.320
544.600
567.960
187.000
360,800
601,400
340,400
99,400
632,400
109.800
67.800
32,400
108.880
19.180
0
0
0
0
0
0
0
Treasury Inflation-Indexed Bonds;
CUSIP;
912610 FD5
FH6
F06
Interest Rate:
3-5/8
3-718
3-3/8
T otallnflation-Indexed Bonds.,., .... ", ..... ·.·.--_···",
912803BN2
CF8
Cl5
04/15/28
04/1S(29
04/1S132
0
TABLE V - HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, OCTOBER 31, 2002 - Continued
Treasury Notes:
Series:
CUSIP:
P
912827 303
AC
6P2
0
3S9
AD
600
C
3V2
L
6S6
A
J78
D
323
M
6U1
E
465
N
6V9
F
401
P
6W7
G
4H2
6Y3
0
H
4K5
R
6Z0
S
7M
B
L83
J
4N9
912828
912827
912828
912827
912828
912827
912828
912827
912828
912827
7CO
T
708
7E6
4U3
7G1
7H9
7K2
N81
5A6
7M8
M8
AB6
P89
5F5
AD2
AEO
AG5
088
5MO
AK6
AL4
AM2
R87
5S7
S86
T85
609
U83
V82
6N7
W81
X80
6X5
Y55
Z62
7F3
2JO
2US
AC4
3ED
AH3
3X8
4F6
4V1
5G3
5N8
5Z1
6J6
U
V
K
W
X
J
A
E
K
L
M
B
F
N
P
6T4
7B2
7LO
912828 AJ9
Q
C
G
R
S
T
D
H
4-5/8
5-3/4
4
5·1/2
4-1/4
5-3/8
3-7/8
3-718
3
3-1/4
3
5-718
4-3/4
3
3-5/8
3-3/8
7-1/4
5-1/4
3·114
2·7/B
2-1/4
7-1/4
6
2-1/8
1·7/8
2-1/8
4-5/8
7
6-1/2
3-1/2
6-114
6-5/8
4-3/8
6-1/8
3-1/4
5-1/2
5-5/8
4-314
5-1/2
6
6-1/2
5·3/4
F
B
C
E
0
F
B
C
D
B
C
B
C
B
C
B
0
Dll
HG5
HH3
HJ9
BLO
EE3
BMB
BN6
ER4
BP1
B09
FXO
BR7
BS5
GG6
BT3
BUO
GQ4
BW6
BX4
GZ4
CA3
7·7/8
C
D
GJO
GK7
BGl
OE4
GM3
GN1
GP6
OJ3
GR2
GSO
GU5
BH9
DQ7
GW1
GX9
GY7
BJ5
DJ8
HAS
HB6
HD2
BK2
5-3/4
E
HEO
C08
CY1
DKO
DV6
EA1
EMS
Fr9
GCS
GL5
GV3
HF7
5
5
4-7/8
4-3/8
....... . ....... --_ ..............
Total
Outst<Jndinq
DCS
5-1/4
3-518
2-314
2-3/4
4-1/4
,
Reconstituted
This Month
Maturity Dale
912820 CHB
FY8
CK1
FZ5
CN5
GB7
BF3
CS4
G03
CU9
GEl
CW5
GF8
DA2
GH4
5-1/2
4-114
B
E
C
0
F
A
B
Total Tre<Jsury Notes .....
Grand TotaL.
Interest Rate:
5-3/4
5-5/8
5-5/8
5-1/8
5-1/2
4-3/4
6-1/4
5-1/2
5-7/8
7-1/2
6-1/2
6-3/4
6-112
5-71B
5-314
5-5/8
6-7/8
A
Amount Outstanding in Thousands
Corpus
STRIP
CUSIP
Loan Description
11/30/02
11130/02
12131/02
12131/02
01/31/03
01/31103
02/15/03
02128103
02128/03
03131/03
03131103
04130/03
04130103
05131/03
05131103
06130103
06/30103
07131103
08/15103
08115103
08/31103
09130/03
10131/03
11115/03
11/30/03
12131103
01131/04
02115/04
02115104
02/29/04
03131/04
04/30104
05115104
05/15/04
05131104
06130/04
07131/04
08115/04
08115104
08131/04
09130104
10131104
11115104
11115/04
02115105
05115/05
05115105
08115/05
11/1505
11115/05
02l15/D6
05;10106
05115/06
07115/06
10115/06
11115106
02115107
05115/07
05115/07
08115/07
08115/07
02115108
05115/08
11115108
05115109
OBI15/09
02115/10
08115110
02115111
08115/11
02115/12
08115/12
.
.............................
................ ..................................................... --,
·.... ·1
Portion Held in
Stripped Form
Portion Held in
Unslripped Form
435,200
67,840
413,440
0
0
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
31,746,067
32,873.508
32,654.971
14,440.372
18,925,383
33.297,400
34.050,042
33.250,010
13,346,467
18.089,806
34,541,397
34,655,535
32,440,595
14,373,760
32,658,145
13,834,754
14.739,504
28,562,370
15,002,580
15,209,920
28,062,797
15,513,587
16.D15,475
27,797,852
22,740,446
22,459,675
35.380,129
13,103,678
13.958.186
24,351.431
25,636,803
25,410.844
13.583,412
27,190.961
25,083,125
14,794,790
27.399,894
23.350,709
22.437,594
23,436,329
26,635,316
24.779.838
19,647,976
11,685,380
14,990,688
11,638,993
14.822,027
13:087,040
15,427,004
21,513,593
13,623,154
14.278,695
14,134,492
14,674,853
12.534,848
13,338,528
13.021,843
13,331,937
13,078,779
14,671,070
16.000,070
25,223,746
19.783,263
18,665,038
22,675,482
25.146,360
17,192,929
26,170,526
29,666,988
30,775,555
12,097,828
17,811.228
31,746,067
32,873.508
13,388,639
18.925,383
33,297,400
34,050.042
33,250.010
11.110,671
18,089.806
34,541,397
34,655,535
32,440,595
14,364,360
32,658,145
13,223,814
14.739.104
28,404,570
15.002.180
14.575,569
27,741,197
15.508,107
14.858.715
27,797,852
22,626,446
22.395.675
34,407.973
12.357.324
12,530.607
24,351.431
23,724,658
25.410,84l
13,556,512
27.123,09',
25.011,877
14,748,290
26.892,485
23,351,909
22,437,094
23,429,569
26,628,096
24,775,038
19,647,976
2,235,796
0
0
0
0
9.400
0
610,940
400
157,800
400
634,351
321,600
5,480
1,156,760
0
114,000
64,000
972,156
746,354
1.427,579
0
1,912.145
0
26,900
67.870
71.248
46,500
507,409
3,800
500
6,760
7,220
4,800
0
22,600
0
0
0
0
40,300
0
0
0
0
0
0
87.095
0
0
0
320
800
0
61,240
0
0
0
31,700
54,616
58.000
0
444,144
0
35,600
0
1,500
12,300
i,COO
800
3,900
0
0
2,000
0
1,527,387.135
1,505,365,469
21,020,666
1,001,723
2,173,632.496
2,004,833,229
168,799,266 I
16,238,413
13,600
25,600
2,049,098
47,200
406,400
38.400
0
38,400
0
110,400
0
48,000
0
3,200
2.787,282
59.000
0
0
0
I
0
1,600
1,432.356
0
0
0
857,249
12,000
0
0'
0
1.051,733
0
0
32,654,97~
0
°
I
0
0
0
69,208
0
0
0
0
0
0
0
0
0
0
0
57,500
0
0
0
0
1.000
0
0
0
15.500
0
0
0
0
)-3602: U.S. International Reserve Position
Page 1 of2
FROM THE OFFICE OF PUBLIC AFFAIRS
November 6, 2002
PO-3602
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $76,146 million as of the end of that week, compared to $75,261 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US mil/ions)
October 25, 2002
November 1, 2002
75,261
76,146
TOTAL
1. Foreign Currency Reserves 1
la. Securities
Euro
/I
6,268
Yen
I
12,671
TOTAL
/I
Of which, issuer headquartered in the US.
18,939
/I
Euro
Yen
6,414
12,876
"
b.i. Other central banks and BIS
10,372
2,544
I
I
I
I
I
b.N. Banks headquartered in the U.S.
ib.ii. Of which, banks located abroad
b.iii. Banks headquartered outside the U. S
I
b.iii. Of which, banks located in the U.S.
12. IMF Reserve Position 2
~
ial Drawing Rights (SDRs) 2
~dStOCk3
I
I
er Reserve Assets
'2.:'6 :
10,595
II
19,290
1/
I
0
b. Total deposits with:
TOTAL
0
13,180
2,585
I
I
0
0
0
0
0
20,719
20,892
11,645
11,742
0
I
0
0
11,042
I
I
I
I
11,042
II
II
!
I
0
II. Predetermined Short-Term Drains on Foreign Currency Assets
I
Euro
I
I
1. Foreign currency loans and securities
II
October 25, 2002
Yen
I
I
TOTAL
I
I
November 1, 2002
Euro
I
II
TOTAL
0
0
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
.a. Short positions
0
.b. Long positions
0
@- Other
I
I
I
I
0
0
0
n
III. Contingent Short-Term Net Drains on Foreign Currency Assets
If
I
http://www.treas.80V/l'ressfrereucs!po1607. m
October 25,2002
\I
II
\I
November 1, 2002
\I
7/17/2003
)-3602: U.S. International Reserve Position
I
11. Contingent liabilities in foreign currency
Page 2 of2
I
I
I
Euro
Yen
Euro
TOTAL
Yen
I
I
0
1.a. Collateral guarantees on debt due within 1
year
I
TOTAL
0
0
3. Undrawn. unconditional credit lines
0
I
I
I
I
I
I
II
1.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
I
0
0
3.a. With other central banks
I
[b. With banks and other financial institutions
Headquartered in the U.S.
13.c. With banks and other financial institutions I
I
I
I
II
1
Headquartered outside the U.S.
4. Aggregate short and long positions of options
in foreign
Currencies vis-a-vis the U.S. dollar
14.a.
Short positions
v
0
1
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
n puts
I
I
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
depOSits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
.
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 for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. IMF data for the latest week may be
subject to revision. IMF data for the prior week are final.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.sov/presslrereucslpo1607. m
7117/2003
PUBLIC DEBT NEWS
Dlpart.lat of the Treasury • Bureall of the Pllbllc Debt • Wa.hiuctoBt DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DBBT - WASHINGTOB DC
CONTACT:
FOR IMMEDIATB RELEASE
November 06, 2002
Office of Pinancing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF lO-YEAR NOTBS
Interest Rate:
Seriess
CUSIP No:
Issue Date:
Dated Date:
Maturity Date:
4%
B-2012
912828AP5
High Yield:
Price:
4.095'
November 15, 2002
November 15, 2002
November 15, 2012
99.227
All noncompetitive and successful competitive bidders were awarded
securities at the high yield. Tenders at the high yield were
allotted 86.41%. All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCBPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
34,070,650
111,061
$
o
18,000,031 1/
110,929
110,929
Federal Reserve
$
34,292,640
17,888,910
111,061
°
34,181,711
SUBTOTAL
TOTAL
Accepted
Tendered.
Tender Type
$
18,110,960
Median yield
4.070': SO, of the amount of accepted competitive tenders
was tendered at or below that rate. Low yield
4.020':
of the amount
of accepted competitive tenders was tendered at or below that rate.
5'
Bid-to-Cover Ratio - 34,181,711 I 18,000,031 • 1.90
1/ Awards to TREASURY DIRECT. $60,837,000
http://www.pubUcdebt.treu.gov
PO-3603
O~3604:
Air Transportation Stabilization Board Letter
Page 10f2
FROM THE OFFICE OF PUBLIC AFFAIRS
November 6. 2002
PO-3604
Air Transportation Stabilization Board Letter
November 6. 2002
Mr. Frederick Brace
Executive Vice President
and Chief Financial Officer
United Air Lines. Inc.
P.O. Box 66100
Chicago. IL 60666
Dear Mr. Brace:
We have received your supplemental materials, as well as the additional
information presented at our meetings on October 28 and November 5 with the
ATSB staff and the ATSB working group. The materials are currently under review
by the ATSB staff, the ATSB working group. and the ATSB's outside consultants.
As a result of the discussions and our review of the materials you have submitted,
we would like to alert you to some of the areas that will require additional
information before the ATSB can determine whether UAL qualifies for a federal loan
guarantee:
1.
The A TSB needs further explanation of the assumptions underlying the
revenue forecasts in the company's business plan.
2.
The ATSB needs additional detail on the components, status, and timing of the
proposed labor cost savings that the company has identified.
3.
The ATSB needs additional detail on the revenue enhancement elements of
the company's proposed non-labor profit improvements.
4.
The ATSB needs to follow up on the November 5 meeting on the cost savings
elements of the company's proposed non-labor profit improvements.
5.
The ATSB needs additional detail on the company's pension and postretirement obligations, and alternatives for meeting funding requirements.
6.
The ATSB needs additional detail on the company's current or future capital
spending commitments related to airport infrastructure.
The ATSB staff is looking forward to meeting with you and your advisors to address
these issues in the coming weeks. In the course of our ongoing analYSiS, we
expect to develop specific questions based on the materials submitted and
requested.
Sincerely,
bttP:lIwww.treas.lov/preulrerHlOlilpol607. m
7/17/2003
)-3604: Air Transportation Stabilization Board Letter
Page 2 of2
Daniel Montgomery
Executive Dircctor
http://www.treas.80V/presslrereucslpo1607. m
7117/2003
)-3605: Treasury Secretary Paul H. O'Neill "Investing in Africa" Remarks to the AGOA Business Ro...
Page 1 of2
FROM THE OFFICE OF PUBLIC AFFAIRS
November 7, 2002
PO·3605
United States Treasury Secretary Paul H. O'Neill
"Investing in Africa" Remarks to the AGOA Business Roundtable
Washington, DC
It is my pleasure to join you today to discuss the growing potential for closer trade
and investment relations between the United States and Africa, as we look forward
to convening the second annual US-Africa Trade and Investment Forum this
January..
In May. I had a remarkable experience in Africa, examining economic development
first hand, identifying some of the challenges to accelerating growth, and seeing the
potential successes now taking shape.
I also visited Africa on a number of occasions during the years I was a leader in the
private sector, specifically to evaluate investment opportunities there, so I
understand the concerns and incentives for those of you here today representing
businesses.
I believe there are excellent business investment opportunities in Africa. There are
great human and natural resources, enthusiastic and ambitious entrepreneurs,
dedicated workers, and large untapped markets. It is certainly obvious to me that
the people in Africa, as in every nation on Earth, are capable of achieving great
things, and capable of performing value-adding work at world·competitive levels, in
any industry -- if they are given the tools and the right environment in which to work.
While unlimited human potential exists throughout the continent, today's
opportunities for investment lie in those nations where national and local leadership
is serious about ruling justly, encouraging economic freedom, and investing in their
people. In those nations, where leaders are fighting corruption, enforcing contracts,
and protecting property rights, investment capital is valued and treated with respect,
whether the capital originates from tocal savers or international investors.
In those nations, the long-term potential for growth is truly boundless. Private
enterprise is rightly viewed as the engine for attaining greater freedom and
prosperity. And the near·term potential for investor returns is far greater than in the
developed world, because there is a tremendous opportunity to immediately deploy
the best ideas from around the world, and raise the productivity of capital at a rapid
rate.
Consider a few examples of successful investments I saw on my recent trip.
In Ghana I visited a successful U.S. investment, called Affiliated Computer Services
- Business Process Solutions, Inc. ACS-BPS 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. We were told that the operation is
fully competitive with those the company has in Asia and elsewhere, and there are
now plans to expand to four new sites in Ghana and to increase the Ghanaian
workforce to over 1,000 people.
ACS employees start with a high school diploma and typing skills. The training they
http://www.treas.80v/presslrereuoslpo3607.htm
7/17/2003
)-3605: Treasury Secretary Paul H. O'Neill "Investing in Africa" Remarks to the AGOA Business Ro...
Page 2 of 2
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.
I also visited a cut-flowers operation in Uganda, where local entrepreneurs are
diversifying Ugandan exports by growing roses and other fresh flowers and airshipping them the same day to European markets. It's a great example of the
opportunities for capitalizing on comparative advantage in trade.
In Ethiopia, an entrepreneur from Chicago invested in building a garment factory
that makes sports clothing and ships it to the U.S. under AGOA. The company now
employs about 200 workers, each earning between three and 21 times the average
Ethiopian income. The entrepreneur also makes a very healthy return on his
capital.
I believe there are countless opportunities for investments such as these. And even
as individual companies in Africa achieve success with the help of foreign direct
investment, many African nations are striving to achieve an investment grade credit
rating for their sovereign debt. Countries that can establish investment grade credit
ratings will be far more appealing to international financial markets, and they will be
able to finance reasonable public spending needs at competitive rates.
Furthermore, the same steps required for a strong credit rating, such as
transparency and accountability in public spending, will make those governments
more effective in meeting the needs of their people. The United States is assisting
African nations that wish to pursue investment grade credit ratings.
The United States is also working with African leaders and our partners in the
developed world to encourage the kinds of public investment in people that will
maximize growth potential.
Investment in people means delivering clean water to more than 300 million
Africans who now lack it. It means improving education performance, so that every
ten year old can read, write, and compute at grade level. And it means building
health care systems that end preventable, debilitating disease, and get proper
treatment to those in need, especially those who suffer from AIDS. As President
Bush's initiatives in these areas advance, driven whenever possible by private
enterprise, the potential upside from investments in Africa will expand. Returns for
investors will be faster, greater, and safer. And most importantly, Africans
themselves will see a much faster increase in their living standards as basic
services become more common, and the doors to achievement and prosperity open
wider.
Finally, I would like to acknowledge the contributions made by Mauritius, which will
host the AGOA Forum in January. In the past two decades, Mauritius has
transformed itself from a poor and isolated backwater to an African success story.
It has even become a source of job-creating investments in several of its poorer
neighbors, such as Madagascar. The Mauritians have done it by combining the
rule of law, economic freedom, investment in their people, and above all,
democratic leadership in support of sound policies. They have set an example for
the entire continent.
For too long, too many individuals in African nations have lacked an environment
where they could pursue their ideas and flourish. I think we are beginning to see a
change today, and I believe that change will spread across the continent, if we
persist and work together. I urge those of you contemplating investment in Africa to
do your homework, your due diligence, and then take that step. The time has never
been better.
Thank you.
http://www.treas,80V/presslrereucslpo1607. m
7117/2003
D EPA R T
~r
E N T
0 F
THE
T REA SUR Y
NEWS
TREASURY
OFlt'ICE OF PUBLIC Alo')'AIRS e1500 PENNSYLVANIA AVli:NUE, N.W. e WASHINGTON, D.C.- 20220 _(202) 622-2960
EMBARGOED UNTIL 11:00 A.M.
November 7, 2002
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction l3-week and 26-week Treasury bills totaling $32,000
million to refund an est~ted $30.857 million of publicly held 13-week and 26-week
Treasury bills maturing November 14, 2002, and to raise new cash of approximately
$1,143 million. Also maturing is an estimated $14.000 million of publicly held 4-week
Treasury bills, the disposition of which will be announced November 12, 2002.
The Federal Reserve System holds $13,022 million of the Treasury bills maturing
on November 14, 2002, in the System Open Market Account {SOHAl. 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 November 13, 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 (FI~) 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 $1,110 million into the 13-week bill and $663 million into the 26week bill.
The allocation percentage applied to bids awarded at the highest discount rate
will be 1'ounded 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-3606
For press releasest speeches. public schedules and official biographies. call our 24-hour fax line at (202) 622-2040
TO BE ISSUED NOVEMBER 14, 2002
November 7, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . $ 5,200 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 LY 5
November 12, 2002
November 14, 2002
February 13, 2003
August 15, 2002
$20,656 million
$1,000
$16,000 million
$16,000 million
None
182 -day bill
912795 MM 0
November 12, 2002
November 14, 2002
May 15, 2003
November 14, 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.
Maximum Recognized Bid at a Single Rate . . . . . . . . 35% of public offering
Maximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
'Receipt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern standard time on auction day
Competitive tenders . . . . . . . . Prior to 1:00 p.m. eastern standard time on auction day
Payment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender.
TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to their account of
record at their financial institution on issue date.
J-3607: Response to Inquiries from Arab American and American Muslim Communities
Page 1 of2
~.+~
.
".;,.
"1
. '.
'~
-"'.--'
•
f-'HlSS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
November 7, 2002
PO-3607
Response to Inquiries from Arab American and American Muslim
Communities
for Guidance on Charitable Best Practices
Recently, members of the Arab American and American Muslim communities have
expressed concern to the US. Department of the Treasury about the decline of
charitable giving in their communities in the aftermath of the Treasury Department's
blocking actions against three of the communities' charities. They have asked for
guidance on ways to enhance future charitable giving. In response, the Treasury
Department has developed voluntary best practices guidelines for the U.S.-based
charities in their communities, to assist those charities in avoiding any ties to
terrorist organizations that might lead to further blocking actions.
During the past year, the U.S. Department of the Treasury has blocked the assets
of three U.S.-based charities deemed to be tied to organizations officially
designated by the U.S. Government as foreign terrorist organizations, namely, alOaeda and/or Hamas. The Treasury Department has not blocked the assets of any
donor to those charities. Notwithstanding, some Arab American and American
Muslim organizations have reported a reduction in charitable giving in their
communities and an increased apprehension among donors as a consequence of
the blocking orders.
The goal of blocking orders is to prevent financial resources from getting ,into the
hands of terrorist organizations. It is important to prevent charities from being
corrupted by terrorism. The blocking orders are not in any way intended to impede,
restrict or scrutinize legitimate charitable giving. Indeed, the promotion of both
faith-based and secular charitable giving is a central goal of this Administration.
The Arab American and American Muslim communities share this goal, especially
with the beginning of Ramadan and the approach of the holiday season. President
Bush has expressed a strong interest in ensuring that Arab Americans and
American Muslims feel comfortable maintaining their tradition of charitable giving.
Accordingly, in response to the recent requests for guidance, the Treasury
Department has developed a voluntary set of best practices guidelines for U.S.based charities intended to reduce the likelihood that charitable funds will be
diverted for violent ends. If a U.S.-based charity follows these guidelines, and
commits resources to implement them effectively, there will be a corresponding
reduction in the likelihood of a blocking order against any such charity or donors
who contribute to such charity in good faith, absent knowledge or intent to provide
financing or support to terrorist organizations.
The guidelines focus on financial controls and the vetting of potential foreign
recipients. They provide for rigorous financial oversight and, importantly, high levels
of disclosure and transparency that will enhance donor community confidence in
the professionalism and bona fides of the domestic charity. The guidelines are
consistent with the principles espoused in both the private and international public
sectors - e.g., the Better Business Bureau, the Evangelical Council for Financial
Accountability and, most recently, the Financial Action Task Force, an international
organization dedicated to combating money laundering through enhanced
transparency in international financial transactions. By implementing the guidelines
http://w~·w.treas.gov/prc5slreleflses/po3640.htm
7117/2003
)-3607: Response to Inquiries from Arab American and American Muslim Communities
Page 2 of2
with sufficient resources, diligently adhering to them in practice, and immediately
severing all ties to any foreign recipient associated with a terrorist organization
(whether designated as such by the U.S. Government or discovered to be such by
the domestic charity exercising due diligence), the domestic charity can enhance
donor confidence and significantly reduce the risk of a blocking order.
U.S. Department of the Treasury Anti-Terrorist Financing GlJiop.lines Voluntary Best
Practices for U.S. Based Charities
http://www.treas.sov/presslrereucslpo1607. m
7/1712003
u.s. DEPARTMENT OF THE TREASURY ANTI-TEAAORIST FINANCING GUIDELINES:
VOLUNTARY BEST PRACTICES FOR U.S.-BASED CHARITIES
Table of Contents
I.
Governance ...................................... ,.................................................................................. 1
II.
DisclosurelTransparency in Governance and Finances ................................................ .2
III.
Financial Practice/Accountability ................................................................................... .3
IV.
Anti-Terrorist Financing Procedures ............................................................................. .4
U.s. DEPARTMENT OF THE TREASURY ANTI-TERRORIST FINANCING GUIDELINES:
VOLUNTARY BEST PRACTICES FOR U.s.-BASED CHARITIES
Compliance with these guidelines shall not be construed to preclude any criminal or civil
sanctions by the Department of the Treasury or the Department of Justice against persons
who provide material, financial, or technological support or resources to, or engage in
prohibited transactions with, persons designated pursuant to the Antiterrorism and
Effective Death Penalty Act of 1986, as amended, or the International Emergency
Economic Powers Act, as amended.
I.
Governance: The charity should have an adequate governing structure.
A.
B.
Governing Instruments: The charity should operate in accordance with governing
instruments, e.g., charter, articles of incorporation, bylaws, etc. The governing
instruments should:
1.
delineate the charity's basic goal(s) and purpose(s);
2.
define the structure of the charity, including the composition of the board,
how the board is selected and replaced, and the authority and
responsibilities of the board;
3.
set forth requirements concerning financial reporting, accountability, and
practices for solicitation and distribution of funds; and
4.
state that the charity shall comply with all applicable federal and state
laws.
Board of Directors: The charity should be governed by a board of directors
consisting of at least three members.
1.
The board should be an active governing body, meeting at least three
times annually with the majority of members attending in person.
2.
The board should be an independent governing body, exercising effective
and independent oversight of the charity's operations.
a.
The charity should establish a conflict of interest policy for board
members and employees. The policy should establish procedures
that must be followed if a board member or employee has a
conflict of interest or a perceived conflict of interest.
2
3.
II.
b.
The charity should not engage in transactions with entities in
which a board member has a conflict of interest.
c.
The charity whose directly andlor indirectly compensated board
members constitute more than one-fifth (20%) ofthe total voting
membership of the board or of the executive committee will not be
considered to have an independent governing body.
The board should maintain records of all decisions made. These records
should be available for public inspection.
Disclosure/Transparency in Governance and Finances
A.
B.
Board of Directors
1.
The charity should make publicly available a list of its board members and
the salaries they are paid.
2.
The charity should maintain records containing additional identifying
information about its board members, such as home address, social
security number, citizenship, etc.
3.
The charity should maintain records containing identifying information for
the board members of any subsidiary or affiliate receiving funds from the
charity.
Key Employees
1.
The charity should make publicly available a list of its five highest paid
employees (the key employees) and the salaries andlor direct or indirect
benefits they receive.
2.
The charity should maintain records containing additional identifying
information about its key employees, such as home address, social
security number, etc.
3.
The charity should maintain records containing identifying information for
the key employees of any subsidiary or affiliate receiving funds from the
charity.
3
C.
D.
III.
Distribution of Funds
1.
The charity should publicly identify any subsidiaries and/or affiliates that
receive funds from the charity.
2.
The charity should provide upon request an annual report. The annual
report should describe the charity's purpose(s), programs, activities, tax
exempt status, the structure and responsibility of the governing body of
the charity, and financial information.
3.
The charity should provide upon request complete annual financial
statements. The financial statements should present the overall financial
condition of the charity and its financial activities in accordance with
generally accepted accounting principles and reporting practices.
Solicitations for Funds
1.
The charity should clearly state its goals and purposes so that anyone
examining its disbursement of funds can determine whether the charity is
adhering to those goals.
2.
Solicitations for donations should accurately and transparently tell donors
how and where their donations are going to be expended.
3.
The charity should substantiate on request that solicitations and
informational materials, distributed by any means, are accurate, truthful,
and not misleading, in whole or in part.
Financial Practice/Accountability
A.
The charity should have a budget, adopted in advance on an annual basis that is
overseen by the board.
B.
The board of the charity should appoint one individual to serve as the
financial/accounting officer who is ultimately responsible for the day to day
control over the money of the charity.
C.
If the charity's total annual gross income exceeds $250,000, the board of the
charity should select an independent certified public accounting firm, which
serves as an auditor and reviews the finances of the charity and issues a yearly
audited financial statement. The yearly audited financial statement should be
available for public inspection.
4
D.
IV.
Receipt and Disbursement of Funds
1.
The charity should account for all funds received and disbursed in
accordance with generally accepted accounting principles and the
requirements ofthe Internal Revenue Code. The charity should maintain
records of the salaries it pays and the expenses it incurs.
2.
The charity should include in its accounting of all charitable
disbursements the name of each recipient and the amount disbursed.
3.
The charity, after recording, should promptly deposit all received money
into the bank account maintained by the charity. In particular, all cash
donations should be promptly deposited into the charity's bank account.
4.
The charity should make disbursements by check or wire transfer, but not
in cash.
Anti-Terrorist Financing Procedures: The charity should take the following steps
before any charitable funds are distributed to foreign recipient organizations.
A.
The charity should collect the following basic information about a foreign
recipient organization:
1.
The foreign recipient organization's name in English, in the language of
origin, and any acronym or other names used to identify the foreign
recipient organization.
2.
The jurisdictions in which the foreign recipient organization maintains a
physical presence.
3.
The jurisdiction in which the foreign recipient organization is incorporated
or formed.
4.
The address and phone number of any place of business of the foreign
recipient organization.
5.
The principal purpose of the foreign recipient organization, including a
detailed report of the recipient's projects and goals.
5
B.
6.
The names and addresses of organizations to which the foreign recipient
organization currently provides or proposes to provide funding, services,
or material support, to the extent known, as applicable.
7.
The names and addresses of any subcontracting organizations utilized by
the foreign recipient organization.
8.
Copies of any public filings or releases made by the foreign recipient
organization, including most recent official registry documents, annual
reports, and annual filing with the pertinent government, as applicable.
9.
The foreign recipient organization's existing sources of income, such as
official grants, private endowments, and commercial activities.
The charity should conduct basic vetting of potential foreign recipient
organizations as follows:
1.
The charity should be able to demonstrate that it conducted a reasonable
search of public information, including information available via the
internet, to determine whether the foreign recipient organization is or has
been implicated in any questionable activity.
2.
The charity should be able to demonstrate that it verified that the foreign
recipient organization does not appear on any list of the U.S. Government,
the United Nations, or the European Union identifying it as having links to
terrorism or money laundering. The charity should consult the
Department of the Treasury's Office of Foreign Assets Control Specially
Designated Nationals List, which will identify entities designated by the
U.S. Government as Foreign Terrorist Organizations or as supporters of
terrorism. The charity also should consult the U.S. Government's
Terrorist Exclusion List maintained by the Department of Justice, the list
promulgated by the United Nations pursuant to U.N. Security Council
Resolutions 1267 and 1390, the list promulgated by the European Union
pursuant to EU Regulation 2580, and any other official list available to the
charity.
3.
The charity should obtain the full name in English, in the language of
origin, and any acronym or other names used, as well as nationality,
citizenship, current country of residence, place and date of birth for key
staff at the foreign recipient organization's principal place of business,
such as board members, etc., and for senior employees at the recipient's
6
other locations. The charity should run the names through public
databases and compare them to the lists noted above.
4.
C.
The charity should require foreign recipient organizations to certify that
they do not employ or deal with any entities or individuals on the lists
referenced above, or with any entities or individuals known to the foreign
recipient organization to support terrorism.
The charity should review the financial operations of the foreign recipient
organization as follows:
1.
The charity should determine the identity of the financial institutions with
which the foreign recipient organization maintains accounts. The charity
should seek bank references and determine whether the financial
institution is: (i) a shell bank; (ii) operating under an offshore license; (iii)
licensed in a jurisdiction that has been determined to be non-cooperative
in the international fight against money laundering; (iv) licensed in a
jurisdiction that has been designated by the Secretary of the Treasury to be
a primary money laundering concern; and (v) licensed in a jurisdiction
that lacks adequate anti-money laundering controls and regulatory
oversight.
2.
The charity should require periodic reports from the foreign recipient
organization on its operational activities and use of the disbursed funds.
3.
The charity should require the foreign recipient organization to undertake
reasonable steps to ensure that funds provided by the charity are not
ultimately distributed to terrorist organizations. Periodically, the
foreign recipient organization should apprise the charity of the steps it has
taken to meet this goal.
4.
The charity should perform routine, on-sight audits of foreign recipient
organizations whenever possible, consistent with the size of the
disbursement and the cost of the audit.
7
)-3608: Treasury Deputy Assistant Secretary Timothy Bitsberger to The Bond Market Association
Page 1 of3
FROM THE OFFICE OF PUBLIC AFFAIRS
November 8, 2002
PO-3608
Remarks of Treasury Deputy Assistant Secretary Timothy Bitsberger
to The Bond Market Association
Palm Beach Gardens, Fl
One idea that is important to all of us at Treasury, from Secretary O'Neill on down,
is that we must continuously seek to improve the services we provide. Today I
would like to talk about a couple of initiatives very high on our list of priorities. First,
I want to ensure that we have proper auction procedures, second I want to discuss
direct bidding and third I will talk about TIPS. Though this sounds like a random list,
they have a common thread-to help us achieve the lowest possible borrowing cost
overtime.
Auction Contingencies [Chart 1]
First I will talk about auctions. I believe that by reducing uncertainty around the
auction process-both for treasury and the bidder-we can meet our primary
objective, to borrow at the lowest cost, over time.
Within the auction process, I would like to talk to you about contingency plans when
systems go down in the minutes before an auction closes.
First and foremost our goal is to do everything ~e can to get your bid into the
auction before the auction close. I can not stress that enough - if we can't get your
bid into an auction, we are unquestionably, unambiguously worse off.
As you know, we have a rules based auction system - we have no choice. our
status as issuer depends on you having complete confidence in the integrity of the
auction process and integrity means absolute consistency in how we handle bids.
Through conSistency. we provide greater transparency which translates into lower
Treasury borrowing costs.
As we build better systems, work that obviously precedes and will follow this
administration, we need to establish guidelines-not rules-for emergency bidding
in the event that a system goes down up to and at an auction close.
Responding to such an
ours.
event necessarily requires coordination of your efforts and
It also requires judgment - no two problems are the same. We want to increase the
flexibility with which we respond, but this will require you to be more flexible too.
Starting next week. if. and only if. you have connectivity problems in the last ten
minutes before an auction close. call us and. using your judgment. consolidate your
bids into a number that can be quickly entered into our auction system.
When I say, judgment, I mean that consolidation should vary depending on the
number of bids you have and the time before an auction close. With eight minutes
to close and five bids, you may have time to submit all your bids; with two minutes
to close and 12 bids. you are unlikely to get them all in. With connectivity problems
two minutes before the close, you will need to, in the vocabulary of the medical
community, perform triage by consolidating bids to one or two large. single yield
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7/17/2003
)-3608: Treasury Deputy Assistant Secretary Timothy Bitsberger to The Bond Market Association
Page 2 of3
bids.
In any case, do not delay - you should submit any bid as soon as it is finalized. If
you have customer bids ten minutes before an auction, submit them. If you have
house bids that are finalized twenty minutes before an auction, submit them.
Under no circumstances, should the ability to phone in a bid give you or your
customers extra leeway in bid submission. f am not here to tell you how to run your
businesses. but it would be frustrating for Treasury and your customers to miss an
auction because traders felt they were holding an option giving them the right to bid.
If you have connectivity problems, and if you consolidate bids, we will treat that
consolidated bid as a house bid - you will be responsible for dispersing awards, we
will effectively treat your customer awards as W.1. trades.
This relaxation of rules on our part only comes with genuine problems - we will
verify that you had connectivity problems after the auction.
In working through this proposal, we considered formalizing the time prior to close
when we would accept emergency bids, the number of emergency bids that could
be submitted, and what rights and obligations you would have under emergency
bidding procedures. Frankly, I was not comfortable with the inflexibility of a formal
process. The small problems that are most likely to turn into big problems are
those that would not occur to us in developing a formal process. Consequently, I
am not going to pinpoint a time or number of bids that assures you enough time to
telephone in a bid. But the NY Fed and Bureau of PubliC Debt are confident they
can input one bid with 2 minutes to auction close. That is not a rule, nor are we
bound to that 2 minutes. It is a guideline we are comfortable with and one that I
hope. if a situation ever requires it, you will be comfortable with as well Above all. I
hope you will view this proposal in the context in which it is offered: as part of our
goal to do everything we can to get your bid into the auction before the auction
close.
As systems evolve and improve, I encourage all of you to keep a watchful eye on
your Fedline terminals during auctions. The auction process is one of risk
management, I want to make sure you give due emphasis to the operational as well
as market risks. What I am proposing today is a way for you to prepare for system
failures should they occur. I want no confusion over what you should do or whom
you should call if you experience a systems failure. We will reinforce this
emergency bidding process at our dealer visits and at formal training sessions.
Direct Bidding [Chart 2]
As many of you know, Treasury is promoting both auctions and the ability to bid
direct to investors. I want to state right off the bat that we are not looking to
disintermediate dealers. Your ability to take down and place our debt is immensely
valuable to us and to the market as a Whole.
However, in today's day and age, we should be able to provide investors with the
technological and operational ability to bid directly if they choose. In today's
environment, our debt may very well be distributed in the most cost-effective way
possible. As market conditions dictate possible changes in risk management and
as dealers consolidate, however, Treasury must start to think about a world in
which the primary dealers in aggregate are somehow constrained from underwriting
Yo of our debt issuance.
In this past year we will have held about 185 auctions and distributed over $3 trillion
in bills and notes. We all know that treasury can attractively issue debt under the
current environment; we don't know the costs to treasury in an environment where
there are fewer dealers and less capital allocated towards risk trading.
TIPS
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7117/2003
)-3608: Treasury Deputy Assistant Secretary Timothy Bitsberger to The Bond Market Association
Page 3 of3
o [Chart 3] By broadening our investor base and diversifying our funding sources,
we believe we can reduce our borrowing costs over time,
o Tips can diversify Treasury's risk profile, as well.
o We believe that Tiis should be viewed as a different asset class, The market is
still quite young-essentially five years old-and it is still evolving. In fact, a year or
two ago, there were concerns that the Tips program was in jeopardy, I am here to
put those fears to rest
o [Chart 4] Even though, I just said that Tips represent a different asset class, we
issue TIPS the same way we do nominal bonds.
o At Treasury, we are committed to issuing large, liquid securities, We announced a
new Tips policy in May of this year. In order to increase the number of auctionswithout moving too fast and getting ahead of the market-we increase the number
of auctions from two to three, with two reopenings,
o Reopenings can sometimes cost Treasury money because we don not capture
the on-the-run premium However, the benefits of large and liquid issuance provide
a more stable secondary market.
o [Chart 5] The one point on this slide that I want to highlight is the deflation
protection. Principal is guaranteed at maturity,
o [Chart 6]Our commitment is also evident in our issuance. We have become the
world's largest liS issuer with more than $140 billion outstanding.
• a much higher percentage of auction awards are allocated to investment funds, a
further indication that the market has come to believe we are committed to TIPS.
• One of the reasons I am here today is try and grow the yellow slice of the pie,
Penetration of the international market is surprisingly weak given there is such
diversified European linker issuance.
o [Chart 7] Increased issuance and greater market acceptance has led to increased
liquidity, Tips may never trade with the liquidity of nominal Treasuries, but that may
not be the appropriate standard - by any other measure, liquidity is good and
promises to get better.
• Over the 5 years we have been issuing inflation-indexed securities, some analysts
have said they are a more expensive form of borrowing than the comparable
nominal securities. 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 cost-effectiveness is after they have worked their way through
at least an entire interest rate cycle or two.
• [Chart 8] The decision to invest is yours and I do not want to encourage an
investment that mayor may not be appropriate for you, But I do want to point out a
few things. These securities are of particular value to investors because their
prices move differently frarr p:I/www.trea~gov/pless/rclcil~C:;ipo30(!4.htm)n unadjusted)
price varies inversely with real U.S, interest rates, not nominal interest rates,
making them very attractive for risk diversification. We also think that Treasury
Inflation-Indexed Securities are a unique asset class - dollar-denominated,
inflation- protected, backed by U,S. full faith and credit - that every diversified
investor should own, As you can see they have lower risk than the Lehman index
and 1O-year note, both absolute and relative,
• [Chart 9] We believe there is and will be strong demand for inflation protected
notes backed by the full faith and credit of the US Government. We are excited
about the growth prospects for Tips, I would like to encourage everyone here to
contact Treasury or myself should you have any suggestions in how to grow this
asset class.
Thank you very much. I would be happy to take any questions
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7117/2003
Treasury Debt Management
Timothy Bitsberger
Deputy Assistant Secretary
U.S. Treasury Department
EMERGENCY BIDDING GUIDELINES
1.
2.
3.
4.
5.
State your firm's name, your name, and phone number
and advise us that you are calling in an emergency bid.
Indicate which auction the bid is for.
Indicate whether the bid is for the House or a Customer.
Provide Par, Yield, and NLP (if applicable).
We will attempt to enter the bid while you are on the
phone. We will tell you if your bid was placed in the
auction.
Under these emergency circumstances, an aggregate bid will be considered a House
bid and will not be considered an auction violation. If you are required to report a
NLP, you should report only the House NLP because we will consider this aggregate
bid as a House bid under the auction rules.
2002 Competitive Bidder Participation By Month. Bills Only
-Average Direct
OAverage Indirect]
50 - -- - - --- ---45
40
~ 35
CD
-,:,
"CI
-m...
30
0
CD
..Q
e::::I
25
z
& 20
e
CD
~
15
10
5
0
Jan-Q2
Feb-02
Mar-02
Apr-02
May-02
Month
Jun-02
Jul-02
Aug-Q2
Sep-02
2002 Competitive Bidder Participation By Month - Notes Only
-Average Direct-Fixed
OAverage Indirect-Fixed
OAverage Direct-Inflation
o Average Indirect-Inflation
90
80+1------------------------------------------------------------------;
70+~-------------------------------------------------------------------------4
In
;
't:J
60
:2
OJ
o 50
~
CI)
.Q
E
~ 40
CI)
en
E
~ 30
<
20
10
o
Jan-02
Feb-02
Mar-02
Apr-02
May-02
Month
Jun-02
Jul-02
Aug-02
Sep-02
Treasury Issuance of
Inflation -Indexed Securities
• Potential to reduce borrowing cost over time
- Treasury spreads inflation risk
- Broadens investor base
- Diversifies funding risks
• Liquidity of nominal Treasuries is not an
appropriate comparator
• Market still evolving
The Treasury is Committed to TIIS
• Same philosophy as nominal Treasuries: Regular
and predictable issuance of large, benchmark issues.
• Expanded auction schedule for the 10-year TIIS from
two to three a year.
• Increased issuance size of TIIS. Through July, TIIS
issuance is up 360/0 over last year.
TIIS Characteristics
• Fixed real coupon, paid semi -annually on inflation
adjusted principal
==:>. Deflation-protected principal at maturity
• Principal adjusted for inflation daily, but paid at maturity
• Inflation accretion is referenced to the CPI-U NSA, set
with a 3-month lag
• First issue January 1997; 10 issues ranging from 2007 to
2032
• $140 billion market capitalization; total Treasury market
capitalization $3.1 trillion
• Three 10-year TIIS auctions this year, increased issuance
• Average daily trading volume over $2 billion
Outstanding Treasury Inflation -Indexed Securities
$ billions
160
140
120
100
80
60
40
20
0
1997
Source:
us Treasury
1998
1999
2000
2001
2002 est
Liquidity in TIIS
Dealer Transactions in TIIS, 3-month Moving Average of Daily Volume
Avg. Dally Volume
($mllllon)
3,500TI--------------------------------------------------------------------------------~
3,000 +1------------------------------------------;
2,500
I
I
I
2,000t--------------------------------------------------~t_--------~~~----~~J
:::J'\
J
'"'
I
1,500 I
1,000
I _
}
A
J -
,
J
'...
.-
I
JIIi14IV
.."
=t-JI
-oJ'"
...
~+I----------------------------------------------------------------~
O+I-------.------.------.-------.------.------.------r-----~--~
Ap~98
Oct-9S
Apr-99
Source: Federal Reserve Bank of New York
Oct-99
Apr-OO
Oct-OO
Apr-01
Oct-01
Apr-02
Return Profiles
(1997 - July 2002)
Lehman Index
10-Year Treasury
Annualized Return
7.30%
8.33%
6.72%
4.09%
Monthly Volatility
1.21%
1.85%
0.94%
5.20%
Annual Volatility
6.03%
8.54%
4.70%
19.49%
Source: Barclays Capital
10-Year lIS
S&P 500 Index
w/dividends
TIPS Benefit Investors
• Closest thing to a risk free asset for long-term investors,
who ultimately should care only about the future real
purchasing power of their savings
• Highest credit quality
• Low volatility and attractive returns improve portfolio
efficiency
• Better match to inflation than real estate, commodities, or
other real assets
• Attractive expected returns relative to nominal bonds
currently
Structure
•
Principal value is adjusted for inflation by multiplying the
value at issuance by an index ratio which changes daily.
Inflation adjustment is paid at maturity.
• Coupon payments are a fixed percentage, determined at
auction, of the inflation- adjusted value of the principal on
the semiannual interest payment dates.
• The index ratio for a particular valuation date is the index
number for that date divided by the index number for the
issue date.
• Index Ratio Date == Index number for value date
Index number for dated date
0-3609: Peter Fisher Remarks on Restoring Investor Confidence: The Key is Disclosure
Page 1 of4
FROM THE OFFICE OF PUBLIC AFFAIRS
November 8, 2002
PO-3609
Remarks of
Under Secretary of the Treasury Peter R. Fisher
To The Securities Industry Association
Boca Raton, Flordia
"Restoring Investor Confidence: The Key is Disclosure"
Restoring the vitality of our nation's securities markets is dependent upon improving
the quality of information that investors receive. Nothing is more important.
Our securities markets are extremely efficient at pricing and allocating capital on the
basis of all available information. Unfortunately. the important information is too
often not available. When critical information is absent, or where great disparities
exist in the quality of information available to different players, the power of markets
is misdirected and the allocation of resources becomes skewed, mocking the claim
- which both you and I make - that our securities markets are the most efficient
means we have of converting our collective savings into investment.
Today, I want to ask you to promote the idea that investors have a fundamental
right to see the companies in which they invest through the eyes of management.
think that you should work to ensure that investors see both the real, economic
leverage and the key indicators of bUSiness value that are available to insiders. If
we cannot find a way for companies to disclose these basic financial and business
facts, I fear we will never align the interests of corporate insiders with those of their
investors.
Public attention has focused on conflicts of interest borne by securities analysts.
This is an important subject, worthy of your remedial efforts. But if neither analysts
nor investors have the right information with which to price a company's securities,
the mere removal of conflicts of interest between them will not get us as far as we
need to go.
If we are incapable of putting both investors and analysts on the same footing as
insiders. particularly with respect to companies' real, economic leverage, then I fear
that the best days of the securities industry may be behind you.
If, however, we can find a way to provide investors with sufficient information to
price a company's securities on the same basis as insiders, then I think that our
traded capital markets can prosper.
We do have the best disclosure regime in the world. But this is the wrong
comparison, and sets the bar too low, because we also have the most evolved and rapidly evolving - capitalist economy in the world. As good as our disclosure
regime is compared with other those of nations, it is not good enough compared
with the quality, timeliness, and analytic rigor of internal management and financial
information now available to corporate leaders. Disclosures to investors have not
kept pace with the communications and data management revolution that has
transformed American business over the last twenty years.
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Investors should know two kinds of facts that corporate insiders know: first, the
handful of key indicators of business value that management actually uses to
assess the company's current performance and near-term prospects, and second,
the company's real asset-liability ratio - the fundamental financial information about
all of the company's contractually-obligated assets and liabilities, whether on- or offbalance sheet. The best businesses in America have already found ways to
provide their shareholders and creditors with a clearer picture of the business and
financial reality of their operations. These firms are the ones that we have not been
reading about in recent months and whose credit spreads have narrowed rather
than widened.
Dozens of times I have asked CEOs and other corporate leaders how they stay on
top their large, complex businesses: "How do you know what's really going on in
your company?" Invariably, I receive the clear answer that they have five or six maybe 10 or 12 - key business indicators that they track daily or weekly. These
indicators tell them what they need to know about their company's current
performance and near-term prospects. Without notes or preparation, most CEOs
can tell you in just a few minutes exactly what these indicators are and what the
current numbers are telling them.
More otten than not, the conversation takes an abrupt turn when I ask whether the
company discloses these indicators in any way for shareholders. The same CEOs,
who had just been explaining how simple it is for them to keep track of their
businesses, now tell me how complicated these indicators are and that they would
be too confusing and too difficult to provide, even in summary form, to their
shareholders and creditors.
Why don't more firms disclose their core indicators of business performance? The
claim is made that they don't want to aid competitors. I don't buy it, at least not for
most of their business indicators and nearly all financial measures. Moreover, this
claim simply reflects a value judgment that keeping secrets from competitors is
more important than informing the owners - that investors are better off if they
remain ignorant of what's going on inside the companies that they own. Our
publicly-traded capital markets cannot function on so faulty a foundation.
The simple, observable fact is that management has lacked sufficient incentive to
provide this information to investors. Their lack of incentive is a reflection of the
much bigger problem that there are two completely different valuation
methodologies at work in our economy today: one for those inside the temple of
modern finance and who have access to insiders' data, and a different one for the
outsiders who don't understand the basics of modern finance theory and who must
rely only upon publicly-available data.
When a corporate CEO plans to buy or sell a subsidiary, or when a private equity
firm considers purchasing a company, they don't begin by looking at trailing
quarterly earnings. Instead, they hire an MBA with a spreadsheet who begins by
identifying all of the firm's assets and liabilities. The MBA analyst discounts to
present value all of the firm's contractually-obligated future cash out-flows, the
firm's liabilities whether on- or off-balance sheet. Then the analyst discounts all of
the firm's future, contractually ooligated cash in-flows, their long-term customer
contracts.
The little secret of capitalism is that it involves risk. In most cases, the net present
value of the future streams of contractually-obligated outflows and inflows is
negative. So the analyst will look to see where the revenues to close and exceed
that gap could come from. Does the firm have particularly good customer
prospects? A powerful brand name or customer loyalty? A leading inventory
management system or whatever else would suggest the ability to generate the
additional revenues needed to meet the company's liabilities and still leave a little
something to reward the equity holder? The analyst will inevitably look at those
core indicators of business value to complete the picture and put an overall
valuation on the firm.
This valuation method is forward-looking. It takes no heed of the distinction
between what's on and off the balance sheet and gives equal consideration to all
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)-3609: Peter Fisher Remarks on Restoring Investor Confidence: The Key is Disclosure
Page 3 of 4
contractual obligations. It appreciates the real economic leverage that the firm has
employed. It focuses on the real drivers of value and ignores accountants' notions
of earnings.
Unfortunately, the valuation method used by those outside the temple of finance
theory, the method that we teach and reinforce in the public culture of our securities
markets, is quite different.
This valuation method is backward-looking and fixated on trailing quarterly
earnings. It is driven by accounting standards that are a function of habit and
history, of often archaic and abstract principle, and of a short-sighted conviction that
it is better to obscure rather than illuminate the real sources of earnings. It is
grounded in the half-truths of the balance sheet It leaves investors struggling
through footnotes and appendices to calculate even crude approximations of the
total, economic leverage employed through the use of off-balance sheet devices.
Let me be clear: there are lots of legitimate purposes for derivative instruments,
structured finance and special purpose vehicles as means of transferring and
pooling risk. But hiding a firm's total, economic leverage from its shareholders and
its creditors is not one of them.
Investors should not tolerate this practice Indeed, the low price-earning ratios of
some of our leading companies, today, reflect the markets' intolerance for even the
suspicion of hidden, off-balance sheet leverage. Corporate practice should catch
up with where market prices have already gone.
As long as a gap exists between corporate insiders and investors, in both the
method used and the data available to determine the firm's value. then the
opportunity and the temptation for insiders to game the system will be too great. If
fundamental information asymmetries are allowed to persist, whole armies of
independent directors, accountants, auditors, and regulators will fail to align the
interests of insiders and investors.
In the past twelve months, the Securities and Exchange Commission has made a
series of proposals and statements aimed at transforming the quality of corporate
disclosure. Bluntly put, the SEC has made clear that disclosure to investors is too
important to be left to the accountants. It has restated - and enforced - the longstanding principle that GAAP compliance does not satisfy disclosure obligations
under our securities laws. Last spring, the SEC proposed rules to require
companies to highlight critical accounting policies and judgments and their impact
on financial results, and to flag any significant changes in the application of
accounting principles. It proposed real-time disclosure of material events. And just
this week, following through on one of the provisions of the Sarbanes-Oxley bill, the
SEC published proposed new rules on comprehensive disclosure of off-balance
sheet items. Taken together, these efforts represent the most important proinvestor initiative that the SEC has taken in many years.
If you want our securities markets to prosper, if you want to remove the cloud of
investor skepticism, you must support the SEC's proposals and you must also
become genuine leaders in improving the quality of disclosures by publicly-traded
companies. The federal government can set minimum standards for acceptable
behavior and punish those who violate these standards. But if you want our
securities markets to continue to playa vital role in our society, you cannot wait for
the federal government to fix the current problems for you.
In the division of labor in our securities markets. too many have complacently
accepted the status quo of corporate disclosure; too few have seen it as their
responsibility to work systematically to improve the quality of information that
investors receive. If you in the securities industry won't stand up for the idea that
investors have a fundamental right to know the real economic leverage and the real
indicators of business value, why should investors put their money at risk in the
instruments you try to sell them?
I can understand why risk-averse CEOs, CFOs, directors, lawyers and accountants
http://w~·w.treas.gov/prc5slreleflses/po3640.htm
7117/2003
)-3609: Peter Fisher Remarks on Restoring Investor Confidence: The Key is Disclosure
Page 4 of 4
would prefer to maintain the status quo of different valuation methods for insiders
and outsiders. But your stake in this should be self-evident. If investor confidence
in the disclosures of publicly-traded companies is not restored, your industry cannot
prosper.
You must breathe life into the fundamental right of investors to see the financial and
business reality of the companies in which they invest through the eyes of corporate
management. If you do this, if you speak up on behalf of the investor's right to
quality information, you will restore investor confidence.
You will also make a reality of our claim that the securities markets are the most
efficient means that we have of converting our savings into investment.
http://w~·w.treas.gov/prc5slreleflses/po3640.htm
7/17/2003
)-3610: A Half-Century of Changes in Monetary Policy
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
November 8,2002
PO-3610
A Half-Century of Changes in Monetary Policy
John B. Taylor Under Secretary of Treasury for International Affairs
Written Version of Remarks Delivered at the
Conference in Honor of Milton Friedman
University of Chicago
November 8, 2002
•
•
Presentation slides for 'A Half-Century of Changes in Monetary Policy" by
John B Taylor
A Half-Century of Changes in Monetary Policy," Remarks by Under
Secr-etary John B_ Taylor
http://w~·w.treas.gov/prc5slreleflses/po3640.htm
711712003
A Half Century of Changes in
Monetary Policy
John B. Taylor
Under Secretary of Treasury for International Affairs
Conference in Honor of Milton Friedlllan
University of Chicago
November 8, 2002
Purpose
• Review monetary policy since W orld War II
- United States and Rest of World
• Or since Milton Friedman's first papers on
monetary economics-at u.s. Treasury?
• Intertwined with Milton Friedman's influential
research and policy advice on:
- Monetary policy rules
- Case for flexible exchange rates
- ~aturalratetheory
- Money growth (Monetary History)
Dramatic Changes
• Accord of 1951
- Fed must now decide about instrument setting
- Start of Martin era
• End of fixed exchange rate system
- Bundesbank, other central banks, must now decide
about instrument setting
• Great variety now
- Flexible exchange rates-inflation targets, systematic
policy for instrument setting
- Currency unions, dollarizations, currency boards
- Managed pegs
Three Broad Developments
• Rise and fall of inflation
- Price stability, Great Inflation, price stability
• More transparent, systematic, rule-like operations
and analysis
- Interest rate instrument
- Changing coefficients
• Diffusion of monetary ideas, experiences
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Causes of the Great Inflation,
Disinflation, and Price Stability
• Price shocks
- Early explanation, but timing is off, and dependent on
policy (later shocks, Japan)
• Historical bias from Great Depression
- But why not in the 1950s?
• Time inconsistency bias
- Theory of Kydland-Prescott, Barro-Gordon
- Parkin version, Christiano et al version
• Over-estimates of potential GDP
- Orphanides' real time approach, useful
- But difficult to get real time estimate of potential
- Official series unlikely to have been used by Burns
Change in Theories
• Phillips curve
- 1958 paper, 1960s CEA, textbooks, everywhere!
• Friedman's natural rate theory
- 1966 commentary, 1967 presidential address
- Controversial, but then dramatic empirical validation
• Augmentation with adaptive expectations by early 1970s
- Implies large cost of disinflation
- 1974 White House conference
• Rational expectations
- Lucas models
- Sargent-Wallace, perfectly flexible prices, zero cost of disinflation
- Staggered wage and price setting, smaller cost of disinflation
• Dangers of least squares learning without theory
- Forgetting Sargent's a == 1 lesson when there is price stability
Leadership
• Changes in people-from Arthur Bums and Richard Nixon
to Ronald Reagan-are the main cause
• Excerpts from an interview with Milton:
JBT: Why did inflation rise in the late 1960s and
1970s in the United States?
MF: Arthur Bums deserves a lot of the blame, and he
deserves the blame because he know better.
JBT: What about the end of the Great Inflation?
MF: Well, there's no doubt what ended it. What
ended it was Ronald Reagan .... No other president in
the post-war period would have accepted that [huge
decline in public opinion in 1981 and 1982] without
bringing pressure on the Fed to reverse course.
Changes in Operating
Procedures and Rules
• Increased focus on the interest rate as the
instrulllent
- FOMe public statements about Fed Funds rate start in
1994
- Similar for other central banks
- Greater transparency
• Increased use of monetary policy rules with
interest rate as the instrument
- Motivated by rational expectations
- Relation with Friedman's constant money growth rule
- Need for "failsafe" money bounds for deflation,
hyperinflation, and rudimentary financial systems
Changes in Monetary Policy Rules
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• Response less than one:
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- Instability
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- Stability
• Fact:
- Coefficient less than one during Great Inflation
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Learning about the Correct
Response Coefficient
• Leaning against the wind was way too vague
- Which instrument? Which wind?
- When to lean? How much to lean?
• Maisel 1965:
- "After 12 FOMe meetings I began to realize how far I was from
understanding the theory the Fed used"
• Friedman, Schwartz, Meltzer, Jones, St. Louis Fed
- Endeavor to specify with models, money data, and monetary history
• Emphasis on real interest rate
• Role of money growth in the disinflation
• Policy evaluation research with interest rate rules
- New variability tradeoff
• Surprising benefits of newer policy rule:
- Improved output stability and improved inflation stability
International Diffusion of Ideas
and Experience
• Great Inflation: "Change in theories" explanation
works here too
- First Phillips curve; but then natural rate, rational
expectations ideas spread around the world
- New Zealand adopts "measurable results" approach
• Inflation targeting frameworks spread
- Svensson, Bemanke, central bank networks
• Monetary policy rules spread
- McCallum, market analysts, flexible rates
Monetary Policy Today
• 47 countries with flexible exchange rates, inflation
goals, and monetary policy instruments (interest rate
or monetary base) aimed at the goals
• 50 countries either dollarized, in currency unions, or
using currency boards
• 75 with fixed or heavily managed exchange rates
• 7 with multiple exchange rate regimes (way down)
A Half-Century of Changes in Monetary Policy
John B. Taylor
Under Secretary of Treasury for International Affairs
Written Version of Remarks Delivered at the
Conference in Honor of Milton Friedman
University of Chicago
November 8, 2002
It is a real pleasure for me to participate in this conference in honor of Milton Friedman.
I have been asked to review changes in monetary policy since the end of World War II, or during
the half-century or more since Milton Friedman first began writing on monetary economics.
Monetary policy changes during this period have been truly dramatic, not only in the
United States, but also throughout the world. As every monetary economist knows, Milton
Friedman's monetary research and policy advice-on monetary policy rules, on flexible
exchange rates, on money growth, on the natural rate of unemployment, on the flaws in the
Phillips curve, and on the real interest rate-had an enormous influence on these changes.
In the United States, the first big post-war change in monetary policy came in 1951 when
the famous Accord was reached between the Treasury and the Federal Reserve. By freeing the
Fed from the obligation to peg interest rates, that Accord allowed the Fed to make its own
decisions about the instruments of monetary policy and to focus on key price stability goals. At
nearly the same time, William McChesney Martin-who played an important role in negotiating
the Accord-moved from the Treasury to the Fed and began implementing these goals. Since
then we have seen many more changes in U.S. monetary policy, including a major
transformation in how the instruments of policy are adjusted.
Similarly, but later on, the end of the Bretton Woods fixed exchange rate system freed
central banks in the rest of the world to set their own instruments of monetary policy. And the
changes have continued since then. Now the Bundesbank and other central banks of Europe are
joined in a single central hank for all of Euroland with a single money supply and a single
overnight interest rate. The international monetary system has been transformed into a system
with a wide variety of monetary policies: (I) inflation targeting with a flexible exchange rate and
a procedure for setting the policy instrument-usually the short-tenn interest rate, as in New
Zealand, Chile, the United Kingdom, Sweden and Korea, (2) monetary unions-in western and
central Africa and the eastern Caribbean as well as in western Europe, (3) dollarization-where
the term refers both to the official use of Euros, as in Montenegro, and to the official use of
dollars, as in E1 Salvador, (4) currency boards-as in Bulgaria or Bosnia, and (5) managed
pegs-as in Singapore. One of the jobs of the International Affairs staff at the U.S. Treasury is
to monitor monetary policy changes in other countries. I can attest that there have been a lot of
changes to track.
For the most part these changes have resulted in better economic performance. There is
greater monetary transparency and accountability in many countries, with explicit
announcements of changes in policy instruments and published inflation and monetary policy
reports. But unfortunately, not all has been good. In the midst of these positive changes, money
mischief-to use the title of Milton Friedman's 1994 book-has continued, from hyperinflations
in the early years of transition in the former Soviet bloc countries to multiple currencies in
Afghanistan.
Three Broad Historical Developments
Clearly it is impossible to cover all these changes in one talk. But there are three broad
historical developments during this period that provide a convenient organizing framework for
reviewing the key monetary policy changes.
One development is the significant rise andfall ofinflation during the post-World War II
period. In the United States we went from price stability in the 1950s through the mid 1960s, to
inflation from the late 1960s to the early 1980s, to disinflation in the early 1980s, to price
stability in much of the period since then. Thus, the monetary history of this period consists of
the Great Inflation flanked by two periods of relative price stability.
Another development-closely related to the first--concerns the procedures used at
central banks for setting the instruments of monetary policy. The main change here is that
decisions about the instruments of policy-frequently the overnight interest rate-are being
approached and analyzed in a more rule-like or systematic fashion both in research and in
practice. And when viewed in this more systemic fashion, one can detect a change in the
responsiveness of the instruments of policy to inflation and to the real economy. In other words,
the estimated coefficients in monetary policy rules have changed significantly.
A third development is the diffusion of ideas and experience about monetary policy
around the world. The Great Inflation is frequently discussed as ifit were solely an American
inflation. But this same general pattern can be found in many countries and regions of the world.
In recent years the diffusion of ideas and experience is found in the increasing number of central
banks emphasizing targets for inflation, transparency, and independence in setting the
instruments of policy.
Most changes in post-war monetary theory, history, and policy are best understood in the
context these three historical developments. I'll now consider each in tum.
The Rise and Fall of Inflation
Figure 1 documents the rise and fall of inflation in the United States. Inflation began to
rise in the late 1960s and fluctuated in a generally rising pattern until the disinflation in the early
1980s. By the mid 1980s inflation had been reduced substantially and a period of relative price
stability began. That period of price stability has continued ever since with relatively small
fluctuations.
2
Figures 2 through 4 show that a similar pattern of inflation occurred in the United
Kingdom, Australia, and Canada, although the inflation ended somewhat earlier in the United
States. Of course, not every single country in the world experienced precisely the same timing.
Japan, for example, dealt with the inflation problem much earlier than the United States, and
with the current deflation it has gone too far in reducing inflation. Nevertheless, there is a
general global pattern, and Figure 5 endeavors to summarize the global pattern. It shows the
median inflation rate over 5-year intervals in the major regions ofthe world. In each case we see
a rise and fall of inflation. Not shown in Figure 5 is the experience of the transition economies
that emerged from the Soviet bloc. These countries also experienced a rise and fall in inflation,
but it was larger-reaching hyperinflation levels-and shorter-starting and ending in the 1990s.
What caused the Great Inflation? I will take as a given that inflation is a monetary
phenomenon. Milton Friedman and Anna Schwartz provided convincing evidence of this long
ago in their monetary history. In Figure 6, scatterplots of countries' money growth rate and
inflation rate show that inflation is still a monetary phenomenon. There is a remarkably close
association over time between inflation and money growth. The question is why central banks
increased money growth during the period of high inflation. Monetary economists have offered
a number of explanations.
Exogenous Oil Price Shocks and Monetary Accommodation
Long before the Great Inflation was over and long before it acquired its current name,
people began focussing on "oil price shocks" as the cause of the rise in inflation. Alan Blinder,
for example, stressed the importance of oil shocks in raising the rate of inflation. According to
this explanation the shock-induced increase in inflation forced policymakers to accommodate the
shock by raising money growth; the accommodation would prevent a decline in real money
balances and avoid an increase in unemployment. If the shock were not accommodated, then
unemployment would increase.
The passage of time and later experiences with oil shocks under different monetary
regimes have raised questions about this view. Writing from the vantage point of 1997, Brad
DeLong noted that the inflation was already underway in the late 1960s in the United States, well
before 1972 when the oil price shocks began. Moreover, the experiences with later oil shocks in
the United States and other countries were much different from the first shocks; these
experiences suggest that a less accommodative monetary policy could prevent price shocks from
getting imbedded in inflation without significant unemployment effects. Oil price shocks in the
late 1970s had very small effects in Japan when a much less accommodative monetary policy
was in place.
Historical Bias: Lessons from the Great Depression
In rejecting the price shock view, Brad DeLong provided another explanation for the
Great Inflation. According to this explanation, the memory of very high unemployment in the
Great Depression caused policymakers to err on the side of higher inflation. They were fearful
3
of a return to high unemployment. He argues that policymakers and the public were wiIIing to
let inflation rise because, having recently experienced the high unemployment of the 1930s, they
worried that maintaining price stability would lead to greater unemployment.
However, if the experience of the Great Depression caused the rise in inflation in the late
1960s and 1970s, then why did monetary policy leave the price level so nearly stable during the
William McChesney Martin years of the 1950s and I 960s-a period much closer in time to the
Great Depression? Shouldn't we have seen the inflation rate rise much earlier if the Great
Depression had created such a bias in monetary policy?
Time-Inconsistency Bias: Expectations Traps
The time-inconsistency problem of Finn Kydland and Edward Prescott has also been
frequently cited as a possible reason for the rise and fall of inflation. One version of the timeinconsistency explanation is due to Michael Parkin using the model of Robert Barro and David
Gordon. In the basic time-inconsistency model of inflation and unemployment there are
economic benefits from actual inflation being higher than expected inflation and there are
economic costs from inflation itself. The model predicts that policymakers-who are unable to
fully commit to policies-will eventually find themselves in a sub-optimal equilibrium. The
unemployment rate is always equal to the natural unemployment rate in this equilibrium, no
matter what the inflation rate is. The equilibrium is SUb-optimal because, if policymakers could
commit, it would be possible for them to achieve a lower inflation rate with the same rate of
unemployment. Thus, time-inconsistency causes an inflationary bias in monetary policy.
This sub-optimal equilibrium has the property that the higher is the natural rate of
unemployment, the higher is the equilibrium inflation rate. This property yields a possible
explanation for the Great Inflation in the United States because the natural rate of unemployment
rose in the 1970s. As the post-World War II baby boom generation entered the workforce, the
fraction of young people, who typically have higher unemployment rates, rose. This caused the
natural rate of unemployment to rise. Then, as the baby boom generation grew older in the
1980s, the natural rate of unemployment declined. Thus, with a rising and then falling natural
rate of unemployment, the time-inconsistency model implies that the inflation rate should have
risen and then fallen as well.
I have questioned whether policymakers-who are assumed in this story to be well aware
of the time-inconsistency problem-could have dealt with it long ago. Wouldn't they have seen
the sub-optimality of the equilibrium and dealt with it? In any case, even if Parkin's explanation
applies here, it cannot explain the rise and fall of inflation in Europe and other parts of the
world-see Figure 5-where the natural rate of unemployment did not follow the same pattern.
V.V. Chari, Lawrence Christiano, and Martin Eichenbaum developed another version of
the time-inconsistency model that can be offered as an explanation of the Great Inflation. As
described by Christiano and Christopher Gust the model is based on rational expectations with
sticky prices rather than the imperfect information used by Kydland and Prescott. In this model a
rise in people's expectations of inflation forces a choice on the central bank: either accommodate
4
the increase in inflationary expectations by an increase in money growth, or do not accommodate
the increase and let unemployment rise. Their version of the time-inconsistency problem is
similar to the price shock explanation in the sense that the central bank is "forced" into
increasing money growth in order to avoid a decline in real money balances and an increase in
unemployment. To complete this explanation, Christiano and Gust note that expectations of
inflation did rise in the late 1960s along with the increase in actual inflation. For this model to
explain the end of the Great Inflation, however, more is needed-perhaps a sudden recognition
by policymakers that this time-inconsistency problem exists and needs to be dealt with.
Poor Data: Overestimating Potential GDP
Athanasios Orphanides argues that an overestimate of potential GDP and a corresponding
underestimate ofthe full-employment unemployment rate were factors that led monetary
policymakers to provide too much monetary stimulus and cause the Great Inflation. His analysis
is based on estimates of the actual data that existed in the 1970s. He feeds this data into standard
monetary policy rules and finds that the setting of the interest rate is similar to the actual interest
rates, which-certainly based on what we know today-were way too low and would be
expected to lead to inflation, as they did.
Orphanides' work is a very useful reminder ofthe dangers that uncertainty about
potential GDP can create for monetary policy procedures that use potential GDP. However, his
estimates of real-time potential GDP have their own problems. In my view they exaggerate the
size of the policy error that eQuid be attributed to an overestimate of potential GDP. Most
important is that the potential GDP series used by Orphanides was recognized at the time by
monetary policy and business cycle experts to be flawed. In fact, plans were in place at the
Council of Economic Advisers to publish a more realistic series for potential GDP. In any case, I
doubt that an expert historian ofthe business cycle such as Federal Reserve Chairman Arthur
Bums would have been confused by this estimate of potential GDP.
Ideas: The Development of Models of Inflation
The development of new economic ideas and the adoption of these ideas by policymakers
and their staffs can obviously have an impact on economic policy. But not all new economic
ideas are correct. In my view the idea-developed in the 1960s-that there was a long-run
tradeoff between inflation and unemployment contributed greatly to the Great Inflation.
Moreover, the discovery of flaws in those models by Milton Friedman and the development of
new models by Edmund Phelps, Robert Lucas, and others in the 1970s and 1980s helped create
the rationale for the disinflation and for the more recent period of price stability.
A. w. Phillips' paper was published in 1958, and by the mid 1960s the idea of a long-run
Phillips curve tradeoff between inflation and unemployment regularly appeared in the Economic
Report of the President. It appeared in textbooks and was widely discussed by the media. Of
course, the monetary policy implication of the Phillips curve tradeoff was that unemployment
could be permanently reduced if the central bank increased money growth and created a higher
5
rate of inflation. The idea clearly had an impact on fiscal and monetary policy. Recent historical
work by Christina Romer and David Romer finds evidence of this in the records of policymakers
at the time. As the idea of a long-run Phillips curve gained acceptance, it led politicians to be less
concerned about using monetary policy to overstimulate the economy.
As early as 1966 Milton Friedman was pointing out the theoretical flaws in the Phillips
curve argument. He showed using basic economic theory that there could be no long-run
tradeoff; excessive monetary expansion, which temporarily brought unemployment below the
natural rate, would lead to accelerating inflation as people began to expect higher inflation. He
put his natural rate theory before the whole American Economic Association in his presidential
address in 1967. His model was very controversial at the time, but as the Great Inflation picked
up steam and the inflation-unemployment facts started rolling in, the model was proven to be
right on the mark. Soon his natural rate idea was being incorporated into econometric models
used at the Fed and elsewhere.
Thomas Sargent's recent work on learning describes how the estimated econometric
models of the Philips curve equations changed as the Great Inflation started and continued. With
price stability in the 1950s and early 1960s, expectations of inflation were low and the
expectations term in the Philips curve was small (certainly less than one). But as inflation picked
up so did the coefficient on the expectations term, leading to confirmation of the Friedman
model. One implication of Sargent's work is that now that the Great Inflation is over, the
expectations term will decline again (which it has) and could again lead economists to think that
there is a long-run tradeoff. That is why it is so important not to blindly run regressions, but
rather to ground empirical work on good economic theory as Milton Friedman did.
At least in the early years of the Great Inflation, the Friedman model did not appear to
have had a practical influence in leading to less inflationary monetary policies. The Great
Inflation started and it continued. But the model did change the nature of the monetary policy
debate in a profound way. Rather than arguing that higher inflation would lead to lower
unemployment (the facts were not supporting such an argument), people started arguing that
there would be great costs of reducing inflation. Such an argument was supported by the
Friedman model when combined with slowly adaptive expectations-the so called "expectations
augmented" Philips curve. Ifthe Fed tried to reduce inflation, people argued, expectations of
inflation would come down very slowly, and the gap between expected and actual inflation
would raise unemployment. Thus the model was used to justify a policy of avoiding disinflation;
such a reduction would be too costly. For example, George Perry calculated that it would cost
10 percent of GDP to reduce inflation by 1 percentage point.
The 1974 White House Economists Conference on Inflation is indicative of mainstream
economic thinking at the time. Many distinguished economists attended the event. Virtually all
of them stressed the high costs of disinflation. Walter Heller said "in bringing inflation to its
knees, we will put the economy flat on its back." Paul Samuelson said we do not need a
Winston Churchill-like "blood, sweat, and tears" program to reduce inflation. Among all these
distinguished economists, only Milton Friedman argued unequivocally for inflation reduction.
He said the "strength [of the U.S. economy] is currently being eroded by the disease of inflation.
If that disease is not checked it will take a heavy toll including, in my opinion, the very likely
6
destruction of our personal, political and economic freedoms ... .1 heartily applaud, also, the
expressed determination of the Federal Reserve to slow monetary growth ... despite the cries of
anguish about this table and elsewhere about tight money, the slowing has so far lasted two or
three months so we cannot yet be sure the Fed has really departed from the ever more
inflationary path it has been following for the past decade".
So once again Milton Friedman was the exception. The more common view among
economists throughout the 1970s was that it was not worth the costs to reduce inflation. This
common view was based on the expectations-augmented Phillips curve, not on the original
Phillips curve.
What started to shift economists' thinking about disinflation, in my view, was the
"rational expectations" revolution, and, in particular, the replacement of adaptive expectations
with rational expectations in the "expectations-augmented" Phillips curve. Robert Lucas's 1972
paper laid out the basic theory. Thomas Sargent and Neil Wallace drew out the policy
implications: the costs of disinflation were essentially zero for a credible policy of disinflation.
Of course, these striking findings required the extreme assumption that prices and wages were
perfectly flexible, but they certainly got people to think about alternative views.
At about the same time, models with staggered wage and price setting and rational
expectations that preserved the long-run neutrality that Friedman required were also being
developed. In these new sticky wage and price setting models the costs of disinflation also
appeared to be much lower than previously thought. Using estimated econometric models that
combined staggered price setting (rather than perfectly flexible prices) with rational expectations,
I calculated in the late 1970s the disinflation costs: they were not zero but they were much
smaller than those found using conventional models.
Changes in Leadership
So far the explanations I have mentioned focus on economic models, on shocks, on
biases, and on data errors. Another explanation of the Great Inflation, its demise, and the recent
period of price stability can be found in changes in economic and political leadership. Here,
once again, Milton Friedman's insights are valuable. He argues that the Great Inflation occurred
because of the political and economic officials who were in charge at the time that it started.
And the Great Inflation ended because of the people who were in charge at the time that it ended.
In fact, he places more importance on changes in leadership than on changes in knowledge. He
notes the lack of economic leadership in the late 1960s and early 1970s, the re-emergence of
leadership during the disinflation period in the early 1980s, and the continuation of good
leadership while Alan Greenspan has been Fed Chairman.
I can do no better than to quote Milton Friedman on the role of leadership as a cause of
the Great Inflation and its end. The quotes are excerpts from an interview I recently conducted.
Taylor: Why did inflation start to rise in the late 1960s and 1970s in the United States?
7
Friedman: Yes, the Great Inflation, the explanation for that is fundamentally political, not
economic ... .! believe that Arthur Bums deserves a lot of blame, and he deserves the blame
because he knew better. He testified before Congress that, if the money supply grew by more
than 6 or 7 percent per year, we'd have inflation, and during his regime it grew by more than
that. He believed in the quantity theory of money but he wasn't a strict monetarist at any
time ....
Taylor: Do you think Bums was part of the culture of the times in that he put less emphasis
on inflation, or that he was willing to risk some inflation to keep unemployment low, based
on the Philips curve?
Friedman: Not at all. You read all of Arthur's writings up to that point and one of his
strongest points was the avoidance of inflation. He was not part of that Keynesian group at
all....
Taylor: Another thing that people say now is that Bums was as confused as other people
were about potential GOP, and that he thought the economy was either below capacity or that
it was capable of growing more rapidly than it was. Do you think that was much of a factor?
Friedman: I don't think that was a major factor. I think it may have been a factor.
Taylor: What about the end of the Great Inflation? ...
Friedman: Well, there's no doubt what ended it. What ended it was Ronald Reagan. If you
recall the details, the election was in 1980. In October of 1979, Paul Volcker came back from
a meeting in Belgrade, in which the U.S. had been criticized, and he announced that the Fed
would shift from using interest rates as its operating instrument to using bank reserves or
base money.... Reagan was elected and Reagan was determined to stop the inflation and
willing to take risks. In 1981, we go into a severe recession. Reagan's public opinion ratings
went down, way down. I believe that no other president in the post-war period would have
accepted that without bringing pressure on the Fed to reverse course. That's the one key
step: Reagan did not. The recession went on in 1981 and 1982. In 1982 Volcker turned
around and started to raise the money supply and at that point the recession came to an end.
The Evolution of Monetary Policy Rules
A second important strand in post-World War II monetary history is the change in the
way the instruments of policy are set. To describe this change I need to first focus on what the
instrument of monetary policy is. The choice is between the interest rate and the monetary base.
(There is also the related question, which I am not addressing here, about whether there should
be an intermediate target for a broader monetary aggregate or simply an inflation target.) There
has been an increased focus on the interest rate in recent years. To some extent this has been a
matter of increased transparency; in the past many central banks had been implicitly setting
interest rate targets. In 1994 the Federal Open Market Committee (FOMe) began issuing public
statements about its federal funds rate decisions. The FOMC now directs the Trading Desk in
8
New York to buy and sell securities so that conditions in the federal funds market are consistent
with an average funds rate near its stated target. Similar developments occurred at other central
banks with the overnight interest rate typicalJy being detennined by stated borrowing and
lending rates as in New Zealand, Canada, and the European Central Bank.
Now, with the focus increasingly on the overnight interest rate as the instrument, there
has been a shift in how monetary economists analyze central bank decisions. Rather than
evaluate each decision as an isolated one-time adjustment, the evaluation is about the overall
dynamic strategy for setting the instrument. In other words, policy analysis places greater
emphasis on the coefficients of monetary policy rules. This change in emphasis is quite
profound. It grew out of early work on monetary policy rules by Milton Friedman; the recent
resurgence was motivated in part by endeavors to incorporate anticipatory behavior in markets
into policy evaluation. Following Lucas, such forward-looking behavior has frequently been
modeled by assuming rational expectations. In a rational expectations environment one cannot
even evaluate monetary policy without thinking of a policy rule that lays out future
contingencies. These were some of the motivations for the policy rule research that I was
engaged in during the 1970s and 1980s and which resulted in the normative proposal in my 1993
"Rules versus Discretion in Practice" paper.
This change in thinking about monetary policy is observed both inside and outside of
central banks. When economists evaluate monetary policy, they simulate models with policy
rules inserted in them rather than simply simulating one-time changes in the instruments. When
financial market analysts try to detennine what a central bank should or should not do, they
usually consider a monetary policy rule. And central banks frequently use policy rules as an
input to their actual decisions.
An unexpected benefit of the monetary policy rule approach is that it has revealed
changes in the decisionmaking processes at central banks. One important change is in how the
federal funds rate has responded to events in the economy. The response can be measured by the
coefficient in the policy rule. John Judd and Glenn Rudebusch discovered such a change for
Federal Reserve policy by empirically estimating a policy rule for the federal funds rate. They
found that the response of the federal funds rate to the inflation rate has increased over time.
During the late 1960s and 1970s the coefficient was less than one; during the period since the
mid 1980s the coefficient has been greater than one.
The difference in the estimates in the two time periods is illustrated in Figure 7; note how
the slope of the interest rate response line has increased, holding the response to other variables
constant. A more dramatic illustration of the change is shown in Figures 8 though 11 where the
interest rate is shown at two different points in time. In the U~ited States when the inflation rate
approached four percent in 1968, the federal funds rate was about five percent. When the
inflation rate approached four percent in 1989, the federal funds rate was about ten percent,
clearly a much larger response. The same phenomenon is seen for the United Kingdom, Canada
and Australia in Figures 9 through 11.
Whether the coefficient is greater than one or not is important. With the coefficient
greater than one, the response of the nominal interest rate is of a large enough magnitude that the
9
provide opportunities for many such exchanges. The web pages provided by central banks and
monetary economists outside of central banks also help in the diffusion process.
There is another favorable development in the last few years. More countries have chosen
to abandon pegged exchange rates and, instead, have chosen either to use a monetary policy
based on flexible exchange rate or to permanently connect monetary policy to other countries
through monetary union, dollarization, or a currency board. By our count at the U.S. Treasury,
47 countries operate a monetary policy with a flexible exchange rate and 50 countries are cither
dollarized, in monetary unions, or using currency boards. The number with fixed or heavily
managed exchange rates is falling and is now at 75. Fortunately, there are only 7 countries with
multiple exchange rates.
In sum, there are now 97 countries that have dollarized, joined a currency union, created
a currency board, or floated their exchange rate. There is a common feature in all 97 countries.
They are endeavoring to benefit from the progress made in the practice of monetary policy.
They are either tying to a central bank with good price stability goals and instrument setting
procedures, or they are trying to pursue an independent monetary policy using those goals and
procedures themselves.
Conclusion
Before I finish this historical review I need to remind everyone about the many practical
monetary problems that are still left in the world. For example:
Among the industrial nations, a serious monetary problem is the deflation in Japan. It has
continued for seven years and appears to have become persistent. The Bank of Japan ran a good
monetary policy based on price stability for much of the 1970s and 1980s. It was a policy based
on keeping the growth rate of money steady. But declines in money growth in the 1990s led to
deflation, which now needs to be addressed by increasing money growth and reforming the
banking sector.
Among the emerging market countries, the currency mismatch problem-where banks,
governments, and non-financial firms have liabilities in dollars and assets or income streams in
local currencies-is a potential cause of instability. Without an adequate supply of dollar
reserves central banks cannot provide lender of last resort facility for dollar deposits at banks.
And among the poor developing economies many still have yet to introduce transparent
monetary policies aimed at price stability.
Nevertheless, as I have tried to emphasize in this review, great progress has been made in
monetary economics and policy. I hope it is clear from all the references to Milton Friedman that
he has made an enormous contribution to this progress. He is an inspiration for us all, but
especially for those who work in the areas of monctary economics and policy.
13
References
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Monetary Policy," Journal of Monetary Economics.
Blinder, Alan (1982), "The Anatomy of Double-Digit Inflation in the 1970s," in Robert.E. Hall
(Ed.), Inflation: Causes and Effects, Chicago: University of Chicago Press.
Chari, V.V., Lawrence Christiano, and Martin Eichenbaum (1998), "Expectation Traps and
Discretion," Journal ofEconomic Theory.
Christiano, Lawrence and Christopher Gust (2000), "The Expectations Trap Hypothesis,"
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Economists Conference on Inflation (1974), Report Volume 1, Washington D.C., September 5.
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14
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Orphanides, Athanasios (1999). "The Quest for Prosperity without Inflation," Federal Reserve
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Sargent, Thomas (1999), The Conquest ofAmerican Inflation, Princeton, NJ.: Princeton
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15
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16
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I
~
::::J
""Ot
E
(f)~
~
>- c
"'t:
CO CO
Q) 0
t+=i
::::Ji;:
~
0
a~
~
N
..
~
I
~
co
<D
lUa~Jad
~
N
0
I
I
N
~OOG
966~
~66~
996~
~B6~
9L6~
~L6~
996~
~96~
996~
~96~
2000
1995
1990
1985
1980
1975
1970
1965
1960
~
I
0
~
0
~
£i
I
~
0
0
..-+
--f\
::J
-
Q)
_ •
..-+
..-+0
o· ::J
::J
~
--f\Q)
_.
..,
Q)
CD
~Q.
CD _
C
..Q
Q)
Q)
~
'<
::::l..
o CD
~~
0
~
/
~qm
o 3
0
~
~c
Percent
~
NNW W
mom 0 m
:3
et
0
Q)
S:~
~
c:
•
f\)
;a
m
c
.."
G')
FIGURE 3
Australia Inflation
30
Quarterly
Inflation ---.
25
Smoothed Inflation
(four-quarter inflation)
t~
i
.:j
l'
,
,;';/
~
"
20
-f~
'.
c: 15
A
.~
.
I.
.,.,
i l
J'
10
;. ~
2
5
.(
"
..
o
I
I
I
I
I·
I
I
I
I
!
I
"--II:'-r-\:'
!
-5 J
a
LO
a
0)
en
~
~
~
co
CJ)
c.o
I'-
LO
I'-
o
co
0)
~
~
en
LO
a
0')
0')
(j)
(j)
T-
T-
T-
co
en
LO
o
a
a
N
2001
1996
1991
1986
1981
1976
1971
1966
1961
I
c.n
I
I
o
Percent
c.n
0
:::J
...."
-
'-'"
:::J
...."ru
- .ru
-.
-0
0- :J
--
...,
:::J
~ 0
I
0
..0 .C ::::r
ru CD
~Q.
CD _
o 3
q(J)
~c
:::J
o
'<
=t.
CD
!::!':::::4,.
ru ru
:;-0
\ \
::s
0
:t.
Q)
S:~
2-
::s
Q)
0
Q)
~
m
;u
c
."
G)
FIGURE 5
Median Inflation
5-Year Periods by Region
.........
E 16
;:,
.•
.
r=
c: 14-
____
n:s
~
,
a>
12-
C
10-
Q.
a>
......
n:s
0:::
r=
.-......on:s
&;:
-c:
r=
.-n:s
-g
~
,
,',
86-
2
.-l\..
......
,--,
,/
,
"I
4-
-
, '" ,
.....
"
'
~ ',,'
~
V
\
. / /'\
/
1\
~:)
--
- - --
-
._-
------
-United
States
,
\
,
-- Africa
,
\
\"
\ "
\
Asia
'
\
-
"
\
fi/
-----
'
\
- Middle East
,
"
\
0 ---
1962- 1967- 1972- 1977- 1982- 1987- 1992- 19971966 1971 1976 1981 1986 1991 1996 2001
Western
Europe
- - . Western
Hemisphere
FIGURE 6A
Money Growth and Inflation
1971-2001
500%
• Argentina
.........
E 400%
:l
c:
c:
ns
'300 %
Q)
• Peru
-
C.
~
~
....o
-C
-
200%
-
, .-.
ns
100%
0%
."'00/0
-
• Bolivia
-
-
1000/0 200%
-
-
-
-
-
--
3000/0 4000/0 5000/0
Money Growth (% per annum)
FIGURE 68
Money Growth and Inflation
1971-2001 (close-up)
E
150%
:::s
Uruguay
c:
c:
ns
...
~
• • Turkey
100%
I
•• Mexico
~
r::
-e:
m
Israel • • Chile
Sierra Leone
'"'-"""
0
.......
•
,
500/0
" l-
-
_~. ______ United States
0%
00/0
50%
100 %
150%
Money Growth (% per annum)
Bolivia
FIGURE 7
Monetary Policy Responses
~
Newer Monetary
Poli~YI
~ Real interest rate
5
equals two percent
CD 4-'
.....
co
~
U) 3
CD
'CD
~
I
.....
.E 2-!
Older Monetary Policy
1 -1
a
-+
a
~-.--------r--
1
2
3
Inflation Rate
4
5
FIGURE 8
u.s. Inflation
14 12
~
Quarterly
Inflation
10 -
I
8 -
c
Q)
u
L-
~
Smoothed Inflation
(four-quarter inflation)
/
.
02 1989: Fed
Funds rate
was 9.7%
01 1968: Fed
I Funds rate
\was 4.80/0
6-
Q)
0...
2 -
o
--~~
-2 LO
CD
LO
CD
CD
CD
(j)
())
~
~
~
~
~
~
(j)
(j)
~
())
~
f'....
CD
())
00
())
CD
00
~
~
f'....
~
~
CD
())
())
())
(j)
(j)
~
~
~
~
o
o
N
FIGURE 9
U.K. Inflation
40
Quarterly
Inflation~
35
...c
30
1971: Overnight
25
interest rate
was 6%
~20
L-
f:
1990: Overnight
I",!
I
interest rate
was 15%
~
-
-
~
10
~ 15
'~I"
,
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • . '.~
Ij :
1
5 ~
_;
A!\A,r"y
o : I~·_
':tV_
':,:
~
'I--r~.
I
-5
Smoothed Inflation
(four-quarter inflation)
_
~...
01
":"
.~
","
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • ,• •
.
.. ~.
••••••••••
,
~
•••••••••••••••••••••••••••
.. . '' .
.
'
'A'"
(I
,~
,
I
I
I
1
I
I
,
I
I
I
I
I
-----:-
·----1-
I
I
J
a
LO
a
0)
~
CD
LO
o
0)
I'-
0)
"0)
0)
~
~
~
~
CD
CO
o0)
lC")
0)
0)
0)
0)
T-
T-
~
LO
CO
o
o
o
C'J
--'-'
FIGURE 10
Australia Inflation
30
Quarterly
Inflation ---.
25 -
__
20
j
J
Smoothed Inflation
(four-quarter inflation)
1969: Overnight
Iinterest rate
Iwas 4.5%
/
c 15 '
CD
u
L..
CD
c..
1990: Overnight
interest rate
was 170/0
I
:'
10 :
"
- ~-i
',i
":,f: :":.f
I" ,
"I"~ •• '.' •• "
5 -1
I
!
I
•• ' •• " ' •••• ' •••• ' ••••
"
~"' ...... ~, ••
n.
:
;
,',
o +~~--N-'T- :-I-T-T"'--~
-5 a
c.o
(j')
c.o
(j')
T-
T-
L()
a
L()
a
L()
a
(j')
I"-
(j')
co
(j')
co
(j')
0)
0)
~
T-
~
T-
T-
I"-
L()
0)
0)
T-
a
a
a
'"
FIGURE 11
Canada Inflation
20
1972: Overnight
15 - Iinterest rate
was 50/0
Quarterly
.------ Inflation
Smoothed Inflation
(four-quarter inflation)
/
-
1989: Overnight
interest rate
was 12%
C 10 Q.)
C,,)
L...
(J.)
a.. 5
o
---- - ---
-----
-5 -~
co
m
~
<0
co
0')
~
~
"en
~
<0
~
"en
co
m
~
~
co
co
~
CD
0')
0')
0')
m
m
~
~
~
~
0
0
N
-....J
01
0
00
2000
1995
1990
1985
1980
1975
I
I
0')
i
<,
_. :
a. :,
W'
r""'I- :
-
00"
X
Q)
~
I
~
::::r
0-:
r""'I-
cO"
..........
..,
,
~:
~
CD
0. CD
~
CD
~
0
::
t .
........ "'U.
·
·
1970
1965
·
·
··
1960
I
I\.)
0
0
,
0
0
0
0
·
·
·,
,
·
·,
0
I\.)
~
:(1)
:=
0-
:..-.
:"lJ
:0
:G)
:Q.
::::J
:(1)
:-t
. ..,
··
·
·
··
··
·
·
···
·
·
I
··
·
'-I
0
0
0
1955
0
(]'I
I\J
(J'1
·
o""" CD
3 (')
"""
""
CJ1
0
W
CJ1
0
0
1950
0
~
Billions of 1996 Dollars
,I
C)
~
0
,
,
0
0
0
,
·,,
·
·
·
···
··
·
·
·
··
··
··
··
·
·
·
···
0
0
0
CJ1
~
"
0
Ci)
......
Q)
CD
::tJ
(I)
•
!==
-
I\)
~
m
::0
c
."
( j)
FIGURE 13
U.K. Real GDP
240
~""""""""""""""""""""""""""""""""""""""""""""""""""""""""" ~
en
"0
t:
Trend GOP (left axis)
200 , .................................. .
I
6%
...... - 40/0
~
o
D..
~
160
~ ......... ,"1' ..... ,.... ,. """"
f ·t··· ..... ····1\1··\········· ............~ .... ,....................... - 2%
--s...
~
Ol
in
~
...,~
120 - ........... ......
~
.
..
en
~
'to-
o
80
..................... J. ·V········\ J.! ............\-1'1.......................... .\ ..J ...................... ~- -2%
~
en
1. . . . . . . . . . . . . . . . . . . . . . . . . . . . ~
t:
o
---
-Ol
40 -, .........................................................
Percent deviation
from trend (right axis)
o
-6%
-,-----~~.---------;-~--,----,---- -~-~-,--~--
o
co
en
or-
L.()
co
en
or-
o
f'...
en
or-
L.()
f'...
en
or-
o
co
en
or-
L.()
co
en
or-
-4%
o
en
en
~
lC)
en
en
or-
o
o
o
C'\I
FIGURE 14
Australia
Real
GDP
180 -,. ................... ,................................................................................... --..........
(h
150 _\................................. _.................. -. .............
Trend-..............................
GOP (left axis) / .... -- .... - . -.
~~-
~
60/0
4°X
°
t:
---
a:s
a:s
~
120 -·l···· -..... f\ .... ..... j-··R .. :.. ···~l· ........... n-····f l····· ........... ,. ·l·~ .~ ....... -................. - 2%
::l
<C
cc
90 -r ...... .
Q
N
'to-
o
en
60 -··l·f··I······l~···lV"·············f····V············,··I·····················W·J.··················-···- -2%
t:
o
---OJ---
30 - ....-. ............... ·1··· ... -................. -............... i+ ............... -.-... -.............. -........... -.- -4 %
\I"
Percent deviation
from trend (right axis)
o
o
l(')
0)
0)
~
~
CD
CD
o
0)
........
0)
o
co
0)
l(')
C()
0)
~
~
~
~
........
l(')
o0)
-60/0
0)
l(')
0)
0)
~
~
o
o
o
N
FIGURE 15
Canada Real GDP
60/0
1,200
1,000 _................. ..... ...... ................ ---------------------------------------------------/
Trend GOP (left axis)
---- 4 %
~
(.)
it)
800
~
--------------A· -------.------------.: -------------------I-l- ----------------fI- ---\- -----~ --------------------- 2%
0)
0)
T-
'+-
o
tn
c:
o
::::
--
400 ------- --------- --- --- --..:Af=--- ------- ------- ------ ------\- ---}--- ---- ,-- ------ --- ---w- ----- ------ -- ----- --- ------ -2%
m
200
o
~
CD
(j)
~
----------------------------.
---.. ---.... --. ---" ----., ----'. ----' -------... _... -----tt -------. -----'P~~cen
t deviation -------- -40/0
..
from trend (right axis)
-6%
c:.o
c:.o
-rc:.o
CD
O)
0)
r-co
co
r-CD
o
(j)
(j)
0)
0)
(j)
0)
0)
~
"T"-
~
"T"-
~
~
"T"-
-r-
"T"-
-r-
o
N
2-11-12-15-42-22-14824: Report to Congress on International Economic and Exchange Rate Policies
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 12, 2002
2002-11-12-15-42-22-14824
Report to Congress on International Economic and Exchange Rate Policies
for the period January 1, 2002 through June 30, 2002
Major Findings:
· Countries around the world continue to use a variety of exchange rate policies,
ranging from flexible
rates with no intervention to currency unions and full dollarization.
· There was no reversal of the trend toward greater flexibility observed since the
mid 1990s. Treasury
continues to monitor the exchange rate practices of major U.S. trading partners and
to encourage policies that
promote economic growth and economic stability.
· No major trading partners of the United States manipulated exchange rates under
the terms of Section
3004 of the Act during the period January 1, 2002 to June 30, 20021.
Report(s):
•
Report to Congress on International Economic and Exchange Rate Policies
h://WWw.trea~.1wv/oress/releases!2002!11215422214824.htm
7117/2003
Report to Congress on International Economic and Exchange Rate
Policies
For the period January 1, 2002 through June 30, 2002
TIDS REPORT IS REQUIRED UNDER SECTION 3005 OF THE OMNIBUS TRADE AND
COMPETITIVENESS ACT OF 1988 (THE "ACT"). THIS REPORT REVIEWS DEVELOPMENTS
IN U.S. INTERNATIONAL ECONOMIC POLICY, INCLUDING EXCHANGE RATE POLICY.
Major Findings:
•
Countries around the world continue to use a variety of exchange rate policies, ranging from flexible
rates with no intervention to currency unions and full dollarization.
•
There was no revenal of the trend toward greater flexibility observed since the mid 19905. Treasury
continues to monitor the exchange rate practices of major U.S. trading partners and to encourage policies that
promote economic growth and economic stability.
•
No major trading partners of the United States manipulated exchange rates under the terms of Section
3004 ofthe Act during the period January 1, 2002 to June 30, 20021.
The United States:
when direct investment is valued on a market value
basis, from a revised $1.6 trillion at the end of 2000.
The U.S. nevertheless earned a net $21 billion on that
position during 2001 as net receipts of $ 103 billion
from direct investment offset net payments on
portfolio investment.
Current Account
The U.S. current account deficit rose in the first and
second quarters of 2002, reaching 4.4% and 5.0% of
GDP in the respective quarters. The current account
deficit had fallen to $393 billion, or 3.9% of GDP, in
2001 from $410 billion, or 4.2% of GDP, in 2000.
Imports, particularly of capital goods, increased
strongly. Export growth was sluggish as the recovery
in foreign markets lagged that of the United States.
U.s. Balance of Payments and Trade
($ .bilIiQns_ SA. urJess CIlhe.wse indicated\
2001
Biltons of$
Per Cenl GOP
Select Financial Flaws
(• ..,.piIal infloW)
Net 8anIc FIoNs
Net Direct Invesunont Flows
Financial Flows
Net Securities
sal"
Net Liabili'es to Unaffiliated FOl1lignlrs
by Non Banking Concerns
Memo: staUstlcol dloc..".noy
Trad. nGo""
Balence
TOIaIE"",rIs
Net financial flows into the United States remained
strong through the period, although the composition
of the flows shifted. A decline in net foreign
purchases of equities was offset by increased
purchases of private and public sector bonds. The
inflows financed the U.S. current account deficit and
reflected international investors' continued strong
interest in investment opportunities in U.S. markets.
ofwhlcll:
Agricultural
~roducU:
C&pi\a\ Goods E,,!lulU
AutomoljYI!II Products
IndUOlrial Supplies'
TDtallmperls
Q2
4
Q1
-"2.5 ·130.0
-393.4 -107.7
.3.9 -4.3
·99.2
-91.3
-4.0
-3.6
-9lI.
-3.
-48.3 ·97.1
23.2
·tal
·21.5
77.0
·5.
3.0
342.7
20.1
101.9
44_1
16.0
37.3
68.0
59.9
20.8
4 ••
•2.5
10.7
·34,6
48.3
1~.
38•
-55.
-<127.2 -113-0 ·107.7 -105.8 -100.
718.8 193.3 184.8 173.3 167.
54,9
13.6
90.7
18.3
13.6
82.1
19.3
13.e I •.
72.
7~.'
75.4
19.3 18.
160.2 42.8 41.5 38.3 37_
1145.9 306.3 292.6 279.0 268.
121.7
-4.4
40
·9.3 ·13.4
-13.1 ·28.4
73.3 117.8
32.4
24.7
·1.0
49.4
·106.4 ·'22.6
184.6 172.7
13.8
13.5
711
13-6
18.5
ZO.1
~.a
39l!
211-1 295.3
ofwhlCh
PeIroloum and Products
Caplel GgOOS ex AulOi
AUIClmotive products
Advanced TechnolOllY (NSA)
BalEW'lce
Exports
1m",,""
International Investment Position and Earnings
103.8
2ge.O
1eU
29.2
84.6
47.1
4.4
199.6
195.•
4.6
3.5
-1.2
51.0
52.'
51.5
45,4
48.0
46.7
_.SEA
• Including _um & ProducIs
The negative net investment position of the United
States at the end of 2001 widened to $2.3 trillion,
1
2002
2001
1
BIII.nee on CurrenCit Aceount
"The period" means January 1, 2002 through June 30, 2002 in this report unless otherwise indicated.
1
28.5
75.'
47.9
25.6
89.9
47.9
20.
88.1
46.
-2.
45.
48.
19.2
89.3
41.6
272
72.3
51.8
-2.0
43,6
45.6
45.6
47.S
-2.1
The Dollar in Foreign Exchange Markets
continue to monitor exchange markets closely and
cooperate as appropriate."
The dollar depreciated modestly, on a trade-weighted
basis, over the period. The Federal Reserve Board's
broad nominal dollar index indicated that the dollar
depreciated by 2.7%, on a trade-weighted basis, over
the six-month period, with most of the decline
occurring in May and June.
The United States did not intervene in foreign
exchange markets during the period.
Major Industrial Economies
Euro Zone Countries
E,change Rate. in Dollars
(December 2001 = 100)
".,------------------.....,
13'
t---:r=::---:---------------.....I
120
b-r""~-'--"=::::::...:::;:"."'"'----------.....I
100
________
The Euro Zone current account surplus narrowed to
0.2% of GDP sa during the period from 0.4% of GDP
in the second half of 2001. Dollar-denominated Euro
Zone exports rose 3% in the period from the second
half of 200 I, while Euro Zone imports increased
0.2%.
Increasing income and transfer payments
offset the gain in the merchandise trade balance.
~_/"""'
OOr-------~-----------~~~
6. t------------------------I
~
~ "g
g
'"'"
China
Canada
Korea
0
-
-Malaysia
~
'"
§
.'"
."
0
g
:s:
~
§
W
'" S "'"
Euro Zone --Japan
~
~
--Mex.ico
~
N
The euro appreciated 10.7% against the dollar, while
the index of the euro' s real effective exchange rate
appreciated 4.6%, over the period.
Taiwan
A closer examination reveals a dichotomy in the
dollar's performance against the component currency
groupings in the broad index: the world's major
currencies 2 and the currencies of the other important
trading partners 3 (OITP) of the United States. During
the six-month period the dollar depreciated 7.4%
against the Federal Reserve Board's trade-weighted
index of the world's seven major currencies. But
over the same period, the dollar actually rose 3.2%
against the Federal Reserve Broad's OITP tradeweighted index of the currencies of the United States'
19 important emerging market trading partners.
Japan
The yen strengthened 10.3% against the dollar in the
period, rising to 119.5 ¥/$ at the end of June 2002
from 131.8 ¥/$ at the end of December 2001. In real
trade-weighted terms, the yen depreciated 1.8%.
Japan's current account surplus rebounded in the
period to $59 billion (3. I %/GDP) from $47 billion
(2.3%/GDP) in the second half of 200 I, reflecting an
expanding merchandise trade and services surplus.
The merchandise trade surplus reached $46.7 billion
reflecting export growth of 2.4% and a 4.7% decline
in imports. The U.S. bilateral trade deficit with Japan
in the period narrowed slightly to $33.1 billion from
$34.6 billion in the second half of 200 I.
The appreciation of the dollar against the OITP
currencies was largely due to currency depreciation
in Latin America over the first half of 2002. The
22.5% depreciation of the Brazilian real, which
carries a 4% weight in the OITP index, and the 9.6%
depreciation of the Mexican peso, which carries a
22.9% weight in the index, more than offset
significant appreciation ofthe currencies of several of
the United States' emerging Asia trading partners.
During the first half of 2002, Japan intervened eight
times in the foreign exchange market (between late
May and late June), selling $32.7 billion equivalent
of yen. These interventions did not appear to have a
lasting effect on the yen exchange rate, which
continued to appreciate, from 124 ¥/$ at the time of
the first intervention to I 19.5 ¥/$ at the end of the
intervention period.
During the period, G- 7 Finance Ministers and Central
Bank Governors referred to exchange rates among
the major currencies in two communiques (February
9 and April 20, 2002) each time saying: "We will
Canada
In the period, the current account surplus fell to 1.8%
of GDP from 2.8% of GDP in all of 2001. The
current account balance has been below 2% for four
consecutive quarters.
2
Defined by the Federal Reserve Board as currencies used broadly
outside their country of issue. The major currencies account for
54.6% of the weight in Federal Reserve Board's Broad Index.
3
The OITP are the important trading partners of the United States,
whose currencies are not used broadly outside their country of
issue. The OITP currencies account for 45.4% of the weight in the
Fed's Broad Index.
2
The Canadian dollar rose 4.8% against the U.S. dollar
during the period while the JP Morgan Broad Real
Trade-Weighted Index of the Canadian dollar rose
2.7%.
The Bank of Canada has identified
movements in real non-energy commo dity prices as a
significant factor in explaining movements in the
U.S.$/C$ exchange rate, and a price index tracking
these commodities rose 3.3% during the period. The
Canadian dollar floats freely. A 1998 study by the
Bank of Canada of its foreign exchange intervention
concluded that its prior policy of regular intervention
had very limited impact. Canada has not intervened
in foreign exchange markets since 1998, except to
make a small contribution to the brief G7
intervention in support of the euro in September
2000.
compared to a surplus of $6.3 billion for all of 200 I.
The current account balance registered a surplus of
$1.5 billion in the first quarter of 2002, comp ared to a
deficit of $3.1 billion in the first quarter of 2001.
Foreign exchange reserves fell from $14.9 billion at
end-December 200 I to $9.6 billion at end-June 2002.
Latin America
Although financial market sentiment continued to be
favorable through the first quarter of 2002, investor
confidence in Brazil began to deteriorate in the
second quarter in the face of election uncertainty. In
the first semester of 2002, EM BI spreads widened
696 bps and the currency depreciated 20%.
Despite the economic crisis, the Merval stock index
rose by 16% between the beginning of the year and
end-August as investors looked to equities as a store
of value. EMBI+ spreads widened by 2,000 bps endDecember to end-August, to 6,435. Talks between
Argentina and the IMF to reach agreement on an IMF
program continued throughout the period.
Brazil
Access to international capital markets suffered from
a decline in investor confidence: net bond issuance in
the first half of the year was just $10 billion,
compared to $33 billion in the same period in 2001.
While the overall EMBI+ sovereign bond index
started and ended the period at 799 bps over
comparable U.S. Treasuries. it ranged from a midApril low of 585 to a high of 843 in late June.
Brazil's sub-index widened nearly 700 bps at its
greatest and Mexico's rose as much as 321 bps after
hitting a low of 230 bps in April. Pressure also
increased on countries with floating exchange rates,
while those with fixed exchange rate regimes
experienced a significant depletion of international
reserves.
In June, Uruguay responded to these
pressures by floating its currency.
The substantial nominal exchange rate depreciation
in the period, as well as the carryover effects of high
inflation in late 200 I, continued to apply upward
pressure on prices. Consumer price nflation yearover-year was 7.7% in June 2002, the same level as
in December 2001, despite the declining inflation
targets of the Central Bank. The monetary authorities
increased reserve requirements to control the growth
in liquidity, and intermediation spreads widened
restraining credit growth. However, the Central Bank
did not increase sales of dollar-linked debt in net
terms and refrained from substantial intervention in
the spot foreign exchange market.
Argentina
Higher trade surpluses due to the weaker real helped
reduce Brazil's current account deficit to $8.3 billion,
compared with $13.3 billion for the same period in
200 l. More than fully financing the current account
deficit, foreign direct investment (FDI) was $9.6
billion for the first six months of2002 compared with
$9.9 billion for the same period in 200 I.
Significant economic, financial, and political turmoil
erupted in Argentina at the end of 200 I, culminating
in a default on external obligations and an end to
foreign exchange convertibility (pegging the peso to
the dollar at I: I) in January 2002. Following the
decision to float, the peso depreciated from an initial
level of 1.4 pesos per dollar to a low of 3.86 pesos
per dollar in late June 2002. From July through midSeptember, the peso was largely stable at about 3.6
pesos per dollar due in part to additional foreign
exchange restrictions and seasonal export receipts.
The Government imposed comprehensive deposit
controls in early December 200 I that remain in place
as of October 2002.
Net international reserves (net of IMF funds as
reported by the Central Bank) decreased by $500
million during the period to $27.3 billion. Short-term
external debt by residual maturity was 230% of net
reserves.
Mexico
Argentina had a trade surplus of $8.2 biIIion in the
first half of 2002, largely due to import compression,
Although Mexican peso and sovereign bond spreads
were affected in the first half of the year by emerging
3
market turbulence and technical factors, economic
fundamentals pointed to a modest recovery as real
growth rose to 4.7% saar in the second quarter. The
depreciated peso did not lead to significantly
increased inflation, with the June y/y change in the
CPI holding at 4.9%, compared with 4.4% in
December 200 I. The Bank of Mexico eased its
monetary policy stance in April after a February
tightening in response to unanticipated increases in
energy and transportation costs.
remained concern with continued crown appreciation
in the face of the inflow of privatization receipts and
EU accession-related funds, but the government did
not undertake any significant steps to limit the
strength of the crown. The strengthening of these
three currencies helped to continue to control
inflation in the region, with the average inflation rate
in Poland falling to under 1.8%, while in the Czech
Republic inflation was only 1.2% at the end of the
period. Consumer price inflation in Hungary fell to
4.9% y/y in June 2002 and is expected to continue to
decline through the rest of the year.
In the first half of the year, foreign direct investment
is estimated to have covered roughly two-thirds of
the current account deficit, which narrowed to an
estimated 2.5% of GDP. In the same period, net
international reserves grew by $800 million, reaching
$45.6 billion by end-June. This was equivalent to
three-quarters of the gross external financing
requirement, estimated at $61 billion, for 2002 and
covered 125% of short-term debt.
Asian economies showed significant recovery in the
first half of 2002. Exports increased substantially
throughout the region, especially information technology exports. Stronger domestic demand boosted
imports as well, moderating improvements in current
account balances.
The Mexican peso, which the government allows to
float freely, depreciated 8.6% against the dollar over
the period. Labor productivity rebounded during the
first half of 2002 while unit labor costs moderated,
consequently ill1lroving competitiveness. The real
effective exchange rate (based on consumer prices)
appreciated just 2% in the year to May.
Central and Eastern Europe
Improved economic and financial prospects, as well
as declining U.S. dollar interest rates relative to rates
on local currency assets, made foreign investment in
regional economies more attractive. This, in addition
to the overall improvement in current account
balances, added support to regional currencies. For
those economies with fixed exchange rates, balance
of payments surpluses led to an increase in reserves.
Countries in this region experienced very different
exchange rate pressures. A recovery in oil prices
early in 2002 again placed upward pressure on
Russia's exchange rate during the period. While the
ruble depreciated from 30.l4R1$ at the end of 200 1 to
31.4 RI$ at the end of June 2002, the ruble's real
effective exchange rate was little changed in the
period from the beginning of the year, compared to a
7% appreciation in 2001. Intervention in the foreign
exchange market helped boost reserves $6 billion to
$42.5 billion at end-June 2002. In Ukraine, the
hryvnia remained stable in both nominal and real
terms during the period, strengthening slightly from
5.4/$ to 5.32/$.
With inflation close to zero in many economies, those
with floating but managed exchange rates intervened
to slow the pace of exchange rate appreciation in
order to reduce the risk of deflation. As a result,
nominal exchange rates remained stable versus the
dollar during the first quarter of2002, while those not
pegged to the dollar for the most part appreciated
moderately in the second. Indonesia and Korea,
which appreciated roughly 20% and 10% respectively, were exceptions. On the other hand the real
effective value of Asian currencies typically
depreciated as a globally weakening dollar carried
currencies with nominal dollar parities or modest
appreciation against the dollar along with it.
In the key Central European economies, the prospect
of future EU membership and inflows of capital in
the form of privatization payments and FDI have
resulted in a continued, albeit slower, strengthening
of the currencies in real terms. Both the Polish zloty
and the Hungarian forint were relatively stable
against the euro in the period, while strengthening
somewhat against the dollar. In the Czech Republic,
the main policy preoccupation during the period
China
China's exports accelerated to 35% y/y growth, up
from 5% y/y in the previous half-year. But imports
also accelerated (to 28% y/y growth from 3% y/y in
the previous period), so China's balance of trade in
goods (FOB-CIF) rose only marginally to 2.5% of
GDP from 2.4% in the previous half and 1.6% a year
earlier. The current account surplus is estimated at
4
roughly 2.0% of GDP, also marginally higher than in
the previous half year. U.S. data show China's
merchandise trade surplus with the U.S. was $43
billion in the period, compared to $37 billion in the
same period a year earlier, as inputs from other
emerging Asian countries are increasingly routed
through China for assembly for export principally to
the U.S. China has a significant deficit with nearly
all its Asian trading partners, and half its exports
come from coastal foreign-funded operations.
Reported capital inflows also increased significantly
during the reporting period as a result of stronger FDI
inflows, which grew 21 % y/y to $35 billion for the
half-year period.
earnings and valuation adjustments as the dollar
depreciated against other reserve currencies during
this period. As of June 2002, reserves were
approximately 235% of short-term external liabilities
(residual maturity basis), a decrease from 263% at
end-200 I.
Korea maintains relatively few
restrictions on capital flows.
Malaysia
After falling 10% in 2001, export growth was flat
over the first half of 2002 compared to the
Meanwhile,
corresponding period in 2001.
expansionary fiscal policy and low interest rates
provided a strong boost to domestic demand and
hence imports. As a result, Malaysia's trade surplus
contracted by 11.7% over the reporting period
compared to the first half of 2001. The current
account surplus, at 7.5% of GDP, fell from 8.3% of
GDP in the first half of 2001. Malaysia's bilateral
trade surplus with the United States rose to $6.0
billion in the period from $2.6 billion in the first half
of 2001, reflecting increased U.S. demand for
Malaysia's electronics exports.
China maintains a de facto currency peg to the dollar,
which it has kept within a tight band since 1995. As
a result of the higher current account surplus and
reported capital inflows, gross foreign reserves grew
$31 billion to $243 billion. Gross reserves were
830% of short-term external debt (residual maturity)
at end-December 2001. At the time of publication,
similar data for end-June 2002 are not available. In
real effective terms, the renminbi depreciated roughly
6% during this period, as the U.S. dollar weakened
globally. China continues to maintain wide-ranging
controls on both capital outflows and inflows.
Malaysia has maintained a fixed peg to the dollar
since September 1998, when it also imposed capital
controls. Controls have since been relaxed, but
offshore trading of the ringgit remains prohibited and
foreign portfolio investment by residents continues to
be restricted.
The Malaysian authorities have
steadfastly maintained the peg despite alternating
periods of downward and upward pressure on be
ringgit. On a real trade-weighted basis, the ringgit
depreciated 1.2% during the period, reflecting broadSince the
based weakness of the U.S. dollar.
introduction of the peg, however, the ringgit has
appreciated 16.7% in real trade-weighted terms. At
the end of the period, reserves stood at $33 billion,
equal to 275% of short-term external debt (residual
maturity), up from $30 billion, or 258% of short-term
external debt, at the end of 200 1.
Korea
Due to a boom in consumer credit supporting
domestic demand, and a larger services deficit
(despite Korea's hosting of the World Cup), the
current account surplus as a percentage of GDP
declined to 1.6%, down from 3.2% in the first half of
2001. Korea's merchandise trade surplus with the
U.S. declined slightly to $6.1 billion from $6.4
billion during the same period in 2001. Korea had a
small capital account surplus of 0.3% of GDP in the
first half of 2002, as an increase in foreign currency
borrowings by deposit banks and a reduction in
foreign currency loans offset significant portfolio
outflows.
In May 2002, the Bank of Korea,
concerned about potentially higher oil prices, a real
estate boom, and strong domestic demand, raised its
target policy rate by 25 basis points, which attracted
further capital inflows.
Taiwan
Taiwan's current account surplus grew to 9.6% of
GDP in the period from 5.2% in the first half of2001.
However, the increase in Taiwan's global trade
surplus was driven by the growth of exports to the
region, especially Hong Kong (China). Taiwan's
merchandise trade surplus with the U.S. declined to
$6.7 billion from $7.5 billion during the same period
in 2001.
Korea maintains a floating exchange rate, intervening
only to curb what it views as excessive volatility.
The won appreciated 9.3% against the U.S. dollar (on
a nominal basis) and appreciated 4.7% (on a real
effective basis.). Official intervention was modest.
Gross reserves increased by $9.6 billion (9.4%)
during the reporting period to $112.4 billion (26% of
GDP) at the end of June, in part as a result of interest
As U.S. dollar interest rates fell relative to rates on
New Taiwan dollar (NT$) assets, Taiwanese deposi-
5
tors shifted a greater share of their holdings to NT$
accounts. This Jed to a large net financial account
inflow (6% of GOP) in the period. This, along with
the large current account surplus, caused the NT$ to
appreciate 3.7% on a nominal basis against the U.S.
dollar and 0.4% on a real trade-weighted basis.
Monetary authorities intervened significantly.
Official reserves grew by US$26 billion in the period
to US$148 billion, i.e., roughly 500% of total
external debt.
Taiwanese authorities were reluctant to allow a sharp
currency appreciation in the period, given
macroeconomic conditions and policy constraints.
Due to the openness of Taiwan's economy, exchange
rate changes have relatively large impacts on
inflation, inflationary expectations and real output.
With inflation near zero, Taiwanese officials were
concerned that a sharp appreciation could lead to an
undesirable deflationary cycle. M2 was, in fact,
within the Central Bank of China's 3Y2% to Slh%
target range throughout the period. Tensions with
China and lack of access to IMF resources may have
also encouraged the accumulation of foreign
exchange reserves.
SummaQ':
This report reveals a wide variety of exchange rate
policies used by the major trading partners of the
United States. Based on a broad review Treasury
concluded that no major trading partners of the
United States manipulated exchange rates under the
terms of Section 3004 of the Act during the period. 4
Section 3004 of the Omnibus Trade and Competitiveness Act of
1988 requires the Treasury to analyze annually the exchange rate
policies of foreign countries, in consultation with the IMF, and (0
consider whether countries manipulate the rate of exchange
between their currency and the dollar for purposes of preventing
effective balance of payments adjustments or gaining unfair
competitive advantage in international trade. The Secretary of the
Treasury is required to undertake negotiations with those
manipulating cOWltries that have material global current account
surpluses and significant bilateral trade surpluses with the United
States, unless such negotiations would have a serious detrimental
impact on vital national economic and security interests.
4
6
0.3611: Media Advisory Press Conference to Discuss the Financial War on Terrorism
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
November 12, 2002
PO-3611
Media Advisory Press Conference to Discuss the Financial War on Terrorism
Treasury Department Undersecretary for Enforcement Jimmy Gurule
State Department Coordinator for Counterterrorism, Ambassador Frank Taylor
The Treasury Department Press Briefing Room (#4121)
1500 Pennsylvania Avenue NW
Washington, DC
Wednesday, November 13, 2002, 2:00 PM
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.
NOTE: THIS PRESS CONFERENCE CAN BE VIEWED LIVE ON THE WEB AT
\tVWW,TREASURY GOV.
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7117/2003
'0-3612: Treasury Issues Proposed Regulations on Inversion Transaction Reporting
Page 10f2
FROM THE OFFICE OF PUBLIC AFFAIRS
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November 12, 2002
PO-3612
Treasury Issues Propsed Regulations on Inversion Transaction Reporting
Today the Treasury Department issued temporary regulations requiring
corporations to notify the IRS and their shareholders when they move their
headquarters offshore or are acquired by a foreign company. These regulations
are part of Treasury's proposals to address corporate inversion transactions, which
were unveiled by Treasury Assistant Secretary Pam Olson in testimony before the
House Ways & Means Committee on June 6, 2002. Under the temporary
regulations, corporations that inverted in 2002 will be required to furnish Form
1099s to their shareholders reporting the fair market value of any stock and other
consideration received by the shareholders in the transaction.
The Treasury Department also issued proposed regulations that, when finalized,
will require corporations to report to shareholders and the IRS other large corporate
transactions in which the shareholders may be subject to tax. The proposed
regulations will not apply if the information is already required to be reported under
current law.
"The regulations issued today will serve to remind shareholders in taxable inversion
transactions that they must report their gain from the transactions on their tax
returns," stated Treasury Assistant Secretary for Tax Policy Pam Olson.
Background
On May 17, 2002, Treasury released a preliminary report on corporate inversion
transactions. With respect to information reporting, the report concluded:
As an immediate matter, the information reporting rules in this area must be
revisited. In this regard, many inversion transactions are taxable events at the
shareholder level, with the company's U.S. shareholders required to recognize gain
and pay tax thereon. However, unlike in the case of a typical disposition of stock
for cash, there is no current obligation for Form 1099 reporting of the transaction to
the IRS.
Requiring reporting of these transactions through Form 1099 would increase the
IRS's access to information about these transactions and also would serve to
remind shareholders of the tax consequences to them from the transaction the
company undertook during the year and insure that the income is reported.
In testimony to the House Ways & Means Committee on June 6, 2002, Treasury
Assistant Secretary for Tax Policy Pam Olson stated:
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,
there 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
lttp:llwww.tre~.gov/press/releases/p03612.htm
7117/2003
0-3612: Treasu1j' 155ues Proposed Regulations on Inversion Transaction Reporting
Page 2 of2
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.
The texts of the temporary and proposed regulations are attached. They will be
published in the Federal Register in the next few days and are subject to minor
technical changes.
Related Documents:
•
•
Proposed Regs
Temporaryregs
ttp:/lwww.treas.gov(press/releases/po3612.htm
711712003
[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-143321-02]
RIN 1545-BB60
Information Reporting Relating to Taxable Stock Transactions
AGENCY:
Internal Revenue Service (IRS), Treasury.
ACTION:
Notice of proposed rulemaking by cross-reference to
temporary regulations and notice of public hearing.
SUMMARY: In the Rules and Regulations section of this issue of
the Federal Register, the IRS is issuing temporary regulations
relating to information reporting relating to taxable stock
transactions.
This document contains proposed regulations
under section 6043(c) requiring information reporting by a
corporation if control of the corporation is acquired or if
the corporation has a recapitalization or other substantial
change in capital structure.
This document also contains
proposed regulations under section 6045 concerning information
reporting requirements for brokers with respect to
transactions described in section 6043(c).
The text of the
temporary regulations serves as the text of these proposed
regulations.
This document also provides notice of a public
hearing on these proposed regulations.
DATES:
2
Written or electronic comments must be received by [INSERT
DATE THAT IS 90 DAYS AFTER PUBLICATION OF THIS DOCUMENT IN THE
FEDERAL REGISTER].
Outlines of topics to be discussed at the
public hearing scheduled for ___________ , at ___________ , must
be received by [INSERT DATE THAT IS 3 WEEKS BEFORE THE
HEARING] .
ADDRESSES:
Send submissions to:
CC:ITA:RU (REG-143321-02),
room 5226, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044.
Submissions may be hand
delivered Monday through Friday between the hours of 8 a.m.
and 5 p.m. to:
CC:ITA:RU (REG-143321-02), Courier's Desk,
Internal Revenue Service, 1111 Constitution Avenue, NW.,
Washington, DC.
Alternatively, taxpayers may submit
electronic comments directly to the IRS Internet site at
www.irs.gov/regs.
--------
The public hearing will be held in room
, Internal Revenue Building, 1111 Constitution
Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT:
regulations, Nancy L. Rose (202)
Concerning the proposed
622-4910; concerning
submissions of comments, the hearing, and/or to be placed on
the building access list to attend the hearing,
(202)
622-7190
(not toll-free numbers) .
SUPPLEMENTARY INFORMATION:
at
3
Paperwork Reduction Act
The collection of information contained in this notice of
proposed rulemaking has been submitted to the Office of
Management and Budget for review in accordance with the
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)).
Comments
on the collection of information should be sent to the Office
of Management and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer,
W:CAR:MP:FP:S, Washington, DC 20224.
Comments on the
collection of information should be received by [INSERT DATE
THAT IS 60 DAYS AFTER PUBLICATION OF THIS DOCUMENT IN THE
FEDERAL REGISTER].
Comments are specifically requested
concerning:
Whether the proposed collection of information is
necessary for the proper performance of the functions of
the Internal Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the
proposed collection of information (see below);
How the quality, utility, and clarity of the information to
be collected may be enhanced;
4
How the burden of complying with the proposed collection of
information may be minimized, including through the
application of automated collection techniques or other
forms of information technology; and
Estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of service to provide
information.
The collection of information in this proposed regulation is
in 26 CFR 1.6043-4(a) and (b) and in 26 CFR 1.6045-3.
The
information is required be reported to ensure that
shareholders properly recognize gain from corporate
acquisitions and changes in capital structure.
of information is mandatory.
The collection
The likely respondents are large
corporations.
The estimated total annual reporting and recordkeeping burden
in proposed §1.6043-4(a), requiring the filing of Form 8806,
is 2 hours.
The estimated total annual reporting and
recordkeeping burden in proposed §§1.6043-4(b) and 1.6045-3 is
15 minutes for each Form 1099-CAP and 10 minutes for Form
1096.
The estimated annual burden per respondent and/or recordkeeper
will vary dependent on the number of Forms 1099-CAP required
to be filed.
5
The estimated number of respondents under the proposed
regulations is 350.
The estimated number of respondents under
the temporary regulations, for transactions occurring after
December 31, 2001, is 5.
The estimated annual frequency of reporting on Form 8806 and
Form 1096 is 1.
The estimated annual frequency of reporting
on Form 1099-CAP is 1 for each shareholder.
An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless
it displays a valid control number assigned by the Office
of Management and Budget.
Books or records relating to a collection of information
must be retained as long as their contents may become
material in the administration of any internal revenue
law.
are
Generally, tax returns and tax return information
confidential, as required by 26 U.S.C. 6103.
Background and Explanation of Provisions
Temporary regulations in the Rules and Regulations
section of this issue of the Federal Register amend the Income
Tax Regulations
6045.
(26 CFR Part 1) relating to sections 6043 and
The temporary regulations set forth information
reporting requirements relating to acquisitions of control and
substantial changes in capital structure.
The text of those
6
regulations also serves as the text of these proposed
regulations.
The preamble to the temporary regulations
explains the amendments and these proposed regulations.
As set forth in the preamble to the temporary
regulations, public comments are specifically invited with
regard to the potential for duplicate reporting under these
proposed regulations and with regard to the burden of
compliance with the reporting requirements under the proposed
regulations.
Proposed Effective Date
The provisions of these regulations under section 6043
are proposed to be applicable for any acquisition of control
and change in capital structure occurring after the date on
which these regulations are published in the Federal Register
as final regulations.
The provisions of these regulations
under section 6045 are proposed to be applicable for any Form
1099-CAP received by a broker after the date on which these
regulations are published in the Federal Register as final
regulations.
Special Analyses
It has been determined that this notice of proposed
rulemaking is not a significant regulatory action as defined
in Executive Order 12866.
Therefore, a regulatory assessment
7
is not required.
It has also been determined that section
553(b) of the Administrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations, and because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)
does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on its impact on small
businesses.
Comments and Public Hearing
Before these proposed
regu~ations
are adopted as final
regulations, consideration will be given to any electronic or
written comments (a signed original and eight (8) copies) that
are submitted timely to the IRS.
The IRS and Treasury
Department request comments on the clarity of the proposed
rules and how they can be made easier to understand.
All
comments will be available for public inspection and copying.
A public hearing has been scheduled for ________ , beginning
at
in Room
, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC.
Because of access
restrictions, visitors will not be admitted beyond the
immediate entrance area more than 30 minutes before the
8
hearing starts.
For information about having your name placed
on the building access list to attend the hearing, see the FOR
FURTHER INFORMATION CONTACT portion of this preamble.
The rules of 26 CFR 601.601(a) (3) apply to the hearing.
Persons who wish to present oral comments must submit
electronic or written comments and an outline of the topics to
be discussed and the time to be devoted to each topic (a
signed original and eight (8) copies) by
A
period of 10 minutes will be allotted to each person for
making comments.
An agenda showing the scheduling of the
speakers will be prepared after the deadline for reviewing
outlines has passed.
Copies of the agenda will be available
free of charge at the hearing. Drafting Information
The principal author of this notice of proposed
rulemaking is Nancy L. Rose, Office of Associate Chief Counsel
(Procedure and Administration) .
List of Subjects in 26 CFR part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as
follows:
PART 1-- INCOME TAXES
Paragraph 1. The authority citation for part 1 continues
9
to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Par. 2. Section 1.6043-4 is added to read as follows:
§1.6043-4 Information returns relating to certain acquisitions
of control and changes in capital structure.
[The text of proposed §1.6043-4 is the same as the text
of §1.6043-4T published elsewhere in this issue of the Federal
Register]
Par. 3.
§1.6045-3
Section 1.6045-3 is added to read as follows:
Information reporting for acquisitions of control
or substantial changes in capital structure.
[The text of proposed §1.6045-3 is the same as the text
of §1.6045-3T published elsewhere in this issue of the Federal
Register]
Deputy Commissioner of Internal
Revenue
[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD
RIN 1545-BB40
Information Reporting Relating to Taxable Stock Transactions
AGENCY:
Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains temporary regulations under
section 6043(c) requiring information reporting by a
corporation if control of the corporation is acquired or if
the corporation has a recapitalization or other substantial
change in capital structure.
This document also contains
temporary regulations under section 6045 concerning
information reporting requirements for brokers with respect to
transactions described in section 6043(c).
The text of these
temporary regulations also serves as the text of proposed
regulations set forth in the Proposed Rules section of this
issue of the Federal Register.
DATES: Effective Date:
These regulations are effective
[INSERT DATE THIS DOCUMENT IS PUBLISHED IN THE FEDERAL
REGISTER] .
Applicability Dates:
For dates of applicability, see
§§1.6043-4T(i) and 1.6045-3T(f).
FOR FURTHER INFORMATION CONTACT: Nancy Rose at (202)
622-4910
(not a toll-free number) .
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued without prior notice
and public procedure pursuant to the Administrative Procedure
Act (5 U.S.C. 553).
For this reason, the collection of
information contained in these regulations has been reviewed
and, pending receipt and evaluation of public comments,
approved by the Office of Management and Budget under control
number 1545-1812.
Responses to this collection of
information are mandatory.
An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the
collection of information displays a valid OMB control number.
For further information concerning this collection of
information, and where to submit comments on the collection of
information and the accuracy of the estimated burden, and
suggestions for reducing this burden, please refer to the
preamble to the cross-referencing notice of proposed
rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books or records relating to a collection of information
3
must be retained as long as their contents may become material
in the administration of any internal revenue law.
Generally,
tax returns and tax return information are confidential, as
required by 26 U.S.C. 6103.
Background and Explanation of Provisions
Section 6043(c) provides that if any person acquires
control of a corporation, or if there is a recapitalization or
other substantial change in capital structure of a
corporation, the corporation, when required by the Secretary,
shall make a return setting forth the identity of the parties
to the transaction, the fees involved, the changes in the
capital structure involved, and such other information as the
Secretary may require with respect to such transaction.
Proposed regulations under section 6043(c) were
previously published in the Federal Register on July 5, 1990
(55 FR 27648)
(the 1990 proposed regulations).
After
considering issues raised in public comments and the reporting
burdens placed on corporate taxpayers under the 1990 proposed
regulations, the Internal Revenue Service decided to withdraw
the 1990 proposed regulations on October 16, 1992
47428).
(57 FR
At that time, the IRS stated that the value of the
information that would be collected under the 1990 proposed
regulations did not justify the burden to the public in
4
complying with the rules.
The IRS further stated that it
might promulgate regulations under section 6043(c) if it
became apparent that the information would be
needed to
administer the tax system properly.
At this time, the IRS believes that information reporting
under section 6043(c) for certain large corporate transactions
is appropriate.
The transactions covered by this reporting
requirement are acquisitions of control and substantial
changes in the capital structure of a corporation.
The
temporary regulations require a corporation to attach a form
to its income tax return describing these transactions, and to
file information returns with respect to certain shareholders
in such transactions.
Duplicate reporting is not intended;
thus, the regulations provide that no reporting is required
under this section where reporting is required under another
section.
The text of these temporary regulations also serves
as the text of the proposed regulations set forth in the
cross-referencing notice of proposed rulemaking published in
the Proposed Rules section of this issue of the Federal
Register.
The preamble to that notice of proposed rulemaking
invites public comments with respect to the potential for
duplicate reporting under this section.
That preamble also
invites comments with respect to the burden of compliance with
5
the reporting requirements.
These temporary regulations require a domestic
corporation involved in certain large taxable transactions to
file Form 8806 reporting and describing such transactions.
The corporation must attach Form 8806 to its timely filed
income tax return.
If Form 8806 is not available at least 90
days prior to the due date (including extensions) of the
corporation's income tax return for the year in which the
acquisition of control or the substantial change in capital
structure occurs or at least 90 days before such return is
timely filed (whichever is sooner), the regulation allows a
corporation to make the report by attaching an interim
statement to its return containing certain required
information.
The temporary regulations define an acquisition of
control of a corporation as a transaction or series of related
transactions in which stock representing control of that
corporation is distributed by a second corporation or in which
stock representing control of that corporation is acquired
(directly or indirectly) by a second corporation and the
shareholders of the first corporation receive cash, stock or
other property.
For these purposes, control is determined in
accordance with the first sentence of section 304(c) (1).
With
6
certain limitations, the constructive ownership rules of
section 318(a) apply to determine ownership.
Acquisitions of
control within an affiliated group are excepted from this
definition, as are acquisitions in which the fair market value
of the stock acquired in the transaction or series of related
transactions is less than $100,000,000.
Under the temporary regulations, a corporation has a
substantial change in its capital structure if the corporation
in a transaction or series of related transactions (a)
undergoes a recapitalization with respect to its stock,
redeems its stock,
(b)
(c) merges, consolidates or otherwise
combines with another entity or transfers substantially all of
its assets to one or more entities,
(d) transfers all or part
of its assets to another corporation in a title 11 or similar
case and, in pursuance of the plan, distributes stock or
securities of that corporation, or (e) changes its identity,
form or place of organization.
Transactions in which the
amount of any cash plus the fair market value of any property
(including stock) provided to shareholders of the corporation
is less than $100,000,000 are excepted from this definition,
as are transactions within an affiliated group.
The temporary regulations also require a domestic
corporation involved in the specified transactions to issue,
7
with respect to each of its shareholders, a Form 1099-CAP
reporting the amount of any cash plus the fair market value of
any property (including stock) provided to the shareholder in
the transaction.
Corporations are not required to report
amounts distributed to certain exempt recipients or the fair
market value of any stock provided to a shareholder if the
corporation reasonably determines that the receipt of such
stock would not cause the shareholder to recognize gain (if
any) .
Further, transactions and distributions already
reported under other sections are not subject to reporting
under these regulations.
Penalties under section 6652(1) may be imposed for
failing to file required returns under section
6043(c) (including failure to file on magnetic media, as
required under section 6011(e) and §1.6011-2).
under section 6652(1)
The penalty
is $500 for each day the failure
continues, but the total amount imposed with respect to a
return cannot exceed $100,000.
The temporary regulations
provide that the information returns required under these
regulations shall be treated as one return for purposes of the
section 6652(1) penalty, so that the penalty shall not exceed
$500 per day ($100,000 in total) with respect to any
acquisition of control or change in capital structure.
8
Further, as provided in section 6652(1), such penalty does not
apply if the failure is due to reasonable cause.
Until
regulations are promulgated under section 6652(1) to set forth
specific standards for determining reasonable cause, the IRS
will use the reasonable cause
standards set forth in
§301.6724-1 of this chapter as a guideline for determining
reasonable cause.
Section 1.6045-3T requires a broker who, as the record
holder of stock, receives a Form 1099-CAP from a corporation
pursuant to the reporting requirements of §1.6043-4T, to file
a Form 1099-CAP with respect to the actual owner and furnish
such Form 1099-CAP to the actual owner.
The temporary regulations are effective only for
acquisitions of control and substantial changes of capital
structure that occur after December 31, 2001, and for which
the reporting corporation or any shareholder is required to
recognize gain (if any) as a result of the application of
section 367(a).
The cross-referencing proposed regulations
published in Proposed Rules section of this issue of the
Federal Register will apply to all acquisitions of control and
substantial changes in capital structure occurring after the
date that such regulations are published as final regulations
(regardless of whether section 367(a) applies).
9
Special Analyses
It has been determined that this Treasury decision is not
a significant regulatory action as defined in Executive Order
12866.
Therefore, a regulatory assessment is not required.
It has also been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations.
Regulatory Flexibility Act
For the applicability of the
(5 U.S.C. chapter 6), refer to the
Special Analyses section of the preamble to the crossreferencing notice of proposed rulemaking published in the
Proposed Rules section of this issue of the Federal Register.
Pursuant to section 7805(f) of the Internal Revenue Code,
these temporary regulations will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for
comment on its impact on small businesses.
Drafting Information
The principal author of these temporary regulations is
Nancy L. Rose, Office of Associate Chief Counsel
(Procedure
and Administration) .
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
10
Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as
follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues
to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Par. 2. Section 1.6043-4T is added to read as follows:
§1.6043-4T Information returns relating to certain
acquisitions of control and changes in capital structure
(temporary) .
(a)
Information returns for an acquisition of control or
a substantial change in capital structure--
(1) General rule.
If there is an acquisition of control (as defined in
paragraph (c) of this section) or a substantial change in the
capital structure (as defined in paragraph (d) of this
section) of a domestic corporation ("reporting corporation"),
the reporting corporation must file a completed Form 8806 (or
any successor form)
that form.
in accordance with the instructions to
Form 8806 will request the information required in
paragraphs (a) (1) (i) through (v) of this section.
(i) Reporting corporation.
Provide the name, address,
11
and taxpayer identification number (TIN) of the reporting
corporation;
(ii) Common parent, if any, of the reporting corporation.
If the reporting corporation was a subsidiary member of an
affiliated group filing a consolidated return immediately
prior to the acquisition of control or the substantial change
in capital structure, provide the name, address, and TIN of
the common parent of that affiliated group;
(iii) Acquiring corporation.
Provide the name, address
and TIN of any corporation that acquired control of the
reporting corporation within the meaning of paragraph (c) of
this section or combined with or received assets from the
reporting corporation pursuant to a substantial change in
capital structure within the meaning of paragraph (d) of this
section ("acquiring corporation").
acquiring corporation is foreign
State whether the
(as defined in section
7701(a) (5)) or is a dual resident corporation (as defined in
§1.1503-2 (c) (2) ) .
In either case, state whether the acquiring
corporation was newly formed prior to its involvement in the
transaction.
(iv) Common parent, if any, of acquiring corporation.
the acquiring corporation named in paragraph (a) (1) (i ii) of
this section was a subsidiary member of an affiliated group
If
12
filing a consolidated return immediately prior to the
acquisition of control or the substantial change in capital
structure, provide the name, address, and TIN of the common
parent of that affiliated group.
(v)
Information about acquisition of control or
substantial change in capital structure.
Provide--
(A) A description of the transaction or transactions that
gave rise to the acquisition of control or the substantial
change in capital structure of the corporation;
(B) The date or dates of the transaction or transactions
that gave rise to the acquisition of control or the
substantial change in capital structure;
(C) A description of and a statement of the fair market
value of any stock provided to the reporting corporation's
shareholders in exchange for their stock if the reporting
corporation reasonably determines that the shareholders are
not required to recognize gain (if any)
such stock for
u.s.
from the receipt of
federal income tax purposes; and
(D) A statement of the aggregate amount of cash plus the
fair market value of any property (including stock if the
reporting corporation reasonably determines that its
shareholders would be required to recognize gain (if any) on
the receipt of such stock, but excluding stock described in
13
paragraph (a) (1) (v) (C) of this section) provided to the
reporting corporation's shareholders in exchange for their
stock.
(2) Time for making return.
Form 8806 (or an interim
statement, as set forth in paragraph (a) (3) of this section)
must be attached to the reporting corporation's timely filed
income tax return (taking extensions into account) for the
year in which the acquisition of control or substantial change
in capital structure occurs.
(3)
Interim statement.
If Form 8806 has not been made
available at least 90 days before the due date (including
extensions) of the reporting corporation's income tax return
for the year in which the acquisition of control or
substantial change in capital structure occurs or at least 90
days before such return is timely filed (whichever is sooner),
the reporting corporation shall attach a statement to its
return containing the information described in paragraphs
(a)
(1)
(i) through (v) of this section.
(4) Coordination with other sections.
(i) No reporting
is required under paragraph (a) of this section with respect
to a transaction for which information is required to be filed
pursuant to §§1.351-3(b), 1.355-5(a), or 1.368-3(a), provided
the transaction is properly reported in accordance with those
14
sections.
(ii) No reporting is required under paragraph (a) of this
section with respect to a transaction for which information is
required to be reported pursuant to section 6043(a), provided
the transaction is properly reported in accordance with that
section.
(5) Exception where shareholders are exempt recipients.
No
reporting is required under paragraph (a) of this section
if the reporting corporation reasonably determines that all of
its shareholders who receive cash, stock or other property
pursuant to the acquisition of control or substantial change
in capital structure are exempt recipients under paragraph
(b) (6) of this section.
(b)
Information returns regarding shareholders--(l)
General rule.
A corporation that is required to file Form
8806 pursuant to paragraph (a)
(1)
of this section (or an
interim statement under paragraph (a) (3) of this section)
shall file a return of information on Forms 1096 and 1099-CAP
with respect to each shareholder of record in the corporation
(before or after the acquisition of control or the substantial
change in capital structure) who receives cash, stock, or
other property pursuant to the acquisition of control or the
substantial change in capital structure.
15
(2) Additional requirement for information returns.
A
corporation that would have been required to file Form 8806
pursuant to paragraph (a) of this section (or an interim
statement under paragraph (a) (3) of this section) but for the
application of paragraph (a) (4) (i) of this section (relating
to information provided under §§1.351-3(b), 1.355-5(a), or
1.368-3(a»
shall file a return of information on Forms 1096
and 1099-CAP with respect to each shareholder of record in the
corporation (before or after the acquisition of control or the
substantial change in capital structure) who receives cash,
stock, or other property pursuant to the acquisition of
control or the substantial change in capital structure.
(3) Time for making information returns.
1099-CAP must be filed on or before February 28
Forms 1096 and
(March 31 if
filed electronically) of the year following the calendar year
in which the acquisition of control or the substantial change
in capital structure occurs.
(4) Contents of return.
A separate Form 1099-CAP must be
filed with respect to amounts received by each shareholder
(who is not an exempt recipient as defined in paragraph (b) (6)
of this section) showing-(i)
The name, address, telephone number and TIN of the
reporting corporation;
16
(ii)
The name, address and TIN of the shareholder;
(iii) The number and class of shares in the reporting
corporation exchanged by the shareholder;
(iv)
The amount of cash and the fair market value of any
stock (other than stock described in paragraph (a) (1) (v) (C))
of this section or other property provided to the shareholder
in exchange for its stock; and
(v)
Such other information as may be required by the
instructions to Form 1099-CAP.
(5) Furnishing of forms to shareholders.
The Form 1099-
CAP filed with respect to each shareholder must be furnished
to such shareholder on or before January 31 of the year
following the calendar year in which the shareholder receives
cash, stock, or other property as part of the acquisition of
control or the substantial change in capital structure.
(6) Exempt recipients.
A corporation is not required to
file a Form 1099-CAP pursuant to this paragraph (b) of this
section with respect to the following shareholders:
(i) Any shareholder who receives solely stock described
in paragraph (a) (1) (v) (C) of this section in exchange for its
stock in the corporation.
(ii) Any shareholder who is required to recognize gain
(if any) as a result of the receipt of cash, stock, or other
17
property if the corporation reasonably determines that the
amount of such cash plus the fair market value of such stock
and other property does not exceed $1,000.
Stock described in
paragraph (a) (1) (v) (C) of this section is not taken into
account for purposes of this paragraph (b) (6) (ii) .
(iii)
Any shareholder described in paragraphs
(b) (6) (ii i) (A)
through
(K)
of this section if the corporation
has actual knowledge that the shareholder is described in one
of paragraphs
(b) (6) (iii) (A) through
(K)
of this section or if
the corporation has a properly completed exemption certificate
from the shareholder (as provided in §31.3406(h)-3 of this
chapter).
The corporation also may treat a shareholder as
described in paragraphs
(b) (6) (iii)
(A) through
(J)
of this
section based on the applicable indicators described in
§1. 6049-4 (c)
(1)
(ii) .
(A) A tax-exempt organization, as described in §1.60494 (c) (1)
(B)
(ii)
(B) (1) •
An individual retirement plan, as described in
§1. 6049-4 (c) (1) (ii)
(C) •
(C) The United States, as described in §1.60494(c)
(1)
(ii) (D).
(D) A state, as described in §1. 6049-4 (c) (1) (ii) (E) .
(E) A foreign government, as described in §1.6049-
18
4 (c) (1) (ii) (F) .
(F) An international organization, as described in
§1. 6049-4 (c) (1) (ii) (G) •
(G) A foreign central bank of issue, as described in
§1. 6049-4 (c) (1) (ii) (H) .
(H) A real estate investment trust, as described in
§1. 6049-4 (c) (1) (ii) (J) .
(I) An entity registered under the Investment Company Act
of 1940, as described in §1. 6049-4 (c) (1) (ii) (K) •
(J) A common trust fund, as described in §1.60494 (c) (1)
(ii) (L) .
(K) A corporation, as defined in section 7701 (a) (3)
(except for corporations for which an election under section
1362(a) is in effect), if the reporting corporation reasonably
determines that such corporation is not a broker
in §1.6045-1(a) (1))
(as defined
or a record holder for the actual owner of
the stock.
(iv)
Any shareholder that the corporation, prior to the
transaction, associates with documentation upon which the
corporation may rely in order to treat payments to the
shareholder as made to a foreign beneficial owner in
accordance with §1.1441-1 (e) (1) (ii) or as made to a foreign
payee in accordance with §1. 6049-5 (d) (1) or presumed to be
19
made to a foreign payee under §1. 6049-5 (d) (2) or (3).
For
purposes of this paragraph (b) (6) (iv), the provisions in
§1.6049-5(c)
(regarding rules applicable to documentation of
foreign status and definition of U.S. payor and non-U.S.
payor) shall apply.
The provisions of §1.1441-1 shall apply
by substituting the terms "corporation" and "shareholder" for
the terms "withholding agent" and "payee" and without regard
to the fact that the provisions apply only to amounts subject
to withholding under chapter 3 of the Internal Revenue Code.
The provisions of §1.6049-5(d) shall apply by substituting the
terms "corporation" and "shareholder" for the terms "payor"
and "payee".
Nothing in this paragraph (b) (6) (iv) shall be
construed to relieve a corporation of its withholding
obligations· under section 1441.
(v) Any shareholder if, on January 31 of the year
following the calendar year in which the shareholder receives
cash, stock, or other property, the corporation did not know
and did not have reason to know that the shareholder received
such cash, stock, or other property in a transaction or series
of related transactions that would result in an acquisition of
control or a substantial change in capital structure.
(7) Coordination with other sections.
No reporting is
required under paragraph (b) of this section with respect to
20
amounts that are required to be reported under section 6042 or
section 6045, unless the corporation knows or has reason to
know that such amounts are not properly reported in accordance
with those sections.
(c) Acquisition of control of a corporation--(l) In
general.
For purposes of this section, an acquisition of
control of a corporation ("first corporation") occurs if, in a
transaction or series of related transactions, either-(i)
Stock representing control of the first corporation
is distributed by a second corporation to shareholders of the
second corporation and the fair market value of such stock on
the date of distribution is $100,000,000 or more; or
(ii)
(A) Before an acquisition of stock of the first
corporation (directly or indirectly) by a second corporation,
the second corporation does not have control of the first
corporation;
(B) After the acquisition, the second corporation has
control of the first corporation;
(C) The fair market value of the stock acquired in the
transaction and in any related transactions as of the date or
dates on which such stock was acquired is $100,000,000 or
more; and
(D) The shareholders of the first corporation (determined
21
without applying the constructive ownership rule of section
318(a)) receive cash, stock, or other property pursuant to the
acquisition.
(2) Control.
For purposes of this section, control is
determined in accordance with the first sentence of section
304(c)(1).
(3) Constructive ownership.
(i) Except as otherwise
provided in this section, the constructive ownership rules of
section 318 (a)
(except for section 318 (a) (4), providing for
constructive ownership through an option to acquire stock),
modified as provided in section 304 (c) (3) (B), shall apply for
determining whether there has been an acquisition of control.
(ii) The determination of whether there has been an
acquisition of control shall be made without regard to whether
the person or persons from whom control was acquired retain
indirect control of the first corporation under section
318 (a) .
(iii) For purposes of paragraph (c) (1) (ii) of this
section, section 318(a)
shall not apply to cause a second
corporation to be treated as owning, before an acquisition of
stock in a first corporation (directly or indirectly) by the
second corporation, any stock that is acquired in the first
corporation.
For example, if the shareholders of a domestic
22
corporation form a new holding company and then transfer their
shares in the domestic corporation to the new holding company,
the new holding company shall not be treated as having control
of the domestic corporation before the acquisition.
The new
holding company acquires control of the domestic corporation
as a result of the transfer.
Similarly, if the shareholders
of a domestic parent corporation transfer their shares in the
parent corporation to a subsidiary of the parent in exchange
for shares in the subsidiary, the subsidiary shall not be
treated as having control of the parent before the
transaction.
The subsidiary acquires control of the parent as
a result of the transfer.
(4) Corporation includes group.
For purposes of this
paragraph (c), if two or more corporations act pursuant to a
plan or arrangement with respect to acquisitions of stock,
such corporations will be treated as one corporation for
purposes of this section.
Whether two or more corporations
act pursuant to a plan or arrangement depends on the facts and
circumstances.
(5) Section 338 election.
For purposes of this paragraph
(c), an acquisition of stock of a corporation with respect to
which an election under section 338 is made is treated as an
acquisition of stock (and not as an acquisition of the assets
23
of such corporation) .
(d) Substantial change in capital structure of a
corporation--(l)
In general.
A corporation has a substantial
change in capital structure if it has a change in capital
structure (as defined in paragraph (d) (2) of this section) and
the amount of any cash and the fair market value of any
property (including stock) provided to the shareholders of
such corporation pursuant to the change in capital structure,
as of the date or dates on which the cash or other property is
provided, is $100,000,000 or more.
(2) Change in capital structure.
For purposes of this
section, a corporation has a change in capital structure if
the corporation in a transaction or series of transactions-(i)
Undergoes a recapitalization with respect to its
stock;
(ii)
Redeems its stock (including deemed redemptions);
(iii) Merges, consolidates or otherwise combines with
another corporation or transfers all or substantially all of
its assets to one or more corporations;
(iv)
Transfers all or part of its assets to another
corporation in a title 11 or similar case and, in pursuance of
the plan, distributes stock or securities of that corporation;
or
24
(v)
Changes its identity, form or place of organization.
(e) Reporting by successor entity.
If a corporation
("transferor") transfers all or substantially all of its
assets to another entity ("transferee") in a transaction that
constitutes a substantial change in the capital structure of
transferor, transferor must satisfy the reporting obligations
in paragraph (a) or (b) of this section.
If transferor does
not satisfy the reporting obligations in paragraph (a) or (b)
of this section, then transferee must satisfy those reporting
obligations.
If neither transferor nor transferee satisfies
the reporting obligations in paragraphs (a) and (b) of this
section, then transferor and transferee shall be jointly and
severally liable for any applicable penalties (see paragraph
(g) of this section).
(f) Receipt of property.
For purposes of this section, a
shareholder is treated as receiving property (or as having
property provided to it) pursuant to an acquisition of control
or a substantial change in capital structure if a liability of
the shareholder is assumed in the transaction and, as a result
of the transaction, an amount is realized by the shareholder
from the sale or exchange of stock.
(g)
Penalties for failure to file.
For penalties for
failure to file as required under this section, see section
25
6652(1).
The information returns required to be filed under
paragraphs (a)' and (b) of this section shall be treated as one
return for purposes of section 6652(1) and, accordingly, the
penalty shall not exceed $500 for each day the failure
continues (up to a maximum of $100,000) with respect to any
acquisition of control or any substantial change in capital
structure.
Failure to file as required under this section
also includes the requirement to file on magnetic media as
required by section 6011(e) and §1.6011-2.
In addition,
criminal penalties under sections 7203, 7206 and 7207 may
apply in appropriate cases.
(h) Examples.
The following examples illustrate the
application of the rules of this section.
For purposes of
these examples, assume the transaction is not reported under
§§1.351-3(b), 1.355-5(a), 1.368-3(a), and sections 6042,
6043(a) or 6045, unless otherwise specified, and assume that
the fair market value of the consideration provided to the
shareholders exceeds $100,000,000.
Example 1. The shareholders of X, a domestic corporation
and parent of an affiliated group, exchange their X stock for
stock in Y, a newly-formed foreign holding corporation. After
the transaction, Y owns all the outstanding X stock.
The X
shareholders must recognize gain (if any) on the exchange of
their stock as a result of the application of section 367(a).
Because the transaction results in an acquisition of control
of X, X must comply with the rules in paragraphs (a) and (b)
of this section.
If a statement is filed in accordance with
§1.351-3(b) with respect to the transaction, X is not required
26
to attach Form 8806 (or an interim statement) to its return.
Regardless of whether a statement is filed in accordance with
§1.351-3(b), X must file a Form 1099-CAP with respect to each
shareholder who is not an exempt recipient showing the fair
market value of the Y stock received by that shareholder, and
X must furnish a copy of the Form 1099-CAP to that
shareholder.
Example 2.
C, a domestic corporation, and parent of an
affiliated group merges into D, an unrelated domestic
corporation.
Pursuant to the transaction, the C shareholders
exchange their C stock for D stock or for a combination of
short term notes and D stock.
The transaction does not
satisfy the requirements of section 368, and the C
shareholders must recognize gain (if any) on the exchange.
Because the transaction results in a substantial change in the
capital structure of C, C (or D as the successor to C) must
comply with the rules in paragraphs (a) and (b) of this
section.
C must attach Form 8806 (or an interim statement) to
its final income tax return.
C (or D as the successor to C)
also must file a Form 1099-CAP with respect to each
shareholder who is not an exempt recipient showing the fair
market value of the short term notes (if any) and the fair
market value of the D stock provided to that shareholder, and
C (or D) must furnish a copy of the Form 1099-CAP to that
shareholder.
Example 3.
(i) The facts are the same as in Example (2),
except that C reasonably determines that(A) The transaction satisfies the requirements of section
368;
(B) The C shareholders who exchange their C stock solely
for D stock will not be required to recognize gain (if any) on
the exchange; and
(C) The C shareholders who exchange their C stock for a
combination of short term notes and D stock will be required
to recognize gain (if any) on the exchange solely with respect
to the receipt of the short term notes.
(ii) If a statement is filed in accordance with §1.3683(a) with respect to the transaction, C is not required to
attach Form 8806 (or an interim statement) to its return under
paragraph (a) of this section.
Regardless of whether a
statement is filed in accordance with §1.368-3(a), C (or D as
the successor to C) must comply with the rules in paragraph
(b) of this section.
With respect to each shareholder who
receives a combination of short term notes and D stock, and
27
who is not an exempt recipient, C or D must file a Form 1099CAP showing the fair market value of the short term notes
provided to the shareholder, and C (or D) must furnish a copy
of the Form 1099-CAP to that shareholder.
The Form 1099-CAP
should not show the fair market value of the D stock provided
to the shareholder.
C and D are not required to file and
furnish Forms 1099-CAP with respect to shareholders who
receive only D stock in exchange for their C stock.
Example 4.
The facts are the same as in Example 3,
except the C shareholders receive cash instead of short term
notes.
The C shareholders exchange their shares through a
transfer agent.
Under section 6045, the transfer agent is
required to report the amount of cash paid to the C
shareholders in the transaction.
C and D are not required to
file information returns under paragraph (b) of this section,
unless C or D knows or has reason to know that the transfer
agent did not file the required information returns under
section 6045.
(i) Effective date.
This section applies to any
acquisition of control and any substantial change in capital
structure occurring after December 31, 2001, if the reporting
corporation or any shareholder is required to recognize gain
(if any) as a result of the application of section 367(a) as a
result of the transaction.
If a reporting corporation
described in the preceding sentence files its income tax
return for the year in which the acquisition of control or the
substantial change in capital structure occurs on or before
[INSERT DATE 60 DAYS AFTER THIS DOCUMENT IS FILED WITH THE
OFFICE OF THE FEDERAL REGISTER], such reporting corporation
(or successor entity) shall file an interim statement (as
described in paragraph (a) (3) of this section) on or before
28
January 31, 2003.
This section expires on [INSERT DATE THREE
YEARS AFTER THIS DOCUMENT IS FILED WITH THE OFFICE OF THE
FEDERAL REGISTER]
Par. 3.
§1.6045-3T
Section 1.6045-3T is added to read as follows:
Information reporting for an acquisition of
control or a substantial change in capital structure
(temporary) .
(a)
l(a) (1»
In general.
Any broker (as defined in §1.6045-
who receives a Form 1099-CAP from a corporation
pursuant to §1.6043-4T as the record holder of stock in such
corporation but who is not the actual owner thereof shall file
a return of information with respect to the actual owner
unless the actual owner is an exempt recipient as defined in
§1. 6045-1 (c) (3) (i) .
(b) Form, manner and time for making information returns.
The return required by paragraph (a) of this section must be
on Forms 1096 and 1099-CAP, or on an acceptable substitute
statement.
Such forms must be filed on or before February 28
(March 31 if filed electronically) of the year following the
calendar year in which the acquisition of control or the
substantial change in capital structure occurs.
(c) Contents of return.
A separate Form 1099-CAP must be
prepared for each owner showing--
29
(1) The name, address and taxpayer identification number
of the actual owner;
(2) The number and class of shares in the corporation
exchanged by the actual owner;
(3) The amount of cash and the fair market value of stock
or other property provided to the actual owner in exchange for
its stock, that would have been reported by the corporation
under §1.6043-4T if the corporation had provided the Form
1099-CAP directly to the actual owner (rather than to the
broker as nominee); and
(4) Such other information as may be required by Form
1099-CAP.
(d) Furnishing of forms to actual owners.
The Form 1099-
CAP prepared for each actual owner must be furnished to the
actual owner on or before February 28 of the year following
the calendar year in which the actual owner receives stock,
cash or other property.
(e) Single Form 1099.
If a broker is required to file a
Form 1099 with respect to an owner under both this §1.6045-3T
and §1.6045-1(b), the broker may satisfy the requirements of
both sections by filing and furnishing one Form 1099 that
contains all the relevant information, as provided in the
instructions to Form 1099-CAP.
30
(f) Effective date.
This section applies with respect to
any Form 1099-CAP received by a broker after [INSERT DATE THIS
DOCUMENT IS FILED WITH THE FEDERAL REGISTER].
This section
expires on [INSERT DATE THREE YEARS AFTER DATE THIS DOCUMENT
IS FILED WITH THE OFFICE OF THE FEDERAL REGISTER]
PART 602--0MB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION
ACT
Par. 4.
The authority citation for part 602 continues to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5.
In section 602.101, paragraph (b)
is revised by
adding the following entries in numerical order to the table
to read as follows:
§602.101 OMB Control numbers
* * * * *
(b)
* * *
CFR part or section where
identified and described
Current OMB
control No.
* * * * *
1. 6043-4T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545-1812
* * * * *
1. 6045-3T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545-1812
*****
31
Deputy Commissioner of Internal
Revenue
Approved:
Assistant Secretary of the Treasury (Tax Policy)
)-3613: U.S. International Reserve Position
Page 1 of2
FROM THE OFFICE OF PUBLIC AFFAIRS
November 13, 2002
PO-3613
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S reserve assets
totaled $76,632 million as of the end of that week, compared to $75,752 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US (wI/ions)
November 1, 2002
I
I
TOTAL
11 Foreign Currency Reserves
~
75,752
Euro
1
a. Securities
6,414
Of which, issuer headquartered in the US.
II
I
November 8, 2002
I
Yen
II
TOTAL
12,876
'
19,290
II
76,632
Euro
II
6,529
Yen
TOTAL
II
13,139
0
I
I
19,668
0
b. Total deposits with:
10,595
b.i. Other central banks and BIS
2,585
13,180
10,780
2,638
13,418
I
b.il Banks headquartered in the US.
0
0
I
b.ii. Of which, banks located abroad
0
0
I
b.iii. Banks headquartered outside the US.
0
II
0
I
II
0
I
II
20,665
I
Ibiii Of which, banks located in the US.
0
I
12. IMF Reserve Position 2
I
3. Special Drawing Rights (SDRs) 2
I
20,497
II
4. Gold Stock 3
5. Other Reserve Assets
11,742
11,839
11,042
11,042
0
0
91
II. Predetermined Short-Term Drains on Foreign Currency Assets
Novembe".2002
I
I
Euro
II
Yen
TOTA
November 8, 2002
Euro
I
1 Foreign currency loans and securities
II
I
0
I
I
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the US dollar
Yen
II
TOTAL
I
II
0
I
2.a. Short positions
I
II
0
II
I
II
0
2.b. Long positions
I
II
0
II
II
II
0
I
II
0
0
I
3. Other
I
II
II
II
III. Contingent Short-Term Net Drains on Foreign Currency Assets
II
I
:llw ww.treasgov/press/releases/po3013.htm
November 1, 2002
II
II
November 8, 2002
II
7117/2003
--
0-3613: U.S. International Reserve Position
Page 2 of2
Euro
Yen
I
ontingent liabilities in foreign currency
TOTAL
II
Euro
II
Yen
II
0
TOTAL
I
0
.a. Collateral guarantees on debt due within 1
II year
1
1.b. Other contingent liabilities
I
I
2. Foreign currency securities with embedded
options
3. Undrawn, unconditional credit lines
I
I
II
II
I
0
0
0
0
I
3.a. With other central banks
~b.
II
With banks and other financial institutions
Headquartered in the US
3.c. With banks and other financial institutions
IHeadquartered outside the US
I
4. Aggregate short and long positions of options
in foreign
0
0
Currencies vis-a-vis the U.S. dollar
4,a. Short positions
II
14.a.1. Bought puts
.a.2. Written calls
9 positions
.b.1. Bought calls
en puts
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
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 SDRldollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S Treasury to the prior week's IMF data. IMF data for the latest week may be
subject to revision. IMF data for the prior week are final.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
://WWW.treasgov/press/releases/p03613.htm
7117/2003
0-3614: Secretary Paul O'Neill Speech at the Microcredit Summit
Page 1 of 3
FROM THE OFFICE OF PUBLIC AFFAIRS
November 13, 2002
PO-3614
Treasury Secretary Paul O'Neill, Keynote Address at the Microcredit Summit,
New York, New York, November 13, 2002
Good evening.
It is my pleasure to Join you tonight on the topic of microfinance, and to share with
you my own observations, as I've witnessed the use of microcredit in developing
nations around the world.
I like to consider microfinance in the context of a vision of a world that works better - a world where people everywhere enjoy a rising standard of living -- higher
incomes that come from good jobs for everyone who wants one.
As I have traveled the world over the last quarter century, both as a leader in the
private sector and in the public sector, I have been struck by two things. First, it is
clear that human beings everywhere, with the proper education, training, and a
stable social environment, can and do perform value-adding work at worldcompetitive levels.
That means they can earn compensation that gives them the capacity for
independence and allows them to pursue the good life for themselves and their
families. Human beings everywhere have in them the capacity to create a high
standard of living.
My second observation is this: in spite of a common potential for achievement. the
disparity of living standards among the world's people is so vast it is beyond
anything we could imagine.
Why is it, If all people have the capacity to create a good life that so many billions
live today with little hope for what we know is possible? I believe this is the
question for us and our time. It is a question we can answer. It is a problem we
can solve.
I know that those of you attending this summit share my conviction. I know you
also agree that on a fundamental level, sustainable systems for forming capital and
supplying it to individuals with the enterprise to put it to work for their families and In
their communities, whoever and wherever they may be, is part of that solution.
If you examine the economic history of the last 300 years it is easy to conclude that
there IS no absolute limit on world economic product That is, economic prosperity
is not rooted in some people getting more by taking someone else's share. Rather,
the world economic pie is limited only by our imagination. Human beings applying
their imaginations within a framework of social institutions, infrastructure and
resources create value.
A necessary ingredient for value creation is a means of providing capital to those
who seek to make new ideas into reality. That is, to entrepreneurs. It doesn't
matter if the new idea is building a satellite-linked data processing center in Accra,
or a putting a dairy cow in an empty barn in Kosovo.
In developing economies, and even in the more developed world, microfinance
plays a crucial role in delivering seed capital to these entrepreneurs. What is more,
microfinance institutions add value well beyond the money they contribute. They
provide essential advice on how to start and operate a business - information that
is difficult to come by in communities that are predominantly agrarian, and just
.:IIWWW.treas.-gov/press/releases/po36~4.htm
7117/2003
0-3614: Secretary Paul O'Neill Speech at the Microcredit Summit
Page 2 of3
beginning to enter modern capitalism.
Mlcrofinance organizations have extensive knowledge of basic business practices,
management, local regulations, and the key factors in past business successes
(and failures.) And as I have said, economic growth is first and foremost about the
deployment of ideas. Microfinance, at ItS best, is about deploying ideas about how
to start, manage, and scale-up micro- and small businesses and to help those in
poverty become self-employed.
As these new entrepreneurs succeed, they diversify the local economy. Often
businesses such as restaurants, general stores and clothing-makers are the first
non-agricultural employers in their communities. They are the seeds for local
economic independence, specialization, comparative advantage in trade, and longterm growth. They create Jobs that keep young people at home, where they would
otherwise move to over-crowded cities - or other countries - in search of work.
They launch a virtuous cycle of growth and employment.
I have witnessed the success of these programs in recent visits to developing
nations, and the real world results are inspirational. For examplE, in Uganda I met
a woman named Lukia Ssemonobe, who opened a restaurant with micro-credit
funding and a lot of hard work. Lukia 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 microfinance NGO, and used that and subsequent micro-credit 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.
Small-enterprise lending, in amounts a bit larger than micro-finance, has also
proven successful in bolstering entrepreneurship and job creation. In fact, one goal
of microfinance is to see the self-employed become small business owners,
emplOYing neighbors and creating greater prosperity. I've seen the growth of small
enterprises that have benefited from these loan programs. In Bucharest, Romania,
I visited a furniture factory employing 50 people. The company took a $35,000 loan
from the European Bank for Reconstruction and Development last year and used it
to purchase productivity-enhancing equipment. The owners expect the company to
grow by 40% this year.
In Russia, ongoing free market reforms necessary to enter the World Trade
Organization are creating a more welcoming environment for entrepreneurs,
investors, and employment. In the Russian city of Nizhny Novogorod, I toured a
modern printing plant that could compete with any in the world. Founded by two
brothers and a sister, with help from the EBRD's small business development
program and other micro-credit funding, the company employs 120 people and
supplies most of Coca-Cola's labels in Russia
The success of the EBRD program proves that with adequate capital and the right
training in lending techniques, new financial institutions can profitably serve small
businesses. This model can be extended to other parts of the developing world.
With thiS goal in mind, we have been working with the World Bank to create a small
business lending program for Africa The program would make investments in and
loans to existing local African banks and would sponsor the creation of new local
banks, creating a pool of capital these banks would then lend to small businesses.
The program would also provide training to local bank staff, so that they have the
knowledge and skills to serve small businesses profitably. The loans generated by
the program will allow African small businesses to expand their operations, invest in
capital equipment, and finance imports and exports.
Lukia, the woman I met in Uganda, demonstrates what's possible with micro-credit
support. As she has grown her enterprises, she's become a small business owner,
and a small business development lending facility in Africa will ensure that she and
others like her will continue creating jobs In their communities.
Whether in the world's largest economies or in the smallest, in an industrial
conglomerate or a small-town tailoring shop, jobs are created and lives are
changed one at a time, person by person. Micro-credit programs enable individuals
to lead that change, make a difference in their lives, their communities, and
ultimately, their economies. In fact, I believe that programs that target small
IIWWw.treasgov/presS/releases/p03614.htm
7117/2003
)-3614: Secretary Pau1 O'Neill Speech at the Microcredit Summit
Page 3 of3
businesses can often make a much bigger difference than investments in giant
proJects, because small businesses are homegrown, and develop the skills and
talents of local people.
Access to capital and good business advice are not the only elements required for
economic development. Lasting economic development also requires a stable
social environment that includes the clear rule of law, enforceable contracts, and
protection from extortionists and other forms of capital thieves. It requires a
government - a leadership - that rules justly, encourages economic freedom, and
invests in its people. It requires clean, reliable water supplies, effective, broadbased education, and good health care practices. For a truly vibrant economy
these conditions are not discretionary. They must be the center of attention for
sovereign governments and for any serious development agency or effort.
President Bush has established a new foreign assistance program - Millennium
Challenge Account - that will reward nations who are taking positive steps to create
an atmosphere where their people can succeed.
With the understanding that microfinance is only one important element in this mix,
the United States Government, under the leadership of President Bush, has made a
commitment to promoting microfinance as a means of private sector-led growth and
poverty red uction.
Our ongoing experience with microfinance has produced certain best principles for
success, and as we work with all of you to expand these programs and extend their
reach, we intend to abide by these principles.
Foremost is that microfinance programs must become sustainable. Microfinance
institutions should grow to stand on their own, without continuing donor support.
There is a range of institutional models that can be used -- ranging from NGOs to
commercial banks -- but all should have accountable governance structures and
sound business plans, with transparent reporting and oversight.
One example of a microfinance institution successful along these lines is a
dedicated microfinance bank in Ukraine, established by the European Bank for
Reconstruction and Development in 2001, which I recently visited. The U.S
contributed $4 million to the operation, $2 million of which has supported the
establishment of the bank and training for loan officers. In 18 months, the
microfinance bank extended loans totaling $111 million. By the end of 2003, the
Donetsk branch alone plans to make 7,500 loans totaling $55 million.
From a broader perspective, the success of individual microfinance institutions
depends heavily on the leadership, financial, regulatory, and business environment
of the countries and communities where they operate. Entrepreneurs seeking
capital to invest in their ideas are best served by a diverse and competitive financial
sector, of which micro-finance is a small but critical part. Healthy banks are also
crucial, both to gather savings that can be a source of new investment capital and
to serve small enterprises as they grow beyond the means of micro-finance
institutions.
Successful development programs are those that help unleash the potential present
in all human beings, and allow them to drive economic growth through private
enterprise. Microfinance is one of the most promising grassroots innovations in
developing economies because it does just that - it gets capital directly to
individuals who are ready to turn good ideas into real value. Just as important, it
gets real-world business knowledge and wisdom to people who can use it to
succeed.
Person by person, microfinance can raise the quality of life for families in
communities that for too long have been denied the fruits of the modern global
economy. The United States is committed to supporting the best practices in
microfinance around the world.
Thank you.
://WWW.treas~oV/Dress/releaseS/D036M.htm
7117/2003
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
November 13, 2002
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
28-Day Bill
November 14, 2002
December 12, 2002
912795LP4
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.190%
High Rate:
Investment Rate 1/:
Price:
1.213%
99.907
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 66.32%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
$
19,963,020
37,075
°
°
SUBTOTAL
Federal Reserve
$
TOTAL
49,663,100
37,075
49,700,175
20,000,095
1,771,245
1,771,245
51,471,420
$
21,771,340
Median rate
1.185%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.160%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio
=
49,700,175 / 20,000,095
=
2.48
L/ Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
PO-361S
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AV.ENUE, N.W .• WASHINGTON, D.C.- 20220. (202) 622·2960
EMBARGOED UNTIL 11:00 A.M.
November 12, 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
November 14, 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
TreasuryDirect will not be accepted.
The Federal Reserve System holds $13,022 million of the Treasury bills maturing
on November 14, 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 Tr6asury 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-3616
For press releases, speeches, public schedules and official biographies, call our 24-/lOur fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED NOVEMBER 14, 2002
November 12, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . $20,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . $20,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . $10,600 million
Description of Offering:
Term and type of security ........... 28-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . 912795 LP 4
Auction date . . . . . . . . . . . . . . . . . . . . . . . . November 13,2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . November 14,2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . December 12, 2002
Original issue date . . . . . . . . . . . . . . . . . June 13,2002
Currently outstanding ............... $41,814 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 $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 standard time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern standard time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank
on issue date.
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
November 12, 2002
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
November 14, 2002
February 13, 2003
912795LY5
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
1.190%
Investment Rate 1/:
1.211%
Price:
99.699
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 42.66%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Accepted
Tendered
Competitive
Noncompetitive
FIMA (noncompetitive)
$
SUBTOTAL
38,017,257
1,493,312
245,000
$
16,000,065 2/
39,755,569
TOTAL
5,438,270
5,438,270
Federal Reserve
$
45,193,839
14,261,753
1,493,312
245,000
$
21,438,335
Median rate
1.180%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.160%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio
=
39,755,569 / 16,000,065
=
2.48
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,217,737,000
http://www.publicdebt.treas.gov
PO-3617
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
November 12, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182 -Day Bill
November 14, 2002
May 15, 2003
912795MMO
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
1.225%
Investment Rate 1/:
Price:
1.249%
99.381
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 64.42%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
30,497,187
896,416
150,000
$
16,000,203 2/
31,543,603
SUBTOTAL
TOTAL
5,812,574
5,812,574
Federal Reserve
$
37,356,177
14,953,787
896,416
150,000
$
21,812,777
Median rate
1.210%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.170%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio
=
31,543,603 / 16,000,203
=
1.97
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $716,999,000
http://www.publicdebt.treas.gov
)-3618
PUBLIC DEBT NEWS
Department
of the Treasury • Bureau of the Public Debt • Washington, DC
FOR IMMEDIATE RELEASE
November 14, 2002
20239
Contact: Stephen Meyerhardt
(202) 691-3792
BUREAU .OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
RAVAGED BY SEVERE WEATHER IN OHIO AND PENNSYLVANIA
The Bureau of Public Debt took action to ass'ist victims of severe weather in Ohio and Pennsylvania by
expediting the replacement or payment of United States Savings Bonds for owners in those areas. The
emergency procedures are effective immediately for paying agents and owners in Ohio and Pennsylvania
affected by the storms. These procedures will remain in effect through the end of2002.
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 areas. Most financial
institutions serve as paying agents for savings bonds.
The counties involved are: Putnam, Seneca and Van Wert in Ohio and Mercer County in Pennsylvania. Should
additional counties be declared disaster areas the emergency procedures for savings bonds owners will go into
effect.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners should
complete form PDF-1048, available at most financial institutions or by writing the Pittsburgh Federal Reserve
Bank's Savings Bond Customer Service Department, 717 Grant Street, Pittsburgh, Pennsylvania 15219; phone
(412) 261-7800. This form can also be downloaded from Public Debt's website at: www.publicdebUreas.gov.
Bond owners should include as much information as possible about the lost bonds on the form. This
information should include how the bonds were inscribed, social security number, approximate dates of issue,
bond denominations and serial numbers if available. The completed form must be certified by a notary public
or an officer of a financial ins6iution. Completed fom1s should be forwarded to Public Debt's Office of Investor
Services, 200 Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"DISASTER" on the front oftheir envelopes, to help expedite the processing of claims.
PO-3619
www.publicdebt.treas.gov
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDlATE RELEASE
November 14, 2002
Contact: Stephen Meyerhardt
(202) 691-3792
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
RAVAGED BY SEVERE WEATHER IN MISSISSIPPI AND TENNESSEE
The Bureau of Public Debt took action to assist victims of severe weather in Mississippi and Tennessee by
expediting the replacement or payment of United States Savings Bonds for owners in those areas. The
emergency procedures are effective immediately for paying agents and owners in Mississippi and Tennessee
affected by the stmms. These procedures will remain in effect through the end of 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
The cOlmties are: Lowndes County in Mississippi and Carroll County in Tennessee. Should additional counties
be declared disaster areas the emergency procedures for savings bonds owners will go into effect.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners should
complete fonn PDF-1 048, available at most financial institutions or by writing the Kansas City Federal Reserve
Bank's Savings Bond Customer Service Department, 825 Grand Boulevard, Kansas City, Missouri 64198;
phone (816) 881-2000.
This fonn can also be downloaded from Public Debt's website at:
www.publicdebt.treas.gov. Bond owners should include as much information as possible about the lost bonds
on the fonn. This infonnation should include how the bonds were inscribed, social security number,
approximate dates of issue, bond denominations and serial numbers if available. The completed fonn must be
certified by a notary public or an officer of a financial institution. Completed fonns should be forwarded to
Public Debt's Office of Investor Services, 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
www.publicdebt.treas.gov
PO-3620
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDlATE RELEASE
November 14, 2002
Contact: Stephen Meyerharelt
(202) 691-3792
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
RAVAGED BY SEVERE 'VEATHER IN ALABAMA AND WEST VIRGINIA
The Bureau of Public Debt took action to assist victims of severe weather in Alabama and West Virginia by
expediting the replacement or payment of United States Savings Bonds for owners in those areas. The
emergency procedures are effective immediately for paying agents and owners in Alabama and V..,rest Virginia
affected by the storms. These procedures will remain in effect through the end of 2002.
Public Debt's action waives the n01111al 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 areas. Most financial
institutions serve as paying agents for savings bonds.
The counties involved are: Cherokee, Cullman, Henry and Walker in Alabama and Jackson County in West
Virginia. Should additional counties be declared disaster areas the emergency procedures for savings bonds
owners will go into effect.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners should
complete form PDF-l 048, available at most financial institutions or by writing the Richmond Federal Reserve
Bank's Savings Bond Customer Service Department, 701 East Byrd Street, RiclmlOnd, Virginia 23219; phone
(804) 697-8370. This form can also be downloaded £i'om Public Debt's website at: www.publicdebt.treas.gov.
Bond owners should include as much info1111ation 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 Office of Investor
Services, 200 Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"DISASTER" on the fi-ont of their envelopes, to help expedite the processing of claims.
PO-3621
www.publicdebt.treas.gov
0-3622: Under Secretary of the Treasury Peter Fisher to the Columbus Council on World Affairs
Page 1 of 4
FROM THE OFFICE OF PUBLIC AFFAIRS
November 14, 2002
PO-3622
Remarks of Under Secretary of the Treasury Peter R. Fisher to the Columbus
Council on World Affairs Columbus, Ohio
Beyond Borrowing:
Meeting the Government's Financial Challenges in the 21 st Century
The prinCipal financial challenge for our federal government in the 21 st century will
be to fulfill the many promises made in the 20th century. All the major industrial
economies face this challenge. But I will stick to my knitting and, as Under
Secretary for Domestic Finance, focus on the particular challenge that we face in
this country to make the government's finances sustainable, to make sure that we
align the promises we make with those we can keep.
The popular understanding of our national fiscal position revolves around two
concepts, the annual budget defiCit (or surplus) and total debt held by the public.
ThiS past fiscal year, the federal government ran a deficit of $159 billion and our
accumulated debt IS now roughly $3 trillion. Putting these numbers in perspective,
we usually express them as shares of our gross domestic product. To keep the
numbers simple, I'll round our GOP down to $10 trillion (in truth it's closer to $11
trillion), which makes our deficit 1.6 percent of GOP and total debt 30 percent of
GOP.
As concerning as these figures are, they unfortunately understate the challenge
because they point in the wrong direction: the past. They reflect the government's
continued reliance on cash accounting, recording transactions only when cash
changes hands. They ignore the commitments we have yet to fund: our future
obligations.
We need to develop a forward-looking understanding of all of the financial
responsibilities of the federal government. When we do, when we confront the
trillions of dollars of promises that our government has made, we can begin to think
more clearly about preparing to meet these obligations. I am going to suggest three
admittedly predictable policy imperatives. First, we need to invest and to save
more, much more, so that we can grow as fast as we can and maintain our
standards of liVing during our collective retirements. Second, we need to get a hold
of our escalating health care costs. Finally, the federal government needs a more
forward-looking budget discipline.
A more complete measure of the government's fiscal position than the deficit or
debt would take account of all future obligations, calculating costs and revenues as
they accrue regardless of when they must be paid, but denominated in today's
dollars. A handy tool is net present value. This is hardly a revolutionary idea in
finance or accounting. College students in introductory economics routinely make
NPV calculations and corporate CFOs live by them. Unfortunately, NPV hasn't yet
made its way to the fore of federal budgeting or the public lexicon.
Not everyone has overlooked the importance of forward-looking public finance. In
September, in testimony before the House Budget Committee, Chairman
Greenspan suggested that accrual-based accounting would be a sensible step for
federal budget accounting. Former Secretary of Commerce Peter Peterson has
warned tirelessly of the consequences of a graying population with fewer and fewer
workers per retiree. Due to their and others' efforts, we all have a dim sense of
:IIWWW.treas.:;ov/press/releases/l.03622.htm
7117/2003
0-3622: Under Secretary of the Treasury Peter Fisher to the Columbus Council on World Affairs
Page 2 of 4
long-term fiscal strains involving Social Security and Medicare. But we need to
bring this forward-looking understanding out of the shadows. We need to shine the
same spotlight on it that the annual deficit and total debt receive in our
government's budget rituals.
We do not yet have very good forward-looking measures of the government's
overall financial position The ones we do have present a daunting picture.
The most recent Financial Report of the United States Government, published last
March, provided an accrual-based assessment of the government's net liability for
Social Security, for Medicare, and for government worker and military retirement
benefits. The government has assumed these obligations, and designated taxes
and revenues to pay for them. The Report projects that Social Security and
Medicare will begin falling short around the year 2016. On a 75-year horizon, these
programs collectively have a negative net present value of $26 trillion. The figure is
even higher if one wants to ensure a fully sustainable system beyond that point.
That figure does not account for the other, general revenues that the government
collects. Treasury staff estimate that if we tap general government receipts,
projected at the recent average of 19 percent of GOP, the figure falls to negative
$23 trillion. Again, that's using a 75-year NPV calculation.
A Congressional Budget Office study from this July took another tack. It projected
the government's finances out to 2075, holding discretionary spending constant as
a share of GOP. The result? The federal government would double its share of the
economy, from 19 percent of GOP today to 40 percent in 2075. Reverse
engineering these CBO prOjections gives you a negative NPV of "only" $18 trillion.
Both these estimates are fairly crude. Making 75-year projections about anything
is an inherently imprecise and risky business. But making promises of future
government payments without keeping track of the costs is even riskier.
On the backward-looking basis, our debt to GOP ratio is 30 percent. On the
forward-looking basis, our liabilities to GOP ratio is 200 percent or more.
Think of the federal government as a gigantic insurance company (with a side line
business in national defense and homeland security) which only does its accounting
on a cash basis - only counting premiums and payouts as they go in and out the
door. An insurance company with cash accounting is not really an insurance
company at all. It is an accident waiting to happen.
This particular insurance company, it turns out, has made promises to its policy
holders that have a current value $20 trillion or so (give or take a few trillion) in
excess of the current value of the revenues that it expects to receive. A real
insurance company could try to grow its way out by raising its premiums and its
earnings on investments faster than its liabilities. The federal government,
however, would have to raise taxes or borrow faster than it increases outlays.
In my opinion, neither is likely nor desirable.
Consider borrowing. The CBO projections assumed that the government would
hold taxes constant at 19 percent of GOP and borrow the shortfall. In these
projections, by 2075 annual deficits would be greater than 20 percent of GOP,
compared to 1.6 percent today. This would result in total federal debt reaching 255
percent of GOP. Just paying the interest on the national debt would consume 11
percent of GOP, half of today's federal budget and more than what government
spends today on everything other than Social Security, Medicare and Medicaid.
To judge the ramifications of raising taxes on this magnitude, it's worth first going
back over a little history.
Over the last forty years we have had great debates in our country about taxes about raising taxes and about cutting taxes. However, throughout this time - from
:IIWWW.treas.~ov/press/reJeasesI.O03622.htm
7117/2003
0-3622: Under secretary of the Treasury Peter Fisher to the Columbus Council on World Affairs
Page 3 of 4
1960 to 2001 - the federal government's revenues as a share of GOP have varied
within a range of less than 4 percent - from a low 17.0 percent in 1965 to a high of
20.8 percent in 2000. The year 2000, In fact, was the first time federal revenues as
a share of GOP exceeded 20 percent since 1944, when they were 20.9 percent.
Some of us would rather see total federal taxes to be noticeably less than one-fifth
of our economy and pushed back toward the middle of their recent range. The tax
cuts proposed by President Bush and approved by Congress last year, and which
the President wants made permanent, aimed In that direction. to cap federal
receipts at approximately 19 percent of GOP. Others may feel differently and think
it appropriate or desirable for taxes to be at the higher end of their recent range.
But whatever one's opinion, we must recognize that even to finance the Second
World War, taxes did not exceed 21 percent of GOP and that federal revenues have
averaged 18.6 percent of GOP for the last forty years.
Looking forward, now, if we were to keep debt held by the public to no more than Its
post-war peak of 50 percent of GOP, federal tax receipts would have to rise to 31
percent of GOP in 2075. That's 64 percent higher than what taxpayers have borne
for the last 40 years.
Some say that that we should raise taxes starting now to ease the challenge of
meeting the government's long-term liabilities. Put aside that it is odd to argue that,
as the economy weakened and tax collections waned, we could have, would have,
or should have, kept pushing taxes up to maintain a given surplus. That would
have been folly. Put aside the costs of waging war on terrorism and bolstering
homeland security.
If we were to have paid off the entire $3 trillion of outstanding debt held by the
public, we would have - in simple terms - reduced our $18-to-$23-trillion negative
financial position by around $3 trillion. To say that doing this would "make it easier"
to meet our future liabilities is misleading. It's like telling a man that it would easier
for him to Jump across the MissisSippi River if he took a running start.
To secure our economic future, in the face of the government's large, negative
financial position, we will have to look beyond the government's cash flows for the
answers. If we examine only the cash flows themselves we will be stuck inside a
numbers game confined to zero-sum trade offs among the mix of benefits and
taxes.
At the risk of stating the obvious, let me briefly suggest the three things that I think
we must do if we are to hope to get on a sustainable path.
First, we need to invest and save more so that, as a society, we can grow as
rapidly as possible on a non-inflationary basis. One way or another we are going to
pay for our collective retirements. We can either pay by having lower collective
standards of living than would otherwise be the case or we can save and invest
more for the future and keep boosting productivity
My children will be retired in 2077, the time horizon I have been talking about. If
we set our country on a path to grow 2 percent a year in real terms until then, our
GOP would grow from $10 trillion to $44 trillion. If we could boost the growth rate to
3 percent, however, GOP in 2077 will be over twice as big - $92 trillion.
It is true that faster growth and higher productivity alone will not solve the whole
fiscal problem, because some expenditures will rise along with tax revenues.
Social Security costs, for instance, rise with wages and hence with GOP. The
wealthier we are, however, the more freedom we will have to re-allocate our
resources for paying for our retirement and health care without sacrificing other
private and social goals.
So to have any hope of catching up with our own promises to ourselves, we need
to invest more and save more. To do this, we need to take away barriers to both
investment and savings. Fundamental reform of our tax code comes to mind as a
.://www.treas.gov/preSS/releases/po3622.htm
7117/2003
0-3622: Under secretary of the Treasury Peter Fisher to the Columbus Council on World Affairs
Page 4 of 4
promising possibility. Personal wealth accumulation accounts is another.
Second, we need to get a grip on rising health care costs while still seeking a
healthier population. The Financial Report of the United States shows that the real
budget-buster is health care. Medicare and Medicaid account for two-thirds of that
$26 trillion shortfall. For many years, health care costs have been rising faster than
economic growth, at one percent more than GOP annually for a decade. For the
past two years, partly due to the recession, the gap has been five percent. This is
not sustainable.
I am not a medical expert, but I do know something about economics and
incentives. Our system of health care insurance - both private and government reimburses for the provision of health care services. The problem is that we reward
the production of health care services without regard to whether anyone's health
has actually improved.
If we want to provide health care to those who need it but cannot afford It, and at
the same time constrain health care costs so they do not absorb an ever-increasing
share of our society's resources, we need to redirect our system for health care
delivery and medical reimbursement. It must reward those who can demonstrate a
measurable improvement in health, not just those who have simply sold more
health care services.
Finally, we need to consider a more forward-looking budget discipline for the federal
government. one that recognizes the cost of promises made about the future. We
need to consider a new kind of budget discipline that would require us all to
confront the actuarial exposures created by promises of future benefits and other
off-budget and off-balance sheet liabilities. While retirement and health care
insurance are the biggest pieces of this problem, we must also confront the true
costs of all government programs.
Federal budget decision-making needs to follow good business practice and move
on from cash accounting to accrual accounting. If we can do this, maybe the
federal government can learn how to better align the promises that we make with
those that we can keep.
:llwww.treasgov/press/releaseS/po3622.htm
7117/2003
OFFICE O}' PUBLIC A}'FAIRS -1500 PENNSYLVANIA AVENUE, N.W. _ WASHINGTON, D.C.- 20220 _ (202l 622-2960
EMBARGOED UNTIL 11:00 A.M.
November 14, 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 $29,401 million of publicly held 13-week and 26-week
Treasury bills maturing November 21, 2002, and to raise new cash of approximately $599
million. Also maturing is an estimated $18,001 million of publicly held 4-week
Treasury bills, the disposition of which will be announced November 18, 2002.
The Federal Reserve System holds $12,382 million of the Treasury bills maturing
on November 21, 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 November 19, 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
These
York will be included within the offering amount of each auction.
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 $1,064 million into the 13-week bill and $804 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
Attaclunent
PO-3623
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
TREAsuRY urr~K~~G~ ur H~LL~
TO BE ISSUED NOVEMBER 21, 2002
HIGHLI~HT~ o~
November 14, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . . . . . . . . $ 4,900 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 LZ 2
November 18, 2002
November 21, 2002
February 20, 2003
August 22, 2002
$19,504 million
$1,000
$15,000 million
$15,000 million
None
182-day bill
912795 MN 8
November 18, 2002
November 21, 2002
May 22, 2003
November 21, 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.
Maximum Recognized Bid at a Single Rate ........ 35% of public offering
Maximum Award . . . . . . . . . . . . . . . . . . . . . . . . . • • . . . . • . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders ..... Prior to 12:00 noon eastern standard time on auction day
Competitive tenders ........ prior to 1:00 p.m. eastern standard time on auction day
Payment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender.
TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to their account of
record at their financial institution on issue date.
0-3624: Remarks by Kenneth W. Dam U.S. Taxation of International Business- The Need for Reform
Page 1 of 5
FROM THE OFFICE OF PUBLIC AFFAIRS
November 14, 2002
PO-3624
U.S. Taxation of International Business- The Need for Reform
Remarks by Kenneth W. Dam
Deputy Secretary Department of the Treasury Delivered to
The Tax Foundation's 65th National Conference
November 14, 2002
Washington, DC
Thank you for this opportunity to speak to you about two recent events that have
brought the international rules of U.S. corporate income tax to the center of the
legislative agenda. The first, which has drawn considerable media attention, is the
phenomenon of "inversions." Inversions are the deliberate expatriation of a U.S.
corporation through a change of corporate address, typically from a U.S state to
Bermuda. The second event has been less publicized: the recent judgment against
the United States in a World Trade Organization (WTO) dispute settlement case
regarding tax policy.
These two events are related, more closely than they might seem at first glance.
Both concern our system of international taxation in very fundamental ways. And
any thorough solution to either of these issues - inversions or the WTO decision should address them both.
The sad truth is that our international tax rules no longer serve our national
interest. In this age of globalization, international transactions generate a large and
growing share of our national income. Yet changes to the international provisions
of the US. corporate tax code in recent decades have ignored this trend, and have
oftentimes more impaired than improved American companies' ability to compete
abroad. More often, changes to the tax code have focused on increasing tax
revenues rather than assuring the competitiveness of U.S. business operations,
and thus, strengthening the health of our economy.
The WTO Decisions in the FSC-ETI Cases
First, consider the situation regarding the recent WTO decision. Earlier this year, a
WTO appellate panel held that the U.S. Extraterritorial Income Exclusion (ETI)
regime constituted a subsidy violating the WTO rules. Just two years before, a
WTO appellate panel held that the Foreign Sales Corporation (FSC) proviSions
constituted a similar, prohibited subsidy.
It is well-known that the ETI had been intended by the previous Administration, and
by the Congress, as a substitute for the FSC provisions, guaranteeing the
beneficiaries of the ETI similar tax benefits to those they had enjoyed under the
FSC provisions.
If I may summarize in two sentences a gO-page WTO opinion, the panel found that
the ETI was an export subsidy in a violation of WTO rules for more or less the same
reasons as the FSC provisions. And, perhaps to assure that no further attempts
were made to resurrect a FSC-type benefit for U.S. exports, it further bolstered the
reasoning from the earlier FSC case.
Where do these WTO decisions leave us? Essentially, they say that any attempt to
replicate the benefits of FSC or ETI is legally doomed. To make such an attempt
:llwww.treas ..gov/preSS/releases/po36U.htm
7117/2003
0-3624: Remarks bylZenneth W. Dam U.S. Taxation ofIntemational Business- The Need for Reform
Page 2 of 5
would simply lead to fruitless WTO litigation and could well bring on a trade war
with the European Union, which would almost certainly insist on retaliating against
U.S. exports.
In August, the WTO arbitration panel issued its findings on damages, which will
authorize retaliation of up to $4 billion a year of exports, a figure unprecedented in
WTO history. Such retaliation would have an impact on the global economy far
beyond the specific U.S. products targeted. A trade war of such proportions is not
in the interests of American businesses, workers, or consumers.
For that reason, President Bush decided several months ago that the United States
would comply with the WTO ruling. The President made two further decisions. He
said that any response to the ruling would have to increase the competitiveness of
U.S. business. He also pledged to work with the Congress to create the solution,
and we have been working closely with Chairman Thomas and the House Ways
and Means Committee. We have begun to work just as closely with the Senate
Finance Committee.
In working with the Congress we need to focus on two aspects of international tax
policy. First, we must keep in mind the fiscal implications of abolishing ETI.
Second, we must focus on the changes that can best make U.S. business more
competitive internationally. In the short term, abolishing ETI will increase federal
revenues. We will work with the Congress to make these changes, taken together,
as close to revenue neutral as possible over the ten-year budget period. And we
should all focus on ensuring that the changes enhance the international
competitiveness of U.S. businesses and American workers.
One of the ironies of the FSC/ETI saga is that it can be viewed, across the history
of the past half-century of tax legislation, as a self-inflicted wound. To see why this
is so, consider that the United States has a worldwide system of taxation, while
many other countries have a territorial system. Second, so far as the corporate
income tax is concerned, it has traditionally been worldwide In scope only for
companies incorporated in the United States. U.S. tax is not imposed on the
foreign-source income of the foreign subsidiaries of U.S. companies.
This is true even for wholly-owned foreign subsidiaries. Dividends received by the
U.S. parent from the foreign subsidiary are taxed but that is true also of dividends
from any unrelated foreign company.
As a result, when a U.S. parent decides to manufacture abroad, it can carry out the
manufacturing operations in a foreign subsidiary. The manufacturing profits, as
foreign-source income, are not subject to U.S. tax until repatriated to the U.S.
parent.
A point to be stressed, however, is that a principal exception to this proposition
stems from the 1962 enactment of Subpart F. For reasons that had nothing to do
with the competitiveness of U.S. companies, some transactions by foreign
subsidiaries were deemed to generate so-called Subpart F income, which is taxed
currently, to the U.S. parent.
After many amendments and elaborations, Subpart F today, generally speaking,
taxes the U.S. parent on passive income earned by its controlled foreign
subsidiaries. Moreover, in some cases Subpart F income includes income from
active business pursuits abroad. For example, even the marketing activities of
foreign subsidiaries aiding exports from a U.S. parent may produce Subpart F
income. The same is true for various forms of service transactions by foreign
subsidiaries.
As a result, the definition of income taxable on a current basis to a U.S. parent,
leaving aside dividend payments to the parent, has become one of the most
complex parts of the U.S. tax code. Without the 1962 Subpart F legislation, there
almost certainly would have been no FSC or ETI legislation. Without that
legislation, a U.S exporter could sell its exports through a foreign sales subsidiary
without paying U.S. tax on the earnings derived from the subsidiary's foreign sales
activity.
:IIWWW.treas ..gov/press/releaseS/p03624.htm
7117/2003
0-3624: RemarKS by Kenneth W. Dam U.S. Taxation ofInternational Business- The Need for Reform
Page 3 of 5
One of the first by-products of that 1962 legislation was the 1971 Domestic Sales
Corporation legislation (DISC). That law allowed a U.S parent to establish a
domestic subsidiary that would handle its foreign sales, and that would not be
subject to U.S tax on part of the resulting income. In the 1981 Tax Legislation
Cases, a GATT panel held that the DISC law was a violation of GATT rules, and the
panel held ttlat tax provisions of three European countries were also violations.
After extensive international negotiation that produced even more complex
GATT/WTO rules, the U.S. Congress passed the 1984 FSC provisions, in large
measure as a substitute for DISC. In short, FSC, like DISC, was an attempt to limit
the adverse consequences of Subpart F. Today, after the FSC and ETI decisions,
we are still dealing with the tangled history of Subpart F.
I believe that legislative changes could be enacted to limit Subpart F to truly passive
income - such as portfolio dividends, interest and the like. At the very least we
should take a hard look at the so-called active/passive dichotomy in Subpart F
rules. We should not preserve tax rules th.at do not reflect the present realities of
international corporate business, in which globalization requires centralization of
functions, and in which services are not Just a major wealth-creating activity, but
one in which U.S. businesses have a comparative advantage. In short, I believe
that we can sweep away the cobwebs of outmoded rules, and make U.S.
businesses and workers more competitive.
Corporate Inversion Transactions
Now consider the other recent phenomenon that has put a spotlight on U.S.
international tax rules: the problem of corporate "inversions," in which U.S.
companies move their corporate situs abroad. Why do some US. companies
choose to invert? The answer is simple - to save U.S. tax dollars. Yet the bulk of
these companies intend to continue doing business in the United States just as they
did before. How, then, do inversions reduce taxes? The answer is complex. One
part of the answer is that they are able to reduce the U.S. tax they pay on their
operations in the US The other part of the answer is that they are able to reduce
their overall tax on earnings from foreign operations.
Let's focus on the first part of the answer. Through an inversion transaction, a
company is able to take certain kinds of deductions that it could not take before,
and it can thereby structure its affairs in a way that reduces taxes on income earned
in the United States. For example, the company may create a debt obligation from
the corporation's new U.S. subsidiary to the new foreign parent, typically
incorporated in a low-tax jurisdiction. The interest payments on this related-party
debt create deductions that reduce U.S. tax without creating an offsetting increase
in the foreign tax due. In the tax vernacular this is called "earnings stripping."
There are also ways in which the inverting enterprise may be able to shift income
outside the United States by transferring assets or business opportunities from the
U.S. subsidiary to the new foreign parent. This moves the income and appreciation
from these assets and opportunities outside the U.S. tax jurisdiction, even though
the costs associated with their development were deducted for U.S. tax purposes.
Exacerbating these opportunities for earnings stripping through artificial deductions
and income shifting, there may be opportunities to exploit the network of tax treaties
the United States maintains around the world. By achieving resident status for
treaty purposes in a country with which the U.S. has a tax treaty, the new parent in
an inversion transaction may qualify for reduced U.S. withholding tax on certain
kinds of income. All of these techniques allow inverted companies to avoid US tax
that otherwise would be payable on income from their U.S operations.
A natural first reaction to the recent stories about corporate inversions has been to
propose prohibiting such transactions. But that approach confuses the symptoms
with the disease. The disease is that the U.S. corporate tax system does not create
a level playing field for U.S. companies. Those that choose to invert are taking
advantage of the same opportunity available to any foreign company to reduce U.S.
taxes on U.S. operations. Indeed, it is possible that the growing number of
acquisitions of U.S. companies by foreign companies is in part caused by our U.S
tax rules. When a U.S. company and a foreign company are considering a merger,
:IIWWW.treas.gov!press/releases/p03624.htm
7117/2003
)-3624: Remarks by Kenneth W. Dam U.S. Taxation ofIntemational Business- The Need for Reform
Page 4 of5
it can be more tax-effective for the foreign enterprise to acquire the U.S enterprise,
rather than the other way around. Also, we are seeing U.S.-based start-up
companies choosing to incorporate abroad to reduce US. taxes on their U.S.
business. We need legislation to take away the Incentive to invert. Only then can
we create a level playing field for U.S. and foreign companies
An approach that narrowly targets inversions without eliminating the underlYing
cause is not a real solution for the long term To create a level playing field, we
need to attack the incentives for inversions Specifically, we need to deal with such
matters as earnings stripping through related-party Interest deductions, income
shifting through transfers of intangible and other assets, and unintended benefits of
tax treaties. The U.S Treasury has already made clear, both in a comprehensive
study and through Congressional testimony, how we would deal with these
incentives.
First, we support amendments to section 163U) to disallow cross-border
intercorporate interest payments as deductions against U.S. tax, to the extent that
the corporate group's level of U.S. indebtedness relative to assets exceeds its
worldwide ratio of indebtedness to assets. The present formulation of section 163(j)
unfortunately provides an unjustified safe harbor for deduction of interest payments
by a U.S. corporation to a foreign related party so long as the payments meet
certain statutory guidelines that have nothing to do with the corporate group's
overall indebtedness.
With regard to income shifting, especially by transfers of intangibles, we are
reexamining the regulations under section 482. That reexamination encompasses
both the substantive rules and the rules related to reporting, documentation and
penalties We will make appropriate revisions to these regulations so that the arm's
length standard of section 482 operates properly. And we will report to the
Congress if any legislation is needed in this area.
In addition to our section 482 study, we will also review the Code's organization and
reorganization provisions, as well as the implementing regulations, as they apply to
international transactions. After all, these provisions were drafted at a time when
the focus was almost solely on domestic transactions, and that is not the world we
live in today.
With regard to tax treaties, we are carrying out a thorough study of our existing tax
treaties, which are intended to reduce or eliminate double taxation of income, to
determine whether any of our treaties have provisions that can be used instead to
eliminate taxation on income. Any treaties that operate in this matter will be
renegotiated
Creating a Competitive Set of Tax Rules
The tax changes I have described will help level the playing field, and eliminate the
incentive to undergo an inversion to reduce U.S. tax on income from U.S. business
operations. But there are other areas that must be addressed to make sure that our
international tax rules promote the competitiveness of U.S. companies. Indeed, the
other part of the reason for inversion transactions is to avoid the application of the
U.S. international tax rules to income from foreign operations, so that those
operations remain competitive. We need to address this competitiveness concern
as well, so that the United States remains a place in which businesses choose to be
headquartered. To truly level the playing field we need to revisit the U.S tax rules
for foreign earned Income. These rules have not kept pace with the rules of our
major trading partners.
A number of technical changes have been made over the years that make the U.S
international tax rules unduly restrictive. Sometimes the motive has been to raise
federal tax revenues by changes in the abstruse international tax rules. However,
with today's global economy, the bottom line is clear. If we want U.S. businesses,
and thus the US economy, to be competitive in international transactions, then we
have to reconsider our international tax rules .
.://WWw.treas ..goV/press/releases/pu3624.htm
7117/2003
0-3624: Remarks by Kenneth W. Dam U.S. Taxation ofInternational Business- The Need for Reform
Page 5 of 5
Let me give you an example. The foreign tax credit is designed to eliminate double
taxation of foreign-source income, once by a foreign country and then by the US
Yet the ability of a U.S. company to avoid paying tax twice on the same income is
limited by a host of highly technical rules. These have the effect of disallowing a
credit in certain circumstances. One of the limitations that causes the most
distortion is the impact of the interest expense allocation rules, which reduce a U.S.
company's ability to use foreign tax credits by allocating some of Its U.S interest
expense against the assets of its foreign affiliates, even though those foreign
affiliates are equally or even more highly leveraged Perhaps this limitation once
made sense, but it makes sense no longer.
The Subpart F rules I discussed earlier are another major area where significant
changes are needed. Changes would ensure that our rules are not an anticompetitive burden for U.S businesses operating in today's global economy.
Extensive studies of the economic effect of foreign investment point to the same
conclusion: foreign direct investment by American firms is good not just for the U.S.
firm and the foreign economy recipient, but also for the US economy, and hence
for Americans in general. The notion that foreign direct investment displaces U.S.
exports is not only wrong and flies in the face of the evidence. Evidence also
shows there is no basis for the notion that foreign direct investment is an effort to
displace domestic U.S. production. If foreign direct investment is good for the U.S.
economy overall -- and it is -- we have to make sure that we are not unintentionally
discouraging it through obsolete rules that tax foreign income twice or that tax the
income in a way that is harsher than the tax regimes of our major trading partners.
This is what I mean when I call for U.S. tax law changes that make U.S business
more competitive internationally.
A Concluding Thought
When considering the totality of legislation needed to address the WTO ruling, I
want to stress one point I made earlier. The chances of going back to a FSC lookalike law are nil. The President has recognized that the United States must comply
with its international obligations. We have too great a stake in the WTO and in free
trade to turn our backs on the WTO rules.
Consequently, it will not be possible to replicate for each and every American
company the tax relief they obtained under FSC or ETI. Nor can we assure each
and every American company that it will receive any tax relief at all from the tax
legislation now being considered in Congress. We need to focus on making the
U.S. economy -- and that means U.S. enterprises as a whole -- better off as a result
of the legislative changes. That is what a level playing field is all about. To give an
example, there is no reason why a U.S.-owned firm should be acquired by a
foreign-owned firm simply because of ill-designed international corporate tax rules.
When US. tax law treats U.S.-owned and foreign-owned firms alike, our economy
will be stronger and US. enterprises will be more competitive around the world.
We look forward to working with the Congress next year on much-needed reforms
to our international tax rules, reforms that will ensure that the United States is the
preeminent country in the world for headquarters, for operations, and for
investment.
Thank you.
://www.treas.£.ov/press/releases/po3624.htm
7117/2003
0-3625: Raymond T. Wagner, Jr. Nominee for IRS Oversight Board
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
November 14, 2002
PO-3625
Raymond T. Wagner, Jr. Nominee for IRS Oversight Board
Treasury Secretary Paul O'Neill today announced that Raymond T. Wagner, Jr. of
Missouri has been nominated to be a member of the Internal Revenue Service
Oversight Board, for the remainder of a four-year term expiring September 14,
2004. Members of the IRS Oversight Board oversee the IRS in its administration,
management and conduct.
"Ray's unique background as a tax commissioner for both Missouri and Illinois
makes him an ideal candidate for the IRS Oversight board," said Treasury
Secretary Paul O'Neill. "His private sector, academic and government experience
would be an asset to the Oversight Board in their efforts to improve the IRS."
Ray served in the cabinet of Illinois Governor Jim Edgar as the Illinois Director of
Revenue from 1993 until June 1995. Ray served as the Director of the Missouri
Department of Revenue from 1991 to 1993. He is believed to be the first individual
to have been appointed Director of Revenue by Governors of two different states.
Mr. Wagner IS currently the Legal & Legislative Vice President for Enterprise RentA-Car and has been with Enterprise since 1995.
Ray earned his Bachelor of Arts degree (1981) and his MBA degree (1984) at St.
Louis University. He obtained his J.D. law degree (1985) from University of
Missouri-Kansas City School of Law and completed a Master of Laws-Taxation
(LL.M.) degree (1993) from Washington University School of Law.
Since 1993, Ray has been an Adjunct Professor of Law at Washington University
School of Law where he co-teaches a graduate level course on state and local
taxation. In April 1999, Ray was appointed to serve as a Municipal Judge for the
City of Ballwin.
Previously, Ray served as Chief Legal Counsel to the Governor of Missouri, and as
the General Counsel for the Missouri Department of Revenue.
Ray serves on a number of civic and educational organizations. While in
government, Ray was active on numerous boards and commissions, including the
Federation of Tax Administrators, the Multi-State Tax Commission, and the
Missouri Military Advisory Commission. He also chaired the Missouri Governor's
Ethics Committee.
A member of the American Bar Association, the Illinois Bar and the Missouri Bar,
Ray is admitted to practice law before the US Supreme Court, the US Court of
Appeals - 8th Circuit and the US Tax Court.
:llwww.treas.:;ov/press/releaseS/po362S.htm
7117/2003
o
federal financing
WASHINGTON, D.C. 20220
bonkNEWS
FEDERAL FINANCING BANK October 31, 2002
Paula Farrell, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of September 2002.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $39.6 billion on September 30,
2002, posting an increase of $2,641.2 million from the level on
August 31, 2002.
This net change was the result of increases in
holdings of agency debt of $3,164.0 million and in holdings of
government-guaranteed loans of $7.2 million, and a decrease in
holdings of agency assets of $530.0 million. The FFB made 43
disbursements and received 13 prepayments during the month of
September. The FFB also extended the maturities of 149 loans
guaranteed by the Rural Utilities Service ("RUSH) during the
month of September.
During the fiscal year 2002, the FFB holdings of obligations
issued, sold or guaranteed by other Federal agencies posted a net
decrease of $3,220.2 million from the level on September 30,
2001.
This net change was the result of decreases in holdings of
agency debt of $199.0 million, in holdings of agency assets of
$2,955.0 million, and in holdings of government-guaranteed loans
of $66.2 million.
Attached to this release are tables presenting FFB September
loan activity and FFB holdings as of September 30, 2002.
PO-3626
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Page 2
FEDERAL FINANCING BANK
SEPTEMBER 2002 ACTIVITY
Date
Borrower
Amount
of Advance
Final
Maturity
Interest Rate
2/18/31
8/15/12
10/01/02
10/01/02
4 .976%
3.903%
1.790%
1.729%
S/A
S/A
S/A
S/A
AGENCY DEBT
u.S. POSTAL SERVICE
u.S.
U.S.
U.S.
U.S.
Postal
Postal
Postal
Postal
Service
Service
Service
Service
$250,000,000.00
9/23
9/23
$250,000,000.00
9/30 $2,450,000,000.00
$214,000,000.00
9/30
GOVERNMENT-GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
San Francisco OB
San Francisco OB
Atlanta CDC Lab
Foley Services Contract
San Francisco OB
San Francisco Bldg Lease
9/03
9/03
9/06
9/18
9/25
9/27
$49,264.62
$338,378.40
$17,600.77
$5,211.27
$51,550.31
$478,581.00
8/01/05
8/01/05
1/30/31
7/31/25
8/01/05
8/01/05
2.608%
2.608%
4.777%
4.547%
2.296%
2.354%
S/A
S/A
S/A
S/A
S/A
S/A
9/10
9/12
9/12
9/18
9/18
$559,340.82
$247,264.88
$131,258.24
$88,883.42
$1,366,162.06
1/02/32
3/01/30
7/01/31
7/01/31
1/02/32
4.782%
4.776%
4.798%
4.621%
4.639%
S/A
S/A
S/A
S/A
S/A
9/03
9/04
9/04
9/04
9/04
9/05
9/05
9/06
9/10
9/12
9/13
9/13
9/13
9/13
9/16
9/17
9/19
9/19
9/20
$12,791,000.00
$1,500,878.00
$1,097,000.00
$100,000.00
$2,800,000.00
$19,419,000.00
$40,252,000.00
$5,000,000.00
$2,715,000.00
$2,200,000.00
$1,896,000.00
$1,200,000.00
$12,000,000.00
$1,535,000.00
$12,000,000.00
$500,000.00
$1,652,000.00
$350,000.00
$200,000.00
1/03/34
12/31/36
12/31/36
12/31/36
12/31/31
12/31/31
12/31/31
12/31/35
1/02/35
1/03/06
12/31/02
1/03/33
1/02/35
12/31/30
12/31/02
1/02/35
9/30/03
12/31/09
1/02/35
4.864%
4.782%
4.782%
4.781%
4 .691%
4.678%
4.678%
4 .718%
4.803%
2.594%
1.684%
4.848%
4. 758%
4.680%
1.683%
4.679%
1.749%
3.484%
4.612%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
DEPARTMENT OF EDUCATION
Virginia Union Univ.
Barber-Scotia College
Livingstone College
Livingstone College
Tuskegee Univ.
RURAL UTILITIES SERVICE
S. Illinois Power #818
A & N Electric #868
Butler County Rural Elec. #832
Head Lakes Electric #825
Kootenai Elec. #752
Dairyland Power #865
Dairyland Power #864
East Central Oklahoma #754
Jefferson Energy #692
E. Iowa Coop. #807
Bailey County Elec. #856
Johnson County Elec. #500
North Arkansas Elec. #683
S. Illinois Power #819
United Elec. Coop. #870
Adams Rural Electric #706
Socorro Elec. #869
Thumb Electric #767
Burt County Public #669
Page 3
FEDERAL FINANCING BANK
SEPTEMBER 2002 ACTIVITY
Borrower
Sangre De Cristo Elec. #732
Shelby Energy Coop. #758
East Kentucky Power #828
Wilkes Tele. & Elec. #851
Head Lakes Electric #825
North Georgia Elec. #781
Webster Electric #705
Arkansas Elec. #812
*Atlantic Telephone Mem. #805
*Basin Electric #425
IrBig Sand Elec. #540
IrBig Sand Elec. #540
IrBig Sand Elec. #540
IrBig Sand Elec. #540
IrBrazos Electric #917
IrBrazos Electric #917
kBrazos Electric #917
kBrazos 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 #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
Date
Amount
of Advance
Final
Maturity
Interest
Rate
9/20
9/20
9/24
9/26
9/27
9/27
9/27
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
$540,000.00
$1,000,000.00
$15,000,000.00
$185,000.00
$120,000.00
$4,770,000.00
$2,223,081. 00
$10,000,000.00
$5,931,000.00
$13,397,496.70
$779,399.23
$584,549.41
$977,239.69
$2,272,802.00
$2,973,832.41
$1,320,850.92
$331,143.15
$763,801.87
$997,288.60
$664,131.46
$381,839.87
$713,880.64
$865,780.49
$279,187.21
$202,623.08
$349,208.98
$204,665.76
$146,637.31
$127,750.14
$69,990.77
$105,762.52
$34,040.74
$1,129,601.37
$224,802.75
$852,668.72
$2,554,093.69
$1,529,577.46
$916,675.20
$553,466.17
$861,997.95
$468,307.30
$1,351,268.47
$1,628,105.53
$1,915,890.13
$783,798.34
$599,635.83
$1,230,712.90
$972,209.38
$2,058,911.47
$2,321,886.67
1/03/34
12/31/35
12/31/24
12/31/18
12/31/36
12/31/35
12/31/02
12/31/31
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
4.594%
4.630%
4.241%
3.845%
4.678%
4.660%
1.645%
4.521%
1.626%
1.751%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
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.
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Qtr.
Qtr.
Qtr.
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Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 4
FEDERAL FINANCING BANK
SEPTEMBER 2002 ACTIVITY
Borrower
Date
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
9/30
*Brazos Electric #917
*Brazos Electric #437
9/30
9/30
*Brazos Electric #437
*Brazos Electric #437
9/30
9/30
*Brazos Electric #437
*Brazos Electric #437
9/30
*Brazos Electric #437
9/30
*Brazos Electric #561
9/30
*Brazos Electric #561
9/30
*Brazos Electric #561
9/30
*Brazos Electric #561
9/30
*Brazos Electric #561
9/30
*Brazos Electric #561
9/30
*Brazos Electric #561
9/30
*Brown County Elec·. #687
9/30
*Brown County Elec. #687
9/30
*Brown County Elec. #687
9/30
Brown County Elec. #687
9/30
*Butler County Rural Elec. #832 9/30
*Citizens Elec. #742
9/30
*Clark Energy Coop. #611
9/30
*Clark Energy Coop. #611
9/30
*Clark Energy Coop. #611
9/30
*Cumberland Valley #668
9/30
*Cooper Valley Tel. #648
9/30
*Darien Telephone Co. #719
9/30
*Darien Telephone Co. #719
9/30
*Darien Telephone Co. #719
9/30
*Darien Telephone Co. #719
9/30
*Darien Telephone Co. #719
9/30
*Darien Telephone Co. #719
9/30
*East River Power #453
9/30
*Fairfield Elec. #684
9/30
*Farmer's Telephone #459
9/30
*Farmer's Telephone #459
9/30
*Fleming-Mason Energy #644
9/30
*Fleming-Mason Energy #644
9/30
*Fleming-Mason Energy #644
9/30
*Fleming-Mason Energy #644
9/30
*Fleming-Mason Energy #644
9/30
*Fleming-Mason Energy #644
9/30
Amount
of Advance
Final
Maturity
Interest Rate
$392,678.70
$1,053,561.39
$1,368,921.82
$2,250,576.86
$2,408,995.80
$472,355.89
$15,283.95
$805,852.76
$2,640,084.07
$2,070,701.73
$3,948,401. 87
$1,334,297.62
$302,656.33
$2,899,144.86
$1,119,638.68
$470,293.37
$10,510,861.23
$5,290,359.83
$10,322,949.55
$8,123,312.21
$4,677,057.51
$3,996,515.67
$7,490,123.64
$248,552.82
$596,526.78
$298,311.47
$650,000.00
$1,311,000.00
$2,694,000.00
$2,931,719.04
$1,948,201.16
$4,347,794.66
$4,175,687.44
$1,010,941.11
$1,927,403.00
$444,000.00
$214,000.00
$253,000.00
$184,000.00
$273,000.00
$384,048.56
$3,215,018.98
$22,380.10
$214,848.56
$2,540,823.16
$1,368,135.53
$1,465,859.51
$2,149,927.29
$1,368,135.53
$2,964,515.44
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
3/:)1/32
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
1. 626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.751%
1.751%
1.751%
1.751%
1.751%
1.751%
1.751%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1 .. 626%
1.626%
1.626%
4.530%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.751%
1.626%
1.751%
1.751%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
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.
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Qtr.
Qtr.
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Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
QU,
Page 5
FEDERAL FINANCING BANK
SEPTEMBER 2002 ACTIVITY
Borrower
*Freeborn Mower Coop. #736
*FTC Communications #709
*Grady Electric #690
*Grayson Rural Elec. #619
*Grayson Rural Elec. #619
*Grayson Rural Elec. #619
*Grayson Rural Elec. #619
*Greenbelt Elec. #743
*Greenbelt Elec. #743
*Grundy Elec.Coop. #744
*Harrison County #532
kHarrison County #532
kHarrison County #532
kHarrison County #532
kHarrison County #532
kHudson Valley Datanet #833
kHudson Valley Datanet #833
*Inter-County Energy #592
kInter-County Energy #592
kInter-County Energy #592
kInter-County Energy #592
*Jackson Energy #794
kJackson Energy #794
*Jackson Energy #794
*Johnson County Elec. #482
*Licking Valley Elec. #522
*Magnolia Electric #560
~Meade County Elec. #662
tMeade County Elec. #662
<Meade County Elec. #662
<Nolin Rural Elec. #528
<Nolin Rural Elec. #577
Nolin Rural Elec. #577
o & A Electric Coop. #379
Owen Electric #525
Owen Electric #525
Owen Electric #525
Pennyrile Elec. #513
PRTCommunications #798
San Miguel Electric #919
San Miguel Electric #919
Stearns Cooperative #733
Stearns Cooperative #733
Surry-Yadkin Elec. #534
Surry-Yadkin Elec. #534
Surry-Yadkin Elec. #534
Surry-Yadkin Elec. #534
Surry-Yadkin Elec. #534
Surry-Yadkin Elec. #534
Surry-Yadkin Elec. #534
Date
Amount
of Advance
Final
Maturity
Interest
Rate
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
$750,000.00
$2,663,000.00
$3,177,791.18
$1,172,687.61
$586,343.81
$977,239.69
$1,266,044.07
$1,739,000.00
$502,000.00
$1,250,000.00
$973,265.55
$875,938.99
$979,831.84
$1,597,773.08
$1,720,197.69
$5,000,000.00
$2,000,000.00
$1,459,898.31
$1,946,531.09
$2,537,303.27
$215,969.97
$4,000,000.00
$3,000,000.00
$4,700,000.00
$1,564,597.41
$2,675,506.98
$4,870,682.33
$1,285,196.21
$1,977,224.94
$1,977,224.94
$1,842,391. 67
$2,513,944.90
$2,513,944.90
$818,701.82
$1,949,248.78
$1,945,312.24
$981,445.30
$5,963,579.96
$4,802,000.00
$7,807,452.92
$8,197,916.93
$2,400,000.00
$1,400,000.00
$963,683.92
$963,683.92
$481,841.96
$963,683.92
$963,683.92
$979,484.08
$985,860.52
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
9/30/05
10/01/07
9/30/09
12/31/02
12/31/02
12/31/02
9/30/04
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
12/31/02
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.751%
1.626%
1.751%
2.112%
2.707%
3.250%
1.626%
1.626%
1.626%
1.943%
1.626%
1.626%
1.626%
1.751%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
1.626%
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.
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Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
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Qtr.
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Qtr.
Qtr.
Page 6
FEDERAL FINANCING BANK
SEPTEMBER 2002 ACTIVITY
Date
Borrower
*Surry-Yadkin
*Upsala Coop.
*Upsala Coop.
*Upsala Coop.
*Upsala Coop.
*Upsala Coop.
*Upsala Coop.
*Upsala Coop.
*
Elec.
Tele.
Tele.
Tele.
Tele.
Tele.
Tele.
Tele.
#534
#429
#429
#429
#429
#429
#429
#429
9/30
9/30
9/30
9/30
9/30
9/30
9/30
9/30
Amount
of Advance
$2,277,427.53
$303,493.52
$7,028.68
$20,401.75
$88,921.12
$84,507.52
$96,409.04
$61,224.32
S/A is a Semiannual rate.
Qtr. is a Quarterly rate.
maturity extension or interest rate reset
Final
Maturity
Interest Rate
12/31/02
9/30/03
9/30/03
9/30/03
9/30/03
9/30/03
9/30/03
9/30/03
1.626%
1.743%
1.743%
1.743%
1.743%
1.742%
1.743%
1.743%
Qti:"
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 7
FEDERAL FINANCING BANK HOLDINGS
(in millions of dollars)
Program
September 30, 2002
Agency Debt:
U.S. Postal Service
August 31, 2002
Monthly
Net Change
9/1/02- 9/30/02
Fiscal Year
Net Change
10/1/01- 9/30/02
Subtotal*
$11,114.0
$11,114.0
$7,950.0
$7,950.0
$3 164.0
$3,164.0
-$199.0
-$199.0
Agency Assets:
FmHA-RDIF
FmHA-RHIF
Rural Utilities Service-CBO
Subtotal*
$950.0
$2,905.0
$4.270.2
$8,125.2
$980.0
$3,405.0
$4 270.2
$8,655.2
-$30.0
-$500.0
$0.0
-$530.0
-$1, 485.0
-$1,470.0
$0.0
-$2,955.0
Government-Guaranteed Lending:
DOD-Foreign Military Sales
DoEd-HBCU+
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration+
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
Subtotal*
$1,922.5
$68.6
$5.0
$1,207.3
$2,205.6
$11.4
$780.8
$14,058.2
$102.4
$3.2
$20.365.1
$1, 940.2
$66.4
$5.6
$1,207.3
$2.209.8
$11.4
$780.8
$14,028.5
$104.5
$3.3
$20,357.9
-$17.7
$2.2
-$0.6
$0.0
-$4.3
$0.0
$0.0
$29.7
-$2.1
$0.0
$7.2
==========
=========
--------------
-$234.1
$37.3
-$2.8
-$71.4
-$62.4
-$1. 7
-$160.4
$459.0
-$29.5
-$0.2
-$66.2
======
$39,604.3
$36,963.1
$2.641.2
-$3.220.2
Grand total*
* figures may not total due to rounding
+ does not include capitalized interest
1
1
-3627: Statement ofSecretary Paul O'Neill on Upcoming Trip to Southwest Asia
Page 1 of2
FROM THE OFFICE OF PUBLIC AFFAIRS
November 15, 2002
PO-3627
Statement of Secretary Paul O'Neill on Upcoming Trip to Southwest Asia
Tonight I leave for a week of visiting Afghanistan, Pakistan and India, an area of
crucial Importance to the security of the world. Common prosperity and security are
our clear mutual interests, and I am hopeful that my visit this week will lead to a
greater understanding of how we can work together to advance both.
I will be visiting during the holy month of Ramadan. Over one billion Muslims
throughout the world, observe this month by renewing their dedication to caring for
those in need, doing good deeds, and strengthening family and community ties. To
usher in the holy month, President Bush hosted an IFTAR dinner at the White
House with Arab Americans and Islamic leaders.
While I am in Pakistan, I will share that honor, as I participate in an IFTAR dinner
with my counterpart, Finance Minister Aziz. I will repeat the Pre~,ident's message
that learning from each other we can build bridges of mutual trust and
understanding. Working together we can create a better future for people of all
faiths.
In Afghanistan, I look forward to examining reconstruction efforts underway and to
underscoring the importance of continued funding for President Karzai's
government budget. We are at a critical time right now for the people of
Afghanistan, accelerating the reconstruction process that will create and support
stability and growth in that budding nation.
I view this as not only a duty we in the world have to the people of Afghanistan.
also view this as an opportunity to demonstrate that we can deliver international
development assistance that creates real results - concrete improvements in the
lives of individual citizens. In that context, our reconstruction efforts in Afghanistan
are not only vital to the lives of the Afghani people and important for securing
Central Asia against terrorist influences - they must serve as a model for what
effective foreign assistance programs the world over can achieve.
I am encouraged that a joint effort between the US., Japan, and Saudi Arabia in
road construction can be a model for future development efforts. This project will
bring back into service most of the ancient road that connects Kabul to Kandahar to
Herat - a stretch of 965 kilometers. Beyond linking three of Afghanistan's most
important cities to each other and to neighboring countries, facilitating vital
commerce and communication, it will connect and unite the people of Afghanistan
to each other, and contribute to the national unity that the Afghan government and
the Afghan people so desperately need.
In Pakistan I will share my appreciation for the efforts of the Pakistani government
and Pakistani people in combating terrorism. Terror is a threat to all civilized
people, no matter their culture or religion. The United States and Pakistan have a
shared interest in fighting terrorism to maintain the freedom of our peoples to live
their chosen lives in peace and build prosperity for themselves and future
generations.
I will end my trip in India, where I will attend the annual meeting of the G20 Finance
Ministers. We will have a full discussion of the global economic outlook, and I will
Iwww.treas.gDv/press!releaseS!p03027.htm
7117/2003
0-3627: Statement of Secretary Paul O'Neill on Upcoming Trip to Southwest Asia
Page 2 of2
share with them my belief that the US is on the road to recovery, and that global
prosperity requires that all the economies of the world rekindle growth I look
forward to advancing our efforts to bring greater predictability to emerging markets
and to furthering our cooperation in detecting and halting the financing of terrorism.
In each of these three nations, I will spend time with the economic team to learn
more about the government's efforts to develop their economy I will also Visit
schools and small businesses, as I believe that education and entrepreneurship are
launching pads for economic development. In Pakistan I will visit a women's
sewing cooperative that was started with a small loan from a micro-finance
institution, an example of the entrepreneurial spirit that eXists everywhere in the
world and only needs a nourishing environment of economic freedom and security
to sprout and bring prosperity to all people. In India, I will also visit the high-tech
facilities in Hyderabad, where world-class facilities demonstrate some of the highest
productivity in the world. These success stories show what is possible, when
citizens are allowed to reach their potential.
Economic and security interests link the entire world more closely every day.
During this trip I look forward to furthering those ties and exploring the potential to
bring self-sustaining growth and development to all the peoples of the world.
Ilwww.treas.:;ov!press!releaSes/p03627.htm
7117/2003
DI<:PARTMENT
OF
THE
TRf.:ASVRY
NEWS
TREASURY
EMBARGOED UNTIL 11:00 A.M.
November 18, 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 $18,001 million of publicly held 4-week Treasury bills maturing
November 21, 2002, and to raise new cash of approximately $1,999 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 $12,382 million of the Treasury bills maturing
on November 21, 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-3628
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 NOVEMBER 21, 2002
November 18, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . $20,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . $20,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . . $10,900 million
Description of Offering:
Term and type of security ........... 28-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . 912795 LQ 2
Auction date . . . . . . . . . . . . . . . . . . . . . . . . November 19, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . November 21, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . December 19, 2002
Original issue date . . . . . . . . . . . . . . . . . June 20, 2002
Currently outstanding ............... $42,719 million
Minimum bid amount and multiples .... $l,OOO
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 standard time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern standard tim~ 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
FOR IMMEDIATE RELEASE
November 18, 2002
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
November 21, 2002
May 22, 2003
912795MN8
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.245%
High Rate:
Investment Rate 1/:
Price:
1.269%
99.371
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 14.40%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
29,486,446
1,018,773
100,000
$
5,505,548
5,505,548
Federal Reserve
$
36,110,767
13,881,396
1,018,773
100,000
15,000,169 2/
30,605,219
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
20,505,717
Median rate
1.235%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.190%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 30,605,219 / 15,000,169 = 2.04
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $849,612,000
http://www.publicdebt.treas.gov
)0-3629
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
November 18, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
November 21, 2002
February 20, 2003
912795LZ2
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.205%
High Rate:
Investment Rate 1/:
Price:
1.227%
99.695
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted
7.16%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
34,687,451
1,406,454
250,000
$
Federal Reserve
5,008,534
5,008,534
$
41,352,439
13,343,731
1,406,454
250,000
15,000,185 2/
36,343,905
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
20,008,719
Median rate
1.195%: 50% of the amount of accepted competitive tenders
tendered at or below that rate.
Low rate
1.170%:
5% of the amount
)f accepted competitive tenders was tendered at or below that rate.
RS
lid-to-cover Ratio = 36,343,905 / 15,000,185 = 2.42
./ Equivalent coupon-issue yield.
:/ Awards to TREASURY DIRECT = $1,159,946,000
http://www.publicdebt.treas.gov
0-3630
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
Contact: Office of Financing
202-691-3550
FOR IMMEDIATE RELEASE
November 19, 2002
TREASURY'S INFLATION-INDEXED SECURITIES
DECEMBER REFERENCE CPI NUMBERS AND DAILY JINDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and daily
index ratios for the month of December for the following Treasury inflation-indexed securities:
(1) 3-3/8% 10-year notes due January 15,2007
CD 3-5/8% 1O-year notes due January 15, 2008
(3) 3-5/8% 30-year bonds due April 15, 2028
(4) 3-7/8% 10-year notes due January 15,2009
(5) 3-7/8% 30-year bonds due April 15, 2029
(6) 4-114% 10-year notes due January 15,2010
(7) 3-112% IO-year notes due January 15,2011
(8) 3-3/8% 30-1I2-year bonds due April 15, 2032
(9) 3-3/8% 10-year notes due January 15,2012
(10) 3% 10-year notes due July 15,2012
This information is based on the non-seasonally adjusted U.S. City Average All Items Consumer Price
Index for All Urban Consumers (CPI-U) published by the Bureau of Labor Statistics of the U.S.
Department of Labor.
In addition to the publication of the reference CPl'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 3631. The information is also
available on the Internet at Public Debt's website (http://www.publicdebttreas.gov).
The information for January is expected to be released on December 17,2002.
000
Attachment
http://www.pubHicoebttreas.goy
PO-3631
TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
December 2002
Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date(s):
3-318% 10-Year Notes
Series A-2007
9128272M3
January 15, 1997
February 6, 1997
April 15, 1997
3-518% 10-Year Notes
Series A-2008
9128273T7
January 15, 1998
January 15, 1998
October 15, 1998
3-518% 30-Year Bonds
Bonds of April 2028
912810FD5
April 15, 1998
April 15, 1998
July 15, 1998
3-718% 'IO-Year Notes
Series A-2009
9128274Y5
January 15, 1999
January 15, 1999
July 15, 1999
Maturity Date:
Ref CPI on Dated Date:
January 15, 2007
158.43548
January 15, 2008
161,55484
April 15, 2028
161.74000
January 15, 2009
164.00000
Ref CPI
Index Ratio
Index Ratio
Index Ratio
Index Ratio
181.00000
181.00968
181.01935
181.02903
18'\'03871
181.04839
181.05806
18'1.06774
181.07742
181.08710
181.09677
181.10645
181.11613
181.12581
181.13548
18'1.14516
181.15484
181.16452
181.17419
181.18387
181.19355
181.20323
181.21290
181.22258
181.23226
181.24194
181.25161
181.26129
181.27097
181.28065
181.29032
1.14242
1:14248
1.14254
1.14260
1.14267
1.14273
'1.14279
1.14285
1.14291
1.14297
1:14303
1.14309
1.14315
1.14321
1.14328
1.14334
1.14340
'1.14346
1.14352
1.14358
1.14364
1.14370
1 :\4376
1.14383
1.14389
1.14395
1.14401
1.14407
1.14413
1.14419
1.14425
1.12036
1.12042
1.12048
1.12054
1.12060
1.12066
1.12072
1.12078
1.12084
1.12090
1.12096
1:12102
1:12108
1.12114
1.12120
1.12126
1.12132
'1.12138
1.12144
1.12150
1.12156
'1.12162
1.12168
1,12174
1.12180
1.12186
1.12192
1.12198
1.12204
1.12210
1.12216
1.11908
1.11914
1.11920
1.11926
1.11932
1.11938
1.11944
1.11950
1.11956
1.11962
1.11968
'1.11974
1.11980
1.11986
1.11992
1.11998
1.12004
1.12010
1.12016
1.12022
'1.12028
'1.12034
1.12040
1.12046
1.12052
1,12058
1.12064
1.12070
1.12076
1.12082
1.12087
1.10366
1.10372
1.10378
1.10384
1:10389
1.10395
1.10401
1.10407
1.10413
1.10419
1.10425
1.10431
1.10437
1.10443
1.10448
1.10454
1.10460
1.10466
1.10472
1.10478
1.10484
1.10490
1.10496
1.10502
1.10507
1,10513
1.10519
1.10525
'1.10531
1.10537
1:10543
Date
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
bec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
'1
2
3
4
5
6
7
8
9
'10
11
12
13
14
15
16
17
'18
19
20
2'1
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:
August 2002
180.7
September 2002
181.0
October 2002
'181.3
-_._-
TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
December 2002
Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date(s):
3-7/8% 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
Maturity Date:
Ref CPI on Dated Date:
Date
Dec,
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
bec.
Dec.
Dec.
Dec,
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec,
Dec.
Dec.
Dec.
Dec.
'I
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
3'1
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:
4-1/4% 10-Year Notes
Series A-2010
9128275W8
January 15, 2000
January 18, 2000
July 15, 2000
3-1/2% iO-Year Notes
Series A-2011
9128276R8
January 15, 2001
January 16, 2001
July 16, 2001
3-3/8% 30-1/2-Year Bonds
Bonds of April 2032
912810FQ6
October 15, 2001
October 15, 2001
January 15, 2010
168,24516
January 15, 2011
174,045'16
April 15, 2032
177,50000
Ref CPI
Index Ratio
Index Ratio
Index Ratio
Index Ratio
181.00000
181.00968
181.01935
181,02903
181,0387'1
181.04839
181,05806
181.06774
181.07742
181.08710
181.09677
18'1.10645
181.11613
181.12581
181.13548
181,14516
181.15484
181.16452
181.17419
181.18387
181.19355
181.20323
181.21290
181.22258
181.23226
181.24194
181.25161
181.26129
181.27097
'181.28065
181.29032
1.10102
1.10108
1,10114
1:10119
1:10125
1.10'131
1.10137
1.10143
1.10'149
1,10155
1:10161
1.10'167
1.10172
1.10178
1.10184
1,10190
1.10196
'1.10202
1.10208
1.10214
1,10220
1.10225
1,10231
1.10237
1.10243
1.10249
1.10255
1.10261
'1.10267
1.10273
1.10278
1.07581
1.07587
1.07593
1.07598
1.07604
1.076'10
1.07616
1,07621
1.07627
1.07633
1.07639
1.07644
1.07650
1.07656
1.07662
1.07667
'1.07673
1.07679
1,07685
1.07690
1,07696
1.07702
1,07708
1.07713
1.07719
1.07725
1.07731
1.07736
1.07742
1.07748
1.07754
1.03996
1.04002
1.04007
1,04013
1.04018
1.04024
1.04029
1.04035
1.04040
1.04046
1.04052
1.04057
1.04063
1.04068
1.04074
1.04079
1.04085
1.04091
1.04096
1.04102
1.04107
1.04113
1.04'118
1.04124
1.04129
1.04135
1.04141
1.04146
1.04'152
1.04157
1.04163
1,0'1972
1.01977
1.01983
1.01988
1.01994
1.01999
1.02005
1,02010
1.02015
1,02021
1.02026
'1.02032
1.02037
1.02043
1.02048
1.02054
1.02059
1.02065
1.02070
1.02075
1.02081
1.02086
1.02092
1.02097
1,02103
1,02108
1.02114
1.02119
1.02124
1.02130
1.02135
August 2002
180.7
September 2002
'181.0
October 2002
-----
181.3
TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
December 2002
Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date(s):
3-3/8% 10-Year Notes
Series A-2012
9128277J5
January 15, 2002
January 15, 2002
3% 10-Year Notes
Series C-2012
912828AF7
July 15, 2002
July 15, 2002
October 15, 2002
Maturity Date:
Ref CPI on Dated Date:
January 15, 2012
177.56452
July 15, 2012
179.80000
Date
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
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
3'1
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
181.00000
18'1.00968
181.01935
181.02903
181.03871
181.04839
181.05806
181.06774
181.07742
181.08710
18'1.09677
181.10645
'181:11613
181.12581
181.13548
181.14516
181.15484
181.16452
181.17419
181.18387
181.19355
181.20323
181.21290
181.22258
181.23226
181.24194
181.2516'1
'181.26129
181.27097
181.28065
181.29032
1.01935
1.01940
1.01946
1.0195'1
1.01957
1.01962
1.01967
1.01973
1.01978
1.01984
1.01989
1.01995
1.02000
1.02006
1.02011
1.02017
1.02022
1.02027
1.02033
1.02038
1.02044
1.02049
1.02055
1.02060
1.02066
1.02071
1.02076
1.02082
1.02087
1.02093
1.02098
1.00667
1.00673
1.00676
1.00684
1.00689
1.00694
1.00700
1.00705
1.00710
1.00716
1.00721
1.00727
1.00732
1.00737
1.00743
'1.00748
1.00754
1.00759
1.00764
1.00770
1.00775
1.00780
1.00786
1.00791
1.00797
1.00802
1.00807
1.00813
1.00818
1.00823
1.00829
August 2002
'180.7
September 2002
181.0
October 2002
'181.3
.. _--"._-----
PO-3632: Treasury Designates Benevolence International Foundation and Related Entities
Page 1 of 2
FROM THE OFFICE OF PUBLIC AFFAIRS
November 19, 2002
PO-3632
Treasury Designates Benevolence International Foundation and Related
Entities as Financiers of Terrorism
Today the US Treasury designated three entities as financiers of terrorism under
Executive Order 13224 and will ask tile United Nations to add these names to the
list of those whose assets must be blocked by all member nations under UNSCR
1390. The financial accounts of the principal entity, Benevolence International
Foundation, were blocked pending investigation In December 2001 The three
closely linked but separately Incorporated entities designated today are
Benevolence International Foundation, Benevolence International Fund (Canada),
Bosanska Idealna Futura (Bosnia), and their branch offices.
"UN deslgr13tlon of these financiers of terror will cut off their access to the global
financial system and striP them of their ability to fund evil," said Treasury Secretary
Paul O'Neill.
Benevolence International Foundation ("BIF") is a US. tax-exempt not-for-profit
organization whose stated purpose IS to conduct humanitarian relief projects
throughout the world. BIF was incorporated in the State of Illinois on March 30,
1992. Although BIF is incorporated in the United States, it operates around the
world, in Bosnia, Chechnya, Pakistan, China, Ingushetia, Russia, and other
nations. BIF operates as Benevolence International Fund in Canada and as
Bosanska Idea Ina Futura in Bosnia.
Enaam Arnaout, BIF's Chief Executive Officer and a member of the Board of
Directors, recently was indicted in the United States for operating BIF as a
racketeering enterprise and providing material support to organizations, including al
Qalda, that are engaged in violent activities.
Substantial evidence documents the close relationship between Arnaout and
Usama birl Laden, dating from the mid-1980s. An article in the Arab News from
1988, reporting on bill Laden's activities at the "al Masada" mUjahideen camp in
Afghanistan, included a photograph of Arnaout and bin Laden walking together. In
a March 2002 search of BIF's offices, Bosnian law enforcement authorities
discovered a host of evidence linking Arnaout to bin Laden and al Qaida Among
the files were scanned letters between Arnaout and bin Laden, under their aliases.
In one handWritten letter, bin Laden indicates that Arnaout is authorized to sign on
uln Laden's behalf.
Various documents also established that Arnaout worked With others -- Including
members of al Qalda -- to purchase rockets, mortars, rifles, and offensive and
defensive bombs, and to distlibute them to various mUjahideen camps, including
camps operated by al Qalda
Arnaout claimed to the Chicago Tribune last winter that he did not know bin Laden
personally, that he had never been to the "al Masada" camp (at which he had been
photographed walking with bin Laden), and that he was working in a restaurant in
the Persian Gulf area during the relevant time frame. BIF's counsel later
acknowledged in court that "it would appear that the nJture of [Arnaout's) contacts
[with bin Laden) may have been of a deeper nature than what he described to the
Tribune."
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PO-3632: Treasury Designates Benevolence International Foundation and Related Entities
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BIF also has provided additional support for and has been linked in other ways to al
Qaida and its operatives. First, BIF lent direct logistical support in 1998 to
Mamdouh Mahmud Salim, a bin Laden lieutenant present at the founding of al
Qaida. Salim was indicted for conspiring to kill U.S nationals. Testimony at the
2001 tnal of United States v. Bin Laden, et al. implicated Salim in efforts to develop
chemical weapons on behalf of al Qaeda in the 1990s. As early as 1992, Salim and
blf1 LClde11 Illade efforts to develop conventional weapons and to obtain nuclear
weapons components. BIF is also linked to Mohamed Loay Bayazid, who was
implicated In the U.S. embassy bombings trial for his efforts, approved by Salim, to
obtain weapons components on behalf of bin Laden in 1993-1994. Bayazid's
driver's license application, dated September 12, 1994, identifies his address as the
address of BIF's IllinOIS office. In the late 1990s, Saif al Islam el Masry. a member
of al Qaida's maJlis al shura (consultation council), served as an officer In BIF's
Chechnya office.
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12/2312002
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
November 19, 2002
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
28 -Day Bill
November 21, 2002
December 19, 2002
912795LQ2
1.195%
Investment Rate 1/:
1.2l3%
Price:
99.907
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 37.72%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
Tendered
$
50,957,200
41,865
$
19,958,360
41,865
°
°
SUBTOTAL
Federal Reserve
TOTAL
Accepted
$
50,999,Oti5
20,000,225
1,868,197
1,868,197
52,867,262
$
21,868,422
Median rate
1.185%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.170%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio = 50,999,065 / 20,000,225 = 2.55
II
Equivalent coupon-issue yield.
PO-3633
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PO-3634: Treasury Secretary Paul H. O'Neil Prepared Remarks at Lahore University Ma...
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FROM THE OFFICE OF PUBLIC AFFAIRS
November 20, 2002
PO-3634
United States Treasury Secretary Paul H. O'Neill
Prepared Remarks at Lahore University Management School
Lahore, Pakistan November 20,2002
Good Afternoon Assalam-u-alaikum. Thank you for a warm welcome to Lahore
University, and thank you for your kind hospitality in this holy month of Ramadan.
consider it an honor to visit the nation of Pakistan, to recognize the friendship
between the Pakistani and American people, and to speak with you about the
shared aspirations of our people: peace, security, and prosperity.
My visit to Pakistan is proving a wonderful opportunity to learn more about Pakistani
culture, and it has also been a great opportunity to see and understand the
challenges our peoples must face together, if we are to speed economic
development in this nation, this region, and throughout our world.
It is also a special pleasure to meet with students today. I believe that economic
growth and prosperity are founded on the exchange and realization of ideas - and it
is in institutions of education, such as this one, that so many ideas are created and
shared Everl more fundamentally, exposure to new ideas, discussion of them and
reflection on illem, is the baSIS for the life of the mind that educated men and
women hold dear.
I am not a scholar of Islam, but I know that the Koran makes more references to
"ilm" - knowledge - than all but two other words. There can be no doubt that
learning is at the center of all civilization.
As Mohammed Ali Jinnah said in 1941 to a Muslim Students Federation: "There are
at least three main pillars which go to make a nation worthy of possessing a
territory and running a government. One is education. Next, no nation and no
people can ever do anything very much without making themselves economically
powerful in commerce, trade and industry. And lastly, you must prepare yourselves
for your defense."
You who are pursuing knowledge, and are specifically pursuing knowledge of
business management, are preparing to contribute to your nation's strength in both
education and industry, combining two of these pillars. I applaud you for it. In your
support for our peoples' shared struggle against terrorism and terrorist financing,
you are contributing to the third pillar as well.
Today I would like to share with you a few of my observations in the worlds of
business and economic development, and consider how these may apply to your
careers, and the challenges faCing your country.
Let me start with the most general observations. As I have traveled the world over
the last quarter century, both as a leader of major industrial companies and as a
leader in the United States government, I have been struck by two things. First,
there can be no question that human beings everywhere, with education, training,
and a stable social environment, can perform value-adding work at levels that
match the best in the world.
That means they can earn compensation that brings personal independence and
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allows them to pursue the good life for themselves and their families. Human
beings everywhere have in them the ability to achieve the same high standard of
living.
My second observation is this: in spite of a common potential for achievement, the
disparity of living standards among the world's people is so vast it defies the
imagination of those who have not seen it for themselves.
I ask why. Why is it, if all people have the capacity to create a good life, that so
many billions live today with little hope for what we know is possible? I believe this
is the question for us and our time, and it is a question whose answer shall be
found not only in the high councils of governments, but in the institutions of learning
such as this one, and in the companies you will launch and lead.
If you have studied the economic history of the last 300 years it is easy to see that
there is no absolute limit on world economic product. Every business student
should understand that economic prosperity is not a sleight of hand - one man or
woman taking from another. Economic prosperity is an act of creation. The world's
economic bounty is limited only by our imagination - our ability to conceive new
ideas for value creation, and our ability to lead people to work in harmony, to make
those ideas into a productive reality.
Education is clearly one of the keys to business success, and more broadly, for
economic development. It is important not only at the graduate level, at Lahore
University and elsewhere, but at every level and every age, beginning in early
childhood, for men and women alike. Pakistan must devote resources to schools
and curriculum throughout the nation, in the cities, and in the countryside,
especially to improve literacy among girls and women. Today, over 70% of
Pakistani females over age 15 are illiterate - one of the highest percentage of
female illiteracy in South Asia. 41 % of Pakistani girls ages 11 to 15 are enrolled in
school, a low point among South Asian nations.
I believe that every child should be literate and capable in basic mathematics by
age 10. Early education creates the foundation for achievement later in life, and
allows individuals to contribute more to the economy and the society.
Of course, education IS not the only requirement for a nation to achieve its
economic potential To unleash the potential of an educated people and the private
sector, the leadership of the nation must make a strong commitment to ruling justly,
encouraging economic freedom, and investing in people. A just and stable social
environment that combines these elements is not an option, it is a necessity.
Ruling Justly means enforcing laws and contracts fairly, respecting human rights
and property rights, and fighting corruption. Encouraging economic freedom means
removing barriers to trade with neighbors, opening economies to investment and
competition, pursuing sound fiscal and monetary policies, and divesting government
from business operations. Investing in people means providing clean water and the
best possible systems health care, and as I have emphasized. education.
Over the past fifty years the world has seen that these principles work, as long as a
nation's leaders are committed to pursuing them, and as long as those leaders are
held accountable for measurable progress In centuries past, enlightened rulers
implemented these principles. For example, I visited Lahore Fort today, built by
Akbar the Great in the 16th Century, the Mughal Emperor known for ruling this land
justly, enforcing its laws fairly, respecting all religions and defending human rights.
I also visited the Divan -e-Aam, the Hall of Public Audience, built by Shah Jahan, to
encourage the public's participation in how their empire was run. These examples
of tolerance and justice are relevant even today.
As future business leaders of Pakistan. and students of management, I am certain
that you can appreciate the importance of each of these principles. For example,
any business requires capital to grow. Yet capital is a coward. Investors are
reluctant to put their capital into a company if it exists in a place where capital,
contracts, and property rights are not respected. Understandably, they will not
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chance losing their investments to corrupt officials, or to public or private theft. I am
not only speaking about international investors. I am speaking about any individual,
even In the smallest village, who has savings that he or she would like to invest and
put to work. Families that cannot trust their local banks, or local officials, will protect
their savings at home when that money could be invested, fueling the economy
As a result. without just rule, the leaders and entrepreneurs who would deploy new
ideas, create Jobs, and raise standards of living cannot obtain the capital they need,
or they must pay an exorbitant cost for that capital Economic growth falls short.
Just rule is also important for alternative forms of capital, such as microfinance _
small loans to entrepreneurs, especially those who are female, poor, or rural. I had
the privilege of attending a world summit on microfinance in New York last week,
which First Lady Begum Sehba Musharraf attended on behalf of Pakistan, and I
believe Pakistan is making progress on improving access to capital for the smallest
businesses. This morning I visited a women's sewing workshop in Natt Village
funded by microcredit, and their accomplishments were inspiring. With 5000
inhabitants, Natt has no functioning school and women have little access to
education or income generation. Now, thanks to the leadership of Shaheen Atiq Ur
Rehman, the community offers vocational skills training and literacy programs.
Rehman bears witness to something I believe very strongly - that it takes
homegrown entrepreneurs and small businesses to create the knowledge in a
community that is the foundation for economic success.
Economic freedom is the second key element of an environment that enables
individuals, families and whole societies to prosper. Individuals must have the
freedom to pursue new ideas for production, investment and trade without having to
ask permission from a seemingly endless series of officials in a bureaucratic
gauntlet. Laws should allow competition and creativity, so that consumers free to
choose among products force businesses to innovate and improve the quality of
what they produce, and in so doing improve productivity and create jobs.
Economic freedom also demands lower barriers to regional trade. Trading costs
are naturally lowest with one's closest neighbors. The two largest trading partners
of the United States, for example, are Canada and Mexico. I hope for a day when
Pakistan and its closest neighbors - Afghanistan and India - will enjoy more fully
the benefits of open regional trade. Neighbors have much to offer and to gain from
each other.
The third element of a social environment that invites prosperity is investment in
people. Education IS an essential aspect of human investment, as I have
discussed. Health care and clean water supplies are also crucial. Public leaders
must dedicate themselves to investing public monies in the public good and
ensuring that those investments are done right, so they actually make a difference
in the lives of citizens. All of society reaps the returns of such investments.
At the beginning of my remarks, I quoted Mohammed Ali Jinnah, and his three
pillars of a worthy nation. I have spoken of the pillar of education. I have also
spoken of the pillar of strength in commerce, trade, and industry, and of the close
links between these two pillars. Before I close my remarks, I would also like to
mention our nations' shared interest in the third pillar, of defense.
The freedoms we all enJoy, the rich cultures we each treasure, and the prosperity
we all seek are all threatened by terrorism. Terror is the enemy of civilization - of
every civilization, regardless of culture or religion. We In the United States are a
friend to all religions and cultures of the world. We believe that all the civilized
people of the world, whatever their religion or culture, are bound together by their
shared desire to eliminate the threat of terror. The ties of trade, of history and of
friendship make America and Pakistan partners against the terror that threatens all
of our freedom.
We fight together against an enemy that corrupts the language and values of a
great religion, to serve a cause of mindless and heartless hatred. As we are served
by education and the free exchange of ideas, they are served by ignorance and fear
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of those who are different. The people of the United States appreciate Pakistan's
commitment to the war against terror, and the war against those who would
knowingly finance terrorist activities. Just as education - just as "ilm" - is the key to
prosperity, it is also the ultimate weapon to ensure that one day soon, terror is no
more. In that spirit, I believe we can bring peace and security to this region and our
world, and with it, prosperity for all.
My travels here and around the world have given me great hope for the future of
economic development in Pakistan Given the great potential of the Pakistani
nation, I am confident that with a strong commitment to education and a leadership
that is devoted to ruling justly, encouraging economic freedom, and investing in
people, Pakistan will achieve a new level of prosperity - not in the next generation,
but in this one.
Thank you, and a blessed Ramadan to all
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PO-363S: Testimony of Jimmy Gurule before the U.S. Senate Judiciary Committee
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FROM THE OFFICE OF PUBLIC AFFAIRS
November 20, 2002
PO-3635
Testimony of Jimmy Gurule
Under Secretary for Enforcement
U.S. Department of the Treasury
Before the
U.S. Senate Judiciary Committee
November 20, 2002
Chairman Leahy, Ranking Member Hatch and distinguished members of the
Committee, permit me to begin by thanking you for inviting me to testify today with
my colleague from the Treasury Department, General Counsel David Aufhauser,
about the measures the Treasury Department, and the US government more
generally, have taken and are taking to identify, attack and disrupt terrorist financing
and the lessons we have learned to date about patterns of financing and
fundraising.
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 federal
government to wage the nation's war against the financing of global terrorism, and
we have continued to devote our resources and extensive expertise to fulfill this
mandate. In our actions and in our words, the Treasury Department has shown
quite clearly that in this war, financial intermediaries and facilitators who infuse
terrorist organizations with money, materiel, and support must be held accountable
along with those who perpetrate terrorist acts.
Before I turn to specific developments in our fight against terrorist financing, I would
like to re-state the Treasury Department's gratitude to this Committee and the
Congress for the additional resources, authorities, and support given to the
Executive Branch this past year to assist Treasury in identifying, disrupting, and
dismantling terrorist financial networks.
Immediately after the horrific attacks of September 11th, Congress worked closely
with the Department of the Treasury, along with the Department of Justice and
other agencies and departments, to make significant improvements in the law that
enhance our ability to tackle the issue of terrorist financing in a more unified,
cohesive and aggressive manner.
Of particular importance to our counter-terrorist efforts, the USA PATRIOT Act,
enacted into law on October 26, 2001, expands the law enforcement and
intelligence community's ability to access and share critical financial information
regarding terrorist investigations.
I would also like to emphasize the importance of vigorous interagency consultation
and cooperation in attacking terrorist financing, and thank the other agencies and
departments in our federal government for their work with us over the past year.
We have seen that terrorist financing is a complicated and multi-dimensional
problem that both domestically and internationally implicates a range of legal,
regulatory, financial, intelligence and law enforcement interests. Consequently, no
successful attack on the financial underpinnings of terrorism may be advanced
without coordinated Interagency strategies on the use of legal, regulatory, private
sector, law enforcement and intelligence-gathering tools required to combat this
problem.
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Page 2 of 15
I would now like to briefly review our efforts in countering terrorist financing since
the events of September 11th. This review will provide a helpful context for some
recent developments that I would then like to describe in greater detail for you.
I. A Brief Review of Our Efforts to Combat Terrorist Financing
Identifying, attacking and disrupting the financial underpinnings of terrorism are
matters of national security. This war on ten-orist financing is an immense
undertaking. The openness of our modern financial system, which allows savers
and investors to fuel economic growth and promotes the international trade and
communications so Vital in today's world, also creates opportunities for terrorists.
Our challenge In tllis front of the war against terrorism is to protect the efficiency
and flexibility of the world's financial systems while preserving the integrity of such
systems by ensuring that they are not abused by terrorists and their financiers. We
have enjoyed success, but much more remains to be done.
In the months immediately follOWing the heinous crimes of September 11th, the
Department of the Treasury took six principal steps to identify and pursue financial
underwriters of terrorism
1. Working with other USG agencies, we implemented Executive Order 13224,
giving us greater power to freeze terrorist-related assets;
2. We established Operation Green Quest, an inter-agency task force which has
augmented existing counter-terrorist efforts by targeting financial networks and
mechanisms, and by bringing the full scope of the Treasury Department's financial
expertise to bear against systems, individuals, and organizations that serve as
sources of terrorist funding;
3. The United States won the adoption of UN Security Council Resolutions 1373
and 1390, which require member nations to Join us in the effort to disrupt terrorist
financing:
4. We engaged other multilateral institutions such as the Financial Action Task
Force (FATF) and the international financial institutions to focus on terrorist
finanCing;
5. We began implementation of the USA PATRIOT Act provisions to broaden and
deepen our access to critical financial information in the war against terrorist
financing and to expand the anti-money laundering regulatory net for our financial
system: and
6. We began sharing information across the federal government, with the private
sector, and among our allies to crack down on terrorist financiers.
As we executed these initial steps, we began to formulate a strategy for combating
terrorist financing on a global scale. For the first time, the 2002 National Money
Laundering Strategy (NMLS) contains such a strategy, with a discrete set of
objectives and priorities targeting terrorist financing. Goal 2 of the NMLS identifies
financial mechanisms or systems by which terrorist funding is effectuated, and
seeks to attack these mechanisms on an interagency and coordinated basis.
Released this past summer by the Secretary of the Treasury and the Attorney
General, the NMLS states that terrorist groups tap into a wide range of sources for
their financial support, Including otherwise legitimate enterprises such as
construction companies, honey shops, tanneries, banks, agricultural commodities
growers and brokers, trade businesses, bakeries, restaurants, bookstores. The
Strategy also states that, although terrorists receive material assistance and/or
financial support from rogue nations and other governments that are sympathetic to
the terrorists' cause, they also secure funding from charity or relief organizations,
money remitters, informal value transfer systems, as well as trade-based schemes.
The NMLS addresses each of these mechanisms, and establishes priorities and
objectives to Identify and attack their corruption by criminals.
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Our strategy, in its broadest outlines, focuses in particular on the following seven
areas: (1) targeted intelligence gathering; (2) freezing of suspect assets; (3) law
enforcement actions; (4) diplomatic efforts and outreach; (5) smarter regulatory
scrutiny; (6) outreach to the financial sector; and (7) capacity building for other
governments and the financial sector through Treasury and other departmental
technical assistance programs. This is an integrated inter-agency strategy because
these efforts draw on the expertise and resources of the Treasury Department, the
Department of Justice, the Department of State and other departments and
agencies of the federal government, as well as our foreign partners and the private
sector. Allow me to highlight briefly the efforts the Treasury Department has taken
to tackle terrorist financing in these seven areas of focus identified in our terrorist
financing strategy.
First. with respect to identifying appropriate financial targets, we are applying
technology, intelligence, investigatory resources and regulations to locate and
freeze the assets of terrorists, wherever they may be located. New powers granted
to Treasury by the President and Congress have enabled us to scour the global
financial system for suspicious activities with greater precision than ever before.
Second, we are freezing terrorist-related assets on a global scale. We have frozen
over U.S. $35 million in terrorist-related assets since September 11th and the
international community has frozen an additional U.S. $78 million. More important
tllan the dollars frozen is the dismantling of these financial pipelines, which served
to transit far greater sums of money for terrorist purposes.
Third, we have coordinated effective law enforcement actions both domestically and
internationally against terrorist cells and networks. On October 25, 2001, Treasury
created Operation Green Ouest ("OGO"), a new multi-agency financial enforcement
initiative intended to augment existing counter-terrorist efforts by bringing the full
scope of the Treasury Department's financial expertise to bear against systems,
individuals, and organizations that serve as sources of terrorist funding.
Internationally, Treasury has deployed Customs attaches and representatives from
Treasury's Office of Foreign Assets Control (OFAC) in strategic embassies around
the world to facilitate cooperation with host countries and regions in combating
terrorist financing. Between September 12, 2001 and October 28, 2002,
international law enforcement cooperation has led to approximately 2290 arrests of
suspected terrorists and their finanCiers in 99 countries.
Fourth, together with other agencies, we are using our diplomatic resources and
regional and multilateral engagements to ensure international cooperation,
collaboration and capability in dismantling terrorist financing networks. As stated
above, the United States has worked through the United Nations to globalize the
war on terrorist financing, and we have complemented these efforts with a range of
bilateral and multilateral initiatives. One of the bilateral initiatives is the U.S.
Government's designation of Foreign Terrorist Organizations (FTO's). Under
authorities provided by the Antiterrorism and Effective Death Penalty Act of 1996,
the Secretary of State, in consultation with the Attorney General and the Secretary
of Treasury, has designated 35 groups as foreign terrorist organizations. The
deSignations make It a criminal offense for American persons to knowingly provide
funds or ottler forms of material support for deSignated groups. Some other
countries have used the designations as a gUldelllle for their own efforts to curb
terrorism fillancing.
Fifth, we are engendering smarter regulatory scrutilly by training the financial
sectors to concentrate enhanced due diligence and suspicious activity monitoring
on terrorist financing and money laundering typologies. Through the USA
PATRIOT Act authorities, we are expanding and enhancing regulatory scrutiny to all
businesses within the financial sector that may be susceptible to terrorist or criminal
abuse.
Sixth, we have undertaken our regulatory expansion under the authorities of the
USA PATRIOT Act in full consultation With the private financial sectors that we are
regulating. This outreach has assisted and informed our regulatory strategy with
respect to each financial sector so that costs of new regulation are borne only
where warranted by the offsetting enforcement benefit.
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For example, after prolonged discussion with the insurance industry, we decided to
regulate life and annuity insurance products because of their investment-like
characteristics, but we decided against regulating other forms of insurance, such as
health care or property insurance, because of the low risk that such policies have
for terrorist financing or other financial criminal abuse. Most Importantly, on
October 1,2002, FinCENs secure link with finarlClallnstitutlons, the USA PATRIOT
Act Communications System (PACS), became operational Bank Secrecy Act
reports are now being filed via PACS.
Finally, we have engaged in several capacity-building initiatives with other
governments and the private sector with respect to terrorist financing. For example,
internationally, Treasury is co-chairing a FATF Working Group on Terrorist
Financing, which, among other issues, is charged with identifying technical
assistance needs of various governments around the world. This Working Group IS
collaborating with donor states, the International Monetary Fund, the World Bank,
and the UN Counter-Terrorism Committee in coordinating the delivery of technical
assistance to those governments. Bilaterally, Treasury's Office of Technical
Assistance and Office of International Enforcement Affairs have actively
participated In conducting several inter-agency assessments of technical assistance
needs with respect to combating terrorist finanCing in various countries of strategic
interest to the United States.
In pursuing these areas of focus, we have adopted a systemic approach against
terrorist financing. As the initial results of the September 11th investigation have
made clear, the financial trail left by terrorists and their facilitators represents a
vulnerability that must be pursued and exploited. Our strategy takes full advantage
of the new authorities granted to us under the USA PATRIOT Act and the
international support that we have cultivated against terrorism to find these financial
trails and uncover terrorist financing networks and operational cells. We have
utilized these authorities and resources to attack the terrorist financial infrastructure:
that IS, their formal, informal and underground methods for transferring funds across
borders and between cells, wllether through banks, bUSinesses, hawalas,
subverted charities, or innumerable other means. Through designation, regulation
and investigation, we have systemically been shutting down terrorist access to
these financing channels and mechanisms, and we have used the money trails
eVident in terrorist financing cases to locate and apprehend terrorists.
Our objective is simple-to prevent acts of terrorism in the short and long term by
identifYing and disrupting terrorist operations and the financial networks that support
those operations. To pursue this objective, we have been working in close
partnership with the Department of Justice and its investigative components, the
State Department, the Department of Defense, the intelligence community, and
many other agencies of the federal government to address terrorist financing on
multiple levels. We have concentrated much of our enforcement efforts and
resources on identifYing, tracing, and blocking terrorist-related assets. In this
endeavor, we have gathered 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.
I would now like to describe these operational, regulatory and international aspects
of our counter-terrorist financing efforts in greater detail.
II. Actions Taken Against Terrorist Financing
Shutting Down Terrorist Access to Formal Financial Channels
The most visible and Immediately-effective tactic of our comprehensive terrorist
financing strategy has been designating and blocking the accounts of terrorists and
those associated with financing terrorist activity. Public designation of terrorists,
terrorist supporters and facilitators, and blocking their abilities to receive and move
funds through the world's financial system, has been and is a crucial component in
the fight against terrorism. On September 24, 2001, President Bush issued
Executive Order 13244, "Blocking Property and Prohibiting Transactions with
Persons Who Commit, Threaten to Commit, or Support Terrorism." Section 1 of the
Order states: "All property and interests in property of the following persons ... that
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are in the United States or that hereafter come within the United States, or that
hereafter come within the possession or control of United States persons are
blocked."
The Department of the Treasury's Office of Enforcement, in conjunction with
Treasury's Office of International Affairs and the Office of Foreign Assets Control,
has helped lead U S effol1s to Identify and block the assets of terrorist-related
Individuals and entitles within the United States and worldwide. Currently, 250
individuals and entities are publicly-designated as terrorists or terrorist supporters
by the United States, and since September 11 th over $113 million in the assets of
terrorists has been frozen around the world. Beyond simply freezing assets, these
U.S. and International actions to publicly-designate terrorists and their supporters
advance global interests in suppressing terrorist financing and combating terrorism
by
(i) shutting dOWll the pipeline by which deSignated parties moved money and
operated financially in the mainstream financial sectors;
(ii) Informing third parties who may be unwittingly financing terrorist activity of their
association with supporters of terrorism;
(Iii) prOViding leverage over those parties not designated who might otherwise be
willing to finance terrorist activity;
(iv) exposing terrorist financing "money trails" that may generate leads to previously
unknown terrorist cells and financiers;
(v) forcing terrorists to use alternative and potentially more costly informal means of
financing their activities; and
(vi) supporting our diplomatic effort to strengthen other countries' capacities to
combat terrorist financing through the adoption and implementation of legislation
that allows states to comply with their obligations under UN Security Council
Resolutions 1390 and 1373.
Only the first interest identified above can be quantified by hard numbers; that is,
the value of assets frozen pursuant to blocking actions. Of course, the value of the
designation process is much greater than any amount of terrorist money frozen.
The deSignation process is invaluable because it accomplishes all of the other
Interests identified above, and in doing so, shuts off terrorist access to the world's
formal financial systems. In other words, more important than the dollars frozen
pursuant to designations is the dismantling of terrorist financial pipelines, which
previously served to transit far greater sums of money for terrorist purposes.
Currently, over 165 countries and jurisdictions have blocking orders in force; but,
not every country has joined us in blocking every identified terrorist or terrorist
supporter. We must continue to work to ensure that countries do more than just
add names to a list; we must also work towards ensuring that they have the
necessary laws, training and political will to join with us in shutting down terrorist
access to international financial systems. The Treasury Department, together with
the various other departments and agencies of our federal government, is
constantly engaged In these efforts. On the legislative side, for example, Treasury
Department officials took part in a series of seminars the Departments of State and
Justice recently conducted for 35 other countries to help them strengthen their
counterterrorism laws and regulations, especially in the area of countering terrorism
financing.
As we succeed in our domestic and international efforts to deny the world's financial
systems to terrorists and their financiers, terrorists will be forced to find alternative
methods such as alternative remittance systems, bulk currency transfers, abuse of
charitable giving, and trade-based transactions to raise and move money. In a
recent speech to the Council on Foreign Relations echoing these concerns, Deputy
Secretary Ken Dam stated, "public designations are, by their very nature, public
and therefore terrorists can adapt their behavior by keeping their money out of the
United States or other financial centers with regulations in place to stop them.
Instead, they will utilize other methods to move their money ... and avoid storing
large sums of money in anyone location." We are targeting these mechanisms as
well. I'd now like to turn to these alternative financial mechanisms and briefly
describe our efforts to combat terrorist financing conducted through these
mechanisms.
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Protecting Charities from Terrorist Abuse
Charities across the world perform an important function. enhancing the lives of
millions of people. In 2000. for example. Americans donated US. $133 billion to
charity with humanitarian intent. Unfortunately, however, terrorists have preyed
upon such noble Intentions by diverting chantable funds for terrorist purposes
Our task then is twofold: (1) to identify and shut down those charities which have
ties to terrorist organizations; and (2) to prevent legitimate charities from being
abused by terrorist financiers without chilling legitimate charitable donations and
charitable works. Our strategic approach. as set forth in the recently published
2002 National Money Laundering Strategy, involves domestic and international
efforts to ensure that there is proper oversight of charitable activities, as well as
transparency in the administration and functioning of charitable organizations. We
also are striving to effect greater coordination with the private sector to develop
partnerships that include mechanisms for self-policing by the charitable and nongovernmental organization sectors.
Under the authority of E.O. 13224. the United States has designated twelve
chantable organizations as having ties to al Qaida or other terrorist groups. In
addition. the United States has designated and blocked the assets of the largest
U.S.-based Islamic charity, which acted as a funding vehicle for the HAMAS
terrorist organization. To date, we have frozen $7.3 million in U.S. funds from these
organizations. and an additional $5.7 million in funds from spurious charitable
organizations has been frozen by other countries.
We are also increasing the transparency and oversight of charities through
multilateral efforts. FATF Special Recommendation VIII on Terrorist Financing
commits all member nations to ensure that non-profit organizations cannot be
misused by financiers of terrorism. The United States is co-chairing the FATF
Terrorist Financing Working Group that has recently produced an international best
practices paper on how to protect charities from abuse or infiltration by terrorists
and their supporters.
In addition, we are working bilaterally with many countries to ensure transparency in
charitable operations. Saudi Arabia and Kuwait have announced the establishment
of oversight authorities for Saudi and Kuwaiti charities in their respective countries.
We are confident that our work bilaterally and through FATF on this issue will
prompt other countries to adopt competent authorities to protect charities from
terrorist abuse.
To assist U.S.-based charities concerned that their distribution of funds abroad
might reach terrorist-related entities and thereby trigger a blocking action on the
part of the Treasury Department, the Department has developed voluntary best
practices guidelines for all U.S.-based charities. (The guidelines are available at
"ll,' .".... ! .• ! .. ',,:. ',,'" ,JI (/:,\0 rl-:lul:;e::;',)(\J()l)l il1111). The Treasury Department
developed these guidelines in response to requests from the Arab American and
American Muslim communities, who reported a reduction in charitable giving and an
increased apprehension among donors as a consequence of the Treasury
Department's blocking of the three domestic charities.
The guidelines focus on financial controls and the vetting of potential foreign
reCipients. They provide for rigorous self-imposed financial oversight and.
Importantly. high levels of disclosure and transparency that will enhance donor
community confidence in the professionalism and bona fides of the domestic
charity. Although wholly voluntary. the guidelines. if implemented. offer a means by
which charities can protect themselves against terrorist abuse and are consistent
with the principles espoused in both the private and international public sectors e.g .. the Better BUSiness Bureau. the Evangelical Council for Financial
Accountability and. most recently. FATF By implementing the guidelines with
sufficient resources. diligently adhering to them in practice. and immediately
severing all ties to any foreign reCipient associated with a terrorist organization. a
domestic charity can enhance donor confidence and significantly reduce the risk of
a blocking order. The guidelines have been positively received by the Arab
American and American Muslim communities.
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u.s. Treasury officials have also met with charitable sector watchdog and
accreditation organizations, including the Better Business Bureau Wise Giving
Alliance and the International Committee on Fundraising Organizations, to raise
their awareness of the threat posed by terrorist financing. We will continue these
efforts to promote effective self-regulation and oversight within the charitable
Industry
Regulating Hawalas /Informal Value Transfer Systems
Terrorists have also used hawalas and other informal value transfer systems as a
means of terrorist financing. The word "hawala" (meaning "trust") refers to a fast
and cost-effeclive method for the worldwide remittance of money or value,
particularly for persons who may be outside the reach of the traditional financial
sector. In some nations hawalas are illegal; in others they are active but
unregulated. It is therefore difficult to measure accurately the total volume of
financial activity associated with the system; however, it is estimated that, at a
minimum, tens of billions of dollars flow through hawalas and other informal value
transfer systems on an annual basis.
Some of the features which make hawalas attractive to legitimate customers -efficiency, reliable access to remote or under-developed regions, potential
anonymity, and low cost -- also make the system attractive for the transfer of illicit
or terrorist-destined funds. Traditionally, informal value transfer systems such as
hawalas have largely escaped financial regulatory scrutiny. As noted in a recent
money laundering report of the Asia Pacific Group, a FATF-style regional body, the
terrorist events of September 11 th have brought into focus the ease with which
informal value transfer systems may be utilized to conceal and transfer illicit funds.
Not surprisingly, concerns in this area have led many nations to reexamine their
regulatory policies and practices in regard to hawalas and other informal value
transfer systems.
The United States has already taken steps to regulate hawalas and informal value
transfer systems. The USA PATRIOT Act requires money remitters (informal or
otherwise) to register as "money services business" or "MSBs", thereby subjecting
them to existing money laundering and terrorist financing regulations, including the
requirement to file Suspicious Activity Reports (SARs). As a result, well over
11,000 money service businesses have registered with the federal government and
are now required to report suspicious activities. The Act also makes it a crime for
the money transfer business owner to move funds that he knows are the proceeds
of a crime or are intended to be used in unlawful activity. Failure by money service
business principals to register with FinCEN and/or failure to obtain a state license
also are federal crimes. In order to increase awareness within the diverse MSB
community nationwide about their obligations under the MSB rules, FinCEN is
conducting an outreach campaign to include advertising, community outreach and
the distribution of educational materials.
We have succeeded in disrupting the operations of several illegal money remitters
implicated in terrorist financing. U.S. experts have worked with officials in other
nations on proposed licensing and/or registration regimes for money remitters,
including hawala operators, to ensure greater transparency and record-keeping in
their transactions. We will work closely with the Department of Justice to ensure a
balanced, but aggressive, use of criminal authorities to charge individuals who are
operating illegal money remitting businesses.
We are also working to ensure the integrity and transparency of informal value
transfer systems internationally. FATF Special Recommendation VI addresses this
issue by demanding that countries register or license informal value transfer
businesses and subject them to all of the FA TF Recommendations that apply to
banks and non-bank financial institutions. In addition, at a conference on hawala in
the UAE in May 2002, a number of governments agreed to adopt FATF Special
Recommendation VI and shortly thereafter the UAE government announced it
would impose a licensing requirement on hawala operators operating within its
borders. Participants at the UAE meeting drafted and agreed upon the Abu Dhabi
Declaration on Hawala, which set forth a number of principles calling for the
regulation of hawalas.
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On the Intematlonal training front, FInCEN recently hosted a conference on informal
value transfer systems III Oaxaca, Mexico. This conference included presentations
and discussions covering the money laundering risks posed by informal value
transfer systems, such as hawala, and the law enforcement and regulatory
challenges posed by such systems The key findings from FinCEN's outreach
efforts to the domestic law enforcement community were shared with international
law enforcement officials at the seminar Speakers included representatives from,
Italy, the United Kingdom, Pakistan, Bahrain, the International Monetary Fund and
the World Bank.
Combating Bulk Cash Smuggling
Bulk cash smuggling has proven to be yet another means of financing adopted by
terrorists and their finanCiers. Customs has executed 650 bulk cash seizures
totaling $21 million, Including $12.9 million with a Middle East connection. Pursuing
bulk cash smuggling from a domestic perspective, however, is not enough:
disruption of this tactic requires a global approach To identify and attack bulk cash
movements. we must work with the International community to ensure mandated
inbound/outbound currency reporting at reasonable levels (e.g., US reporting
threshold is $10,000) Further, intelligence-gathering and law enforcement/customs
agencies must cooperate with immigration officials to share information about
potential terrorist financing smugglers/couriers. We are continuing to explore the
creation of bi-Iateral and possibly multi-lateral Customs-to-Customs "Hotlines",
where appropriate, to exchange "real time" bulk currency information, as well as the
sharing of large value cross-border cash reports.
Investigating Trade-Based Terrorist Financing
With respect to trade-based financial systems, we will continue to investigate the
use of licit and illicit international trade commodities, for example, diamonds, gold,
honey. cigarettes, as well as narcotics, to fund terrorism We likeWise will continue
our efforts to Identify under and over-Invoicing schemes that mask the movement of
funds. Countering these trade-based terrorist financing systems demands
consultation with domestic as well as international trade communities and will
require further bilateral and multilateral efforts.
The U.S. Customs Service has developed a state-of-the-art database system to
identify anomalous trade patterns for imports/exports to/from the United States. In
the past. Customs has demonstrated this system to other nations, including
Colombia, with excellent results. We will continue to aggressively pursue sharing
and comparing trade-based data bi-Iaterally and on a regional level to identify and
attack unexplained anomalies that might mask terrorist financing and/or money
laundering.
To combat illicit international trade commodities such as narcotics, we must build
from existing domestic and international law enforcement and investigative
authorities and initiatives. As we have seen with both the Taliban and the FARC,
narcotics trafficking presents these groups with the greatest potential for raising the
funds they need to support their terrorist regimes. Additionally, the associations
that these groups establish with narcotics traffickers give them access to the arms
traffickers and other facilitators (I.e .. smuggling. communication and transportation
groups) lIlat service the Ilarcotlcs organizations.
Treasury (Office of Enforcement) and the United States Customs Service, in
consultation with the Departments of Justice and State, have developed an
international training program that introduces foreign customs and law enforcement
officials to trade based money laundering and Customs developed software used to
combat it. An inaugural trade based money laundering program was presented in
Abu Dhabi and Sharjah / Dubai, United Arab Emirates (UAE) from October 10-17,
2002. The two-day program, in each location, included presentations on money
laundering, trends in commodity and trade based money laundering, terrorist
financing issues, organizing and presenting a money laundering case, and a
demonstration of the Numerically Integrated Profiling System using UAE data. This
inaugural event was a successful first step in providing assistance to priority
countries in the Middle East, and additional programs are planned for Qatar,
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Kuwait, Pakistan and India in the near future
Investigating Terrorist Cyber-Fundraising Activities
Finally, we recognize tllat terrorist groups may exploit tile internet to recruit
supporters and raise terrorist funds. Developing a strategy to counter such cyberfundralslng activities IS a responsibility that the Treasury Department has assumed
In its 2002 Anti-Money Laundering Strategy. We are currently working with other
government agencies and departments to devise such a strategy.
As you can see, we have developed a sophisticated understanding of the various
means of ten'orist fillancing, and we have responded with a range of domestic and
Inteillational Initiatives to counter each of tllese means. Most of these initiatives
that I have been referring to are designed to give us greater access to critical
financial information in the war against terrorist financing. In order to take
advantage of thiS information, we have created an operational, interagency
investigative group whose purpose is to targeting terrorist financing.
Operation Green Quest
As I indicated earlier, on October 25, 2001, Treasury created Operation Green
Ouest (OGO) to focus the Treasury Department's financial expertise in the war
against terrorist financing. OGO identifies and attacks terrorist financing through a
systemic financial approach. OGO specializes in identifying financial mechanisms,
such as illegal money remitters, and searching those systems to identify potential
terrorist financing. This systems-based approach. and the understanding that tile
financing of terrorism IS not merely an ancillary component of a terrorist-specific
Investigation, differentiates OGO from other governmental efforts and brings the
unique financial capabilities of Treasury components to bear agalilst terrorist
financing.
OGO IS led by the United States Customs Service, and includes the Internal
Revenue Service, the Secret Service, the Bureau of Alcohol Tobacco and Firearms
(ATF), Treasury's Office of Foreign Assets Control (OFAC), FinCEN, the Postal
Inspection Service, the Federal Bureau of Investigation (FBI), and the Department
of Justice. The financial expertise of the Treasury Bureaus, along with the
exceptional experience of our partner agencies and departments, is also utilized in
this operational attack on terrorist financing.
Since its inception, OGO has referred 1189 cases and/or leads to the field and has
received some 631 suspected terrorist financing-related "Hotline" suspicious activity
reports (SARs) from FinCEN, as well as 217 proactive analyses of these SARs.
OGO-sponsored and related investigations have resulted in 60 arrests, 28
indictments, 11 convictions, 138 search warrants issued and/or consent searches
and just over $8 million in seizures. In addition, since September 2001, Customs
has executed 650 bulk cash seizures totaling $21 million, including $12.9 million
with a Middle East connection. This represents more than a two-fold increase of
bulk cash seized with a Middle East connection when compared to the year
preceding September 11,2001, when seizures outbound to Middle and Far East
countries totaled $5.216 million. Post-seizure, all leads, domestic and international,
are aggressively pursued.
In seeking to identify potential financiers of terrorism, as well as in pursulllg
potential violators, OGO relies upon traditional criminal law enforcement
techniques, including Title III wiretaps, and undercover operations, as well as
enhanced access to intelligence information permitted under the PATRIOT Act. At
present, OGO, in tandem with other federal law enforcement agencies, is pursuing
more than 17 cases involving unlicensed money remitters, as well as cases
Involving potential violations of IEEPA blocking orders. OGO also is aggressively
pursuing terrorist financing derived from the commission of criminal offenses In the
United States, and seeks to identify possible terrorist financial links of the offshore
recipients,
Operation Green Ouest has numerous ongoing IIlvestigations that cannot be
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Kuwait, Pakistan and India in the near future.
Investigating Terrorist Cyber-Fundraising Activities
Finally, we recognize that terrorist groups may exploit the internet to recruit
supporters and raise terrorist funds. Developing a strategy to counter such cyberfundraislng activities IS a responsibility that the Treasury Department has assumed
In its 2002 Anti-Money Laundering Strategy. We are currently working with other
government agencies and departments to devise such a strategy.
As you can see, we have developed a sophisticated understanding of the various
means of terrorist financing, and we have responded with a range of domestic and
international initiatives to counter each of these means. Most of these initiatives
that I have been referring to are designed to give us greater access to critical
financial information in the war against terrorist financing. In order to take
advantage of this information, we have created an operational, interagency
investigative group whose purpose is to targeting terrorist financing.
Operation Green Quest
As I indicated earlier, on October 25, 2001. Treasury created Operation Green
Ouest (OGO) to focus the Treasury Department's financial expertise in the war
against terrorist financing. OGO identifies and attacks terrorist financing through a
systemic financial approach. OGO specializes in identifying financial mechanisms,
such as illegal money remitters, and searching those systems to identify potential
terrorist financing. This systems-based approach. and the understanding that the
financing of terrorism IS not merely an ancillary component of a terrorist-specific
Investigation, differentiates OGO from other governmental efforts and brings the
unique financial capabilities of Treasury components to bear against terrorist
financing.
OGO is led by the United States Customs Service, and includes the Internal
Revenue Service, the Secret Service, the Bureau of Alcohol Tobacco and Firearms
(ATF), Treasury's Office of Foreign Assets Control (OFAC), FinCEN, the Postal
Inspection Service, the Federal Bureau of Investigation (FBI). and the Department
of Justice. The financial expertise of the Treasury Bureaus, along with the
exceptional experience of our partner agencies and departments, is also utilized in
this operational attack on terrorist financing.
Since its inception, OGO has referred 1189 cases and/or leads to the field and has
received some 631 suspected terrorist financing-related "Hotline" suspicious activity
reports (SARs) from FinCEN, as well as 217 proactive analyses of these SARs.
OGO-sponsored and related investigations have resulted in 60 arrests, 28
indictments, 11 convictions, 138 search warrants issued and/or consent searches
and just over $8 million in seizures. In addition, since September 2001, Customs
has executed 650 bulk cash seizures totaling $21 million, including $12.9 million
with a Middle East connection. This represents more than a two-fold increase of
bulk cash seized with a Middle East connection when compared to the year
preceding September 11. 2001, when seizures outbound to Middle and Far East
countries totaled $5.216 million. Post-seizure, all leads, domestic and international,
are aggressively pursued.
In seeking to identify potential financiers of terrorism, as well as in pursuing
potential violators, OGO relies upon traditional criminal law enforcement
techniques, including Title III wiretaps, and undercover operations, as well as
enhanced access to intelligence information permitted under the PATRIOT Act. At
present, OGO, in tandem with other federal law enforcement agencies, is pursuing
more than 17 cases involving unlicensed money remitters, as well as cases
involving potential violations of IEEPA blocking orders. OGO also is aggressively
pursuing terrorist financing derived from the commission of criminal offenses in the
United States, and seeks to identify possible terrorist financial links of the offshore
recipients.
Operation Green Ouest has numerous ongoing investigations that cannot be
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discussed in a public forum due to security and grand jury disclosure concerns.
Below are a few that can be disclosed.
AI Barakaat Investigation - On November 2001, USCS agents conducted 10
nationwide search warrants/consent searches in conjunction with an OFAC
blocking order that resulted in the seizure of documentary and computer evidence.
To date USCS agents have obtained 3 arrest warrants based on violations of 18
USC 1960, Failure to Obtain a State Money Transmitting License.
Subsequently one of the targets was tned and convicted resulting in the first
successful prosecution under the newly-enacted PATRIOT Act for violations of 18
USC 1960. The other individuals are fugitives.
Herndon, Virginia investigations - Operation Green Ouest initiated an
investigation of several charities in the United States that are suspected of
channeling funds to known terrorist organizations in the Middle East. To date
Operation Green Ouest has conducted 29 search warrants on businesses,
residences and Internet service providers for suspected violations of Providing
Material Support or Resources to Terrorist Organizations, Tax Fraud, Failure to
Report Foreign Bank Account (FBAR), OFAC violations and Money Laundering.
Hawala Investigation - Operation Green Ouest initiated an investigation pursuant
to an outbound seizure of suspected Hawala-generated funds that were en route to
Yemen. The investigation disclosed that the courier and the reputed owner/broker
of the funds were actively involved in the trafficking and repatriation of Hawalagenerated funds from the United States. The investigation led to the arrest and
indictment of 24 members of this organization for violations of 18 USC 1960, Illegal
Money Remitting; 31 USC 5324, Structuring; 31 USC 5316, CTR Violations and 18
USC 371, Conspiracy. To date, agents have executed six search warrants and
seized approximately $1 million.
Narco-Terrorist Investigation - On October 22, 2002, Customs Agents arrested a
Colombian national who attempted to transport $182,000 in Euro dollars into the
United States. The investigation revealed the suspect is an active money launder
that IS affiliated with the FAR.C. Narco-Terrorist group. The $182,000 was seized
and the suspect was subsequently indicted for violations of 18 USC 1960, Failure to
Obtain a State Money Transmitting License. This investigation is ongoing.
OGO, along with the FBI and other government agencies, also has traveled abroad
to follow leads, exploit documents recovered and provide assistance to foreign
governments. In this effort, OGO is utilizing its 22 Customs attaches in 31 foreign
offices overseas to gather information These offices and attaches have proven
invaluable to our operational efforts against terrorist financing.
Operational Training: Building Upon Existing Treasury Expertise
Treasury's primary assignment in the war on terrorism is to identify and attack
financial mechanisms, licit and illicit, supporting terrorism. In pursuing this
assignment, Treasury can build upon its efforts to identify and attack money
laundering. In many cases, due to the similarity of financial systems used by
targets, investigating terrorist fundraising is similar to conducting a money
laundering case. There are, however, significant differences between money
laundering and terrorist fundraising investigations. A key distinction is manifested in
the end game sought by investigators. Money laundering investigations are
initiated to achieve prosecution and forfeiture. Terrorist fundraising investigations,
although sharing these objectives as well, are more nuanced.
The ultimate objective is to identify, disrupt and cut off the flow of funds to
terrorists. Significant accomplishments can be had without any significant domestic
prosecutions.
There are other differences as well. For example, as opposed to a typical money
laundering case, methods used for raising funds to support terrorist activities may
be legal. Moreover, in a terrorist financing investigation, the targeted financial
transactions tend to be smaller, and much less observable, for example, than the
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typical narcotics money laundering transaction. Identification of the transaction as
suspicious, therefore, may require a much greater melding of private, law
enforcement and intelligence information obtained domestically, as well as
internationally. To address these issues, it is essential to develop "Ill-house"
expertise and awareness of financial methods utilized by financiers of terrorism,
and strategies to attack, disrupt and dismantle them. To accomplish this,
interagency training is essential.
Recently, on September 24 and 25, 2002, at the Department of the Treasury,
Treasury's Office of Enforcement sponsored a "Combating Terrorist Fundraising
Seminar." The purpose of the seminar was to serve as a "train the trainer"
mechanism, and to familiarize participants with ongoing terrorist financing
methodologies and anti-terrorist financing strategies. Attending the seminar were
more than 80 federal investigators, prosecutors and regulators who already
possessed a familiarity with terrorist financing issues and problems. Speakers
Included experts In tile field from the various components of Treasury, Justice and
State. The partiCipants were drawn from Treasury and its Bureaus, Justice and its
components, U.S Attorney Offices, State, the National Security Council, and Office
of the Comptroller of the Currency, the Federal Reserve Board of Governors and
the FDIC. The seminar was well-received, and Treasury (Enforcement) is planning
additional regional seminars in key locations in the United States. The first such
program is currently scheduled for next month in Los Angeles.
III. International Efforts
I would now like to take a few moments to explain what we have been doing
internationally to combat terrorist financing. Terrorist financing networks are global,
and consequently, our efforts to identify and deny terrorists access to funds must
also be global. Our efforts in this aspect of the war on terrorism cannot be wholly
successful if pursued alone. Internationally, the United States has worked not only
through the United Nations on blocking efforts, but also through multi-lateral
organizations and on a bi-Iateral basis to promote international standards and
protocols for combating terrorist financing generally. I would like to briefly review
some of the more significant initiatives that we have pursued in the international
arena.
Bilateral Outreach and Engagement
Recognizing that the success of our efforts to combat terrorist financing will depend
in large part on the support of our allies, the Treasury Department has continuously
engaged the international community in developing and strengthening counterterrorist financing initiatives and regimes.
This week, Treasury Secretary O'Neill, Deputy Assistant Secretary Zarate and other
senior officials are in Afghanistan, Pakistan and India to facilitate the development
of effective counter-terrorist financing policies in those countries, and, as
appropriate, to offer Treasury technical assistance to strengthen these policies.
As another example of our continuous outreach, I recently completed a five-day trip
to five European countries to discuss ways of improving our international efforts to
combat terrorist financing. I visited major European financial centers and met with
numerous senior government officials and leaders from banking and private
industry in each of these countries. I thanked the governments and the private
sector banking communities in each of these countries for their cooperation and
important actions to date. In addition, I emphasized the global and long-term nature
of the war against terrorist financing and the need to renew our momentum in
combating terrorist financing, not just against al Qaida, but against all terrorist
groups. I listened to explanations of the blocking implementation and terrorist
financing targeting procedures in each of these countries and discussed ways of
overcoming common problems that plague these efforts.
I also emphasized the importance of developing and strengthening the publicprivate partnership between governments and the financial sector in identifying and
combating terrorist financing activity. I thanked the private sector banking and
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regulatory communities for their cooperation and progress in combating money
laundering in recent years, and I expressed the need to build on this progress in
countering terrorist financing I explained how the U.S. has enhanced financial
regulation to combat money laundering and terrorist financing through
implementation of the USA PATRIOT Act, and I indicated the importance of
consulting with the private sector throughout this process. I also explained the
importance of Treasury's PATRIOT Act Task Force in ensuring continued
consultation with the private sector as regulations are implemented and
administered, and I encouraged my audiences to engage actively in dialogues that
facilitate such public-private partnerships.
Throughout my trip, I discussed the critical importance of European leadership in
the war against terrorist financing and explored ways in which Europe can assume
a greater role in leading international efforts to combat terrorist financing. I urged
each of the countries that I visited to take a more proactive and aggressive
approach In designating terrorist-related parties, and I pledged US support in
these efforts. I also suggested ways in which the EU could assume a greater
leadership role by streamlining the EU clearinghouse process in designating
terrorist-related parties and by more aggressively pursuing high impact targets for
designation.
Finally, I urged government officials to reconsider the common European and
official EU distinction made between political or social wings and military or terrorist
wings of organizations such as HAMAS. I raised a number of arguments against
making such a distinclion, and I urged making this distinction the exception rather
than the rule In designating multi-faceted organizations such as HAMAS.
Our message was well received with respect to each of these objectives, and our
delegation established and renewed important contacts for following up on a
number of issues discussed above. It was abundantly clear that each country I
visited greatly appreciated our attention to their efforts and input and the importance
that the U.S. places upon European participation and leadership in the war against
terrorist financing. We will continue these outreach efforts to ensure that the
international community moves in a coordinated and aggressive manner against
terrorist financing.
United Nations
Because of its global nature and its ability to require states to take action under
Chapter VII of the UN Charter, the UN offered the quickest route for globalizing the
war against terrorism in general and terrorist financing in particular. The United
States has worked diligently with the UN Security Council to adopt international
resolutions, which reflect the goals of our domestic executive orders by requiring
UN member states to freeze terrorist-related assets. These UN Security Council
resolutions form the legal basis for freezing terrorist assets on a global basis.
The UN 1267 Committee is responsible for UN designations of individuals and
entities associated with al Qaida, Usama bin Laden, and the Taliban. States
wishing to propose a name for UN designation typically include a statement of the
basis for designation, along with identifying information for the use of financial
institutions, customs and immigration officials, and others who must implement
sanctions. If no state objects to the proposed designation within 48 hours after a
name is circulated by the Committee Chairman, the designation becomes effective.
The 1267 Committee then puts out an announcement on its web site and all UN
member states are required to freeze any assets held by the designated party(ies),
without delay.
We have worked with our allies in the UN to pursue bilateral and multilateral
designations of terrorist-related parties where possible and appropriate. We have
achieved some notable successes in this area to date:
U.S.-Saudi Joint Designations - On March 11, 2002, the United States
participated in its first joint designation of a terrorist supporter. The United States
and Saudi Arabia jointly deSignated the Somalia and Bosnia-Herzegovina offices of
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AI Haramain, a Saudi-based NGO. These two organizations are linked to al Qaida
and their names were forwarded to the Sanctions Committee for inclusion under the
UNSCR 1333/1390 list. On September 9, 2002, the United States and Saudi
Arabia jointly referred to the Sanctions Committee Wa'el Hamza Julaidan an
associate of Usama bin Laden and a supporter of al-Qaida terror.
'
G7 Joint Designation - On Apnl 19, 2002, the United States, along with the other
G7 members, Jointly designated nine individuals and one organization Most of
these groups were European-based al Qaida organizers and financiers of
terrorism.
Because of their al Qalda links, all ten of these names were forwarded to the UN
Sanctions Committee for inclusion under the UNSCR 1333/1390 list.
U,S,-Italy Joint Designation - On August 29, 2002, the United States and Italy
jointly designated 11 individuals and 14 entities. All of the individuals were linked to
the Salafist Group for Call and Combat deSignated in the original U.S. Annex to
E.O. 13224. The 14 entities are part of the Nada/Nasreddin financial network, two
terrorist financiers designated on earlier E.O. 13224 lists.
U,S.-Central Asia Joint Designation - On September 6, 2002, the United States,
Afghanistan, Kyrgyzstan, and China jointly referred to the Sanctions Committee the
Eastern Turkistan Islamic Movement, an al-Qaida-linked organization which
operates in these and other countries in Central Asia.
Designation of Jemaa Islamiyya - On October 23, 2002, the United States
designated the Southeast Asian terrorist group, Jemaa Islamiyya, suspected by
many in the media of perpetrating the deadly attacks on a nightclub in Bali on
October 12th. In the subsequent request of the United Nations to also designate
this group for its ties to the al Qaida organization, the U.S. joined Australia,
Indonesia, Singapore, and 46 other countries, including all the members of ASEAN
and the EU, in requesting Jemaa Islamiyya's designation. This represents the most
widespread show of support of any terrorist deSignation to date.
Beyond designating terrorist-related parties for blocking action on a global basis,
the UN has also asked for countries to identify needs for technical assistance in
order to comply with UN resolutions and conventions against terrorist financing.
The UN has required all member states to submit reports on the steps they have
taken to implement the various actions against terrorist financing called for in
UNSCR 1373. To date, 187 members have completed their reports. The UN is
reviewing those reports with the intent of identifying gaps that member nations need
to fill In order to comply with UNSCR 1373.
Financial Action Task Force (FATF)
Since 1989, the 31-member FATF has served as the preeminent anti-money
laundering multilateral organization in the world. The United States has played a
leading role in the development of this organization. Capitalizing on this financial
crime expertise, on October 31, 2001, at the United States' initiative, the FATF
Issued Eight Special Recommendations on terrorist financing, requiring all member
nallonsto
(1) Ratify the UN International Convention for the Suppression of the Financing of
Terrorism and implement relevant UN Resolutions against terrorist financing;
(2) Criminalize the financing of terrorism, terrorist acts and terrorist organizations;
(3) Freeze and confiscate terrorist assets;
(4) Require financial institutions to report suspicious transactions linked to
terrorism;
(5) Provide the widest possible assistance to other countries' laws enforcement
and regulatory authorities for terrorist financing investigations;
(6) Impose anti-money laundering requirements on alternative remittance systems;
(7) Require financial institutions to include accurate and meaningful originator
information in money transfers; and
(8) Ensure that non-profit organizations cannot be misused to finance terrorism.
Many non-FATF counties have cbmmitted to complying with the Eight
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Recommendations and over 90 non-FATF members have already submitted selfassessment questionnaires to FATF describing their compliance with these
recommendations. Together with the Departments of State and Justice, Treasury
will continue to work with the FATF to build on its successful record in persuading
jurisdictions to adopt anti-money laundering and anti-terrorist financing regimes to
strengthen global protection against terrorist finance.
As part of this effort, FATF has established a Working Group on Terrorist Financing
(Working Group), which the United States is co-chairing with Spain, devoted
specifically to developing and strengthening FATF's efforts in this field. At the most
recent FATF Plenary III October 2002, the Working Group, in collaboration with the
World Bank, the IMF, and the UN CTC, identified a number of countries to receive
priority technical assistance in order for them to come into compliance with the
Eight Special Recommendations on Terrorist Financing.
Egmont Group
Through FinCEN, we have directed the attention of the Egmont Group towards
terrorist financing. The Egmont Group represents 69 Financial Intelligence Units
(FlUs) from various countries around the world. FinCEN is the FlU for the United
States. The FlU in each nation receives financial information (such as SARs) from
financial institutions pursuant to each government's particular anti-money
laundering laws, analyzes and processes these disclosures, and disseminates the
information domestically to appropriate government authorities and internationally
to other FlUs In support of national and international law enforcement operations.
Since September 11th, the Egmont Group has taken steps to leverage its
information collection and sharing capabilities to support the United States in its
global war on terrorism. On October 31,2001, FinCEN hosted a special Egmont
Group meeting that focused on the FlUs' role in the fight against terrorism. The
FlUs agreed to: (i) work to eliminate impediments to information exchange; (ii)
make terrorist financing a form of suspicious activity to be reported by all financial
sectors to their respective FlUs; (iii) undertake joint studies of particular money
laundering vulnerabilities, especially when they may have some bearing on
counterterrorism, such as hawala; and create sanitized cases for training purposes.
ApprOXimately ten additional candidate FlUs currently are being considered for
admission to the Egmont Group. Egmont has conducted and will continue to host
training sessions to improve the analytical capabilities of FlU staff around the
world FinCEN is heavily engaged in these efforts and recently participated in the
international training session held Oaxaca, Mexico, co-hosted with the UN.
Bilateral/Multilateral Law Enforcement Cooperation
An unintended consequence for al-Qaida of its heinous actions on September 11 th
has been unprecedented international law enforcement cooperation and information
sharing on a scale inconceivable prior to the 9/11 attack. As these efforts continue
to Improve, terrorist cells and networks become more vulnerable. Let me briefly
recount some of our successes with respect to international law enforcement
cooperation.
U.S.-Swiss Operative Working Arrangement: On September 4, 2002, a working
arrangement signed by the Attorney Generals of Switzerland and the United States
and the Deputy Secretary of the Treasury was agreed to in Washington. Under this
arrangement, Swiss and U.S. federal agents have been assigned to each country's
terrorism and terrorist financing task forces in order to accelerate and amplify work
together on cases of common concern. Bilateral cooperation and assistance is
occurring on a more informal basis in many other countries.
Successful Results: International law enforcement cooperation has resulted in
approximately 2290 arrests of suspected terrorists and their financiers in 99
countries from September 12,2001 through October 28,2002. Some of these
arrests have led to the prevention of terrorist attacks in Singapore, Morocco and
Germany, and have uncovered al Qaida cells and support networks in Italy,
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Germany, Spain, the Philippines and Malaysia, among other places. In addition,
soon after September 11 th, a Caribbean ally provided critical financial information
through its FlU to FinCEN that allowed the revelation of a financial network that
supported terrorist groups and stretched around the world.
IV. Conclusion
The range of initiatives that I briefly have shared with you today highlights the
complexity of the tasks at hand. We have made substantial progress since
Septenlber 11th, and since my last testimony before Congress on October 9,2002.
This progress is owing to the outstanding cooperation and hard work of all U.S.
government agencies and departments and the international community to close
the seams that terrorists had exploited before last fall. We are proud of our efforts,
but realize that much work remains to be done. We recognize the dynamic nature
of terrorist financing and the need to maintain a comprehensive and flexible longterm strategy to effectively combat this threat. We appreciate the tools that you
have given us to counter the terrorist financing threat, and we look forward to
continuing to work with this Committee and the Congress on this issue of vital
national importance.
I will be happy to answer any questions you may have.
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FROM THE OFFICE OF PUBLIC AFFAIRS
November 20. 2002
PO-3636
Statement of Secretary Paul O'Neill on passage of the new Department of
Homeland Security
"I applaud the Congress for completing action on President Bush's bold plan to
concentrate our homeland security resources in a single Cabinet department. We
will now move forward to redeploy the resources of the federal government to meet
the challenge posed by terrorism. The men and women of the US Customs Service
and the US Secret Service serve their country with great dedication. Bringing them
together With other security agencies under one roof with a singular focus will
enhance collaboration and efficiency in the federal government's efforts to protect
the American people."
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FROM THE OFFICE OF PUBLIC AFFAIRS
November 20, 2002
PO-3637
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $76,482 million as of the end of that week, compared to $76,754 million as of the end of the prior week.
l. Official U.S. Reserve Assets (in US million,)
November 8, 2002
November 15,2002
76,754
76,482
TOTAL
I. Foreign CUITency Reserves
I
a. Securities
Euro
Yen
TOTAL
Euro
Yen
TOTAL
6,529
13,139
19,668
6,499
13,068
19,567
o
0
O(which. issuer headquartered in the Us.
b. Total deposits with:
10,780
b.i. Other central banks and BIS
2,638
13,418
10,726
2,623
13,349
b.ii. Banks headquartered in the US.
0
0
b.ii. Of which, banks located abroad
0
0
b.iii. Banks headquartered outside the Us.
0
0
b.iii. Of which, banks located in the U.S.
0
0
20,659
20,599
11,966
11,925
11,042
11,042
0
0
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4. Gold Stock
2
3
5. Other Reserve Assets
II. Predetermined Short-Term Drains on Foreign Currency Assets
November 8, 2002
Euro
1. Foreign currency loans and securities
Yen
November 15,2002
TOTAL
Euro
o
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
Yen
TOTAL
o
2.a. Short POSitiOI1S
0
0
2.b. Long positions
0
0
3. Other
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
November 8, 2002
Euro
l. Contingent liabilities in foreign currency
Yen
November 15,2002
TOTAL
Euro
Yen
TOTAL
o
o
o
o
o
o
o
o
1.a. Collateral guarantees on debt due within I
year
l.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
3. Undrawn, unconditional credit lines
3.a. With other central banks
3.b. With banks and otherfinancial institutions
Headquartered in the Us.
3.c. With banks and otherfinancial institlltiolls
Headquartered outside the Us.
4. Aggregate short and long positions of
options in foreign
Currencies vis-a-vis the U.S. dollar
4.a. Short positions
4.a.l. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
2/ 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 for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. IMF data for the latest week may be
subject to revision. IMF data for the prior week are final.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
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FROM THE OFFICE OF PUBLIC AFFAIRS
November 20. 2002
PO-3638
Air Transportation Stabilization Board Issues Federal Guarantee on Behalf of
American Trans Air
The Air Transportation Stabilization Board today announced it has closed on a $168
million loan on behalf of American Trans Air. The loan is backed by a $148.5
million federal guarantee issued under the Air Transportation Safety and System
Stabilization Act and Implementing regulations promulgated by the Office of
Management and Budget.
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FROM THE OFFICE OF PUBLIC AFFAIRS
November 20, 2002
PO-3639
Testimony of
David D. Aufhauser
General Counsel
U.S. Department of the Treasury
Before the Senate Judiciary Committee
Washington, D.C.
Good morning, Mr. Chairman.
I was in Cambridge, England on September 11 th of last year, attending an
International conference on money laundering. The college was populated with
attorneys general, chief justices and ministers of police and even some general
counsels.
The meeting had the trappings of a serious and sober affair, but in truth
there was a lot of self-congratulation. The law enforcement community had been
on the trail of money laundering for more than a decade, and had something to
crow about elaborate computer screens, predictive models, profiles of conduct,
capture and indictment, all evidenced that we were gaining a lead on a tough issue.
The diSintegration of the World Trade Center silenced all in Cambridge. It
wasn't Just IIlat it was awful. It was also the realization that the gathering had been
looking, for too long, at the world through the wrong end of a telescope. Money had
been spirited around the globe by means and measures and in denominations that
mocked detection. The most serious threat to our well-being was now clean money
intended to kill, not dirty money seeking a place of hiding.
I caught a jump seat on a military jet the next day, thinking that Treasury
would do the orthodoxy - collect revenue, sell war bonds and send the money
across the river to the Pentagon
But thiS IS a profoundly uncommon war. There IS no known sovereign: no
uniformed army; no hili to take: no target that is seemingly out-of-bounds
Indeed, a
premium is obscenely placed upon death of innocents.
It is shadow warfare. The primary source of the stealth and mobility
necessary to wage it IS money. It is the fuel for the enterprise of terror.
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It is also Its Achille's heel. It leaves a signature, an audit trail which, once
discovered, might well prove ttle best single means of identification, prevention and
capture
Indeed, much of the intelligence that we gather in this war is suspect. It's
the product of treachery, deceit, interrogation, bribery and trying to read encrypted
talk. But books and records do not lie. They are literally diaries of terror.
That's a dramatic statement. but I do not think it possible to overstate the
Importance of the war campaign against terrorist financing. Nor do I think it wise to
understate the difficulty
Ours IS a deliberately open and porous economy. The ways to game it are
near infinite. Moreover, our problem is international in scope. The overwhelming
bulk of the assets that we seek to freeze, the cash flow that we hope to strangle
and the records that we aspire to audit are beyond the oceans that surround us. To
act alone would justty inVite critique
So, once in Washington, Treasury set about to craft an ambitious program
to include (i) an executive order that raises the standards of conduct and due
diligence of flrlanclal Intermediaries, and explicitly targets even unwitting
underwriters of terror for the seizure of their assets; (ii) U.N. Security Council
resolutions that mirror the same and criminalize terrorist financing; (iii) more
scrutiny at the gateway to U.S. financial markets under the PATRIOT Act; (iv)
extensive public diplomacy to champion the need and wisdom for international
vigilance; (v) engagement of central bankers and finance ministries in the pursuit of
terrorist funds; and (vi) outreach to the private sector for assistance in the
Identification, location and apprehension of terrorists and their bankers.
Much of the effort IS overseen by a policy coordinating committee
established by the National Security Council, which I chair. As best as humanly
possible, and surely we have feet of clay, we have one government working in
concert fighting the campaign against terrorist financing. But the task remains
daunting. Material issues that face us include a near-insatiable appetite for
actionable intelligence, increasing demands by coalition partners to share that
intelligence, and a chorus of competing vOices that risk confUSion of our message.
Public perception is also important.
This is not a box score game. Only a small measure of success in the
campaign is counted in the dollars of frozen accounts. The larger balance is found
in the wariness, caution, and apprehension of donors; in the renunciation of any
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immunity for fiduciaries and financial intermediaries who seek refuge in
notions of benign neglect and discretion, rather than vigilance; in pipelines that
have gone dry; in the flight to old ways of value transfer like gold on precious gems,
and the ability to focus our resources on those avenues of last resort; and in the
gnawing awareness on the part of those who bank terror that the symmetry of
borderless war means that there is no place to hide the capital that underwrites
terror.
[One last point. It's Pollyannaish to say that we will stop the flow of all the
money, but it's also self-defeating not to try. How we have chosen to go about it is
perhaps captured by a brief story.
The Federal Reserve Bank in New York abuts the perimeter of the World Trade
Center. It is an imposing and seemingly impregnable building and the nerve center
for the execution of US monetary policy. It also literally houses the wealth of
nations. Buried deep in the bedrock of Manhattan, well below the subways, $63
billion of gold reserves of a hundred countries are stored in Federal Reserve
vaults.
It all had to be abandoned when the World Trade Center collapsed. The structural
integrity of a third building -- World Trade Center 7 -- was threatened by inferno.
The prospect of its toppling recommended evacuation of the New York Fed.
Now this was a first for the fortress like Fed. My counterpart, the General Counsel,
Tom Baxter, raced through the building assuring himself that each and everyone of
his colleagues was safely out the door. Once satisfied, he himself prepared to
descend the steps that front the building. There was a palpable sense of urgency.
Smoke was billowing out of the site of the World Trade Center, police sirens were
blaring, and the Fed's own police were urging Tom to hurry down the steps.
But first he turned to lock the door, only to find that the door does not lock from the
outside. Sixty-Three billion dollars of gold and an open building. Tom hesitated,
thought of all the alternatives of returning and winding his way through a maze of
corridors and parking lot ally ways to secure the building, but the entreaties of the
police prevailed. Tom joined them and was sped by police vehicle to a place of
refuge.
When he arrived, he telephoned Chairman Greenspan to report the good news that
all employees were safe, out and accounted for. The evacuation had gone without
incident. The Chairman had only one question - Tom, did you lock the door?
The answer, of course, was no.
We cannot and should not lock the door, because it means the bad guys
won. What we have to do is be vigilant.
With perfect intelligence, there would be no need for the Patriot Act. In
that respect it is a default mechanism. But because we do not yet have complete
intelligence source, it is an important gatekeeper. The predicate for everything we
do, however, is actionable intelligence. And I welcome the opportunity to discuss
the issue with each of you in a venue that will not compromise on-going operations
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01
Page 4 of 4
investigations. Thank you sir.
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FROM THE OFFICE OF PUBLIC AFFAIRS
November 22, 2002
PO-3640
United States Treasury Secretary Paul H. O'Neill Prepared Remarks to the
Confederation of Indian Industry and the American Chamber of Commerce
New Delhi, India
Good Afternoon. It is a pleasure to be here. I would like to thank the host
organizations - CII and AMCHAM - for arranging this luncheon today.
On behalf of President Bush, we appreciate the commitment of CII, AMCHAM and
others of you represented in the audience today to promoting economic relations
between India and the United States - the two largest democracies in the world.
As our world has become ever more interconnected, the relationship between India
and the United States has become ever more vital. We are bound together by
economic ties, in flows of products, investment, people, and ideas. We share a
common language, common political ideals. much history, and today we share a
common battle against the forces of terror, and those who would finance that
terror. Common prosperity and security are our clear mutual interests. and I am
hopeful that my visit this week will lead to a greater understanding of how we can
work together to advance both
Traveling through India, I am struck by the extraordinary potential of this nation, and
the persistent challenges to economic progress. I have met with U.S. businessmen
investing millions of dollars in India, and rural Indian entrepreneurs who are drawing
on microfinance loans to create jobs that diversify their local. agricultural
economies. I have seen amazing examples of world-beating high-technology
production facilities in Hyderabad's Hi-Tec City, and in the same day, I have seen
an HIV/AIDS clinic struggling against a burgeoning AIDS epidemic, and a police
project to crack down on child labor practices and get more children into school.
India, it seems, has two faces. It is a center of technological progress and
modernity. It is also a land still burdened by massive poverty.
I believe the path to progress can be found in the concept of productivity. By
productivity, I mean the amount Of value that each individual can create, and
therefore the amount of income each individual can earn. Greater productivity is
the key to higher incomes and higher living standards in all economies, and in all
ventures.
India's high-tech facilities, whether foreign, domestic, or jointly owned, demonstrate
some of the highest productivity levels in the world. The leading technology and
management institutes here are among the best, and students graduating from
those programs are capable of unmatched productivity and value creation. Many
often are lured away by top multinationals. But some do stay to set up local
businesses Unfortunately. these well-educated local entrepreneurs and engineers
represent only a very small fraction of the population. A third of this nation lives on
less than a dollar a day. Almost two-thirds depend on rural agriculture, where
productivity lags dramatically.
Productivity in the public sector matters as much as productivity in the private
sector. Government programs that achieve meaningful, clearly-defined objectives
efficiently and with the minimum intervention in the private sector generate greater
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PO-3640: Treasury Secretary Paul H. O'Neill Remarks to the Confederation of Indian Ind... Page 2 of 4
value for each taxpayer dollar or rupee spent. Unproductive government programs
waste money that could have been invested in Job creation, sap private productivity
with unnecessary and arbitrary Interference, distort markets, and undermine public
confidence in the nation's leadership.
In my view, the key to economic growth in India is to spread the accelerating
productivity evident in India's best ventures to the broader population, as well as to
the government. With steady, widespread productivity gains, especially in sectors
such as agriculture that have traditionally lagged, there will be no limit to India's
economic growth.
I am optimistic that this can happen because productivity is at its heart the practice
of implementing new ideas, in which the Indian people have an illustrious record of
success Mahatma Gandhi pioneered the vision of nonviolence to effect change,
one of the most influential and effectively-implemented ideas of modern world
history. In economic matters, Indian entrepreneurs have pioneered countless new
technologies in both India and the United States, and have shown great aptitude for
invention and implementation Indeed, what is any technological progress other
than a new Idea made real?
The ideas needed to unleash Indian productivity are out there, and are being used
in the leading firms in many industries. Public and private sector leaders need to
identify those ideas, adapt them to India's unique cultural context, and then put
them into effect.
Of course, that is easy to say, and much harder to do. It is especially difficult when
the private sector is unable to attract the investment it needs to fund new ideas;
when the environment does not support market experimentation and
implementation of new ideas, when entrepreneurs and investors are intimidated by
excessive regulation and corruption; and when the government fails to effectively
invest in the people, so that people have the education and good health that are
prerequisites for achieving their goals and raising standards of living. These
failures are most prominent in the largest sectors of the Indian economy, such as
agriculture, where entrenched interests resist changes that would benefit the
greatel whole of the Indian nation.
To unleash the potential for higher living standards and job creation, a nation's
leaders must make an unflinching commitment to good governance, economic
freedom, and investment in people. Without these principles in effect, even a
people as capable and aspiring as the Indian people cannot succeed.
Good governance means ruling justly, enforcing laws and contracts fairly,
respecting human rights and property rights, and fighting corruption. Encouraging
economic freedom means removing barriers to trade with neighbors and the world,
opening the economy to foreign and domestic investment and competition, pursuing
sound fiscal and monetary policies, and divesting government from business
operations. Economic freedom also means recognizing that it is the private sector
- individuals implementing new ideas and pursuing their dreams - that creates
prosperity; not central planning or bureaucracies. Finally, investing in people
means ensuring access to health care, clean water, and education, so that people
have the necessities that allow them to strive for a better life. People everywhere
know that basic health is a prerequisite to prosperity. Yesterday in Hyderabad, I
met people who are faced with the challenges of HIVAIDS and realize the
importance of proper health care delivery. I also saw how communities can work
together to link informal and formal education for children - an innovative example
of communities building the foundations for progress.
Over the past fifty years the world has seen that these principles work, as long as a
nation's leaders are committed to pursuing them, and as long as those leaders are
held accountable for measurable progress. India has come a long way, moving
from a command economy toward a more market based system. Economic
freedom has not yet sprouted in many major industries where the government
remains deeply involved in production, which limits competition, which in turn limits
innovation and growth. Legal restrictions on market entry and onerous regulations
also prevent private sector dynamism. Fiscal policy is weak, with a federal deficit
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PO-3640: Treasury Secretary Paul H. O'Neill Remarks to the Confederation of Indian Ind... Page 3 of 4
exceeding 5% of India's GOP last year, and state deficits another 4.5% of GOP.
In India, average import tariffs are over 32% and more than three times higher than
many other Asian economies - Indonesia, Malaysia. Philippines and Sri Lanka to
name just a few. This figure does not include many hidden obstructions to free flow
of goods across the borders. Various indices of trade and investment
restrictiveness rate India among the most restrictive countries in the world. Barriers
to enhanced trade on the sub-continent remain very high.
Just as Canada and Mexico are the largest trading partners of the United States,
India's trade with its closest neighbors should be equally strong. With regard to
good governance, corruption and bribery are widespread, frightening away honest
businessmen and investors.
Consider the effects of poor governance and a lack of economic freedom on foreign
investment. As Ambassador Blackwill noted in his address last month, U.S.
investment in India has languished over the past decade, falling from a peak of
$737 million in 1997 to only $336 million in 2000. By comparison, U.S. investment
in China went from $1.25 billion in 1997 to $1.6 billion in 2000. India's strong
English language skills and democratic system of government - should make it a
preferable to U.S. investors over a country lacking both. And India desperately
needs that investment to fuel domestic growth and innovation.
While several large companies have invested in India, many more have stayed
away. Respect for property rights and protection against public or private thievery
is an essential requirement for economic success.
This is not merely a matter pertaining to foreign investors. Domestic savers are the
greatest source of investment for any economy, and a nation that does not respect
ownership deters its own citizens from putting their money to work in the economy
through bank deposits and capital markets, instead of hiding their precious savings
under the floorboards.
Unleashing that homegrown capital would create a pool of resources for local
entrepreneurs to set up small businesses and diversify the economic base. After
all, homegrown small businesses demonstrate the opportunities available to others
in a local community, and show the way for those who would also pursue their
unique ideas. Today, there are microfillance institutions around the world lending
small amounts to individuals with the initiative to be self- employed and start new
ventures. Microfinance institutions also provide crucial guidance to new
entrepreneurs on the technical knowledge needed to start and grow a business.
Yesterday I visited a microfillance project in Hyderabad funded by an organization
called SHARE. The organization has managed to circumvent India's serious
problem with land ownership rights and lack of collateral by lending to groups of
entrepreneurs and making them all liable for each borrower's repayments. It is my
hope that sustainable microfinance programs will continue to expand in India, even
as India frees the formal financial system from unreasonable constraints on lending.
Unreasonable regulation also deters international businesses and local
entrepreneurs alike from entering new markets and creating value. No one wants
to spend time and capital fighting a system that is unfriendly to success and fears
competition. The exceptions prove the rule: When India lifted regulations on the
cellular phone industry, demand rose and prices fell.
When the government of India opened the door to foreign investment in automotive
manufacturing and relaxed licensing requirements for car makers, employment in
the industry grew by 11 % and overall productivity increased by 256% from 19921999.
Investment in people is the third-leg of necessary economic leadership. Individuals
who lack basic health care, education, and even clean water cannot free
themselves from subsistence to make a greater contribution to the economy and
their own livelihood. Government programs should target these areas, and target
the people who truly need help. One of the greatest challenges facing India, and
many of the world's nations today is the fight against AIDS, and the United States is
working to support nations that fight AIDS. I was pleased to hear of the Gates
Foundations' generous gift to India to reinforce AIDS prevention efforts here. The
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PO-3640: Treasury Secretary Paul H. O'Neill Remarks to the Confederation of Indian Ind... Page 4 of 4
U.S. government has also prioritized HIV AIDS in its assistance to India: USAID has
major AIDS prevention and control activities, the U.S. Center for Disease Control
supports treatment and care programs, and the U.S. National Institute of Health
contributes to applied research III this field.
During the course of this short trip I have seen the successes and the challenges in
India. From interacting with a range of talented Indians throughout my lifetime, I
know that the human capital is strong. The key is harnessing the innate ability to
rebuild India's productivity - in other words, creating a reverse braindrain as Indians
bring ideas back here to deploy. There are some excellent companies and
organizations out there aimed to do just that - the technology firms that are setting
up their business in India, or the organizations like Indicorp that bring educated
Indian-Americans back to work with local communities to solve local problems.
Whichever route - India will be one step closer to becoming a more productive
economy.
I am eager to see the people of India reach their potential for healthy, productive
lives. We know the foundations for success - Just rule, economic freedom and
investment in people. Let's work together to make them a reality, for the sake of
the millions whose lives would improve.
Thank you.
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DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
OHIO': 0.' PUBLIC An'AIRS. ISOO PENNSYLVANIA AVENUE. N, W.• WASHINGTON. D.C.. 20220. (202) 622-2960
EMBARGOED UNTIL 11: 00 A.M.
November 21, 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 $30,015 million of publicly held 13-week and 26-week
Treasury bills maturing November 29, 2002, and to pay down approximately $15 million.
Also maturing is an estimated $18,000 million of publicly held 4-week Treasury bills,
the disposition of which will be announced November 25, 2002.
The Pedera1 Reserve System holds $12,708 million of the Treasury bills maturing
on November 29, 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 November 26, 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 (PrMA) 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 $1,086 million into the 13-week bill and $712 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-3641
~or pr~.H re/~auJ. JPuch~'i. public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TRBASURY OFFBRINGS OF BILLS
TO BB ISSUED NOVEMBBR 29,
2002
November l1, 200l
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 million
NLP Exclusion Amount ................•.••... $ 4,900 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 MA 6
November 25, 2002
November 29, 2002
February 27, 2003
August 29, 2002
$19,494 million
$1,000
$15,000 million
$15,000 million
None
lSI-day bill
912795 MP 3
November 25, 2002
November 29, 2002
May 29, 2003
November 29, 2002
$1,000
The following rules apply to all securities mentioned above I
Submission of Bidsl
Noncompetitive bidsl Accepted in full up to $1 million at the highest discount rate of accepted competitive bids.
Foreign and International Monetary Authority (FIMA) bidsl 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 bidsl
(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 I
Noncompetitive tenders ..... Prior to 12100 noon eastern standard time on auction day
Competitive tenders ........ Prior to 1100 p.m. eastern standard time on auction day
Payment Terms I
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender.
TreasuryDlrect customers can use the Pay Direct feature which authorizes a charge to their account of
record at their financial institution on issue date.
D EPA R T \. E N T
0 F
THE
T REA SUR Y
NEWS
TREASURY
oFFICE OF PUBLIC AFFAIRS .1500 PENNSYLVANIA AVENUE.
FOR IMMEDIATE RELEASE
November 21, 2002
"'.W.• WASHINGTON.
CONTACT:
D.C .• 20220. (202) 622·2960
Office of Financing
202/691-3550
THANKSGIVING HOLIDAY SCHEDULE
In view of the Thanksgiving holiday next week, Treasury will
announce its offerings of 13- and 26-week bills at 11:00 a.m. Eastern
time on Wednesday, November 27, 2002.
Also, the noncompetitive and competitive closing times for the 2year note to be auctioned on November 27 will be 10:30 a.m. and 11:00
a.m. Eastern
t~e,
respectively.
Treasury will make the complete
offering announcement for the 2-year note on Monday, November 25, 2002.
These changes in the usual announcement schedule are consistent
with the Bond Market Association's recommendations for an early closing
on Wednesday, November 27, and a full market closing on Thanksgiving
Day.
000
PO-3642
For pr~ss rel~aus, spuches, public schedules and official biographies, calf our 14-hour fax line at (202) 622-2040
PO-3643: Assistant Secretary Richard Clarida Luncheon Remarks at the Joint Conference... Page 1 of 4
FROM THE OFFICE OF PUBLIC AFFAIRS
November 21,2002
PO-3643
Assistant Secretary of the Treasury Richard H. Clarida
Luncheon Remarks at the Joint Conference on Currency and Maturity
Matchmaking Redeeming Debt
from Original Sin The Inter-American Development Bank November 21, 2002
The US in the World Economy
It has been a challenging and not uninteresting time to be working on economic
policy in Washington. Since I arrived at Treasury on September 11, 2001, the US
has declared war against terrorism, has entered and begun to recover from a
recession, has been beset with the revelation of serious financial scandals, has
suffered from exceptional gyrations in equity values, and has faced default by the
world's largest sovereign borrower. Nonetheless, the US economy has shown
impressive resiliency to these shocks, growing at a 3 percent average annual pace
over the past year, following a shallow recession which began as President Bush
assumed office. However, the road to recovery has been bumpy, most notably with
growth slowing in the second quarter of this year, and with an enhanced downside
risk to future growth causing the Fed recently to cut interest rates 50 basis points.
The economy's durability in the face of significant adverse shocks is derived from
its sound and flexible structure as well as well-timed policy decisions made by the
Administration and the Federal Reserve. The tax cuts signed into law in June 2001
were well timed and have boosted household incomes, supporting consumption. In
March of this year, Congress finally passed and the President signed a bill
providing companies with tax incentives to undertake investments in equipment. As
many have noted, a pick-up in investment is a key to supporting economic
expansion. The second-quarter increase of 3.3 percent in equipment and software
investment, followed by an even stronger 6.5 percent jump in the third quarter,
suggests that this rebound has indeed begun and that the tax incentives, which
boost corporate cash flow, are helping to support recovery. The third-quarter rise in
E and S investment was more than enough to offset the ongoing contraction in
investment in business structures, leading to the first increase in real business fixed
investment in two years.
Of course investment, both business and residential, has benefited from the timely
and decisive monetary policy actions of the Federal Reserve, which cut short term
interest rates throughout 2001 and also on November 6. I note as well the
important stabilizing role that long-term interest rates have played. Both in late
2001 and this summer and fall, as volatility and uncertainty in the equity markets
rose sharply, a portfolio shift to government and agency bonds lowered long-term
Interest rates to 40-year lows. This In turn was passed through to the mortgage
market, triggering a wave of refinancings that put billions of dollars into the hands of
households, significantly cushioning the otherwise dampening effect of the stock
market on consumption growth.
Flexibility of our labor markets also contributed to a smaller decline in employment
than occurs If1 most recessions. While the Administration will not be satisfied until
full employment IS restored, we are encouraged by signs that the labor market IS
stabilizing. The unemployment rate has been hovering in the 5.7 percent range for
the last three months through October, off from the April high of 6 percent. Initial
claims for unemployment have drifted a bit lower. Progress on employment has
been erratic and slower than we would like, as evidenced by some slippage in
payrolls in September and October. As the President said in a press conference
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PO-3643: Assistant Secretary Richard Clarida Luncheon Remarks at the Joint Conference... Page 2 of 4
earlier this month. he is ready to work with the new Congress to pass new growth
and jobs packages until every American who wants a job can get one.
Last month, Treasury announced a budget deficit of 159 billion dollars for FY 2002
Just completed, as compared with a surplus of 127 billion dollars in FY 2001. The
main reason for the swing in the fiscal balance is that last year's recession and
stock market weakness took a heavy toll on Federal revenues, and non-withheld
incomes and capital gains realizations were reduced substantially. We estimate
that the recession and stock market weakness accounted for nearly two-thirds of
the swing from surplus to deficit. Another 23 percent reduction was attributable to
the tax cuts and stimulus package. Of the remaining 14 percent, part was
accounted for by the vital needs of homeland security and the war effort. Even
without the tax cuts and stimulus, the budget would still have been in deficit in FY
2002. Of course, the US is part of the global economy and the global capital
market. I would now like to discuss several important global economic issues that I
am working on at Treasury.
Current Account
The US cun'ent account deficit reached an annual rate of $520 billion in the second
quarter of this year, or 5.0 percent of GOP. The magnitude and persistence of the
current account deficit has caused consternation in some quarters. I believe that
many of the concerns about the deficit are misplaced, and I think that we should
devote some time to understanding what the US current account deficit actually
means
Much recent discussion has focused on the size and sustainability of the US current
account deficit. It is not meaningful to assess the size and sustainability of the
current account deficit without first identifying its proximate cause. In fact, it is clear
from the evidence that the US current account reflects a deficit of growth and
growth prospects in much of the rest of the world.
Moreover, the present defiCit in the US current account does not suggest that a
change in current US economic policy is warranted, nor would it be welcome by the
rest of the world at this time.
As a matter of national income accounting, the US current account is just the
difference between national saving and investment and is equal to the net
accumulation of US assets (portfolio and direct) by foreign investors. It provides
backward-looking information, rather like a "sources and uses of funds statement"
for a company provides information on the amount of internal and external finance
drawn on to finance investment outlays during the previous year. A deficit is not
necessarily bad, nor a surplus gOOd. This is because the US has a floating
exchange rate and is well integrated into the global capital market. It can finance its
current account deficit in this capital market by selling equities, private debts, and
government bonds -- all denominated in dollars -- without having to draw down
international reserves or to incur foreign currency obligations.
According to official estimates, as a result of the current account deficits in the
1980s, the US became a net foreign debtor in late 1988, and since that time has
accumulated a stock of net foreign liabilities exceeding 2 trillion dollars, about 23
percent of US GOP. Yet, according to the national income accounts, the net cost of
servicing this debt this year is running at an annual rate of 7.8 billion dollars, less
than 40 basis points on the outstanding balance. How can this be? The most
commonly offered explanation derives from the fact that US direct investments
abroad are conSistently much more profitable than are foreign direct investments in
the US. For example, in 2001, the estimated market value of US direct investments
abroad was 2.3 trillion dollars compared with the market value of foreign direct
investment in the US of 2.5 trillion dollars. Yet, the receipts of direct investment
income from current production of foreign affiliates of US companies in that year
was 126 billion dollars compared with payments to foreign owners of US located
investments of only 23 billion dollars.
In the view of the US Treasury, the best way to interpret the present situation is as
follows. The current pool of portfolio capital in the world has fewer places to invest
than several years ago, and that capital is seeking safety and acceptable returns in
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PO-3643: Assistant Secretary Richard Clarida Luncheon Remarks at the Joint Conference... Page 3 of 4
the US. Portfolio capital is not flowing to emerging markets as in the mid 1990s.
Europe faces long-standing structural problems (high average unemployment,
sluggish productivity growth), and Japan is entering its second decade of operation
well below Its potential. Not surprisingly in this setting, capital has been flowing into
the US This process has been reinforced by the strong productivity numbers in the
US over the past two years. Even during the second quarter and into the third as
the stock market weakened, we did not see the flight from US securities that many
anticipated but rather merely a shift from equities into fixed-income securities.
We in the US government hope that over time imbalances in growth prospects will
narrow, not because of any diminution in US fundamentals, but rather because of
improvements in the relative performance of the rest of the world. We would hope
to see In Europe lower unemployment and faster growth approaching US rates. We
certalllly ~lOpe that Japan will resolve its structural problems and resume strong
economic growth and Investment.
We aim, working with the G7, to put in place a framework in the international capital
markets that will make more emerging markets attractive destinations for portfolio
capital flows. All of these developments would be most welcome. We understand
that. were they to occur, the US would benefit significantly. Exports would surge.
some of the growing pool of world capital that would otherwise flow to the US would
be attracted abroad, and the US current account deficit would narrow. There is
every reason to expect -- as US history suggests -- that this adjustment would be
accomplished in the global capital markets in an orderly fashion.
In sum, the US current account is caused, in large part, by a deficit in growth in the
rest of the world. The growth deficit is not desirable but, as long as it persists,
foreign capital flows to the US will adjust to bring global saving and investment into
balance.
Trade Promotion Authority
An important step forward in improving trade flows and expanding US exports was
taken by the renewal of the President's Trade Promotion Authority by Congress in
August. This was a hard won victory, and will enable the Administration to provide
the necessary energy and leadership to further open and expand international
trade, through the Doha round and through free trade agreements with individual
countries. In this light, the US will soon conclude free trade agreements with both
Singapore and Chile, and we have begun discussions on President Bush's proposal
for a hemisphere-wide Free Trade of the Americas Agreement.
Sovereign Debt Restructuring
In April, the G-7 finance ministers met in Washington and found unprecedented
unity on the need to develop a predictable process for restructuring sovereign debt.
They released agreement on an Action Plan to guide their efforts toward this goal.
The G-7 agreed to work together with emerging market countries and their creditors
to incorporate new clauses into debt contracts, specifying the actions to be taken in
the event a restructuring were necessary. The policy of the G-7 is that any country
that issues debt in another sovereign jurisdiction should include collective action
clauses. Such clauses are featured in bonds issued under UK law, but for historical
_ not legal - reasons are not common in bonds issued under US law. These
clauses would specify a majority action provision for amending the financial terms
of the bond, as well as an engagement clause specifying how bondholders be
represented in a negotiation with a borrower. The G7 emphasized that work on this
contract based approach should proceed in parallel with the statutory approach
being developed by the IMF.
It is important that both creditors and debtors themselves be included in the
dialogue as we move forward on this approach. I am pleased to report that this is
taking place. Secretary O'Neill has expressed his goal that emerging countries that
borrow in the capital markets be rated investment grade. By making the sovereign
restructuring process more predictable and less uncertain, it is hoped that flows of
portfoliO capital to credit worthy countries can be restored.
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PO-3643: Assistant Secretary Richard Clarida Luncheon Remarks at the Joint Conference... Page 4 of 4
Strengthening Financial Systems in Emerging Economies
The Treasury has recently outlined an initiative to work with emerging market
economies to strengthen their financial sectors, in part by allowing the provision of
financial services by foreign owned firms, usually through FDI in the financial
services sector itself. We believe -- and a recent and growing body of empirical
evidence shows (including some outstanding research by the World Bank) -- that a
well-developed. competitive financial sector, open to foreign direct Investment, can
contribute to economic growth and stability over the long term. We seek to
strengthen the financial sectors of developing economies, and spur financial sector
reform in those countnes by encouraging greater financial sector openness,
coupled with improvements in financial supervision and regulation.
Most investment in most countries is financed with domestic saving, not by
importing capital through capital Inflows. The research that I alluded to shows that
having a competitive financial sector that IS open to foreign participants exposes
local firms to the best practices of world class financial institutions and enables
them to learn from those at the top of their game. Moreover, FDI in financial
services can substantially broaden the range of financial products that are available
to local firms and households, allowing them to better diversify risk and profit from
local investment opportunities. We seek to make progress in the WTO Financial
Services talks and in other fora to insure that foreign-owned financial firms can
invest and compete to provide financial services in a host nation on an equal footing
with domestic firms. Studies of the liberalizations of the last decade remind us all of
the crucial importance of an independent, professional, and transparent system of
regulation and supervision.
The goal of strengthening financial systems in developing economies is worthwhile
for several reasons: more durable growth prospects as countries move away from
an 'export-led' model: a more stable global capital market; improved access to
international portfolio flows for those countries that desire them; enhanced
efficiency as countries benefit from international best practices in the provision of
financial services: and an expanded range of financial products that could not
otherwise be provided efficiently by domestic firms alone. In this manner, freer
direct investment enables countries to make the most effective and efficient use of
their scarce pool of domestic saving and allocates scarce capital to its best and
most highly rewarded use -- enhancing productivity and allowing faster growth.
We realize that a country's decision as to the appropriate pace and means by which
it opens its capital account to portfolio flows is a related, but distinct decision from
allowing FDI in financial services. However, even those countries that choose to
open their capital account to portfolio flows at a slower pace still stand to benefit
substantially from allowing a foreign presence in banking, brokerage, asset
management, investment banking, and insurance services. That said, it is not US
policy to encourage any country to maintain capital controls over the long term.
After all, no developed country maintains them.
We recognize that growing interdependence will make financial sector development
a major challenge for emerging markets in this decade. But we believe the record
shows that, when policymakers understand the importance of openness and are
firmly resolved to take the necessary steps, they can succeed in strengthening their
economies.
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PO-3644: Treasury Secretary Paul O'Neill Speech to Confederation of British Industry c...
Page I of3
FROM THE OFFICE OF PUBLIC AFFAIRS
November 25, 2002
PO-3644
United States Treasury Secretary Paul H. O'Neill
Keynote Speech to Confederation of British Industry Conference
Manchester, England November 25, 2002
Good afternoon.
It is my pleasure to join the Confederation of British Industry today, on my way
home from a week-long visit to Afghanistan, Pakistan, and the G-20 meeting in
India. I know many of you do business in the United States, and I will touch on the
state of the U.S. economy. I wOl!ld also like to consider, more broadly, the role of
productivity in the U.S. and the world economy. and in your respective industries.
The past two years have been full of shocks and surprises for those who participate
American business - shareholders, employees, and executives alike. We've
suffered through the demise of a dot-com fantasy, terrorist attacks on New York
and Washington, and discoveries of corporate fraud. Pile those on top of a
slowdown already present when President Bush took office, and you have a recipe
for a bumpy economy.
In
Nonetheless, the United States has been working its way back to steady growth,
and we've made progress. Our system - private and public sectors - has adjusted
to the new conditions. We've been making a recovery throughout this year,
demonstrating the flexibility of the American economy. Flexibility in the sense of
resilience and adaptability.
On the policy side, the U.S. Congress has passed President Bush's proposals for a
homeland security department, terrorism risk insurance, tax relief and job creation
stimulus. The US. Federal Reserve, for its part, has cut interest rates sharply,
averting a potential credit crunch. Early next year President Bush will propose new
action for economic growth and Job creation.
It is the private sector, of course, and not the government, that produces economic
growth. Our policy proposals have been aimed at reigniting the engines of growth.
The recession was relatively shallow.
The tougher part has been bUilding broad-based momentum throughout the
economy.
Some sectors have been doing quite well, such as housing and auto
manufacturing, while others, such as commercial airplane manufacturing and airline
serVices, have lagged.
Inflation remains low, there has been steady growth in real incomes even during the
recession period and inventories are lean.
At 5.7%, unemployment remains lower than its average during the 1990s, but
payroll growth has been erratic, and we believe we can and will do better.
Productivity is the key. Productivity growth has been extraordinarily good, up 5.3%
over the past year, the best rate since 1983. Rapid productivity growth has
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PO-3644: Treasury Secretary Paul O'Neill Speech to Confederation of British Industry
c...
Page 2 of 3
contributed to the biggest decline in unit labor costs since the early 1960s, which In
turn will prove valuable for restoring profits, containing inflation, and ultimately for
accelerating employment and income growth.
Productivity growth is a leading indicator of quality of life and human progress.
Indeed, the economic progress of civilization - higher standards of living, higher
Incomes, greater personal freedom, fulfilling work opportunities - derives from
advancing productivity. That's been true since the early days of the industnal
revolution here In Manchester.
If you study the economic history of the 300 years since then, it is easy to see that
there IS no absolute limit on world economic product. Economic prosperity is not a
sleight of hand - one man or woman taking from another. Economic prosperity is
an act of crealion The world's economic bounty is limited only by our imagination our ability to conceive new Ideas for value creation and to make those Ideas into
reality.
Productivity comes from the development and deployment of ideas -- discovering
and implementing better ways of doing things. One of the reasons I am optimistic
about the future of the world economy is there is such a large gap between the
productivity of the very best performers in every industry and everyone else. This
gap represents productivity improvement potential that requires only initiation; not
the discovery of new knowledge I
Rather than focus on national policies today, let me take this down to a companyspecific level for you.
During the 80s, I worked for International Paper. Early in my time there, we put
together a detailed analysis of our competition In doing that analysis we found that
Japanese corrogated container plants were producing 13 tons of boxes per hour,
while our plants were producing 9 tons per hour. I wondered what they were doing
better. I went to Japan to visit those factories, and I started asking questions.
One of the most important factors in corrugated container manufacturing is the
moisture content of the paper. The ideal moisture content in the paper is 5% -everyone agreed on that -- but what the Japanese had discovered was that the size
of the range around the ideal 5% level mattered greatly. By controlling to a range of
4 - 6% Instead of the typical 2 -8% range, they were able to achieve a 50%
productivity advantage over their competition.
Needless to say, we implemented a quality control process that narrowed our
moisture content range to the Japanese level. Just by implementing an idea -- the
idea that moisture variance matters -- we made a big gain in productivity.
In every industry in the world, from agriculture to aerospace, there is a huge gap
between the best practices of the leading firms and the practices of the great
majority of producers in that industry. As the ideas pioneered and employed by the
industry leaders diffuse to the rest of the competition, the followers catch up. As the
rest of the industry adopts the old best practices, the industry leaders must develop
new ways to stay ahead. Competition drives innovation, and innovation becomes
productivity, which in turn creates higher wages and more Jobs.
The potential for deplOYing ideas to make huge productivity gains exists around the
world. In my travels as Treasury Secretary, and before that in private industry, I've
seen that truth for myself in countries as diverse as Russia, Ghana, India, Brazil
and China. And I'm sure you have all witnessed it as well. The best ideas can
come from anywhere, and the secret to competitive success is staYing open to new
Ideas, no matter where they come from.
Competition drives the constant search for new ideas. Many US. firms are world
leaders in their industries because they are forced to compete every day. That's
true domestically because we have one of the freest economic structures in the
world, with great flexibility to move capital and other resources to their most
http://www.treas.gov/press(rclettses/p03644.htm
12123/2002
PO-3644: Treasury Secretary Paul O'Neill Speech to Confederation of British Industry C..
Page 3 of 3
productive uses. The future of global growth depends on other nations around the
world expanding their economic freedom as well, so that the United States isn't the
sole engine for the world economy.
We have taken steps in the last two years to stem the economic downturn and
reverse it. The rest of the world has to act as well. It is every government's
responsibility to take actions that unleash the potential of its population for
innovation and value creation.
Imagine a world in which the largest economies are growing at their potential.
Imagine the opportunity that growth would create for people in the less developed
parts of the world. through trade opportunities, new technology, and investment
capital.
International competition also enhances domestic growth. and the spread of
productive new ideas. In the 1970s and early 1980s, U.S. manufacturers marveled
at Japan's efficiency, and many thought we had lost our edge for good.
But the openness of the U.S. economic system forced us to think harder, to learn
from the best practices of firms like Toyota, and to learn from each other as well.
The competition from Japan shook us out of our malaise.
The lessons of those days cemented my belief that the world economic system
should eliminate trade and tariff barriers. Not only because open trade gives
consumers around the world more choices and better prices, but because open
trade spurs innovation and productivity growth. Competition forces the deployment
of good ideas within industries and across them; within nations and among them.
Consider it thiS way: the huge productivity gap between industry leaders and the
rest of the pack is like a proven reserve of human potential. The same is true
between nations, because we know that all humans have the same capacity for
achievement. The knowledge exists, it simply needs deployment.
For me, that's a source of great hope and confidence, It's not just a matter of faith
that your individual companies, and our economies as a whole, can achieve new
heights. It's a matter of fact.
Thank you.
http://www.treas.gov/prcssfreleases/p03644.htm
12/23/2002
I
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFJCE OF PUBLIC AFF.\JRS - J500 PENNSYLVANU AVENUE, N.W. - WASHINGTON, D.C.- 20220 _ (202) 622-2960
EMBARGOED UNTIL 11:00 A.M.
November 25, 2002
Contact:
Office of Financing
202/691-3550
TREASURY OFFERS 4-WEEK BILLS
The Treasury will auction 4-week Treasury bills totaling $22,000 million to
refund an estimated $18,000 million of publicly held 4-week Treasury bills maturing
November 29, 2002, and to raise new cash of approximately $4,000 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 $12,708 million of the Treasury bills maturing
on November 29, 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 Tr~asury 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-364S
- For press releases, speeches, public schedules alld official biographies, call our 24-I/{)llr fax line at (202) 622-2040
~
HIGHLIGHTS OF TREASURY OFFERING
OF 4-WEEK BILLS TO BE ISSUED NOVEMBER 29, 2002
November 25, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . $22,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . $22,000 million
NLP Exclusion Amount . . . . . . . . . . . . . . . $10,700 million
Description of Offering:
Term and type of security . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . . . . .
~uction date . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . .
Original issue date . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . .
Minimum bid amount and multiples ...
27-day bill
912795 LR 0
November 26, 2002
November 29, 2002
December 26, 2002
June 27, 2002
$42,282 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 standard time on auction day
Competitive tenders:
Prior to 1:00 p.m. eastern standard time on auction day
Payment Terms:
By charge to a funds account at a Federal Reserve Bank
on issue date.
DEPARTlVIENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 20220 _ (202) 622-2960
EMBARGOED UNTIL 11:00 A.M.
November 25, 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 $21,316
million of publicly held notes maturing November 30, 2002, and to raise new cash of
approximately $5,684 million.
In addition to the public holdings, Federal Reserve Banks hold $5,864 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
These
York will be included within the offering amount of the auction.
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 10:30 a.m. and 11:00 a.m. eastern standard time, respectively.
TreasuryDirect customers requested that we reinvest their maturing holdings
of approximately $506 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
PO-3646
-.!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 DECEMBER 2, 2002
November 25, 2002
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,000 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . . . . . 2-year notes
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U-2004
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912828 AQ 3
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 27, 2002
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2, 2002
Dated date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2002
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2004
Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined based on the highest
accepted competitive bid
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
Interest payment dates . . . . . . . . . . . . . . . . . . . . . . . . May 31 and November 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 HM 2
Due date(s) and CUSIP number(s)
for additional TINT(s) . . . . . . . . . . . . . . . . . . . . . . November 30, 2004 - - 912833 ZB 9
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 10:30 a.m. eastern standard time on auction day.
Competitive tenders:
Prior to 11:00 a.m. eastern standard time on auction day.
Payment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date,
or payment of full par amount with tender. TreasuryDirect customers can use the Pay
Direct feature which authorizes a charge to their account of record at their
financial institution on issue date.
PO-3647: Communique of the G-20 Finance Ministers and Central Bank Governors
Page 1 of2
FROM THE OFFICE OF PUBLIC AFFAIRS
November 23, 2002
PO-3647
Communique of the G-20 Finance Ministers and Central Bank Governors, New
Dehli, India, November 23, 2002
We, the Finance Ministers and Central Bank Governors of the G-20, held our
Fourth Meeting today on 23rd of November 2002 at New Delhi, India. We reviewed
the global economic situation and outlook, and deliberated on matters concerning
crisis prevention and resolution, globalisation, the challenge of achieving sustained
growth and development and combating the financing of terror. We reaffirm our
conviction that increasing integration of the global economy is producing benefits,
including improvement in living standards and reduction of poverty, and our
commitment to maximize these benefits through domestic policies, strong
institutions, and enhanced international cooperation.
Economic Situation and Financial Stability
We met against the backdrop of continued uncertainty concerning the global
economic outlook. The global economy faces significant challenges and problems
associated mainly with slower than expected recovery and heightened risk
aversion. However, we have confidence in the underlying prospects and potential of
our economies, and in our capacities to achieve higher growth and prosperity.
Recent events reaffirm our belief that sound macro-economic policies, strong
Inslltutlons and good governance are critical for realising this potential while
containing vulnerability to financial crises. Stronger and more effective international
institutions can contribute significantly towards the creation of a robust global
economic environment, thereby complementing national efforts for sustained
growth and prosperity.
Interdependence among national economies and increased integration of financial
markets have brought significant advantages and enormous opportunities for
enhanced growth In many countries. However, countries have become more
exposed to external shocks and susceptible to the consequences of inappropriate
domestic policies. Recent experience has demonstrated the need to strengthen our
capacity to prevent financial crises and to develop effiCient, expeditious, and
socially and economically effective responses to a financial crisis when it occurs.
We believe that effective and accountable International Financial Institutions (IFls)
and worldwide surveillance are essential for a healthy global financial system.
Sustainable exchange rate regimes, prudent asset-liability management, and
implementation of agreed standards and codes are important components of an
effective strategy for crisis prevention. We agreed on the need for sound national
financial systems, effective supervision, and corporate governance in line with
global best practice. We also agreed that capital account liberalisation should
proceed in an appropriately sequenced manner.
A more orderly process of crisis resolution would help to mitigate the social and
economic costs of financial crises and to maintain, or restore more quickly, access
to international capital markets. We therefore support further work by the
international community, in consultation with debtors and creditors, on
comprehensive and market compatible approaches to crisis resolution, including
collective action clauses, a sovereign debt restructuring mechanism (SDRM), and a
code of good practices. We note that proposals are to be tabled by the IMF at the
Spring Meetings, 2003.
http://w\..W.treas.gov/prcss/releases/p03647.htm
12/23/2002
PO-3647: Communique of the G-20 Finance Ministers and Central Bank Governors
Page 2 of2
Globalisation, Trade and Development
We reviewed the natul'e and pace of economic integration, which is at the heart of
globalisation, and its implications for the world community. We agreed that
globalisation has been delivering rising living standards generally, including to many
of the world's poor. The benefits of globalisation can be maximized, and associated
risks mitigated, through the pursuit of appropriate domestic policies and a healthy
external environment. The IFls also have a role to play in this process. Our own
experience, as revealed by the G-20 case studies which are to be published shortly,
and by the evidence presented at the Globalisation Workshop in Sydney, shows
that strong institutions, a climate that fosters savings and investment, transparency,
and the rule of law, coupled with increased investments in infrastructure and human
capital III developing countries are essential ingredients for promoting growth and
reducing poverty.
The process of globalisatlon, however, has not yet delivered its potential in reducing
poverty in some of the world's poorest countries. Reduction of the remaining trade
and related barriers and phasing-out of trade-distorting subsidies would contribute
to spreading further the benefits of globalisation, including to the poorest developing
countries. Trade-related technical assistance is also important to support
developing countries' capacity building efforts.
Recalling the partnership between developed and developing countries, reflected in
the Monterrey and Johannesburg Conferences, we reaffirm our shared commitment
to achieving the Millennium Development Goals, particularly in Africa through
supporting NEPAD. We recognize that development assistance can enable poorer
nations to build capabilities for exploiting the benefits of more integrated markets,
reduced economic distance between nations and greater exchange of global
information and knowledge. Development assistance can playa valuable catalytic
role, including in the provision of global public goods. We welcome the increases in
international development assistance recently announced by some countries
recognising the need for higher ODA. We also welcome the commitment made by
the Development Committee at its September meeting this year to the
implementation and full finnncing of the enhanced HIPC initiative.
Combating the Financing of Terrorism, and other Abuses of the Financial System
When we last met in Ottawa, Canada, in November 2001, we resolved to deny
terrorists and their associates access to, or use of, our financial systems.
While that meeting was shadowed by the events of September 11, 2001, today the
recent tragic events in Bali and Moscow reinforce our resolve to combat terrorism
and those that would fund it. To this end, we reviewed the progress made in
implementing our Action Plan, including the freezing of terrorist assets,
implementation of international standards, exchange of information, provision of
technical assistance, and reporting on our actions. We also agreed to continue our
efforts to eliminate other abuses of the financial system, particularly money
laundering. We pledged to carry forward our work in this regard, through support of
the activities of International Financial Institutions (IFls) and other relevant
international fora, and through appropriate domestic actions. We will review
progress on these matters at our next meeting.
2003 Chairmanship
We welcome Mexico's assumption of the chairmanship of our group in 2003 and
look forward to our next meeting to continue our work toward a more stable,
prosperous, and equitable global economy.
http://www.rreas.gov/pccss/releases/p03647.htm
12123/2002
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
November 25, 2002
RESULTS OF TREASURY'S AUCTION OF 13-WEEK'BILLS
90 -Day Bill
November 29, 2002
February 27, 2003
912795MA6
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.210%
High Rate:
Investment Rate 1/:
Price:
1.228%
99.698
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 16.67%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
38,619,986
1,446,654
191,000
$
5,289,610
5,289,610
Federal Reserve
$
45,547,250
13,362,613
1,446,654
191,000
15,000,267 2/
40,257,640
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
20,289,877
Median rate
1.195%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.180%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio = 40,257,640 / 15,000,267 = 2.68
1/ Equivalent coupon- issue yield.
2/ Awards to TREASURY DIRECT = $1, 180, 149, 000
http://www.publicdebt.treas.gov
PO-3648
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
November 25, 2002
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
181-Day Bill
November 29, 2002
May 29, 2003
912795MP3
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.265%
High Rate:
Investment Rate 1/:
Price:
1.291%
99.364
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 99.48%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
29,753,085
1,026,182
577,000
$
5,589,550
5,589,550
Federal Reserve
36,945,817
$
13,396,905
1,026,182
577,000
15,000,087 2/
31,356,267
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
20,589,637
Median rate
1.250%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.220%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio = 31,356,267 / 15,000,087
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $ 7 61,47
=
2.09
°,°°°
http://www.publicdebt.treas.gov
PO-3649
003-3-25-9-21-32-16396: Quarterly Report to Congress on Financial Implications of U.S.
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
November 25, 2002
2003-3-25-9-21-32-16396
Quarterly Report to Congress on Financial Implications of U.S. Participation
in the International Monetary Fund
This report has been prepared in compliance with Section 504(b) of Appendix E,
Title V of the Consolidated Appropriations Act for FY 20001. The report focuses
exclusively on the financial implications of U.S. participation in the IMF and does
not attempt to quantify the broad and substantial economic benefits to the United
States and the global economy resulting from U.S. participation in the IMF.
Report(s):
•
Quarterly Report to Congress
J:IIWWw.treas.gov!press/releasesI20033259213216396.htm
7117/2003
QUARTERL Y REPORT TO CONGRESS ON
FINANCIAL IMPLICATIONS OF U.S. PARTICIPATION
IN THE INTERNATIONAL MONETARY FUND
NOVEMBER 2002
This report has been prepared in compliance with Section 504(b) of Appendix E, Title V of the
Consolidated Appropriations Act for FY 2000 1• The report focuses exclusively on the financial
implications of U.S. participation in the IMF and does not attempt to quantify the broad and
substantial economic benefits to the United States and the global economy resulting from U.S.
participation in the IMF.
As required, the report provides financial information on the net interest and valuation changes
associated with U.S. participation in the International Monetary Fund (IMF). The broader
context for the financial implications of U.S. participation in the IMF and the methodology used
in deriving these figures is laid out in previous reports; the methodology is also summarized
briefly in the footnotes attached to the tables. Reports under this provision are prepared quarterly
and made available to the public on the Treasury website:
http://www .treas.gov/press/reports.html.
This report provides quarterly data for fiscal year 2002. It provides information on U.S.
participation in the IMF's General Department as well as information related to U.S. holdings of
Special Drawing Rights (SDRs as part of its international reserves and the financial
implications of U.S. participation in the SDR Department of the IMF.
i
Data on the net interest and valuation changes related to U.S. participation in the IMF's General
Department during the third quarter of fiscal year 2002, ended June 30, 2002, are provided in
Table 1. For comparison purposes, previously-reported data for the first and second quarters of
the fiscal year are also provided. Similarly, data for net interest and valuation changes related to
U.S. participation in the SDR Department of the IMF during the first three quarters of fiscal year
2002 are provided in Table 2. The attached footnotes explain the columns shown on each table
and provide pertinent information and assumptions used in the calculations.
As shown in Table 1, for the third quarter of the fiscal year beginning on October 1,2001 (FY
2002), the financial implications of U.S. participation in the General Department reflected a net
Section 504(b) of Appendix E, Title V of the Consolidated Appropriations Act for FY 2000, Public Law 106-113,
113 Stat. 150 lA-317 requires that the Secretary of the Treasury prepare and transmit to the appropriate committees
of the Congress a quarterly report on the costs or benefits of United States participation in the International
Monetary Fund (IMF), detailing the costs or benefits to the United States, as well as valuation gains or losses on the
United States' reserve position in the IMF.
2 The SDR is an international reserve asset created by the IMF. The SDR is used as a unit of account by the IMF
and other international organizations. Its value is determined as a weighted average of a basket of currencies -- the
dollar, euro, pound sterling and yen. The SDR carries a market-based interest rate determined on the basis of a
weighted average of interest rates on short-term instruments in the markets of the currencies included in the SDR
valuation basket.
I
interest effect of positive $15 million. The valuation changes for the third quarter were positive
$1,157 million. 3
As shown in Table 2, for the third quarter of FY 2002, the net interest effect of U.S. participation
in the SD~ Department was positive $3 million. Over the same period, the valuation changes on
SDR holdmgs were positive $315 million. 4
Attachments
For an explanation of the methodology used in deriving these figures, see section on "Calculating the Financial
Implications of U.S. Participation in the General Department" in the report prepared for the fourth quarter of fiscal
year 2000, submitted in December 2000 and available at http://www.treas.gov/press/reports.html.
4 For an explanation of the methodology used in deriving these figures, see section on "Calculating the Financial
Implications of U.S. Participation in the SDR Department" in the report prepared for the fourth quarter of fiscal year
2000, submitted in December 2000 and available at http://www.treas.gov/press/reports.html.
3
2
Table 1
fiscal year
ending 9/30
Net Interest and Valuation Changes Related to U.S. Participation in the General Department
in the IMF, U.S. Fiscal Year, Quarterly
(in millions of U.S. Dollars)
Transactions with the IMF
Interest Calculations
Transactions Under U.S.
Quota (Letter of Credit
&Transfers of Reserve
Assets, Cumulative)
U.S. Loans to lMF Under
Total U.S.
SFF, GAB, NAB
Transactions with the
(Cumulative)
lMF
(Col 1+2)
Interest Associated Remuneration Received
with U.S.
by U.S. from lMF & Interest Received from
Transactions with the
Refund of Burden
lMF Under SFF,
lMF
Sharing
GAB, and NAB
Net Interest
Valuation Changes
Valuation Changes on
U.S. Reserve Position
Totals
Total
(Col 7+8)
(Col 4+5+6)
Col.!
Col. 2
Col. 3
Coi,4
Coi,S
Coi,6
Col, 7
Coi,8
Coi,9
o
o
o
-16,936
-95
105
o
10
-467
-457
-16,264
-89
83
o
-6
-125
-131
-17,889
-87
103
o
15
1,157
1,172
Ql - 2002
-16,936
Q2 - 2002
-16,264
Q3 - 2002
-17,889
Detail may not add to total due to rounding.
Footnotes to Columns in Table 1
Column 1: Total cumulative transactions under the U.S. Quota, including drawings by the IMF under the Letter of Credit (75% portion of the U.S.
quota) and the transfers of reserve assets to the IMF (generally 25% ofthe U.S. quota).
Column 2: Total cumulative dollar funding through loans to the IMF made by the U.S. under the Supplementary Financing Facility (SFF, in
1980), the General Arrangements to Borrow (GAB, in FY1998) and the New Arrangements to Borrow (NAB, in FYI999). All U.S. loans under
the three facilities/arrangements have been repaid.
Column 3: Total cumulative U.S. transactions with the Fund (horizontal summation of columns 1 and 2).
Column 4: Total interest associated with total cumulative transactions shown in column 3. This includes interest paid on additional public
borrowing to fund day-to-day transactions under the Letter of Credit and occasional transfers under loan arrangements (SFF, GAB, NAB), as well
as interest income foregone due to the transfer of reserve assets to the IMF at the time of a quota increase. In order to provide resources under the
Letter of Credit or under loan arrangements, the Treasury borrows from the public via additional issuance in the Treasury market; average cost of
funds is used as a proxy for calculating the associated interest cost. This portion of the total interest paid enters the U.S. budget as interest on the
public debt. For purposes of calculating foregone interest on the transfer of reserve assets to the IMF, the SDR interest rate is used.
Column 5: The U.S. earns interest on the non-gold portion of its reserve position in the IMF. This interest is called remuneration and, in
combination with an adjustment by the IMF related to burden-sharing, is paid by the IMF every quarter. If remuneration is paid in SDRs, it is paid
to the Exchange Stabilization Fund (ESF) and the ESF transfers the dollar equivalent to the Treasury General Fund. It is recorded in the budget as
an offsetting receipt from the public. If the United States took payment in dollars (which it does not now do) the payment would be in the form of
a decrease in the U.S. Letter of Credit and a counterpart increase in the U.S. reserve position.
Column 6: These amounts constitute the interest payments the United States has received on its loans to the IMF under the SFF, GAB, and NAB.
Column 7: Total net interest paid, foregone or received as a result of U.S. participation in the General Department of the IMF.
Column 8: The U.S. reserve position in the IMF is denominated in SDRs. The valuation gain (if positive) or loss (if negative) refers to the
exchange rate gain or loss on the reserve position due to changes in the dollar value of the SDR. For example, if the SDR appreciates/dollar
depreciates, then the dollar value of the reserve position rises and a valuation gain is recorded. This column would also include valuation gains or
losses experienced as a result of U.S. loans under SFF, GAB and NAB.
Column 9: The total of net interest and valuation changes, obtained by summing column 7 and column 8.
Table 2 -- Net Interest and Valuation Changes Related to U.S. Participation in the SDR Department
in the IMF, U.S. Fiscal Year, Quarterly
(in millions of U.S. Dollars)
Total
Interest Calculations
Dollar Value of
SDR Holdings
Col. 1
Dollar Value of
Cumulative SDR
Allocation
Col. 2
Interest Associated
with Financing
Cumulative u.s. SDR
Transactions
Col. 5
Net Interest
(Col. 4 + Col. 5)
Col. 6
Valuation Changes
Col. 7
Total
(Col. 6 + Col. 7)
Col. 8
QI-2002
10.783
6,157
26
-25
0
-115
-115
Q2-2002
10,809
6,109
4,700
27
-24
4
-36
-32
Q3-2002
11,645
6,519
5,127
30
-26
3
315
318
fiscal year
ending 9/30
Detail may not add to total due to rounding.
Interest Earned (or
Net SDR Holdings Paid) on Net SDR
(Col. I - Col. 2)
Holdings
Col. 3
Col. 4
4,626
Valuation Changes
-
Net SDR Holdings
Footnotes to Columns in Table 2
Column 1: Total stock of U.S. holdings of Special Drawing Rights (SDRs) measured from end of period, converted into dollars at the fiscal yearend exchange rate. Source: IMF.
Column 2: Total stock of U.S. SDR allocations measured from end of period, converted into dollars at the fiscal year-end exchange rate. Changes
in dollar value of SDR allocations reflect only exchange rate changes. Source: IMF.
Column 3: Total stock of U.S. SDR holdings minus allocations measured from end of period (Column I minus Column 2), converted into dollars
at the fiscal year-end exchange rate.
Column 4: Net interest earned on SDR holdings. Derived by subtracting charges on SDR allocations (the SDR end-of-quarter interest rate times
SDR allocations) from interest earned on SDR holdings (the SDR end-of-quarter interest rate times SDR holdings). All interest is calculated as
compounding quarterly.
Column 5: Net effect on U.S. borrowing costs due to cumulative net SDR purchases or sales, using the simplifying assumption that transactions
are carried out in dollars. Derived by mUltiplying the dollar equivalent of cumulative net SDR purchases by the average cost offunds rate.
Interest is calculated on the basis of end-quarter holdings and compounded quarterly.
Column 6: Net Interest (Column 4 plus 5).
Column 7: Derived by subtracting the change in total SDR holdings from the change in the dollar equivalent of total SDR holdings (end-period to
end-period) divided by the end-period SDRJdollar exchange rate. The valuation gain (if positive) or loss (if negative) refers to the exchange rate
gain or loss on the reserve position due to changes in the dollar value of the SDR. For example, ifthe SDR appreciates/dollar depreciates, then the
impact on the dollar value of U.S. holdings of SDRs is positive, and a valuation gain is recorded.
Column 8: The total net interest and valuation changes (sum of Columns 6 and 7).
PO-3650: Treasury Secretary O'Neill Applauds Enactment of the Terrorism Risk Insuran...
Page I of2
FROM THE OFFICE OF PUBLIC AFFAIRS
November 26. 2002
PO-3650
Treasury Secretary O'Neill Applauds Enactment of the Terrorism Risk
Insurance Act of 2002 and Announces Treasury's Plans
to Implement the Program
Today President Bush signed into law the Terrorism Risk Insurance Act of 2002.
Since the terrorist attacks of September 11, 2001, the economy has been harmed
by the withdrawal of many insurance companies from the marketplace for terrorism
risk Insurance Their withdrawal in the face of great uncertainty as to their risk
exposure to future terrorist attacks led to the cancellation of construction projects,
increased business costs for the insurance that was available, and substantial riskshifting among corporate balance sheets.
Treasury Secretary O'Neill thanked members of Congress on both sides of the aisle
for their efforts in passing this important legislation. Secretary O'Neill said, "This
legislation is a critical element in our economic recovery. It reduces the economic
risks and economic consequences associated with the threat of future terrorist
attacks. It will help restore insurance capacity to the marketplace, which will
promote new construction and spur economic activity."
The new law establishes a temporary Federal program providing for a system of
shared public and private compensation for insured commercial property and
casualty losses arising from acts of terrorism under the Act. The program will be
administered by the Treasury Department and will sunset on December 31,2005.
The Treasury Department intends to work closely with the National Association of
Insurance Commissioners (NAIC) to implement the program and has begun
consultations with the NAIC on a range of implementation issues.
Under the new law, insurance companies included under the program must make
available to their policyholders coverage for Insured losses from acts of terrorism
under the program
The law also requires Insurance companies to disclose to policyholders the
premium charged for terrorism risk Insurance and the Federal share of
compensation provided under the law.
The Treasury Department will work closely with the NAIC to monitor the effects of
the new law on insurance premiums. Plans to implement the program include:
•
•
Consultation with the NAIC. The Treasury has been in discussion with
the NAIC on disclosures, defining key terms in the Act, and other
implementation issues. The Treasury plans to work closely and consult with
the NAIC throughout the Implementation of the program.
Disclosures. The Act requires insurers to provide clear and conspicuous
disclosure to the policyholder of the premium charged for insured losses
covered by the Terrorism Risk Insurance Program and the Federal share of
compensation under the Program. The Act also allows insurers to reinstate
existing terrorism exclusions if certain disclosures are made to
policyholders. Treasury will issue regulations at a later date, but will issue
interim guidance next week on types of disclosures that could satisfy the
requirements of the Act. In this regard, Treasury will review model
disclosure forms developed by the NAIC. The interim guidance will assist
insurance companies in complying with the Act's disclosure requirements
http://wv.W.treas.gov/press/rcicttses/p03650.htm
12/23/2002
PO-3650: Treasury Secretary O'Neill Applauds Enactment of the Terrorism Risk Insuran... Page 2 of2
prior to issuance of regulations, but will not be the exclusive means of
complying with the Act.
• Definitions and Other Key Decisions. The Treasury will issue regulations
and, where needed, interim guidance in the next few weeks concerning
definitions for several terms contaliled in the Act and how the program will
apply to captive insurers and other self-insurance arrangements, and state
residual market insurance entities.
• Studies. The Act requires the Treasury to study, on an expedited basis,
whether adequate and affordable insurance for acts of terrorism is available
to insurers that issue group life insurance in the United States, and the
extent to which the threat of terrorism is reducing the availability of group life
insurance for consumers. Next week, Treasury plans to submit a notice to
be published in the Federal Register requesting public comment on a series
of questions regarding this study.
• Administrative Issues. A new Terrorism Risk Insurance Program Office
within the Treasury Department will be established and headed by a
Program Administrator. Announcements regarding a Program Administrator
will be made as the plans are finalized over the next few weeks. Treasury
expects the Program Office to have a small staff, relying upon one or more
outside contractors to assist the Treasury in claims administration in the
event of a future terrorist attack that produces claims under the Program.
The Treasury is also announcing the launch of a web site to make information
available to the public on Treasury's implementation of the Act. The site, found at
11ttp \\'.\,,:1 '.c,I".\ il; / I iii" Will provide updated information on the program, including
announcements of all rulemakings, interpretive guidance, and requests for public
comments. The web site will continue to be updated in the upcoming weeks.
http://w¥·w.treas.gov/press/relea.)es/p03650.htm
12/23/2002
FROM THE OFFICE OF PUBLIC AFFAIRS
November 26, 2002
PO-3651
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $75,926 million as of the end of that week, compared to $76,482 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
November 15,2002
November 22, 2002
76,482
75,926
TOTAL
1. Foreign CUITency Reserves
I
a. Securities
Euro
Yen
TOTAL
Euro
Yen
TOTAL
6,499
13,068
19,567
6,426
12,805
19,231
o
o
Of which, issuer headquartered in the Us.
b. Total deposits with:
10,726
h.i. Other central banks alld BIS
2,623
13,349
10,609
2,571
13,180
h.ii. Banks headquartered in the Us.
0
0
b.ii. Of which, banks located abroad
0
0
h.iii. Banks headquartered outside the US.
0
0
b.iii. Of which, banks located in the U.S.
0
0
20,599
20,567
11,925
11,907
11,042
11,042
0
0
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4. Gold Stock
2
3
5. Other Reserve Assets
II. Predetermined Short-Term Drains on Foreign Currency Assets
November 15,2002
Euro
1. Foreign currency loans and securities
Yen
TOTAL
November 22,2002
Euro
o
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
Yen
TOTAL
o
2.a. Short positions
0
0
2.b. Long positions
0
0
3. Other
0
0
Ill. Contingent Short-Term Net Drains on Foreign Currency Assets
November 15,2002
Euro
1. Contingent liabilities in foreign currency
Yen
TOTAL
November 22, 2002
Euro
Yen
TOTAL
o
o
o
o
o
o
o
o
I.a. Collateral guarantees on debt due within I
year
Lb. Other contingent liabilities
2. Foreign cunency securities with embedded
options
3. Undrawn, unconditional credit lines
3.a. With other central banks
3.b. With banks and otherfinancial institutions
Headquartered ill the
u.s.
3.c. With banks and otherfinancial institutiolls
Headquartered outside the
u.s.
4. Aggregate short and long positions of
options in foreign
Currencies vis-a-vis the U.S. dollar
4.a. Short positions
4.a.l. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
2/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 for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to the prior week's IMF data. IMF data for the latest week may be
subject to revision. IMF data for the prior week are final.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
PO-3651. United States and Mexico Sign New Protocol to Income Tax Treaty
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
November 26, 2002
PO-3652
United States and Mexico Sign New Protocol to Income Tax Treaty
Mexico City-Today Deputy Treasury Secretary Kenneth Dam announced that U.S.
Ambassador to Mexico Tony Garza and Mexican Secretary of Foreign Relations
Jorge Castaneda Gutman signed a new Protocol to amend the existing bilateral
income tax treaty, concluded in 1992, between the two countries. The new Protocol
is subject to ratification in accordance with the procedures of each country. In the
United States, the signed Protocol will be transmitted to the Senate for its advice
and consent to ratification.
"The new protocol amending the existing tax treaty between the United States and
Mexico reflects the close economic relationship between our two countries. We are
pleased that the new agreement provides significant reductions in taxes on
dividends, which will further facilitate cross-border trade and investment," stated
Deputy Secretary Darn, in explaining the significance of the Protocol.
The most important aspects of the new Protocol deal with the taxation of crossborder dividend payments. The new Protocol is only the third U.S. tax agreement to
provide a zero rate of withholding tax on dividends arising from certain direct
investments. Dividends from 1O-percent owned corporations which do not qualify
for thiS exemption would continue to be subject to the maximum rate of withholding
tax of 5 percent under the existing treaty. The new agreement thus will serve to
further reduce tax-related barriers to trade and investment flows between the United
States and Mexico.
The new Protocol also brings the tax treaty relationship with Mexico into closer
conformity with U.S. treaty policy and modernizes the treaty to take account of
changes in the laws and policies of both countries since the current treaty was
signed. For example, another important aspect of the new Protocol is a
modernized provision regarding the determination of the source of income for
purposes of applying the rules regarding the elimination of double taxation. Under
the new rule, income that may be taxed by one of the parties in accordance with the
treaty will generally be treated as arising in that country. Thus, the other country
generally will exempt that income or provide a credit for the taxes paid with respect
to such income.
A copy of the new Protocol is attached.
http://www.treas.gov/preSfi/rel~ases/p03652.htm
12/23/2002
SECOND ADDITIONAL PROTOCOL THAT MODIFIES THE CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF THE UNITED MEXICAN STATES
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF
FISCAL EVASION WITH RESPECT TO TAXES ON INCOME
The Government of the United States of America and the Government of the United Mexican
States, desiring to amend the Convention for the A voidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income, along with a Protocol(the
"Convention" and" Protocol", respectively), signed at Washington, D.C. on September 18,
1992; and
Having amended the Convention by an Additional Protocol that Modifies the Convention,
signed at Mexico City on September 8, 1994;
Have agreed upon the following provisions which shall be an integral part of the Convention:
2
ARTICLE I
Article I of the Convention is deleted and the following Article is substituted:
"ARTICLE I
General Scope
I.
This Convention shall apply to persons who are residents of one or both of the
Contracting States, except as otherwise provided in the Convention.
2.
This Convention shall not restrict in any manner any exclusion, exemption, deduction,
credit or other allowance now or hereafter accorded:
3.
a)
by the laws of either Contracting State; or
b)
by any other agreement between the Contracting States.
Notwithstanding the provisions of subparagraph b) of paragraph 2:
a)
any question arising as to the interpretation or application of this Convention
and, in particular, whether a taxation measure is within the scope of this Convention,
shall be determined exclusively in accordance with the provisions of Article 26 (Mutual
Agreement Procedure) of this Convention; and
b)
the provisions of any other agreement shall not apply to a taxation measure
unless the competent authorities agree that the measure is not within the scope of
Article 25 (Non-Discrimination) of this Convention.
For the purposes of this paragraph, a "measure" is a law, regulation, rule, procedure, decision,
administrative action, or any similar provision or action.
4.
Notwithstanding any provision of this Convention except paragraph 5, a Contracting
State may tax its residents (as determined under Article 4 (Residence», and by reason of
citizenship may tax its citizens, as if the Convention had not come into effect.
5.
The provisions of paragraph 4 shall not affect:
a)
the benefits conferred by a Contracting State under paragraph 2 of Article 9
(Associated Enterprises), under subparagraph b) of paragraph I and paragraph 3 of
Article 19 (Pensions, Annuities, Alimony, and Child Support), and under Articles 22
(Exempt Organizations), 24 (Relieffrom Double Taxation), 25 (Non-Discrimination),
and 26 (Mutual Agreement Procedure); and
b)
the benefits conferred by a Contracting State under Articles 20 (Government
Service), 21 (Students), and 28 (Diplomatic Agents and Consular Officers), upon
individuals who are neither citizens of, nor lawful permanent residents in, that State.
6.
a)
A former citizen or long-term resident whose loss of citizenship or long-term
resident status had as one of its principal purposes the avoidance of tax (as defined
under the laws of the Contracting State of which the person was a citizen or long-term
resident) shall be treated for purposes of paragraph 4 of this Article as a citizen of that
Contracting State, but only for a period of 10 years following the loss of such status.
This paragraph shall apply only in respect of income from sources within that
Contracting State (including income deemed under the domestic law of that State to
arise from such sources).
b)
The term "long-term resident" shall mean any individual who is a lawful
permanent resident of a Contracting State in 8 or more taxable years during the
preceding 15 taxable years. In determining whether the threshold in the preceding
sentence is met, there shall not count any year in which the individual is treated as a
resident of the other Contracting State under this Convention, or as a resident of any
country other than the first-mentioned Contracting State under the provisions of any
other tax treaty of that Contracting State, and, in either case, the individual does not
waive the benefits of such treaty applicable to residents of the other country.
7.
In the case of an individual who is a former citizen of a Contracting State, the following
factors shall be considered favorably in determining whether or not one of the principal
purposes of that individual's loss of citizenship of that Contracting State was the avoidance of
tax:
a)
at the time of the individual ceasing to be a citizen of that Contracting State or
within a reasonable period thereafter, the individual is or becomes a resident fully liable
to income tax in the other Contracting State, and
4
b)
i)
the individual was a citizen of both Contracting States at birth and has
remained a citizen of the other Contracting State;
ii)
at the time of the loss of such citizenship (or within a reasonable period
thereafter), the individual was or became a citizen of the other Contracting State,
and that other Contracting State was that individual's country of birth, or the
country of birth of that individual's spouse or of either of that individual's
parents;
iii)
in the 10 years preceding the loss of such citizenship, the individual was
present in that Contracting State for no more than 30 days in each taxable year
or year of assessment; or
iv)
the loss of citizenship occurred before the individual attained the age of
18 and one half years.
8.
In the case of an individual who is a former long-term resident of a Contracting State,
the following factors shall be considered favorably in determining whether or not one of the
principal purposes of that individual's ceasing to be a long-term resident of that Contracting
State was the avoidance of tax:
a)
at the time of the individual ceasing to be a long-term resident of that
Contracting State or within a reasonable period thereafter, the individual is or becomes
a resident fully liable to income tax in the other Contracting State, and that other
Contracting State is:
b)
i)
the country in which the individual was born;
ii)
the country in which the individual's spouse was born; or
iii)
the country where either of the individual's parents was born;
in the 10 years preceding the individual's ceasing to be a long-term resident of
that Contracting State, the individual was present in that Contracting State for no more
than 30 days in each taxable year or year of assessment; or
c)
the individual ceases to be a long-term resident of that Contracting State before
reaching the age of 18 and one half years."
5
ARTICLE II
a)
Article 10 of the Convention is deleted and the following Article is substituted:
"ARTICLE 10
Dividends
I.
Dividends paid by a company which is a resident of one of the Contracting States to a
resident of the other Contracting State may be taxed in that other State.
2.
However, such dividends may also be taxed in the Contracting State of which the
company paying the dividends is a resident, and according to the law ofthat State, but if the
beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged
shall not exceed:
a)
5 percent of the gross amount of the dividends, if the beneficial owner is a
company which owns directly at least 10 percent of the voting stock of the company
paying the dividends; and
b)
10 percent of the gross amount of the dividends in all other cases.
This paragraph shall not affect the taxation of the company in respect of the profits out of
which the dividends are paid.
3.
Notwithstanding the provisions of paragraph 2, dividends shall not be taxed in the
Contracting State of which the company paying the dividends is a resident if the beneficial
owner is a resident of the other Contracting State and is either:
a)
a company that has owned shares representing 80 percent or more of the voting
stock of the company paying the dividends for a 12-month period ending on the date the
dividend is declared, and that:
i)
prior to October I, 1998 owned, directly or indirectly, shares
representing 80 percent or more of the voting stock of the company paying the
dividends; or
6
is entitled to the benefits of the Convention under clauses (i) or (ii) of
ii)
subparagraph d) of paragraph 1 of Article 17 (Limitation on Benefits); or
iii)
is entitled to the benefits of the Convention with respect to the dividends
under subparagraph g) of paragraph 1 of Article 17; or
iv)
has received a determination from the relevant competent authority
pursuant to paragraph 2 of Article 17 with respect to this paragraph; or
b)
a trust, company, or other organization constituted and operated exclusively to
administer or provide benefits under one or more plans established to provide pension,
retirement or other employee benefits and its income is generally exempt from tax in the
Contracting State of which it is a resident, provided that such dividends are not derived
from the carrying on of a business, directly or indirectly, by such trust, company or
organization.
4.
a)
Subparagraph a) of paragraph 2 and subparagraph a) of paragraph 3 shall not
apply in the case of dividends paid by a Regulated Investment Company (RIC) or a
Real Estate Investment Trust (REIT).
b)
In the case of dividends paid by a RIC, subparagraph b) of paragraph 2 and
subparagraph b) of paragraph 3 shall apply.
c)
In the case of dividends paid by a REIT, subparagraph b) of paragraph 2 and
subparagraph b) of paragraph 3 shall apply only if:
i)
the person beneficially entitled to the dividends is an individual or a
person described in subparagraph b) of paragraph 3, in either case owning an
interest of not more than 10 percent in the REIT;
ii)
the dividends are paid with respect to a class of stock that is publicly
traded and the person beneficially entitled to the dividends owns an interest of
not more than 5 percent of any class of the REIT's stock; or
iii)
the person beneficially entitled to the dividends owns an interest of not
more than 10 percent in the REIT and the gross value of no single interest in real
property held by the REIT exceeds 10 percent of the gross value of the REIT's
total interest in real property.
7
5.
The provisions of paragraphs 1,2,3 and 4 of this Article shall not apply if the
beneficial owner of the dividends, being a resident of a Contracting State, carries on or has
carried on business in the other Contracting State, of which the company paying the dividends
is a resident, through a permanent establishment situated in that other Contracting State, or
performs or has performed in that other Contracting State independent personal services from a
fixed base situated in that other State, and the dividends are attributable to such permanent
establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or
Article 14 (Independent Personal Services), as the case may be, shall apply.
6.
The term "dividends" as used in this Article means income from shares or other rights,
not being debt-claims, participating in profits, as well as income from other corporate rights
that is subjected to the same taxation treatment as income from shares by the laws of the State
of which the company making the distribution is a resident.
7.
When a company that is a resident ofa Contracting State derives profits or income from
the other Contracting State, that other State may not impose any tax on the dividends paid by a
company which is not a resident of that State, except insofar as such dividends are paid to a
resident of that other State or the dividends are attributable to a permanent establishment or
fixed base situated in that State.
8.
The competent authorities of the Contracting States shall consult each other with a view
to develop a commonly agreed application of clause iv) of subparagraph a) of paragraph 3 of
this Article, including the publication of regulations or other public guidance."
b)
"8.
Paragraph 8 of the Protocol is deleted and the following is substituted:
With reference to paragraph 3 ofArticle 10 (Dividends).
If the United States agrees in a treaty with another country to a provision similar to paragraph 3
of Article I 0 of the Convention, but with more beneficial conditions than those contained in
paragraph 3 of Article I 0, the Contracting States shall, at Mexico's request, consult each other
with a view to concluding an additional protocol to incorporate similar provisions into
paragraph 3 of Article \0 to restore the balance of the benefits provided under the Convention."
c)
With regard to paragraph 9 of the Protocol, the reference to "paragraph 4 of Article 10
(Dividends)," is deleted and substituted by "paragraph 6 of Article 10 (Dividends),".
8
Article II A of the Convention is amended by inserting an additional paragraph as follows:
"3.
Notwithstanding the provisions of the preceding paragraphs, a company will be exempt
from the tax described in subparagraph a) of paragraph 2 if such company:
a)
prior to October I, 1998, was engaged in activities giving rise to profits
attributable to the permanent establishment described in paragraph 2 or to income
or gains to which the provisions of Article 6 (Income From Immovable Property
(Real Property» or, as the case may be, paragraphs I and 4 of Article \3 (Capital
Gains) apply;
b)
is entitled to the benefits of the Convention under clauses (i) or (ii) of
subparagraph d) of paragraph I of Article 17 (Limitation on Benefits);
c)
is entitled to the benefits of the Convention with respect to the dividends under
subparagraph g) of paragraph I of Article 17; or
d)
has received a determination from the relevant competent authority pursuant to
paragraph 2 of Article 17 with respect to this paragraph."
ARTICLE IV
Paragraph 4 of Article 13 (Capital Gains) of the Convention is deleted and the following
paragraph is substituted:
"4.
In addition to gains taxable in accordance with the provisions of the preceding
paragraphs of this Article, gains derived by a resident of a Contracting State from the alienation
of stock, participation, or other rights in the capital of a company or other legal person which is
a resident of the other Contracting State may be taxed in that other Contracting State if the
recipient of the gain, during the 12-month period preceding such alienation, had a participation,
9
directly or indirectly, of at least 25 percent in the capital of that company or other legal
person."
ARTICLE V
Paragraph 3 of Article 24 (Relief From Double Taxation) of the Convention is deleted and the
following is substituted:
"3.
For the purposes of allowing relief from double taxation pursuant to this Article, an
item of gross income, as determined under the laws of a Contracting State, derived by a
resident of that State that under this Convention may be taxed in the other Contracting State
(other than solely by reason of citizenship in accordance with paragraph 4 of Article I (General
Scope)), shall be deemed to be income from sources in that other State."
ARTICLE VI
a)
The Contracting States shall notify each other, through diplomatic channels, when their
respective constitutional and statutory requirements for the entry into force of this Protocol
have been satisfied. This Protocol shall enter into force on the date of receipt of the later of
such notifications.
b)
The provisions of this Protocol shall have effect:
i)
in respect of Article II, for dividends paid or credited on or after the first day of
the second month next following the date on which the Protocol enters into force;
ii)
in respect of Articles I, III, IV and V, for taxable periods beginning on or after
the first day of January of the year following the year in which the Protocol enters into
force.
10
ARTICLE VII
This Protocol shall remain in force as long as the Convention and Protocol of September 18,
1992, remain in force.
IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their respective
Governments, have signed this Protocol.
DONE at _ _ _ _ _ _ _ _, on the _ _ day of _ _ _ _ _ _ , 2002, in duplicate, in
the English and Spanish languages, both texts being equally authentic.
FOR THE GOVERNMENT OF THE
UNITED STATES OF AMERICA:
FOR THE GOVERNMENT OF THE
UNITED MEXICAN STATES:
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
November 26, 2002
RESULTS OF TREASURY'S AUCTION OF 4-WEEK BILLS
27-Day Bill
November 29,
December 26,
912795LRO
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1.250%
High Rate:
2002
2002
Investment Rate 1/:
Price:
1.272%
99.906
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 11.79%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
FIMA (noncompetitive)
$
SUBTOTAL
Federal Reserve
$
TOTA~
41,749,957
40,509
$
21,959,517
40,509
o
o
41,790,466
22,000,026
1,828,559
1,828,559
43,619,025
$
23,828,585
Median rate
1.225%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
1.210%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
41,790,466 / 22,000,026
=
1.90
II Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
PO-3653
PO-3654~
ATSB Deeisien On MEDjet International, Inc.
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Readel®.
November 26, 2002
PO-3654
ATSB Decision On MEDjet International, Inc.
WASHINGTON, DC - The Air Transportation Stabilization Board (Board)
announced today that it has denied the application of MEDjet International, Inc. for
a Federal guarantee of $7.7 million on an $8.8 million loan pursuant to the Air
Transportation Safety and System Stabilization Act (Act) and implementing
regulations promulgated by the Office of Management and Budget (Regulations).
The Board concluded its review based on the standards set out in the Act and the
Regulations and determined that' MEDjet's application did not meet the applicable
standards for the reasons described in the attached letter. The vote to deny the
application was unanimous.
Additional information about the ATSB is available on its web site,
www.treas.gov/atsb.
Related Documents:
•
MEDjet Decision Letter
http://www.1[eas.gov/press/rel~ases/po3654.htm
12/23/2002
.:!'
DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
[Air Transportation Stabilization Board Letterhead]
Daniel Montgomery
Executive Director
November 26, 2002
Jeffrey T. Tolbert
President
MEDjet International, Inc.
1000 Urban enter Drive
Birmingham, AL 35242
Dear Mr. Tolbert:
In accordance with the Air Transportation Safety and System Stabilization Act, Pub. L. No.
107-42, 115 Stat. 230 (the "Act") and the regulations promulgated thereunder, 14 CFR Part
1300 (the "Regulations"), the Air Transportation Stabilization Board (the "Board") has
considered the application of MEDjet International, Inc. ("MEDjet") dated June 28, 2002, as
supplemented (the "Application"), for a Federal loan guarantee of$7.7 million on a loan of
$8.8 million.
During the process of reviewing the Application, the Board staff held telephone calls with
you. The Board staff met with you and your advisors on September 10,2002 and October 9,
2002. Representatives of each Board member attended the meeting on October 9,2002.
Following trese meetings and communications, the Board staff and representatives of each
Board member fully briefed the Board members on the Application.
The Board has carefully considered the Application under the standards set out under the Act
and the Regulations. The Board's consideration included a review and analysis of the
Application by the Board's staff and the Board's financial and industry consultants. Based on
its review, the Board determined that the Application did not meet the applicable standards,
and, accordingly, the Board voted to deny the Application.
The Board detern1ined that MEDjet's proposal did not provide a reasonable assurance that
MEDjet would be able to repay the loan, an important evaluation criteria that the Board is
required to consider in assessing loan applications. The Board's financial consultant assigned
MEDjet's proposed financing an extremely low credit rating. Such a rating implies a high
probability of default. For a1\ government-guaranteed loan applications, a credit subsidy is
computed, which represents the expected cost to the U.S. taxpayers of guaranteeing the loan.
The figures for MEDjet implied a high probability of default and related credit subsidy that
the Board deemed too high to impose on the U.S. taxpayers. In addition, based upon
MEDjet's historical losses, the Board's assessment that MEDjet's future cash flows are
significantly dependent upon business initiatives yet to be commenced and the Board's
concerns about the unpredictability of MEDjet's future business, the Board was unable to
conclude that the loan by MEDjet was prudently incurred.
If you have any questions regarding this matter, please do not hesitate to contact me.
Sincerely,
PO-365S: ATSB
Deci~ion
On Corporate Airlines
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
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November 26, 2002
PO-3655
ATSB Decision On Corporate Airlines
WASHINGTON, DC - The Air Transportation Stabilization Board (Board)
announced today that it has denied the application of Corporate Airlines, Inc. for a
Federal guarantee of $7.0 million on an $8.0 million loan pursuant to the Air
Transportation Safety and System Stabilization Act (Act) and implementing
regulations promulgated by the Office of Management and Budget (Regulations).
The Board concluded its review based on the standards set out in the Act and the
Regulations and determined that Corporate's application did not meet the
applicable standards for the reasons described in the attached letter. The vote to
deny the application was unanimous.
Additional information about the ATSB is available on its web site,
www.tl·eas.go'Jiatsb.
Related Documents:
•
Corporate Decision Letter
http://www .treflS.gov/press./reJ eases/po3 65 5 .htrn
12/23/2002
DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
[Air Transportation Stabilization Board Letterhead]
Daniel Montgomery
Executive Director
November 26,2002
Fred S. Breeden
Chief Financial Officer
Corporate Airlines, Inc.
693 Fitzhugh Boulevard
Smyrna, Tennessee 37167
Dear Mr. Breeden:
In accordance with the Air Transportation Safety and System Stabilization Act, Pub. L. No.
107-42, 115 Stat. 230 (the "Act") and the regulations promulgated thereunder, 14 CFR Part
1300 (the "Regulations"), the Air Transportation Stabilization Board (the "Board") has
considered the application of Corporate Airlines, Inc. ("Corporate") dated June 26, 2002, as
supplemented (the "Application"), for a Federal loan guarantee of $7 million on a loan of $8
million.
During the process of reviewing the Application, the Board staff held telephone calls with you
and your advisors and communicated additional requests for information. The Board staff
met with you and your advisors on August 21, 2002 and November 6, 2002. Representatives
of each Board member attended the meeting on November 6, 2002. Following these meetings
and communications, the Board staff and representatives of each Board member fully briefed
the Board members on the Application.
The Board has carefully considered the Application under the standards set out under the Act
and the Regulations. The Board's consideration included a review and analysis of the
Application by the Board's staff and the Board's financial and industry consultants. Based on
its review, the Board determined that the Application drl not meet the applicable standards,
and, accordingly, the Board voted to deny the Application.
The Board determined that Corporate's proposal did not provide a reasonable assurance that
Corporate would be able to repay the loan, an important evaluation criteria that the Board is
required to consider in assessing loan applications. The Board's financial consultant assigned
Corporate's proposed financing an extremely low credit rating. Such a rating implies a high
probability of default. For all government-guaranteed loan applications, a credit subsidy is
computed, which represents the expected cost to the U.S. taxpayers of guaranteeing the loan.
The figures for Corporate implied a high probability of default and related credit subsidy that
the Board deemed too high to impose on the U.S. taxpayers. In addition, based upon
Corporate's periodic losses, low average projected liquidity and the Board's concerns about
Corporate's optimistic expansion strategy and the financial projections related thereto, the
Board was unable to conclude that the loan by Corporate was prudently incurred.
If you have any questions regarding this matter, please do not hesitate to contact me.
Sincerely,
PO-3650: Wayne Abernathy Sworn in as Treasury Assistant Secretary for Financial Instit... Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
December 2,2002
PO-3656
Wayne Abernathy Sworn in as Treasury Assistant Secretary for
Financial Institutions
Wayne A. Abernathy today was sworn In as Treasury Assistant Secretary for
Financial Institutions. He was nominated by President Bush on August 1, 2002 and
confirmed by the US Senate on November 14, 2002.
As Assistant Secretary, Mr. Abernathy will lead the Office of Financial Institutions in
coordinating the Department's efforts regarding financial institutions legislation and
regulation, legislation affecting federal agencies that regulate or insure financial
institutions, and securities markets legislation and regulation. He will oversee
Treasury's newly created Terrorism Risk Insurance Program. He also will be
responsible for the promotion of consumer access and protection in financial
services.
Mr. Abernathy will oversee the Office of Financial Education, the Community
Development Financial Institutions Fund and the Office of Sallie Mae Oversight
Mr. AbernatilY brings more than 20 years of financial poliCY expertise to the
position He most recently served as Republican Staff Director of the US. Senate
Committee on Banking, Housing, and Urban Affairs, where he also served as
committee Staff Director to Chairman Phil Gramm from 1999 until 2001.
Previous experience with the Senate Banking Committee includes serving as Staff
Director of the Subcommittee on Securities during 1995-1998. From 1989 until
1994, Mr. Abernathy was a Republican economist for the committee. He previously
worked as a senior legislative assistant for Senator Gramm during 1987-1989 and
as an economist for the Banking Committee's Subcommittee on International
Finance and Monetary Policy during 1981-1986.
Mr. Abernathy earned his bachelor's degree in International Studies from The
Johns Hopkins University in 1978, graduating with honors. In 1980, he earned a
master's degree in International Economics, International Law and Organization,
International Politics from the School of Advanced International Studies at The
Johns Hopkins University. Mr. Abernathy is married with five children and resides in
Fairfax, VA.
http://www.trells.goY/pre~sJreleases/po3656.htm
12/23/2002
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
November 27,
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%
U -2004
912828AQ3
High Yield:
Price:
2.120%
December 02, 2002
November 30, 2002
November 30, 2004
99.767
All noncompetitive and successful competitive bidders were awarded
securities at the high yield.
Tenders at the high yield were
allotted 53.79%.
All tenders at lower yields were accepted in full.
Accrued interest of $ 0.10989 per $1,000 must be paid for the period
from November 30, 2002 to December 02, 2002.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
FIMA (noncompetitive)
$
47,011,721
784,422
$
27,000,043 1/
47,796,143
5,863,933
5,863,933
Federal Reserve
$
53,660,076
26,215,621
784,422
°
°
SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
32,863,976
Median yield
2.080%:
50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low yield
2.040%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 47,796,143 / 27,000,043 = 1.77
1/ Awards to TREASURY DIRECT = $597,939,000
http://www.publicdebt.treas.gov
PO-3657
@FedFRASER