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Treas.
HJ

10
.A13
P4

v.419

Department of the Treasury

PRESS RELEASES

The following numbers were not used:

JS-1982, 2007,2009,2010, 2018, 2019, 2075, 2078, 2081

Department of the Treasury

Ubrary

AUG 2 6 2005

:-1972: Joint Statement 16th Ses~ion of the U.S.-China Joint Economic Committee Washing ... Page 1 of2

PHLSS H()OM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1 , 2004
JS-1972
Joint Statement
16th Session of the U.S.-China Joint Economic Committee
Washington, DC, September 30, 2004
At the invitation of U.S. Treasury Secretary John W. Snow, Chinese Finance
Minister Jin Renqing led an official delegation to the United States to co-chair the
16th session of the China-U .S. Joint Economic Committee (JEC), a forum first held
in 1980, on September 30, 2004. U.S. Federal Reserve Board Chairman Alan
Greenspan, People's Bank of China Governor Zhou Xiaochuan, and China Banking
Regulatory Commission Chairman lIu Mingkang also participated in the meeting.
Both sides noted the importance of the ongoing constructive and substantive highlevel dialogue between the two countries involving key economic pollcymaking
agencies on economic and financial issues. The two sides discussed a range of
topics, including macroeconomic policy, financial sector Issues, and efforts to
combat terrorist financing and money laundering.
The two sides discussed the global economic situation and the outlook for their two
economies. They noted that strong economic performance in both the United States
and China contributed to the fastest rate of growth of the world economy in two
decades. They noted with satisfaction the continued favorable outlook for 2005,
notwithstanding the risks to the outlook, including those associated with high oil
prices. Participants discussed monetary, fiscal, and exchange rate policies to
support continued strong growth In both economies. They noted the policy
measures taken in China to assure sustained and stable growth. The Chinese
affirmed that ttley would contillue to implement market-oriented reforms to promote
sustainable, long-term economic growth in China. U.S officials described the strong
U.S. recovery brought about by timely fiscal and monetary policy measures. The
budget deficit in 2004 is now projected to be well below earlier forecasts. The U.S.
side confirmed the Administration's goal to cut the deficit by half within five years.
The U.S. side explained that strong growth and favorable US investment
opportunities have led to an expansion of the US current account deficit, but these
pressures should diminish as international growth becomes more balanced and
widespread. Both sides emphasized the importance of the Doha Round of
multilateral trade negotiations, and promised their full effort to bring the Round to a
successful conclusion.
Participants underscored the importance of healthy, competitive, and efficient
financial markets In assuring that their economies achieve their full growth potential.
Chinese participants described steps being undertaken to strengthen the banking
system and to develop domestic capital markets, including recent steps in capital
market reform China reiterated its commitment to further liberalization and opening
of its financial services sector. The Chinese side reaffirmed China's commitment to
further advance reform and to push ahead firmly and steadily to a market-based
flexible exchange rate, and described the steps the Chinese government has taken
to create conditions to establish a more flexible exchange rate. The US. side
expressed support for continued efforts by the Chinese government to bring about
this goal as rapidly as possible. Both sides acknowledged the value of ongoing
bilateral discussions on these issues, including the technical cooperation program
that had been established as a means to accelerate reforms In the finanCial market
and currency regime.
Both sides pledged to continue their cooperation to counter the financing of

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ptm

7/112005

1972: Joint Statcmcnt 16th SCSS-!011 of the U.S.-China Joint Economic Committee Washing... Page 2 of 2

terrorism and money laundering on a global basis. Both sides noted the important
efforts being made through ttle Financial Action Task Force (FATF). The United
States welcomed China's intent to participate in the inaugural meeting of the
Eurasian FATF-style regional body on money laundering in October. China affirmed
Its willingness to be actively involved in an anti-money laundering and anti-terrorist
financing regional body and to take the necessary steps to obtain full membership
in the FATF. The United States strongly supports Chllla's Involvement in antimoney laundering and anti-terrorist financing activities, and its steps to obtain full
membership in the FATF.
The two sides discussed U.S. voting policies on MOB loans to China. The U.S side
noted China's view that the United States should support the full range of Chinese
MOB proJects.
The Chinese side expressed its Intention to join the Inter-American Development
Bank (IADB), and reiterated China's willingness to make a greater contribution to
the cause of poverty reduction in Latin America and the world at large. The United
States supports China's endeavor to join the IADB.
Participation on the U.S. side included representatives from the Treasury, Federal
Reserve Board, Council of Economic Advisers, Office of the Comptroller of the
Currency, Commodity Futures Trading Commission, Securities and Exchange
Commission, and the Department of State.
The Chinese delegation included the Ministry of Finance, People's Bank of China,
China Banking Regulatory Commission, Ministry of Foreign Affairs, National
Development and Reform CommiSSion, and China Securities Regulatory
Commission

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7/1/2005

JS-1973: Treasury Announces Met) ro Strengthen BSA Compliance Enhanced Info ... Page 1 of 1

PF~LSS

HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®,

October 1, 2004
JS-1973
Treasury Announces MOU to Strengthen BSA Compliance
Enhanced Info Sharing, Denying Criminals Access to the U.S. Financial
System
The U,S, Department of the Treasury today announced a Memorandum of
Understanding (MOU) setting forth information sharing procedures between the
Treasury's Financial Crimes Enforcement Network (FinCEN) and the federal
banking regulators, Parties to the agreement include: the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the National
Credit Union Administration, FinCEN, the Office of the Comptroller of the Currency,
and the Office of Thrift Supervision,
"This MOU marks another step in strengthening Bank Secrecy Act compliance and
protecting the U.S. financial system from corruption by terrorists and other
criminals," said Stuart Levey, Treasury's Under Secretary for the Office of Terrorism
and Financial Intelligence (TFI).
"The enhanced collaboration will help FinCEN better administer the BSA while
simultaneously assisting the regulators to better fulfill their roles as banking
organization supervisors," said Levey.
"Today's announcement is the result of excellent teamwork between the regulators
and Treasury and noteworthy leadership by the Senate Banking Committee and the
House Financial Services Committee," Levey concluded.

REPORTS
•

FrnCEN-Bankmg Regulators MOU

http://ww"-..treas.gov/press/release:;fjsI973.htm

113/2005

MEMORANDUM OF UNDERSTANDING
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
National Credit Union Administration
U.S. Department ofthe Treasury, Financial Crimes Enforcement Network
U.S. Department of the Treasury, Office of the Comptroller of the Currency
U.S. Department of the Treasury, Office of Thrift Supervision
I.

Background
A.

Purpose.

This Memorandum of Understanding ("MOU") sets forth procedures for the
exchange of certain information among the Board of Governors of the Federal Reserve System
(the "Board"), the Federal Deposit Insurance Corporation (the "FDIC"), the National Credit
Union Administration (the "NCUA"), the Office of the Comptroller of the Currency (the
"OCC"), the Office of Thrift Supervision (the "OTS") (collectively, the Federal Banking
Agencies ("FBAs")), and the Financial Crimes Enforcement Network ("FinCEN"), a bureau
within the U.S. Department of the Treasury (collectively, the "Agencies").
Information to be exchanged under this MOU includes information about
FinCEN's administration of the Bank Secrecy Act ("BSA"), Titles I and II of Pub. L. 91-508, as
amended, codified at 12 U.S.C. § 1829b, 12 U.S.c. §§ 1951-1959, and 31 U.S.c. §§ 5311-5332;
information relating to the FBAs' policies and procedures for examination ofBSA compliance;
significant BSA compliance issues at banking organizations supervised by the FBAs; and
analytical data based on or derived from information provided by the FBAs.
Exchanges of information pursuant to the terms of this MOU are intended by the
Agencies to help FinCEN in fulfilling its role as administrator of the BSA and to assist the FBAs
in fulfilling their role as banking organization supervisors. The Agencies intend for this MOU to
further the purpose of the BSA by better ensuring compliance in the filing of reports and keeping
of records that "have a high degree of usefulness in criminal, tax or regulatory investigations or
proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis,
to protect against international terrorism.,,1 Through this MOU, the Agencies intend to improve
and enhance the level of interagency cooperation in the area of BSA examination and
compliance. From the standpoint of policy, examination, and enforcement, this MOU will
enable the Agencies to maximize their resources in discharging their statutory obligations.
Ultimately, the collective goal of the Agencies is to enhance communication and coordination to
help financial institutions identify, deter and interdict terrorist financing and money laundering.
Finally, by the effective use of the information exchanged under the provisions of
this MOU, the Agencies will also seek to enhance the level of assistance and analysis that can be
provided to the banking industry and to law enforcement in the area of BSA compliance.

131 U.S.c. § 5311.

Jurisdiction.

Each FBA has plenary examination and enforcement authority for the financial
condition, safe and sound operation, and compliance with laws and regulations of the banking
organizations it supervises.
Under delegated authority from the Secretary of the Treasury, FinCEN is the
administrator of the BSA. 2 FinCEN has the authority under 31 U.S.c. § 5318(a)(3) to examine
financial institutions for compliance with the BSA and regulations promulgated under the BSA
at 31 C.F .R. Part 103, as well as to take enforcement actions for violations of the BSA and the
implementing regulations under 31 U.S.c. §§ 5320-23. The Secretary has delegated BSA
examination authority, but not enforcement authority, to each FBA with respect to banking
organizations supervised by that FBA. The FBAs have separate authority pursuant to 12 U.S.C.
§§ 1786 and 1818 to ensure that banking organizations comply with all laws and regulations,
including the BSA. FinCEN's regulations specify that each agency that performs FinCEN's
delegated examination authority shall make periodic reports to FinCEN.
C.

Assessment of MOU Operation.

The Agencies shall meet, no less often than annually, to discuss the operation of
the MOU and to identify any issues or adjustments that may be required. During such meetings,
FinCEN will provide an update on how the information provided by the FBAs under this MOU
has been used or applied by FinCEN. The Agencies will also evaluate the effectiveness of the
information sharing in meeting the goals outlined above.
II.

Provision of Information to FinCEN by the FBAs

A.
Annual Report. Each FBA shall provide the Director of FinCEN or the Director's
designee with the following information on an annual basis by October 1 of each year. For the
first such report, each FBA shall provide the information by November 15, 2004. Each FBA will
provide a summary of its BSA examination program that includes:
1)

Number of financial institutions the FBA examines for BSA compliance
as of the date of the report;

Description of the FBA's BSA examination cycle(s);

Description of criteria used for determining timing and scope of BSA
examinations;

See Treasury Order 108-01, dated September 26,2002. The Secretary is authorized to delegate such
responsibilities to FinCEN pursuant to 31 U.S.c. § 31O(b)(2)(l) and (1).

331 C.F.R. § 103.56(e). While 31 C.F.R. § 103.56 refers specificalIy to the Assistant Secretary (Enforcement),
under Section 8(c) of Treasury Order 108-01, dated September 26,2002, the term "Assistant Secretary
(Enforcement)" as used in the regulations, rules, instructions and forms issued or adopted for the administration and
enforcement of the BSA, shaH be held to mean the Director ofFinCEN.

Description of BSA examination staffing and resources, including, if
available, the number of full time equivalent emplovees devoted to BSA
compliance;

Description of BSA training programs provided to examiners; and

Description of the extent to which the FBA coordinates with and relies on
State banking regulatory agencies to conduct BSA examinations. Specific
agreements with State examination agencies need not be provided, but will
be available to FinCEN upon request.

B.
Program Documents. To the extent FinCEN does not already have them, each
FBA will provide copies of written program documents pertaining to BSA examination, or
amendments thereto, when they become available. Program documents include:

BSA examination workprogram documents, including core or basic
procedures, expanded procedures, procedures for areas to receive special
scrutiny, and any other written procedures pertaining to BSA
examinations;

Written guidance pertaining to BSA examinations, including relevant
sections from manuals of examination policies, handbooks, policy
statements, and any other written directives that represent the current
examination policy of the FBA; and

Relevant sections from written instructions for preparing BSA-related
comments and citing BSA violations in Reports of Examination.

C.
Quarterly Reports. Within 45 days after the end of each calendar quarter, each
FBA shall provide to FinCEN the following aggregate information:
4

1) Number ofBSA examinations conducted within the agency's established
BSA examination cycle, including examinations conducted by the FBA jointly
with a State banking agency;
2) Number ofBSA examinations conducted by a State banking agency and
reviewed by the FBA under an established joint or alternate examination
program where the examination is not conducted by the FBA jointly with a
State banking agency;

For purposes of this MOO, an examination has been "conducted" once a final Report of Examination is issued to
the subject financial institution, or once there is an interim written communication to the financial institution
analogous to the issuance of a final Report of Examination.
4

3) Number ofBSA examinations or visitations conducted outside the agency's
established BSA examination cycle;
4) Number of banking organizations cited for BSA violations under either Title
12 or Title 31 of the United States Code;
5) Number and type of BSA violations cited under either Title 12 or Title 31 of
the United States Code;
6) Number of enforcement actions by category taken to address BSA compliance
under either Title 12 or Title 31 of the United States Code;
7) Number of terminated enforcement actions by category that addressed BSA
compliance under either Title 12 or Title 31 of the United States Code; and
8) If available, list of banking organizations instructed to request currency
transaction report backfiling determinations.
D.
Special BSA Examination Project Information. Prior to a FBA conducting any
special BSA examination initiative, the FBA shall notify FinCEN and provide FinCEN with
written information regarding the special BSA examination initiative. Written information to be
provided to FinCEN shall include, but is not limited to, a description of the scope of the special
BSA examination initiative and the procedures and criteria used by the FBA to determine the
scope. For purposes of this MOU, a "special BSA examination initiative" is defined as a special
initiative designed to address identified or emerging risks on a national or regional basis. It also
includes examinations conducted because of, or to address, serious anti-money laundering issues
that could have a national systemic impact on the banking industry. Nothing in this paragraph
shall affect the exercise of a FBA's examination authority with respect to institutions under its
supervISIOn.
E.
Provision oflnformation Concerning Significant BSA Violations or Deficiencies.
As set forth below, the FBAs will promptly notify FinCEN of significant BSA violations or
deficiencies. For purposes of this MOU, a "significant BSA violation or deficiency" includes: a
systemic or pervasive BSA compliance program deficiency; systemic or pervasive BSA
reporting or recordkeeping violations; or a situation where a banking organization fails to
respond to supervisory warnings concerning BSA compliance program deficiencies or systemic
or pervasive recordkeeping or reporting violations, or continues a history of program, or
systemic or pervasive recordkeeping or reporting deficiencies, even when such deficiencies or
violations are dissimilar to those cited in prior Report(s) of Examination or supervisory
cOlTespondence. A significant BSA violation or deficiency also includes a non-technical, onetime BSA violation that demonstrates willful or reckless disregard for the requirements of the
BSA, or that creates a substantial risk of money laundering or the financing of terrorism within
the institution.
Each FBA shall provide FinCEN with information as follows:

1) When a FBA discovers a significant BSA violation or deficiency, the FBA
will notify FinCEN as soon as practicable, but no later than 30 days after the
FBA cites the organization, in a written communication, for a significant BSA
violation or deficiency.
2) As soon as practicable, but no later than 30 days after completion, the FBA
will provide to FinCEN portions of the Report(s) of Examination and other
written materials relating to the significant BSA violation or deficiency.
3) To the extent that FinCEN is not already a party to the action, the FBA will
notify FinCEN of public enforcement actions involving a significant BSA
violation or deficiency as soon as practicable, but no later than 30 days after
the FBA has decided to pursue the action. In all cases, the notification must
occur before such action is made public. For all other enforcement actions
involving a significant BSA violation or deficiency, the FBA will notify
FinCEN of the action as soon as practicable, but no later than 30 days after
taking the action.
4) Follow-up Information on Enforcement Actions. If an enforcement action
involving a significant BSA violation or deficiency requires the banking
organization subject to the action to take corrective measures, develop and
implement an action plan, or submit progress reports to the FBA, the FBA
will provide FinCEN with a quarterly assessment of those banking
organizations that have failed to comply with such requirements. The FBA
will provide to FinCEN copies of any relevant Report( s) of Examination
related to such banking organizations ifnot otherwise provided. Copies of the
Report(s) of Examination will be provided as soon as practicable, but not later
than 30 days after completion. Upon request by FinCEN, the FBA will
provide reports submitted by the banking organization in response to an
enforcement action, as well as Report(s) of Examination related to follow up
on actions involving a significant BSA violation or deficiency.
5) Resolution of Actions Involving a Significant BSA Violation or Deficiency.
To the extent not otherwise known to FinCEN, the FBAs will notify FinCEN
of the resolution of any action involving a significant BSA violation or
deficiency as soon as practicable, but no later than 30 days after the resolution
of the action, and provide any material relevant to the resolution. For
purposes of this MOU, resolution is defined as termination of an action, or the
issuance of a subsequent action.
6) Report(s) of Examination, Workpapers, and Supporting Documentation.
Portions of the Report(s) of Examination relating to BSA examinations that
are not provided under ILE.l) through 5) shall be available to FinCEN as soon
as practicable upon FinCEN's written request, but no later than 15 days after
such request. Workpapers and supporting documentation relating to BSA

examinations shall be available to FinCEN as soon as practicable upon
FinCEN's written request, but no later than 45 days after such request.
F.
Format for Information. The format for providing information to FinCEN may
vary among the FBAs. Each FBA shall provide information under this MOU in a format that is
mutually acceptable to FinCEN and the FBA. Where available, information provided to FinCEN
under this MOU shall be provided in electronic format.

III.

Provision of Information to the FBAs by FinCEN

A.
Quarterly Reports. Within 75 days of the end of each calendar quarter, FinCEN
shall provide to the FBAs a compilation that summarizes by FBA all the data provided to
FinCEN by the FBAs for the previous calendar quarter under paragraph ILC of this MOU.
Additionally, FinCEN will provide each FBA a report identifying those banking organizations
subject to the FBA's supervision against which FinCEN is considering pursuing civil
enforcement remedies under the BSA.
B.

FinCEN Enforcement Actions.
1) When FinCEN learns of a significant BSA deficiency or violation within a
banking organization pursuant to paragraph ILE. of this MOU, FinCEN wilI
notify the FBA with supervisory authority over the banking organization
whenever FinCEN determines that the imposition of civil enforcement
remedies under the BSA may be warranted. Notification from FinCEN shall
be made as soon as practicable, but no later than 30 days after the
determination, and in any event before taking any public enforcement action.
2) FinCEN will notify a banking organization's FBA prior to taking an
enforcement action against any banking organization.
3) A copy of correspondence relating to a pending or possible enforcement
action sent by FinCEN to a banking organization shall be sent to the FBA that
supervises such banking organization. Copies of correspondence received by
FinCEN from a banking organization relating to a pending or possible
enforcement action shalI be forwarded to the FBA that supervises such
banking organization to the extent the FBA has not received a copy.

C.
FinCEN Analytical Products. The information provided by the FBAs pursuant to
this MOU will further assist FinCEN, alone and in conjunction with the FBAs, in developing a
variety of analytical products that identify common BSA compliance deficiencies, patterns and
trends in BSA compliance, developments in money laundering and terrorist financing, and trends
and best practices in BSA examination. Such products will also focus on assisting the banking
organizations and other financial institutions in meeting their BSA compliance obligations.
Accordingly, FinCEN will provide the FBAs, and, as appropriate, the industry, and the public
with such analytical products to enhance the overalI effectiveness of the Agencies'
administration of the BSA.

D.
Assistance in Identifying BSA Compliance Deficiencies within Banking
Organizations. Using information provided pursuant to this MOU, as well as BSA data and
other information, FinCEN will provide support to the FBAs in helping to identify banking
organizations with possible BSA compliance deficiencies for the purpose of assisting the FBAs
in utilizing their examination resources.
E.
Public Reports by FinCEN. In the event that information (other than confidential
supervisory information, which is subject to the restrictions in Section IV of this MOU) provided
by the FBAs is included in any documents that are made public or disclosed to any
Congressional entity, such documents shall be provided to the FBAs before they are released by
FinCEN with as much notice as possible.

IV.

Restrictions on Disclosure and Use of Confidential Supervisory Information
Provided to FinCEN by FBAs

A.
1) Each FBA retains ownership of all information provided to FinCEN under this
MOU. All confidential supervisory information provided by an FBA remains subject to that
FBA's regulations governing the disclosure of confidential supervisory information. FinCEN
will use information provided by the FBA under this MOU in accordance with the restrictions
applicable to information shared by each FBA under that FBA's regulations. 5 Except as
provided in IV.A.2, FinCEN will make no public use of confidential supervisory information
provided by an FBA under this MOU without the prior written approval of the FBA.
2) Confidential supervisory information provided by an FBA under this MOU
may be used by FinCEN in investigative proceedings and, upon notice to the FBA, FinCEN may
base factual findings in its enforcement orders on factual information it obtains as a result of its
review of confidential supervisory information.
3) FinCEN will establish and maintain such safeguards as are necessary and
appropriate to protect the confidentiality of the information which is provided under this MOU
and information derived therefrom.
4) FinCEN will notify the applicable FBA in writing of any legally enforceable
demand for information provided by a FBA under this MOU, prior to complying with the
demand. FinCEN will assert all such legal exemptions or privileges on the FBA' s behalf as the
FBA may request. Unless subject to a court order or other compulsory process, FinCEN may not
grant any demand or request for the information without prior written notice to, and approval of,
the FBA.
5) Each FBA expressly reserves all evidentiary privileges and immunities
applicable to any information provided to FinCEN under this MOU.

5 The applicable regulations are found at: 12 C.F.R. Part 261 (Board); 12 C.F.R. Part 4 (OCC) ; 12 C.F.R. Part 309
(FDIC); 12 C.F.R. § 510.5 (OTS); and 12 C.F.R. Part 792 (NCUA).

B.
Confidentiality Restrictions of State Financial Institution Supervisory Agencies.
Disclosure to FinCEN of confidential supervisory information that is jointly held by a FBA and a
state financial institution supervisory agency shall be subject to the state financial institution
supervisory agency's approval. The Agencies shall use their best efforts to obtain the
prospective approval of state financial institution supervisory agencies as necessary for all
disclosures to FinCEN required under this MOU.
V.

Restrictions on Disclosure and Use of Information Provided by FinCEN to FBAs

FinCEN analytic products typically incorporate information obtained from BSA
reports, and may also be based on information from other sensitive sources, such as law
enforcement. The FBAs agree that, unless advised in writing by FinCEN to the contrary,
FinCEN analytic products received under this MOO shall not be publicly disclosed, nor
disseminated beyond the recipient agency, without written authorization from FinCEN.
VI.

Civil Enforcement

No provision of this MOO is intended to affect the Agencies' respective
enforcement authority.
VII.

Term of MOU

This MOO is effective upon signature and will remain in effect until amended,
replaced or terminated by signed, mutual agreement of the Agencies.
The Agencies agree that amendments to the format and delivery of information
required by this MOO may be done by the mutual agreement of staff of the Agencies.
This MOO may be executed in counterparts.

[REST OF PAGE LEFT INTENTIONALLY BLANK]

IN WITNESS WHEREOF, each of the parties hereto has caused this MOU to be
executed by its duly authorized officer on the date indicated below.

FINANCIAL CRIMES
ENFORCEMENT NETWORK

By: William J. Fox
Director
Dated:

Governor
Dated: Sq*M ~r 'U> I 2004

OFFICE OF THE COMPTROlLER OF
THE CURRENCY

FEDERAL DEPOSIT INSURANCE
CORPORATION

By: John D. Hawke Jr.
Comptroller of the Currency
Dated:

By:

Donald E. Powell
Chairman
Dated:

OFFICE OF THRIFT SUPERVISION

NATIONAL CREDIT UNION
ADMINISTRATION

JoAnn M. Johnson
Chairman
Dated:
By:

By:

James E. Gilleran
Director
Dated:

Agencies Draft
September 16, 2004.
IN WITNESS WHEREOF, each of the parties hereto has caused this MOU to be
executed by its duly authorized officer on the date indicated below.

FINANCIAL CRIMES
ENFORCEMENT NETWORK

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM

By: William J. Fox
Director
Dated:

By:

Susan Schmidt Bies
Governor
Dated:
FELJ '--'U">.

By:

OFFICE OF THE COMPTROLLER OF
THE CURRENCY

d . Powell
Chairman
Dated: Sept. 21, 2004

By: John D. Hawke Jr.
Comptroller of the Currency
Dated:

NATIONAL CREDIT UNION
ADMINISTRATION

OFFICE OF THRIFT SUPERVISION

By:

JoAnn M. Johnson
Chainnan
Dated:

By:

James E. Gilleran
Director
Dated:

BOARD OF GOVERNORS OF mE
FEDERAL RESERVB SYSTEM
By: Susan Schmidt Bi~s
Governor
Dated:
FEDERA.L DEPOSIT INSURANCE

CORPORATION
By: Donald E. Powell
Chairman
Dated:

NATIONAL CREDIT UNION
AD:MINlST.RAnON

~bfh.~
By:

JoAnn M. Johnson

Chairman
Dated: 9~J..2~lJr

FWANCIAL ClUMES

ENFORCEMBNTNETWORK.
By: WilliamJ. Fox

Director
Dated:

OFFICE OF THE COMPTROLLER OF
THE CURRENCY
By: John D. Hawke It.
Camptro~of&e~y

Dated:

omCE OF THRIFT S"UPERVISION

By: James E. Gilleran
Director
Dated:

IN WITNESS WHEREOF, each of the parties hereto has caused this MOU to be executed by its
duly authorized officer on the date indicated below.

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
E
By:

Susan Schmidt Bies
Governor
Dated:

By: Willi
Director
Dated:

30 ••,. -.."

FEDERAL DEPOSIT INSURANCE
CORPORATION

OFFICE OF THE COMPTROLLER OF
THE CURRENCY

By:

Donald E. Powell
Chainnan
Dated:

By: John D. Hawke, Jr.
Comptroller ofthe Currency
Dated:

NATIONAL CREDIT UNION
ADMINISTRATION

OFFICE OF THRIFf SUPERVISION

By:

JoAnn M. Johnson
Chamnan
Dated:

By:

James E. Gilleran
Director
Dated:

IN WITNESS WHEREOF, each of the partits hereto has caused this MOU to be executed by its
duly authorized officer on the date indicated /below.
FINANCIAL CRIMES
ENFORCEMENT NETWORK

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
By:

By: William J. Fox
Director
Dated:

Susan Sclunidt Bies

Governor
Dated:

OFFICE OF THE COMPTROLLER OF

FEDERAL DEPOSIT INSURANCE
CORPORATION

BY:~1!:cf1·~

By:

Donald E. Powell
Chainnan
Dated:

Comptroller of the Currency 1/
Dated: 9Efrl£p?8EI!.. .1,':;~ .:l.OOT

NATIONAL CREDIT UNION
ADMINISTRATION
By:

OFFICE OF THRIFT SUPERVISION

JoAnn M. Johnson

By: James E. Gilleran

Chairman
Dated:

Director
Dated:

IN WITNESS WHEREOF~ each of the parties hereto has caused this MOU to be executed by its
duly authorized officer on the date indicated below.

FINANCIAL CRIMES
ENFORCEMENT NETWORK

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM

By: William J. Fox
Director
Dated:

By:

Susan Schmidt Bies
Governor
Dated:
FEDERAL DEPOSIT INSURANCE
CORPORATION

OFFICE OF THE COMPTROLLER OF
THE CURRENCY

By:

Donald E. Powell
Chainnan
Dated:

By: John D. Hawke Jr.
Comptroller ofthe Currency
Dated:

NATIONAL CREDIT UNION
ADMINISTRATION

OFFICE OF THRIFT SUPERVISION

By:

JoAnn M. Johnson
Chainnan
Dated:

Director
Dated: 9/22/2004

js-19"!4.: Treasury and IRS Issue R-aling To Halt Abusive Employment Tax Arrangements... Page 1 of 1

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FROM THE OFFICE OF PUBLIC AFFAIRS
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October 1 , 2004
jS-1974

Treasury and IRS Issue Ruling To Halt Abusive Employment Tax
Arrangements Involving Employee Parking
Today Treasury and the IRS issued guidance to shut down an abusive employment
tax arrangement involving double employer reimbursements for an employee's
parking expenses. The ruling clarifies that employer reimbursements for parking are
not excludible from income and wages for employment tax purposes where the
parking has already been paid for by the employee on a pre-tax basis (such as by
salary reduction elections by employees). This ruling will not affect regular
arrangements between employers and their employees that provide qualified
parking benefits.
Generally, employer-provided qualified parking benefits, including employer
reimbursements of qualified parking expenses paid by an employee, are excluded
from income and wages for employment tax purposes. Where the parking is
provided pre-tax, however, employers cannot then exclude the amounts twice by
treating payments to the same employees as excludible reimbursements for
parking.
"This is a classic 'double-dip' arrangement that recently has come to our attention,"
stated Acting Assistant Secretary for Tax Policy Greg Jenner. "Treasury and IRS
have acted promptly to shut it down, enabling responsible taxpayers and their
advisors to stay away from such double-dip arrangements in the future."
The ruling explains that since pre-tax parking is provided by the employer, and not
the employee, there is no expense by the employee that can be reimbursed with
excludible funds. Further, the ruling states that the position that such payments are
excludible reimbursements of qualified parking expenses is meritless.
As described in the ruling, the arrangement could be invisible to the employee,
whose take home pay remains unchanged. The ruling notes that the payments
remain taxable whether or not the payments are calculated to provide employees
with the same net pay. The holding also states that it applies with respect to other
double-dip arrangements involving attempts to exclude alleged reimbursements of
the cost of nontaxable benefits which are provided by employers on a pre-tax
basis.

The text of Revenue Ruling 2004-98 is attached.

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REPORTS
•

Revenue RulinG 2004·98

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Part I

Section 132(f).-Qualified Transportation Fringes

26 CFR 1.132-9(b): Qualified Transportation Fringes

Rev. Rul. 2004-98

ISSUE(S)
Whether, under the facts described below, the exclusion from gross income
under § 132(a)(5) applies to payments from an employer to employees characterized as
"reimbursements" by the employer.
FACTS
Employer X decides to provide parking for its employees. The parking will be on
or near X's business premises.
Before X implements the arrangement for parking, as described below, X pays
Employee A monthly wages of $1 ,500. After withholding for employee FICA tax of
$114.75 and withholding for federal income tax of $83.80, A's net pay is $1,301.45.
Monthly wages
FICA tax withholding
Federal income tax withholding
Net monthly payment

$1,500.00
(114.75)
(83.80)
$1,301.45

X implements a payroll arrangement under which the amount of its employees'
cash compensation is reduced in return for X providing parking. In addition, X makes
"reimbursement" payments to employees with respect to parking expenses in amounts
that cause employees' net after-tax pay from X to be the same amount as it would have
been if there was no compensation reduction. X takes the position that both the
compensation reduction amounts and the "reimbursement" payments are excluded from
gross income of employees and are not subject to Federal Insurance Contributions Act
(FICA) tax, Federal Unemployment Tax Act (FUTA) tax, or federal income tax
withholding.
X can make the compensation reduction used to pay for parking under X's
payroll arrangement mandatory or elective. For example, X could unilaterally reduce all

employees' salaries and provide parking to all employees. Alternatively, X could offer
employees the choice, as permitted under section 132(f)(4), between cash
compensation and parking, and provide parking to the employees electing to reduce
their cash compensation.
After X implements the arrangement, Employee A's monthly wages of $1,500 are
reduced by $100 in exchange for the parking. From the remaining $1,400, X withholds
employee FICA tax of $105 and federal income tax of $73.30. X then pays A an
additional $79.75 as a purported reimbursement of parking expenses, with the result
that A's net pay remains at $1,301.45.
Monthly wages
FICA tax withholding
Federal income tax withholding
Subtotal
Additional payment
Net monthly payment

$1,400.00
(105.00)
(73.30)
$1,221.70
79.75
$1,301.45

LAW AND ANALYSIS
Section 132(a)(5) provides that any employer-provided fringe benefit that
qualifies as a "qualified transportation fringe" is excluded from gross income. Section
132(f)(1) provides that the term "qualified transportation fringe" means (1) transportation
between home and work in a commuter highway vehicle, (2) any transit pass, and (3)
qualified parking. Under § 132(f)(5)(C), the term "qualified parking" means parking
provided by an employer to an employee on or near the employer's business premises.
Section 132(f)(4) provides that no amount shall be included in the gross income
of an employee solely because the employee may choose between any qualified
transportation fringe and compensation that would otherwise be includible in the gross
income of such employee.
Section 132(f)(3) provides that a qualified transportation fringe includes a cash
reimbursement by an employer to an employee for qualified parking expenses. Section
1.132-9(b) Q/A-16(a) of the regulations provides that a reimbursement must be made
under a bona fide reimbursement arrangement within the meaning of § 1.132-9(b) Q/A16(c) in order to be excluded from gross income. Section 1.132-9(b) Q&A-16(c)
provides that employers that make cash reimbursements must establish a bona fide
reimbursement arrangement to establish that their employees have, in fact, incurred
expenses for qualified parking. The employer must implement reasonable procedures
to ensure that an amount equal to the reimbursement was incurred by the employee for
qualified parking.

Sections 3121(a) and 3306(b) define the term "wages" for FICA and FUTA
purposes, respectively, as all remuneration for employment, including the cash value of
all remuneration (including benefits) paid in any medium other than cash, with certain
specified exceptions. Section 3401 (a) contains a similar definition for purposes of
federal income tax withholding. Sections 3121 (a)(20), 3306(b)(16), and 3401 (a)(19)
provide for purposes of FICA, FUTA, and federal income tax withholding, respectively,
that the definition of "wages" does not include any benefit provided to or on behalf of an
employee if, at the time such benefit is provided, it is reasonable to believe that the
employee will be able to exclude such benefit from income under § 132.
X's position with respect to the transaction described in this ruling is meritless.
An employee may exclude from gross income employer reimbursements for qualified
parking expenses, but only if those expenses were actually incurred by the employee.
If an employee is given a choice between cash compensation or an employer-provided
benefit under a statutory exception to the constructive receipt rules, such as § 132(f)(4),
or if an employer unilaterally reduces an employee's cash compensation for the purpose
of providing a non-taxable benefit, the benefit is treated as provided directly by the
employer rather than purchased by the employee with the amount of the compensation
reduction. Otherwise, the value of the benefit would not be excluded from the
employee's gross income. The cost of providing the parking is incurred by Employer X,
not Employee A, and the value of the benefit is excludable from A's gross income under
§ 132(a)(5) because the parking is on or near X's business premises, and the parking
benefit is provided by X. Although the § 132(a)(5) exclusion applies to the qualified
parking benefits provided by X, there is no expense incurred by Employee A for X to
reimburse, and therefore the "reimbursement" payments that X makes to A are not
excluded from gross income under § 132(a)(5). The conclusion would be the same
whether the compensation reduction was mandatory or elective. The conclusion would
also be the same if the employer originally provided free parking to employees and then
upon implementing the payroll arrangement purported to impose a charge on
employees for parking. See also, Rev. Rul. 2002-3, 2002-1 C.B. 316, which holds that
a purported reimbursement of health insurance premiums paid by the employer, and not
by employees, is not excludable from the gross income of employees under §§ 106(a)
and 105(b).
Because the "reimbursement" payments were not reimbursements of expenses
incurred by A for parking, it was unreasonable for X to believe at the time the
"reimbursements" were paid to A that A would be able to exclude the payments from
gross income under § 132(a)(5). Thus, the "reimbursement" payments are not excluded
from wages for FICA, FUTA, or federal income tax withholding purposes under §§
3121(a)(20), 3306(b)(16), or 3401(a)(19), respectively.
HOLDING

The exclusion from gross income under § 132(a)(5) does not apply to the
payments characterized by the employer as "reimbursements." Employee A has not
incurred an expense for parking for which there can be a reimbursement. Accordingly,
amounts that Employer X pays to Employee A purportedly as reimbursements are
included in Employee A's gross income and are wages subject to employment taxes
under §§ 3121 (a), 3306(b), and 3401 (a). This is the outcome whether or not the
amounts of Employer X's payments are calculated to provide Employee A with the
same net pay A received prior to the implementation of the payroll arrangement.
In addition, this ruling applies to arrangements with respect to benefits other than
parking where: (1) an employee's salary (and gross income) is reduced in return for a
non-taxable benefit, and (2) the employer "reimburses" the employee for some or all of
the cost of the non-taxable benefit and excludes the reimbursement from the
employee's salary (and gross income) even though that cost was paid by the employer
and not the employee.
DRAFTING INFORMATION
The principal author of this revenue ruling is Stephen D. Suetterlein of the Office
of Associate Chief Counsel (Tax Exempt & Government Entities). For further
information regarding this revenue ruling, contact Mr. Suetterlein at (202) 622-6040 (not
a toll-free call).

JS-197 5; Treasury W elcomes Publ~ Comment on Development of National Strategy... Page 1 of 1

PHlSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1, 2004
JS-1975
Treasury Welcomes Public Comment
on Development of National Strategy for Financial Education
Treasury's Office of Financial Education today called on financial education
advocates, as well as government, academic, nonprofit and the private sectors, to
respond to its request for public comment on behalf of the Financial Literacy and
Education Commission for development of the first-ever national strategy for
financial education.
The Financial Literacy and Education Commission was established under Title V,
the Financial Literacy and Education Improvement Act, of the Fair and Accurate
Credit Transactions Act of 2003 (P.L. 108-159). The Act calls for the establishment
of a national financial education toll-free hotline and website, as well as the
development of the country's first national strategy for financial education.
Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr., is leading
the Commission's efforts to develop the national strategy. lannicola emphasized the
value and insight that may be gained by tapping into the expertise of groups for
development of the national strategy. "All across America, dedicated groups and
individuals are working to meet our country's need for financial education," said
lannicola. "Through this request for comment, we hope to learn from those who are
making a difference in their communities by using financial education to improve
lives. We'll use their insights to craft a sound national strategy to raise our country's
level of financial knowledge."
The request for comment was filed at the Federal Register and was published on
August 26, 2004. The comment period runs through the end of October of 2004.
More information on the request for public comment for development of the national
strategy can be found at: wwwtreas.gov/offices/domestlc-finallce/fillanclalInstitutlon/fin-educatlon/strategy.shtml.
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education in May of 2002. The office
works to promote access to the financial education tools that can help all Americans
make wiser choices in all areas of personal financial management, with a special
emphasis on saving, credit management, home ownership and retirement planning.
The office also coordinates the efforts of the Financial Literacy and Education
Commission, a group chaired by the Secretary of Treasury and composed Of
representatives from 20 federal departments, agencies and commissions, which
works to improve financial literacy and education for people throughout the United
States. For more information about the Office of Financial Education visit:
www.treas govifillallcialeducation.
- 30-

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JS-20-,6: Statement of Treasury S~~tetary John W. Snow Third Quarter GDP

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FROM THE OFFICE OF PUBLIC AFFAIRS
October 29,2004
JS-2076

Statement of Treasury Secretary John W. Snow
Third Quarter GDP
We are encouraged by the ongoing strong performance of the American economy,
with a non-inflationary growth rate that is above the average for the past ten years.
GOP continues to grow above the average of the 1970s, 80s and 90s, while the
unemployment rate remains below the average for those decades.
Our economy grows when it is given the right stimulus - in this case, tax relief and
good monetary policy. That stimulus, combined with the strength of our smallbusiness sector and outstanding workforce, has led to a growing economy that is
producing jobs in all sectors across the board.
There is still more that can be done to encourage growth and create jobs, and we
must continue to implement President Bush's pro-growth policy agenda to achieve
those goals.

http://www.treas.gov/press/releases/J~~076.htm

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JS-1977: Treasury Official to Meet with Local Business Leaders in West Virginia

PH[SS

Page 1 of 1

f~OOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1, 2004
JS-1977

Treasury Official to Meet with Local Business Leaders in West Virginia
Treasury Deputy Secretary Samuel W. Bodman will be in Charleston and
Parkersburg, West Virginia next week to meet with local business leaders and
discuss the President's efforts to strengthen the economy and create jobs. Also,
while in Parkersburg, the Deputy Secretary will tour Treasury's Bureau of Public
Debt (BPD) facilities there and meet with employees. As the agency that borrows
the money needed to operate the federal government, BPD issues and services
U.S. Treasury marketable, savings and special securities.
The following events are open to the media:

Wednesday, October 6
8 a.m. EDT
Remarks before the Charleston Rotary
Fellowship Hall, Christ Church United Methodist
Quarrier Street
Charleston, West Virginia
12:15 p.m. EDT
Remarks before the Mid-Ohio Valley Chamber of Commerce
320 Market Street
Parkersburg, West Virginia

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js-197~:

Secretary John Snow with .f<'inance Ministers During G-7 Meetings

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PHlSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1, 2004
js-19?8
Secretary John Snow with Finance Ministers During G-? Meetings

Secretary John Snow with Finance Ministers During G-? Meetings
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
High Resolution Image

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js-1979. Statement by G-7

Financ~

iv1inisters and Central Bank Governors Washingt...

Page 1 of2

PRESS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1, 2004
js-1979
Statement by G-7 Finance Ministers and Central Bank Governors
Washington, D.C. -- October 1, 2004
We thank the United States for presiding over the G-7 this past year and we are
gratified by the international economic cooperation that has resulted in new
initiatives such as the Agenda for Growth, the Strategic Review, the Global
Remittance Initiative, and new G-7 outreach to both the Broader Middle East and
North Africa countries and to China. We welcome the United Kingdom to the G-7
presidency in 2005, and we will continue to work together on these and new
initiatives.
Global economic growth is strong and the outlook for 2005 remains favorable.
Inflation and inflation expectations remain low in our economies. However, this is
not the time for complacency. Growth is higher in some regions than in others;
imbalances persiSt. Oil prices remain high and are a risk. So first, we call on oil
producers to provide adequate supplies to ensure that prices moderate. Second, it
is important consumer nations increase energy efficiency. Third, it is important for
consumers and producers that oil markets function efficiently and we encourage the
lEA to enhance its work on oil data transparency. We will return to the issue of
medium term energy demand and supply at our next meeting.
We reaffirmed our commitment to sound public finances and to strategies for
sustained medium term fiscal consolidation. Today we released a new report on
our Agenda for Growth in which we agreed to make pro-growth structural reforms a
regular part of our work to create more jobs and increase productivity. We welcome
recent progress on the Doha Development Round.
We reaffirm that exchange rates should reflect economic fundamentals. Excess
volatility and disorderly movements in exchange rates are undesirable for economic
growth. We continue to monitor exchange markets closely and cooperate as
appropriate. In this context, we emphasize that more flexibility in exchange rates is
desirable for major countries or economic areas that lack such flexibility to promote
smooth and widespread adjustments in the international financial system, based on
market mechanisms.
We remain firmly committed to continue to cooperate in combating terrorist
financing, which is essential for reducing the risks of terrorist attacks.
Emerging market economies generally face favorable financial conditions; interest
rate spreads are low and volatility is down in many markets. We urge emerging
market countries to take advantage of the favorable global economic conditions to
lessen their vulnerability to external shocks. We urge the Argentine authorities to
implement, as soon as possible, the prior actions required for the completion of the
Third Review while fulfilling its current obligations fully and timely. Argentina's key
challenges remain structural reforms, building a sound fiscal framework, and
achieving high creditor participation in a sustainable debt restructuring. We
welcome the approval by the IMF of a sound and credible program for Iraq, which is
an important step toward our commitment to resolve Iraq's debt before the end of
2004. We welcome the financial assurances given by Iraq's creditors that made
this IMF program possible.
We continue to support efforts to increase economic growth and reduce poverty in
poor countries. We welcome the agreement to increase funding for the Asian
Development Fund and we look forward to new replenishments of the African
Development Fund and IDA. We reaffirm our commitment to fight global poverty
and to help countries achieve the international development goals of the Millennium

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js-1979: ')tatement by G- 7 Finance :Y1inisters and Central Bank Governors Washingt...

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Declaration through our work on debt sustainability, aid effectiveness, absorption
capacity, and financing facilities. There is a need for additional financial aid
grounded on the principles of good policies, debt sustainability, accounting for
results, and enhancing predictability and aid effectiveness. We encourage the
development banks to provide quantifiable indicators and results for all projects,
and to make them publicly available. We are now committed to addressing the
sustainability of debt of the poorest countries by making progress on debt relief and
grant financing. We will prepare a progress report on these efforts by the end of the
year.

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JS-198u: G8/Broader Middle East ~~1d North Africa Finance Ministers' Meeting U.S. '"

Page 1 of 2

PHlSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1. 2004
JS-1980

G8/Broader Middle East and North Africa Finance Ministers' Meeting
U.S. Treasury Secretary John Snow
Summary of Meeting, October 1, 2004
This morning, I hosted a meeting of finance and other economics ministers
from the GB and countries of the Broader Middle East and North Africa
(BMENA). This meeting continues a dialogue pursued in September 2003
and April 2004 as well as provides an opportunity to further prepare for the
first meeting of the Forum for the Future that leaders from the G8 and the
region called for in Sea Island I stressed that economic freedom can best
harness the region's rich human and natural resources to meet the
aspirations of its people for jobs and improving living standards. Redefining
the role of the state in the economy and allowing people more freedom in
their economic decisions will provide them the incentives and opportunities
to improve their lives.
Ministers welcomed the strong growth in economies in the region. They
agreed it was important to take advantage of the strong global economic
environment to implement further reforms to accelerate growth and job
creation in our countries. They also welcomed the recent pledge by oil
producers to increase production as a contribution to global economic
stability.
Ministers from the G8 and BMENA region committed to work together to
support market-oriented economic reforms, many of which they noted are
already underway. They all stressed that is vitally important that reform be
home-grown and initiated within the region, with strong ownership. They
also stressed the importance of peace and security for private sector
investment led growth. Our support for reform in the region will go hand in
hand with our support for a just, comprehensive, and lasting settlement to
the Arab-Israeli conflict, based upon U.N. Resolutions 242 and 338.
Ministers highlighted the importance of developing small and medium sized
businesses (SMEs) and the private sector generally through targeted policy
reforms and technical assistance. In particular, the ministers welcomed the
launch of the International Finance Corporation's (IFC) new facility for
technical assistance to support development of small businesses and the
private sector in the region, which was approved by the IFC Board on
September 28. Donors have already pledged at least $32.4 million to the
facility, and additional donors have indicated plans to contribute. The IFe
has also devoted $20 million of its own resources.
Ministers also agreed to enhance dialogue on economic and trade issues
and assess the effectiveness and levels of development assistance to
countries of the region. To this end, they asked experts from partiCipating
countries and both the regionally based and other development institutions
to study and develop a network of funds, taking into consideration existing
regional coordination mechanisms and as proposed by G8 and regional
leaders in Sea Island, to advise G8 and regional governments on economic
growth and job creation and to provide a forum for improved cooperation in
improving effectiveness of official financing.
One priority stressed by regional ministers was the need to strengthen
human capital and the institutional capacity of governments for development
and reform. They asked the Arab Monetary Fund. International Monetary
Fund, Arab Fund for Economic and Social Development, Islamic

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JS-198u: G8/Broader Middle East 'P1cl North Africa Finance Ministers' Meeting U.S .... Page 2 of2
Development Bank and World Bank to consult with interested countries,
other official donors, and other institutions active in the region to identify and
survey jointly top priorities for technical assistance, particularly monetary,
fiscal and financial sector, on a country by country basis and produce a
prioritized list for regional governments, G8 and official donors.
To meet the goals of sustained growth, job creation and diversification,
ministers underscored the central importance of enhancing the integration of
the BMENA region into the global economy. In particular, ministers:
o Supported the ongoing efforts of BMENA countries at the meeting to
join the WTO.
o Agreed to discuss at future meetings how each country's ongoing
reforms are strengthening its investment climate, with a view to
improving certain quantitative indicators that it selects, drawing on
work underway in the region.
Regional representatives stressed the need for their economies to be better
integrated into the global economy, including through improved
opportunities for trade both within the region and with industrial countries.
Some Ministers highlighted the importance of financial services
liberalization.
All the G8 and BMENA ministers looked forward to the launch of the Forum
for the Future to initiate a broad dialogue among their countries. Ministers
welcomed the Kingdom of Morocco's offer to host the inaugural meeting of
the Forum later this year. The finance and economics ministers agreed to
continue their dialogue and participate in the Forum for the Future.

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JS-198 i. Statement by

u.s. Treasuq 'Secretary John Snow Following the Meeting of '"

Page 1 of 3

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1, 2004
JS-1981

Statement by U.S. Treasury Secretary John Snow
Following the Meeting of Group of 7 Finance Ministers
and Central Bank Governors
Good evening. I was pleased to host the Finance Ministers in the United States
Treasury building today.
We met at a time when the global economy is growing - at the fastest rate in 30
years - and are all committed to sustaining that growth.
Economic growth and prosperity are good for each of our nations individually, and it
is good for each other to have growth among trading partners. Growth in the U.S.,
for example, is terrific for our trading partners ... and their growth is essential for our
success. As a global economy, we have become more and more symbiotic, and
this is broadly understood today.
That's why the wonderful consensus and collaboration among the countries of the
G-7 is so important. We agree on having open economies, free trade, a free flow of
capital. Last September, we agreed on the key objective of making lasting changes
to our economies that will help deliver stronger global growth that is broad-based
and sustainable well into the future. We committed, together, to implement
structural changes in our economies under what we call the Agenda for Growth.
This initiative focuses on reforms - such as marginal tax rate reduction, labor
market reform and regulatory changes - that will boost productivity and
employment and raise economic performance over the long term.
This September, we are carrying forward with a renewed commitment to the
Agenda for Growth. We released a new report on the initiative today that lays out
our agreement to make pro-growth structural reforms a regular part of our work to
create more jobs and increase productivity. Each G-7 country has taken concrete
actions to advance the Agenda, and I am proud to put the United States' reform
agenda alongside others' efforts.
The U.S. has, indeed, led the way for global growth. The pro-growth policies of
President Bush, combined with sound monetary policy from the Federal Reserve
Board, have led to strong recovery and growth here at home. GDP growth is the
strongest in 20 years, and job creation is steady, with 1.7 million new jobs created
over the past year. The unemployment rate is down in 47 states from one year ago,
and at 5.4 percent the national rate is lower than the average of the 1970s, 80s and
90s.
As we talked about economic successes in the U.S, and other countries, we came
back again and again to the importance of small businesses and entrepreneurs to
any nation's economic health. It is clear that small business has helped all of the G7 nations, and we believe support for small and medium enterprise is critical in
developing countries as well. Small businesses are a key to creating the jobs
necessary to raise standards of living and lift people out of poverty.
In our discussions, we agreed that emerging markets have a great opportunity
today to prepare for future challenges. We called on them to take advantage of the
current favorable economic conditions to strengthen their policies and reduce
vulnerabilities to potential future shocks. For Argentina, for example, it is vital to
achieve high creditor participation in debt restructuring and to build a sound fiscal
framework.

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JS-198 i. Statement by U.S. TreasulJ Secretary John Snow Following the Meeting of... Page 2 of 3
Also, we were all pleased to see Iraq put in place an IMF program. This is an
important step toward resolving Iraq's debt before the end of this year - a goal to
which we are committed. Working together, Iraq and the IMF have created a sound
and credible economic program. We congratulate them. Iraq's creditors are also to
be commended for providing the financial assurances that made this possible.
While good news about the world economy and ambitious plans for solidifying
growth dominated our meeting, the cost of energy was also discussed.
Right now, oil prices are causing an economic headwind. The geopolitics of oil, and
current uncertainties, are causing a short-term phenomenon. The Finance Ministers
and I are committed to promoting policy reforms in each of our countries to speed
the return of more reasonable costs.
The U.S. Congress - specifically the Senate - needs to pass the President's
energy plan to get things started here at home. The President's plan will make us
less dependent on foreign oil, and will also create lots of good jobs for Americans.
I also hosted an exciting meeting today - full of energy and purpose -- on another
important challenge for the international community -- supporting economic reform
in the broader Middle East and North Africa. The finance ministers of the G8 and 18
countries in the region aU came together with this common goal. I was struck by
how the region's economic policymakers are determined to advance marketoriented reform in the region, to meet the aspirations of their people for jobs and
better lives.
I believe the key to progress is greater political and economic freedom to give
individuals the power to improve their own lives. The G8 is seeking to be supportive
of the ongoing market-oriented reform agenda developed by the economic leaders
of the region. It includes working to develop proposals to stimulate the growth of
small- and medium-sized enterprises, make the international financial institutions
and development assistance more effective in dealing with the development
challenges in the region, establish a greater reliance on markets, strengthen
financial institutions, and increase trade.
This year is the 60 th anniversary of the Bretton Woods Institutions, and the Finance
Ministers spent some time discussing the progress of reform - and the need for
further reforms - among those institutions.
We believe the Bretton Woods Institutions have a responsibility to continue their
own reforms, for example the need for them to provide quantifiable indicators and
results for all projects. They also need to do more to reinforce debt sustainability in
poor countries.
The G-7 Finance Ministers are working together with other donors, with the
institutions themselves, and with recipient countries to achieve a consensus on the
best way to solve the debt sustainability problem and ensure that our reforms only
result in greater, not fewer, resources to poor countries. We agreed that financial
support for developing countries will be most effective when it is grounded in the
principles of strong country policies, sustainable debt burdens, and accountability
for results.
New directions for the international financial institutions will help ensure that they
are equipped for modern markets and will be effective in promoting growth and
stability well into the future.
As you know, we took the historic step this evening of meeting with our Chinese
counterparts. We discussed China's current economic situation and outlook, which
are of major importance to the broader global picture. The G-7 has indicated
separately and collectively over time our support for greater flexibility in the Chinese
exchange rate. Sustained, non-inflationary growth in China is important for
maintaining strong global growth, and a more flexible and market-based renminbi
exchange rate is an important part of achieving this goal. I have been encouraged
by some of the advances that have occurred. Tonight, I underscored that I would
like to see China move more quickly
As always, the G-7 Finance Ministers had a productive meeting. I am proud to have

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JS-1981: Statement by U.S. TreasUJ:,;,t Secretary John Snow Following the Meeting of... Page 3 of 3
hosted the Group and look forward to working with the next Chair of the G-7, my
good friend Chancellor Gordon Brown, when the UK hosts our next G-7 meeting in
early 2005.

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js-1983: 3tatement on Meeting of the: G-7 Finance Ministers and Central Bank Gover.

Page 1 of 1

PHCSS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1 , 2004
js-1983

Statement on Meeting of the G·? Finance Ministers and Central
Bank Governors with Chinese Counterparts
Washington, D.C., October 1, 2004
The G-? Finance Ministers and Central Bank Governors met informally with China's
Finance Minister and Central Bank Governor. They discussed the global economic
outlook, macroeconomic policies in G-? economies and the Chinese economic
situation in a candid way. Among other things, they exchanged views on economic
impact of oil prices, fiscal and monetary policies in G-? economies, Asian economic
outlook, and exchange rate flexibility. It was agreed that this meeting was a
constructive channel to share views on issues of mutual concern and to promote
mutual understandings.

http://www.treas.gov/press/releases/jsr983.htm

113/2005

JS-1984. Good lntemational EconO["11C Stories You Don't Read About John B. Taylo... Page 1 of 3

PHLSS H00M

FROM THE OFFICE OF PUBLIC AFFAIRS
September 21. 2004
JS-1984

Good International Economic Stories You Don't Read About
John B. Taylor
Under Secretary of Treasury for International Affairs
Remarks at a Breakfast Hosted By
Tepper School of Business
Carnegie Mellon University
Duquesne Club
Pittsburgh, Pennsylvania
September 21,2004
Thank you for inviting me to speak here today. It is good to be back in Pittsburgh
where I grew up and have many fond memories and friendships.
Today is the last day of summer. Near the end of this summer and every summer
for the last 25 years, the Kansas City Federal Reserve Bank has held an
international conference in Jackson Hole, Wyoming, overlooking the majestic Teton
Mountains. Central bankers--including the Chairman of the Federal Reserve Board-finance ministry officials, and journalists travel to the conference from around the
world to talk and compare notes about current global financial matters. I went to the
first Jackson Hole monetary conference in the summer of 1982, and I have
attended many since then, including this summer's conference. And after the
conference, I traveled to South America, Africa, and Europe where I discussed
further the global economic situation with finance ministers and central bank
governors in their own countries.
The talk at this year's Jackson Hole conference and at other meetings I attended in
the last month was much different from years past. The talk virtually everywhere is
about how remarkably good the global economy is right now. And this good global
economy is good news for the United States economy because it means that the
growth in exports, in jobs, and in incomes for Americans will be more certain and
lasting.
Unlike many conferences in the past, this year there were no major financial crises
in the world to talk about. This was in marked contrast to the 1990s when one
financial crisis after another brought high interest rates and soaring unemployment
to the economies of Latin America, Asia, and Russia.
Contagion of financial crises across countries, which was discussed so much during
the conferences in the 1990s, also seems to have disappeared from the scene. It
was in 1998 that the default on Russia's debt caused financial storms as far away
as Africa, Latin America, and East Asia. In the more recent Argentina default there
was no contagion beyond Uruguay, which is just next door.
And there was no major economy in recession this year. The only recession that I
heard mentioned at the conference was the recession in the "crisis expert"
business. One crisis expert even complained to me about the lack of business, and
jokingly asked if I could do something about it.
There was no talk of bubbles either. Most economies in the world are now growing
at a healthy "gold i-locks" pace--neither too fast nor too slow--suggesting that global
economic growth will continue. The United States is expanding at a sustainable
pace--for the third year in a row. The second largest economy in the world, Japan,
has also been growing nicely, in contrast to its lost decade of the 1990s. China's
rapid growth earlier in the year has slowed to a more sustainable pace, and the rest
of Asia is again doing well after last year's SARS scare. In Latin America, growth
has picked up in Mexico, Columbia, Peru, Chile, Brazil, and Argentina. Latin

http://www.treas.gov/preSSlreleases/Js[984.htm

4/29/2005

JS-1984': lJood International ECOnOI1-~1C Stories You Don't Read About John B. Taylo... Page 2 of 3
America grew at over 5 percent so far this year. Russia and most of the European
economies are also growing strong. Even the French and German economies have
shown signs of growth this summer.
Another difference from the events surrounding many past conferences had to do
with interest rates. Interest rate spreads between emerging market bonds and U.S.
Treasuries--an important measure of global risk--are at historically low levels.
Spreads have come down markedly during the last two years. They have stayed
down despite the forecasts early this year that spreads would rise sharply
throughout the year as monetary tightening in the United States began.
Another measure of risk--volatility in currency markets--is also low. You can clearly
detect this in the prices of currency options, but ask currency traders and they will
tell you about it. The one element of risk that was discussed a lot at the conference
was the high price of oil, but fortunately it had declined in the week before the
conference.
Finally, there were no major inflation scare stories to talk about this year. Inflation is
low and stable in the United States and Europe, and the persistent deflation in
Japan is past its low point and price stability is expected soon. That benign inflation
environment is more evidence that the global economic expansion should continue.
So what are international policy makers talking about this year? The formal topic of
the Jackson Hole conference--demographic trends in the world economy--was far a
field from the expertise of many participants, so conversations on this topic were
short, usually expressing concerns that politicians need to start addressing the
impact of aging populations on retirement and health programs.
Many of the conversations I was involved in, whether on hikes in the mountains or
at meals and receptions, were about why economic times were so good and how
long they would continue. I focused on the role of economic policies, whether in the
United States, Japan, Brazil, or Turkey. The United States economy is growing-despite the setback of the downturn starting in 2000, the 9/11 terrorist attacks, and
the corporate scandals--because of the timely response of monetary and fiscal
policy, especially President Bush's tax cuts of 2001 and 2003. The Japanese
economy is growing because Prime Minister Koizumi insisted on fundamental
change, and monetary growth was increased and non-performing loans were
reduced. Improved economic relations between the United States and Japan--Ied
by President Bush and Prime Minister Koizumi--had a lot to do with these changes.
Similar explanations hold for other good performances, including the high growth,
declining inflation, low spreads under President Lula in Brazil and Prime Minister
Erdogan in Turkey, two countries that had been plagued by crises in the recent
past. As with Japan, support by the United States for these allies and their
economic policies have been important. The path breaking Agenda for Growth with
the G7 and the new Group for Growth with Brazil has reinforced and supported progrowth policies by sharing experiences and knowledge.
What about the decline of crises and risk spreads and volatility? One reason they
are down is because of the more credible focus on price stability by central banks-frequently aided by market-determined flexible exchange rates--which has largely
ended the boom-bust cycle in many countries and is now laying the foundation for
what may be the longest global boom we have ever seen. This trend began with the
Federal Reserve years ago but has spread around the world in more recent years.
In addition, the international financial institutions have begun to reform, following
calls by President Bush and his Administration. Important reforms include the
greater clarity and predictability in the use of large-scale financing from the
International Monetary Fund, the use of collective action clauses in emerging
market debt, and the movement toward grants rather than loans at the World Bank.
Such reforms themselves--while still very recent in their implementation--improve
confidence, showing that international financial officials can work to make needed
changes in the international financial system. Greater transparency has also helped
to reduce contagion by enabling market analysts to better discriminate between
countries that follow good policies and those that do not.
Usually the journalists who attend international conferences or who come to press
briefings on my international trips report on the current economic events that come
up in conversations or briefings. This year the journalists have not asked much and
they have not written much about the remarkably good state of the world economy.

http:((www.treas.gov/presS/releases/Jst·984.htm

4/29/2005

JS-1984: 000d International Econore-ic Stories You Don't Read About John B. Taylo... Page 3 of 3
I recently asked a number of the journalists why. Most agreed that the global
economic situation was indeed unusually good, but none thought it was news
worthy to ask or write about. The reason was that, while unusual, it was good news,
not bad news. As one of the journalists told me, "We won a prize for our coverage
of the terrible Russian financial crises in 1998. There is no way we could win a
Journalism prize for covering the current good state of the world economy. I'm not
going to cover it. I'd be surprised if anyone here covers it."

http://www.tr~as.gov/press/releases/JsIC)84.htm

4/29/2005

JS-1985: Dood International EconoIr.tc Stories You Don't Read About John B. Taylo... Page 1 of 3

f-'HLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
September 21 . 2004
JS-1985

Good International Economic Stories You Don't Read About
John B. Taylor
Under Secretary of Treasury for International Affairs
Remarks at a Breakfast Hosted By
Tepper School of Business
Carnegie Mellon University
Duquesne Club
Pittsburgh, Pennsylvania
September 21, 2004
Thank you for inviting me to speak here today. It is good to be back in Pittsburgh
where I grew up and have many fond memories and friendships.
Today is the last day of summer. Near the end of this summer and every summer
for the last 25 years, the Kansas City Federal Reserve Bank has held an
international conference in Jackson Hole, Wyoming, overlooking the majestic Teton
Mountains. Central bankers--including the Chairman of the Federal Reserve Board-finance ministry officials, and journalists travel to the conference from around the
world to talk and compare notes about current global financial matters. I went to the
first Jackson Hole monetary conference in the summer of 1982, and I have
attended many since then, including this summer's conference. And after the
conference, I traveled to South America, Africa, and Europe where I discussed
further the global economic situation with finance ministers and central bank
governors in their own countries.
The talk at this year's Jackson Hole conference and at other meetings I attended in
the last month was much different from years past. The talk virtually everywhere is
about how remarkably good the global economy is right now. And this good global
economy is good news for the United States economy because it means that the
growth in exports, in Jobs. and in incomes for Americans will be more certain and
lasting.
Unlike many conferences in the past, this year there were no major financial crises
in the world to talk about. This was in marked contrast to the 1990s when one
financial crisis after another brought high interest rates and soaring unemployment
to the economies of Latin America, Asia, and Russia.
Contagion of financial crises across countries, which was discussed so much during
the conferences in the 1990s, also seems to have disappeared from the scene. It
was in 1998 that the default on Russia's debt caused financial storms as far away
as Africa, Latin America, and East Asia. In the more recent Argentina default there
was no contagion beyond Uruguay, which is just next door.
And there was no major economy in recession this year. The only recession that I
heard mentioned at the conference was the recession in the "crisis expert"
business. One crisis expert even complained to me about the lack of business, and
jokingly asked if I could do something about it.
There was no talk of bubbles either. Most economies in the world are now growing
at a healthy "gold i-locks" pace--neither too fast nor too slow--suggesting that global
economic growth will continue. The United States is expanding at a sustainable
pace--for the third year in a row. The second largest economy in the world, Japan,
has also been growing nicely, in contrast to its lost decade of the 1990s. China's
rapid growth earlier in the year has slowed to a more sustainable pace, and the rest
of Asia is again doing well after last year's SARS scare. In Latin America, growth
has picked up in Mexico, Columbia, Peru, Chile, Brazil, and Argentina. Latin

http://www.tTcas.gov/preSS/reJeases/JsI985.htm

4/29/2005

1S-1985: Good International Econom~,(: Stories You Don't Read About John B. Taylo... Page 2 of 3
America grew at over 5 percent so far this year. Russia and most of the European
economies are also growing strong. Even the French and German economies have
shown signs of growth this summer.
Another difference from the events surrounding many past conferences had to do
with interest rates. Interest rate spreads between emerging market bonds and U.S
Treasuries--an important measure of global risk--are at historically low levels.
Spreads have come down markedly during the last two years. They have stayed
down despite the forecasts early this year that spreads would rise sharply
throughout the year as monetary tightening in the United States began.
Another measure of risk--volatility in currency markets--is also low. You can clearly
detect this in the prices of currency options, but ask currency traders and they will
tell you about it. The one element of risk that was discussed a lot at the conference
was the high price of oil, but fortunately it had declined in the week before the
conference.
Finally, there were no major inflation scare stories to talk about this year. Inflation is
low and stable in the United States and Europe, and the perSistent deflation in
Japan is past its low point and price stability is expected soon. That benign inflation
environment is more evidence that the global economic expansion should continue.
So what are international policy makers talking about this year? The formal topic of
the Jackson Hole conference--demographic trends in the world economy--was far a
field from the expertise of many participants, so conversations on this topic were
short, usually expressing concerns that politicians need to start addressing the
impact of aging populations on retirement and health programs.
Many of the conversations I was involved in, whether on hikes in the mountains or
at meals and receptions, were about why economic times were so good and how
long they would continue. I focused on the role of economic policies, whether in the
United States, Japan, Brazil, or Turkey. The United States economy is growing-despite the setback of the downturn starting in 2000, the 9/11 terrorist attacks, and
the corporate scandals--because of the timely response of monetary and fiscal
policy, especially President Bush's tax cuts of 2001 and 2003. The Japanese
economy is growing because Prime Minister Koizumi insisted on fundamental
change, and monetary growth was increased and non-performing loans were
reduced. Improved economic relations between the United States and Japan--Ied
by President Bush and Prime Minister Koizumi--had a lot to do with these changes.
Similar explanations hold for other good performances, including the high growth,
declining inflation, low spreads under President Lula in Brazil and Prime Minister
Erdogan in Turkey, two countries that had been plagued by crises in the recent
past. As with Japan, support by the United States for these allies and their
economic policies have been important. The path breaking Agenda for Growth with
the G7 and the new Group for Growth with Brazil has reinforced and supported progrowth policies by sharing experiences and knowledge.
What about the decline of crises and risk spreads and volatility? One reason they
are down is because of the more credible focus on price stability by central banks-frequently aided by market-determined flexible exchange rates--which has largely
ended the boom-bust cycle in many countries and is now laying the foundation for
what may be the longest global boom we have ever seen. This trend began with the
Federal Reserve years ago but has spread around the world in more recent years.
In addition, the international financial institutions have begun to reform, following
calls by President Bush and his Administration. Important reforms include the
greater clarity and predictability in the use of large-scale financing from the
International Monetary Fund, the use of collective action clauses In emerging
market debt, and the movement toward grants rather than loans at the World Bank.
Such reforms themselves--while still very recent in their implementation--improve
confidence, showing that international financial officials can work to make needed
changes in the international financial system. Greater transparency has also helped
to reduce contagion by enabling market analysts to better discriminate between
countries that follow good policies and those that do not.
Usually the journalists who attend international conferences or who come to press
briefings on my international trips report on the current economic events that come
up in conversations or briefings. This year the journalists have not asked much and
they have not written much about the remarkably good state of the world economy.

http://www.treas.gov/preSS/releaseS/JS1985.htm

4/29/2005

JS-1985: Good International Econom:<: Stories You Don't Read About John B. Taylo... Page 3 of 3
I recently asked a number of the journalists why. Most agreed that the global
economic situation was indeed unusually good, but none thought it was news
worthy to ask or write about. The reason was that, while unusual, it was good news,
not bad news. As one of the journalists told me, "We won a prize for our coverage
of the terrible Russian financial crises in 1998. There is no way we could win a
journalism prize for covering the current good state of the world economy. I'm not
going to cover it. I'd be surprised if anyone here covers it."

http://www.tn:as.gov/press/releases/JslJ85.htm

4/29/2005

JS-198G: Statement by the Honorabie John w. Snow Secretary of the Treasury of the ...

Page 1 of3

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 2,2004
JS-1986
Statement by the Honorable John w. Snow
Secretary of the Treasury of the United States of America
International Monetary and Financial Committee Meeting
Washington, D.C., October 2, 20
We meet today at a time when the world economy is growing faster than it has in a
quarter century. Across many of our economies, including many that have faced
recent challenges, growth is strengthening and prospects are bright. No major
economy is in recession or facing high inflation, and there are no major financial
crises to discuss. Interest rate spreads between emerging market bonds and U.S.
Treasuries are at historically low levels, and volatility in many financial markets
remains low. But we cannot rest on our laurels -- risks remain, notably from oil
prices.
The United States is doing its part to support and sustain this growth path. Real
GOP growth in the second quarter was up more than 4 '12 percent over the previous
year. Capital spending, manufacturing output, and job growth are very strong.
Economic fundamentals are sound as strong productivity growth continues and
inflation remains modest. And the President is committed to cutting the deficit in half
within the next five years.
All the major economies need to continue to focus on increasing economic
potential. I am pleased with the progress the G-7 are making through the Agenda
for Growth on structural policies to increase flexibility and boost productivity growth
and employment. This effort will be broadened as the OECD's Working Party 3
begins to assess more fully the cross-border impact of structural reforms as part of
its normal discussions.
Free trade is key to spreading the benefits of growth. The U.S. applauds the
Geneva WTO agreement and calls for an ambitious outcome in further talks,
focusing on agriculture, industrial and consumer goods, and services, including
financial services. We welcome the IMF's support for these efforts.
An IMF for the Future
The IMF plays a key role in helping to improve the global economic environment.
To help ensure that the IMF is able to continue this role and serve its members
effectively, we need to persist in advancing institutional reforms, building on recent
progress. This is the reason that I called for a Strategic Review of the IMF, along
with the World Bank, and I am grateful for the interest that the Managing Director
has taken in this effort.
It is worth remarking on the progress that has been made in updating the IMF's
policies and practices to meet the challenges of today's world economy. A few
examples:
•

•
•

The creation of clearer limits and criteria for exceptional access allows the
IMF to respond robustly to a country's financing needs and at the same time
providing increased predictability to borrowers and the markets. Strong
implementation of this framework is important and will help solidify the
longer-term strategy of the official sector in dealing with crises.
Tightening of the focus of IMF, emphasizing its central expertise in
monetary, fiscal, financial market, and exchange rate policies.
Collective action clauses are the market standard in New York. Since
Mexico led the way a year and a half ago, CACs are now included in 42

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JS-198G: Statement by the Honorabie John w. Snow Secretary of the Treasury of the...

Page 2 of 3

percent of the stock of external sovereign debt issued by emerging markets.
•

•

The publication rate for country staff reports has topped 76 percent.
Transparency is absolutely essential to reinforce accountability of economic
policies, and I urge all countries to publish IMF surveillance and lending
papers.
The IFls have enhanced financial sector surveillance, including by
evaluating observance of key standards in over 100 countries and
jurisdictions. The FATF anti-money laundering and counter terroristfinancing standard is now integrated into the IMF's efforts to protect the
integrity of the international financial system.

Further steps are needed to help the IMF engage effectively with its members on
the macroeconomic policies needed to achieve and sustain growth and stability.
This year we have benefited from the IMF's Biennial Review of Surveillance. The
U.S. strongly concurs with the conclusion that the IMF needs to be more candid and
direct in exercising firm surveillance over exchange rates. I welcome the increased
focus on balance sheet and currency mismatches and debt sustainability
assessments. To reduce vulnerabilities in all countries, the IMF needs to put these
tools to work more systematically. Financial sector analysis needs to be stronger,
including through better integration of the views of capital markets staff into the
Fund's work.
The IMF should also strengthen its engagement with members by introducing a
new vehicle to support countries' own sound reform agendas when IMF financing is
not needed. Thus, we are pleased to see the IMF initiate work on a Policy
Monitoring Arrangement (PMA). Such an arrangement should be entirely voluntary,
promote country ownership and support high quality standards, while better filling
the gap between lending and surveillance. I hope that the Board will agree to
operationalize the proposed PMA by year-end.
Of course, IMF financing remains central for countries facing short term balance of
payment needs, so that these members are afforded time for policy implementation
and economic adjustment. When it lends, the IMF needs to set a high bar for
reforms. But the IMF should not rely solely or even primarily on lending to influence
economic policies.
IMF Role in low Income Countries

Macroeconomic stability is a necessary but not sufficient condition for growth in all
countries, including the poorest. Thus, the IMF has a central role to play in fostering
sound macroeconomic policies in low income countries through its policy advice,
technical assistance and lending. Enhancing the Fund's toolkit to allow for stronger
surveillance and clear signaling will be an important step in the near term.
Since we last met, the G-8 heads of state committed to consider measures that can
further help the poorest countries address the sustainability of their debt. Empirical
eVidence shows that unsustainable debt burdens reduce private sector investment
which is essential for economic growth and poverty reduction. We must do more to
look at ways the international financial institutions can end the destructive cycle of
lend-and-forgive, and to increase debt relief to the poorest.
Action is urgent and vital. I believe we should be guided by several key principles.
First, debt must be sustainable; economic growth and poverty reduction requires
private investment, which will not come in the context of unsustainable debt
burdens. Second, loans should not be made when it is highly probable that they will
be forgiven. Third, grants and debt relief must be significantly increased for the
heavily indebted poor countries. This effort extends beyond the IMF; the
international community must join together to bring change.
Assisting Iraq
I welcome the decision of the Executive Board earlier this week to provide financial
support to Iraq under the IMF's facility for Emergency Post-Conflict Assistance. This
timely support will help the Interim Iraqi Government push forward with an
ambitious program to strengthen the economy, and in so doing reinforce the
foundation on which Iraq and the international community build a better life for the
Iraqi people.

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Page 3 of 3

Moving Forward Together
We have the opportunity to build on a shared view of the need for reform and more
importantly to act decisively to bring change. I attach particular urgency to helping
the poorest countries achieve a sustainable footing.
Before closing, I want to touch on representation in the IMF. The IMF is a financial
institution of shareholders. Over time, the world economy has evolved, and the
Fund's governance should evolve accordingly so that countries' positions better
reflect their global weights and so the Board can continue to discharge its duties
effectively. Already, change has outpaced that at the IMF. Many fast growing
emerging markets clearly are playing roles in the world economy that far exceed
their current IFI weights. Many parts of Europe have joined a currency union, while
European representation accounts for roughly one-third of the Board's seats, and
we are all watching moves toward further European integration. And, while many
emerging markets are now a much larger share of the global economy, other
countries have fallen behind. We will need to consider how to address these
interrelated issues in the coming years.
I feel very positive about the international cooperation we have seen thus far in
bringing reform to the international financial institutions. I look forward to moving
forward together.

http://wwwtreas.gov/press/releases/J~1986.htm

113/2005

JS-1987; Secretary Snow Deve1opment Committee Statement for the Record Oct...

PHLSS

Page 1 of 3

f~OOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 2, 2004
JS-1987
Secretary Snow
Development Committee Statement for the Record
October 2, 2004
This meeting of the Development Committee takes place at a time of considerable
focus on the conditions necessary for meeting the international goals set out in the
Millennium Declaration. Significant progress in meeting some of these international
goals has been made -- approximately 70% of the developing world lives in
countries on track to meet the reduction in poverty and hunger goal -- but gaps
clearly remain.
The Monterrey compact agreed to two years ago sets out a mutually reinforcing set
of commitments. Developing countries agreed to strengthen policies, governance
and institutions to generate growth and create an enabling environment for
development. Developed countries pledged to provide additional resources to those
countries that demonstrate a commitment to such actions. And the international
institutions were called upon to complement and catalyze national efforts through
financial support and technical assistance.
The United States has already followed through on the promise we made at
Monterrey to substantially increase aid to those taking needed steps to promote
lasting, inclusive development progress. The U.S. pledged to increased official
development assistance by 50 percent over the 2000 levels by 2006. We met this
commitment in 2003 and by 2006 U.S. ODA is projected to be roughly 70 percent
above fiscal year 2001 levels. This includes pledges to substantially increase our
funding for the multilateral development banks, including IDA; implementation of the
Millennium Challenge Account, and a plan to provide $15 billion for HIV/AIDS over
the next five years.
U.S. assistance is based on the concepts of transparency and measurable and
monitorable development results on the ground. It is real money that is being
provided now and will continue to be provided in a sustainable and predictable
manner. It is assistance coming directly from the United States to the countries or
institutions that can use it most effectively, as opposed to recent proposals to put in
place complex global taxation schemes that would not be democratically
accountable to the American people.
The U.S. contributes to development in other ways as well. U.S. growth for this year
is strong and demand from the U.S. has been a major factor in growth in many
other parts of the world. The U.S. is also a major source of remittances that fuel
growth of incomes and small businesses throughout the developing world. Virtually
all economies in the world are now growing, emerging market bond spreads are
decreasing, and emerging stock markets have risen by around 40% since the
beginning of 2002. But we realize more must be done to build on this success,
particularly when it comes to trade. We are firmly committed to a successful
outcome of the Doha Development Round and worked hard with other countries to
reach an agreed framework that should lead to successful completion of the trade
talks.
Role of Developing Countries and the World Bank
Increased resources from the United States and other donors are not enough. It is
critical that developing countries put in place the policy frameworks that will allow
them to use these and other resources effectively and to set the basis for
sustainable financing for development needs over the longer run, in particular from
private domestic and foreign resources. This includes putting in place transparent

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JS-198';: Secretary Snow Devetopment Committee Statement for the Record Oct... Page 2 of 3
fiscal systems that can account for the receipt and expenditure of donor flows and
other public revenues. The World Bank has a role to play in helping countries
improve their own systems with a goal of bringing them up to world class standards.
This will also require policies that promote a stable, growing economy and a sound
business environment. The World Bank and other MOBs can play an important
role in helping countries adopt such policies. The World Bank has a wealth of
expertise and information that it can utilize to help countries address barriers to
both domestic and foreign investment. The DOing Business Report and Investment
Climate Assessments are excellent tools for highlighting key barriers to private
investment. The challenge is to coordinate with other donors on practical follow-up
action to help individual countries undertake the necessary reforms.
The World Bank can also playa role in catalyzing private sector investment more
directly. Its loans, grants, guarantees and other innovative programs can create
successful public private partnerships that will create the missing infrastructure that
is a major barrier to strong growth in many countries. The U.S. and other G-7
countries have urged the Bank to ramp up its programs that support small and
medium enterprises, which are a major source of employment and which face
barriers that are in many cases different than those faced by larger enterprises.
Improving remittances services directly benefits households and small
businesses. The World Bank has played a critical role in examining remittance
corridors in APEC economies, and more broadly, identifying barriers to the
competitive provision of remittance services and developing strategies to address
those impediments. To meet the Sea Island Summit goal to 'Iower the cost of
remittance services through competition, expand the use of and access to
remittances services, and enhance the development potential of the flows', the US
and the G7 have encouraged the World Bank to lead efforts, with the appropriate
experts, to improve statistical reporting of remittance data. The World Bank can
also expand its country work by designing and funding projects aimed to increase
access and minimize barriers to competitive remittance services.
The World Bank needs to continue to improve its system of internal and external
accountability. A transparent and comprehensive internal governance structure
is critical to maintaining the ongoing support of its shareholders and to verify that its
funds are used for the purposes envisaged. Similarly, a strong results
measurement framework for its operations ensures that they lead to concrete
outcomes that raise incomes and growth. This includes a transparent system for
monitoring project and program results during implementation so that citizens in
borrowing countries can hold their own officials and the Bank accountable for
results.
Over time, the world economy has evolved, and the Bank's governance should
evolve accordingly so that countries' positions better reflect their global weights and
so the Board can continue to discharge its duties effectively. Already, change has
outpaced that at the Bank. Many fast growing emerging markets clearly are playing
roles in the world economy, which far exceed their current IFI weights. Many parts
of Europe have joined a currency union, while European representation accounts
for roughly one-third of the Board's seats, and we are all watching moves toward
further European integration. And, while many emerging markets are a now a much
farger share of the global economy, other countries have fallen behind. We will
need to consider how to address these interrelated issues in the coming years.
Debt Sustainability and Grants - Correcting the Past and Ensuring the Future
The international community needs to take prudent and appropriate steps to ensure
long-term debt sustainability for low-income countries, which is essential for
economic growth and poverty alleviation. The G-8 Leaders emphasized this issue in
Sea Island and pledged to consider measures that can further help the poorest
countries address the susta'lnability of their debt. To break the ongoing "Iend-andforgive" cycle, grants and debt relief must be significantly increased. We urge the
international community to consider more options to do so, including those that
would provide up to 100 percent debt relief from the international financial
institutions. Employing both grants and debt relief together would give the poorest
countries a chance to reach the International Development Goals of the Millennium
Declaration, without adding to debt burdens. The IDA-14 replenishment negotiation
currently underway provides a timely opportunity to discuss the merits of these
objectives.

http://www.\reas.gov/press/releases/js~987.htm

1/312005

JS-198'i~

Secretary Snow Dev(}iopment Committee Statement for the Record Oct...

Page 3 of 3

The low-income country debt sustainability framework as currently proposed by the
Bank and Fund is inadequate to address the ongoing debt problem. The proposed
debt thresholds guiding lending decisions are alarmingly high suggesting that poor
countries can sustain debt-to-exports ratios of up to 300 percent or devote up to
40% of revenues to debt service. Instead of weighing developing countries down
with unsustainable debt loads, the international community should move ahead with
an approach that is conducive to economic growth and poverty reduction.
Cumulatively, the effects of additional debt relief and increased grants, coupled with
sound development policies should give the developing countries that are
committed to reform a stronger basis for achieving needed economic growth and a
better chance of achieving the international development goals by 2015.

http://www.treas.gov/press/releaseslj9-l~87.htm

113/2005

js-198~:

John B. Taylor Unde( Secretary of Treasury for International Affairs R...

Page 1 of 3

f-'H L S S f·WO M

FROM THE OFFICE OF PUBLIC AFFAIRS
September 21,2004
js-1988

John B. Taylor
Under Secretary of Treasury for International Affairs
Remarks at a Breakfast Hosted By
Tepper School of Business
Carnegie Mellon University
Duquesne Club
Pittsburgh, Pennsylvania
September 21, 2004
Good International Economic Stories You Don't Read About
Thank you for inviting me to speak here today. It is good to be back in Pittsburgh
where I grew up and have many fond memories and friendships.
Today is the last day of summer. Near the end of this summer and every summer
for the last 25 years, the Kansas City Federal Reserve Bank has held an
international conference in Jackson Hole, Wyoming, overlooking the majestic Teton
Mountains. Central bankers--including the Chairman of the Federal Reserve
Board--finance ministry officials, and journalists travel to the conference from
around the world to talk and compare notes about current global financial matters.
went to the first Jackson Hole monetary conference in the summer of 1982, and I
have attended many since then, including this summer's conference. And after the
conference, I traveled to South America, Africa, and Europe where I discussed
further the global economic situation with finance ministers and central bank
governors in their own countries.
The talk at this year's Jackson Hole conference and at other meetings I attended in
the last month was much different from years past The talk virtually everywhere is
about how remarkably good the global economy is right now. And this good global
economy is good news for the United States economy because it means that the
growth in exports, in jobs, and in incomes for Americans will be more certain and
lasting.
Unlike many conferences in the past, this year there were no major financial crises
in the world to talk about This was in marked contrast to the 19905 when one
financial crisis after another brought high interest rates and soaring unemployment
to the economies of Latin America, Asia, and Russia.
Contagion of financial crises across countries, which was discussed so much during
the conferences in the 1990s, also seems to have disappeared from the scene. It
was in 1998 that the default on Russia's debt caused financial storms as far away
as Africa, Latin America, and East Asia. In the more recent Argentina default there
was no contagion beyond Uruguay, which is just next door.
And there was no major economy in recession this year. The only recession that I
heard mentioned at the conference was the recession in the "criSis expert"
business. One crisis expert even complained to me about the lack of business, and
jokingly asked if I could do something about it.
There was no talk of bubbles either. Most economies in the world are now growing
at a healthy "gold i-locks" pace--neither too fast nor too slow--suggesting that global
economic growth will continue. The United States is expanding at a sustainable
pace--for the third year in a row. The second largest economy in the world, Japan,
has also been growing nicely, in contrast to its lost decade of the 1990s. China's
rapid growth earlier in the year has slowed to a more sustainable pace, and the rest
http://wwwtreas.gov/press/releases/J~1988.htm

4129/2005

js-1988. John B. Taylor Unde; Secretary of Treasury for International Affairs R... Page 2 of 3
of Asia IS agam domg well after last year's SARS scare. In Latin America, growth
has picked up in Mexico, Columbia, Peru, Chile, Brazil, and Argentina. Latin
America grew at over 5 percent so far this year. Russia and most of the European
economies are also growing strong. Even the French and German economies have
shown signs of growth this summer.
Another difference from the events surrounding many past conferences had to do
with interest rates. Interest rate spreads between emerging market bonds and U.S.
Treasuries--an important measure of global risk--are at historically low levels.
Spreads have come down markedly during the last two years They have stayed
down despite the forecasts early this year that spreads would rise sharply
throughout the year as monetary tightening in the United States began.
Another measure of risk--volatility in currency markets--is also low. You can clearly
detect this in the prices of currency options, but ask currency traders and they will
tell you about it. The one element of risk that was discussed a lot at the conference
was the high price of oil, but fortunately it had declined in the week before the
conference.
Finally, there were no major inflation scare stories to talk about this year. Inflation
is low and stable in the United States and Europe, and the persistent deflation in
Japan is past its low point and price stability is expected soon. That benign inflation
environment is more evidence that the global economic expansion should continue.
So what are international policy makers talking about this year? The formal topic of
the Jackson Hole conference--demographic trends in the world economy--was far a
field from the expertise of many participants, so conversations on this topic were
short, usually expressing concerns that politicians need to start addressing the
impact of aging populations on retirement and health programs.
Many of the conversations I was involved in, whether on hikes in the mountains or
at meals and receptions, were about why economic times were so good and how
long they would continue. I focused on the role of economic policies, whether in the
United States, Japan, Brazil, or Turkey. The United States economy is growing-despite the setback of the downturn starting in 2000, the 9/11 terrorist attacks, and
the corporate scandals--because of the timely response of monetary and fiscal
policy, especially President Bush's tax cuts of 2001 and 2003. The Japanese
economy is growing because Prime Minister Koizumi insisted on fundamental
change, and monetary growth was increased and non-performing loans were
reduced Improved economic relations between the United States and Japan--Ied
by President Bush and Prime Minister Koizumi--had a lot to do with these changes.
Similar explanations hold for other good performances, including the high growth,
declining inflation, low spreads under President Lula in Brazil and Prime Minister
Erdogan in Turkey, two countries that had been plagued by crises In the recent
past. As with Japan, support by the United States for these allies and their
economic policies have been important. The path breaking Agenda for Growth with
the G7 and the new Group for Growth with Brazil has reinforced and supported progrowth policies by sharing experiences and knowledge.
What about the decline of crises and risk spreads and volatility? One reason they
are down is because of the more credible focus on price stability by central banks-frequently aided by market-determined flexible eXChange rates--which has largely
ended the boom-bust cycle in many countries and IS now laying the foundation for
what may be the longest global boom we have ever seen. This trend began with
the Federal Reserve years ago but has spread around the world in more recent
years.
In addition, the international financial institutions have begun to reform, following
calls by President Bush and his Administration. Important reforms include the
greater clarity and predictability in the use of large-scale financing from the
International Monetary Fund, the use of collective action clauses in emerging
market debt, and the movement toward grants rather than loans at the World Bank.
Such reforms themselves--while still very recent in their implementation--improve
confidence, showing that international financial officials can work to make needed
changes in the international financial system. Greater transparency has also helped
to reduce contagion by enabling market analysts to better discriminate between
countries that follow good policies and those that do not.
Usually the journalists who attend international conferences or who come to press

http://www.treas.gov/press/releases/J~J988.htm

4/29/2005

js-198h: John B. Taylor Undef Secretary of Treasury for International Affairs R ... Page 3 of3
briefings on my International trips report on the current economic events that come
up in conversations or briefings. This year the journalists have not asked much
and they have not written much about the remarkably good state of the world
economy. I recently asked a number of the journalists why. Most agreed that the
global economic situation was indeed unusually good, but none thought it was news
worthy to ask or write about. The reason was that, while unusual, it was good
news, not bad news. As one of the journalists told me, "We won a prize for our
coverage of the terrible Russian financial crises in 1998. There is no way we could
win a journalism prize for covering the current good state of the world economy. I'm
not going to cover it. I'd be surprised if anyone here covers it."
-30-

http://www .•.reas.gov/press/releases/j~1988.htm

4/29/2005

js-1988; John B. Taylor Und,: Secretary of Treasury for International Affairs R...

Page I of 3

IJ
'~'<~'I-"

":.
;.

PHLSS H()()M

.... -.-

.";1.

FROM THE OFFICE OF PUBLIC AFFAIRS
September 21 , 2004
js-1988

John B. Taylor
Under Secretary of Treasury for International Affairs
Remarks at a Breakfast Hosted By
Tepper School of Business
Carnegie Mellon University
Duquesne Club
Pittsburgh, Pennsylvania
September 21, 2004
Good International Economic Stories You Don't Read About
Thank you for inviting me to speak here today. It is good to be back in Pittsburgh
where I grew up and have many fond memories and friendships.
Today is the last day of summer. Near the end of this summer and every summer
for the last 25 years, the Kansas City Federal Reserve Bank has held an
international conference in Jackson Hole, Wyoming, overlooking the majestic Teton
Mountains. Central bankers--including the Chairman of the Federal Reserve
Board--finance ministry officials, and journalists travel to the conference from
around the world to talk and compare notes about current global financial matters. I
went to the first Jackson Hole monetary conference in the summer of 1982, and I
have attended many since then, including this summer's conference. And after the
conference, I traveled to South America, Africa, and Europe where I discussed
further the global economic situation with finance ministers and central bank
governors in their own countries.
The talk at this year's Jackson Hole conference and at other meetings I attended in
the last month was much different from years past. The talk virtually everywhere is
about how remarkably good the global economy is right now. And this good global
economy IS good news for the United States economy because it means that the
growth in exports, in jobs, and in incomes for Americans will be more certain and
lasting.
Unlike many conferences in the past, this year there were no major financial crises
in the world to talk about. This was in marked contrast to the 1990s when one
financial crisis after another brought high interest rates and soaring unemployment
to the economies of Latin America, Asia, and Russia.
Contagion of financial crises across countries, which was discussed so much during
the conferences in the 1990s, also seems to have disappeared from the scene, It
was in 1998 that the default on Russia's debt caused financial storms as far away
as Africa, Latin America, and East Asia. In the more recent Argentina default there
was no contagion beyond Uruguay, which is just next door.
And there was no major economy in recession this year. The only recession that I
heard mentioned at the conference was the recession in the "crisis expert"
business. One crisis expert even complained to me about the lack of business, and
jokingly asked if I could do something about it.
There was no talk of bubbles either. Most economies in the world are now growing
at a healthy "gold i-locks" pace--neither too fast nor too slow--suggesting that global
economic growth will continue. The United States is expanding at a sustainable
pace--for the third year in a row. The second largest economy in the world, Japan,
has also been growing nicely, in contrast to its lost decade of the 1990s. China's
rapid growth earlier in the year has slowed to a more sustainable pace, and the rest

http://www.treas.gov/press/releases/jS.~988.htm

4/29/2005

js-1988. John B. Taylor Unde; Secretary of Treasury for International Affairs R...

Page 2 of 3

of Asia IS again doing well after last year's SARS scare. In Latin America, growth
has picked up in Mexico, Columbia, Peru, Chile, Brazil, and Argentina. Latin
America grew at over 5 percent so far this year. Russia and most of the European
economies are also growing strong. Even the French and German economies have
shown signs of growth this summer.
Another difference from the events surrounding many past conferences had to do
with interest rates. Interest rate spreads between emerging market bonds and U.S.
Treasuries--an important measure of global risk--are at historically low levels.
Spreads have come down markedly during the last two years. They have stayed
down despite the forecasts early this year that spreads would rise sharply
throughout the year as monetary tightening in the United States began.
Another measure of risk--volatility in currency markets--is also low. You can clearly
detect this in the prices of currency options, but ask currency traders and they will
tell you about it. The one element of risk that was discussed a lot at the conference
was the high price of oil, but fortunately it had declined in the week before the
conference.
Finally, there were no major inflation scare stories to talk about this year. Inflation
is low and stable in the United States and Europe, and the perSistent deflation in
Japan is past its low point and price stability is expected soon. That benign inflation
environment is more evidence that the global economic expansion should continue.
So what are international policy makers talking about this year? The formal topic of
the Jackson Hole conference--demographic trends in the world economy--was far a
field from the expertise of many participants, so conversations on this topic were
short, usually expressing concerns that politicians need to start addressing the
impact of aging populations on retirement and health programs.
Many of the conversations I was involved in, whether on hikes in the mountains or
at meals and receptions, were about why economic times were so good and how
long they would continue. I focused on the role of economic policies, whether in the
United States, Japan, Brazil, or Turkey. The United States economy is growing-despite the setback of the downturn starting in 2000, the 9/11 terrorist attacks, and
the corporate scandals--because of the timely response of monetary and fiscal
policy, especially President Bush's tax cuts of 2001 and 2003. The Japanese
economy is growing because Prime Minister Koizumi insisted on fundamental
change. and monetary growth was increased and non-performing loans were
reduced. Improved economic relations between the United States and Japan--Ied
by President Bush and Prime Minister Koizumi--had a lot to do with these changes.
Similar explanations hold for other good performances, including the high growth,
declining inflation, low spreads under President Lula in Brazil and Prime Minister
Erdogan in Turkey, two countries that had been plagued by crises in the recent
past. As with Japan, support by the United States for these allies and their
economic policies have been important. The path breaking Agenda for Growth with
the G7 and the new Group for Growth with Brazil has reinforced and supported progrowth policies by sharing experiences and knowledge.
What about the decline of crises and risk spreads and volatility? One reason they
are down is because of the more credible focus on price stability by central banks-frequently aided by market-determined flexible exchange rates--which has largely
ended the boom-bust cycle in many countries and is now laying the foundation for
what may be the longest global boom we have ever seen. This trend began with
the Federal Reserve years ago but has spread around the world in more recent
years.
In addition, the international financial institutions have begun to reform. following
calls by President Bush and his Administration. Important reforms include the
greater clarity and predictability in the use of large-scale financing from the
International Monetary Fund, the use of collective action clauses in emerging
market debt. and the movement toward grants rather than loans at the World Bank.
Such reforms themselves--while still very recent in their implementation--improve
confidence, showing that international financial officials can work to make needed
changes in the international financial system. Greater transparency has also helped
to reduce contagion by enabling market analysts to better discriminate between
countries that follow good policies and those that do not.
Usually the journalists who attend international conferences or who come to press

http://wwwtreas.gov/press/releases/js~988.htm

4/29/2005

js-1988: John B. Taylor Unde~ Secretary of Treasury for International Affairs R...

Page 3 of 3

briefings on my International trips report on the current economic events that come
up in conversations or briefings. This year the journalists have not asked much
and they have not written much about the remarkably good state of the world
economy. I recently asked a number of the journalists why. Most agreed that the
global economic situation was indeed unusually good, but none thought it was news
worthy to ask or write about. The reason was that, while unusual, it was good
news, not bad news. As one of the journalists told me, "We won a prize for our
coverage of the terrible Russian financial crises in 1998. There is no way we could
win a journalism prize for covering the current good state of the world economy. I'm
not going to cover it. I'd be surprised if anyone here covers it."
-30-

http://www.treas.gov/press/releases/JS"!988.htm

4/29/2005

js-1989. Treasury Announces $57.~ Million in Awards To Organizations Working In Nati... Page 1 of 2

I-'HLSS HL>0M

FROM THE OFFICE OF PUBLIC AFFAIRS
September 30,2004
js-1989

Treasury Announces $57.8 Million in Awards To Organizations Working In
Nation's Economically Distressed Communities
Arthur A. Garcia, Director of the Treasury Department's Community Development
Financial Institutions Fund (the Fund), traveled to Minnesota today to announce that
a total of $57,843,468 is being awarded to 176 community-based organizations
across the country that provide critically needed financial products and services to
economically disadvantaged people and communities.
The organizations being awarded, known as community development financial
institutions or CDFls, are specialized financial institutions that are able to respond
to gaps in their local markets that traditional financial institutions do not adequately
serve. These CDFls provide critically needed capital, credit and other financial
products in addition to technical assistance to community residents and businesses,
service providers such as daycare centers, and developers working to meet
community needs like affordable housing.
"These CDFls are on the front lines of creating needed jobs and helping foster
economic growth in our nation's rural and urban low-income communities, and in
our Native American, Alaska Native and Native Hawaiian communities," said CDFI
Fund Director Garcia. "Today's awards will provide these community-based
lenders the resources to do more - for example, to finance more mortgages for
first-time homebuyers, to provide more investment capital to start or expand small
businesses, to conduct more financial education classes for those individuals trying
to understand and improve their credit history."
These awards are being made through the fiscal year 2004 round of the Fund's
CDFI Program and Native Initiatives.
The CDFI Fund's mission is to expand the capacity of financial institutions to
provide capital, credit and financial services to underserved populations and
communities in the United States. Its vision is an America in which all people have
adequate access to affordable capital, credit and financial services.

CDFI Program
Of today's awards, 68 awards totaling $46,659,641 are being made under the
Financial Assistance (FA) Component of the CDFI Program. Through the FA
Component, the CDFI Fund provides financing to certified CDFls that demonstrate
the ability to leverage dollar-for-dollar additional non-Federal monies to support
comprehensive business plans of providing services to create community
development impact in underserved markets.
In addition, 80 awards totaling $3,573,874 are being announced under the
Technical Assistance (TA) Component of the CDFI Program. Through the TA
Component, the CDFI Fund provides grants to CDFls and entities proposing to
become CDFls in order to build their capacity to better address the community
development and capital needs of their community. Previously this fiscal year, 29
awards totaling $1,246,722 were announced in this "rolling" program. Thus, the
CDFI Fund in fiscal year 2004 has awarded a total of $4,820,596 in technical
assistance grants.

Native Initiatives
The CDFI Fund currently has a number of initiatives designed to overcome barriers
preventing access to capital, credit, and financial services in Native American,
Alaska Native and Native Hawaiian communities (collectively referred to as "Native

http://www.treas.gov/press/releases/Jsl989.htm

4/29/2005

js-1989: Treasury Announces $57.8. Million in Awards To Organizations Working In Nati ... Page 2 of2
Communities"). Among these initiatives are three funding programs targeted to
increasing the number and capacity of existing or new CDFls serving Native
Communities.
Today, nine awards totaling $593,870 are being announced under the Native
American CDFI Development (NACO) program; four awards totaling $302,100 are
being announced under the Native American Technical Assistance (NATA)
program; and 15 awards totaling $6,713,983 are being announced under the Native
American CDFI Assistance (NACA) program.
In total, the CDFI Fund has awarded $8,494,083 under its Native Initiatives in fiscal
year 2004. Previously, six awards totaling $510,900 were announced under the
NACO program; and seven awards totaling $373,230 were announced under the
NATA program. Like the TA Component, both of these programs had a rolling
application deadline.
Please visit the CDFI Fund's website for more information on these awards:
11ltp/iwwwcciflflJnd .goVi.
####

http://www.t.eas.gov/press/releases/J~l989.htm

4/29/2005

JS-1990. Treasury Secretary John Snow Statement: President Bush Signs The "Worki ... Page 1 of 1

PH[SS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 4, 2004
JS-1990

Treasury Secretary John Snow Statement:
President Bush Signs The "Working Families Tax Relief Act Of 2004" & Keeps
The Economic Recovery On Track
Today, President Bush signed the "Working Families Tax Relief Act of 2004" into
law. Because of the President's leadership, this historic tax relief will keep our
economic recovery on track and prevent a tax increase on 94 million Americans.
Some of the biggest winners today are the lower and middle income families who
benefit from the lowest 10% bracket, the increased child credit, marriage penalty
relief and alternative tax relief (AMT). These provisions, enacted in the Jobs &
Growth Tax Relief Act of 2003, would have expired at the end of the year.
This legislation also provides assistance to those who are bearing the greatest
burden and paying the highest sacrifice to wage the war against terrorism: our
military personnel and their families. Allowing military families to include tax-free
combat pay when calculating their refundable child credit and earned income tax
credit will, in many instances, increase the credits to which they are entitled.
The "Working Families Tax Relief Act of 2004" includes an important provision
similar to the Administration's proposal to create a uniform definition of a child for
tax purposes. This provision helps realize the President's overall goal of simplifying
the Tax Code by creating one definition for the dependent exemption, head-ofhousehold filing status, Earned Income Tax Credit, child credit, and dependent care
tax credit. This uniform definition will make it easier for families to claim the
different tax benefits and will help reduce errors.
Finally, this legislation extends many of the annual expiring tax provisions that are
included in the President's budget request and that are beneficial to many of our
nation's businesses and individuals. The Research and Development tax credit, in
particular, is vital to encouraging the technological innovation important to our
continued economic growth.
I applaud the swift Congressional action to pass this legislation. The President's
signature today completes the job, extending provisions that will help our economy
to continue expanding and creating jobs.

-30-

http://www.treas.gov/press/releases(js~990.htm

In1200'-:;

JS-1991. lannicola Teaches Credit Management Class to Carson City High School Studen... Page 1 of 1

!-'HLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
September 29,2004
JS-1991

lannicola Teaches Credit Management Class to Carson City High School
Students in Nevada
Treasury's Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.,
today taught a credit management class and personal finance skills to high school
students at the Greater Nevada Credit Union's Carson High School Educational
Branch. lannicola discussed federal financial education resources available for use
by credit unions in their financial education programs. lannicola visited with the
students employed at the credit union branch at the high school and answered
questions for them.
lannicola told the students about how managing credit wisely can help them
establish a good credit history. He also emphasized how doing so can help them
achieve important life goals like obtaining a higher education, getting a job and
becoming owners of their own homes. "The Greater Credit Union Education
Branch is a great use of experiential learning to help raise students' financial
awareness," said lannicola. "Both the student workers and the student members
are learning how to responsibly manage a relationship with a financial institution.
This is a skill that will benefit them their entire lives."
lannicola thanked the Greater Nevada Credit Union for their efforts to help improve
the financial literacy of students in Carson City, specifically through the branch
located inside Carson High School. The 250 square foot Carson High School
Educational Branch opened in 1996 and is designed to give students an opportunity
to receive "real world" job experience and learn about managing money.
Established in 1949, Greater Nevada Credit Union is a not-for-profit financial
institution that is owned by its membership and offers a full range of consumer
banking services. The Greater Nevada Credit Union also provides financial literacy
support by teaching classes, as requested by schools and other organizations,
using materials from The National Endowment for Financial Education.
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education in May of 2002. The Office
works to promote access to the financial education tools that can help all Americans
make wiser choices in all areas of personal financial management, with a special
emphasis on saving, credit management, home ownership and retirement
planning. The Office also coordinates the efforts of the Financial Literacy and
Education Commission, a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments, agencies and
commissions, which works to improve financial literacy and education for people
throughout the United States. For more information about the Office of Financial
Education visit: www treas.gov!flnallCialeducatlon.
-30-

http://wwwtteas.gov/press/releases/jsi991.htm

4/29/2005

js-1992: MEDIA ADVISORY Sec(ttary Snow to Visit Missouri on Thursday to Discuss ...

Page 1 of 1

PRess FWOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 6, 2004
js-1992
MEDIA ADVISORY Secretary Snow to Visit Missouri on Thursday to Discuss
U.S. Economy
Treasury Secretary John W. Snow will visit Independence, Missouri on Thursday,
October 7 to meet with local business leaders and discuss the President's efforts to
strengthen the economy and create jobs.
"As a result of the President's economic leadership, we have overcome a recession
and seen 12 straight months of job creation, totaling 1.7 million new U.S. jobs since
August 2003," said Secretary Snow. "Missouri has gained new jobs so far this
year, and the President's tax reform policies have ensured that more than two
million Missouri taxpayers will have lower income tax bills in 2004."
During this trip to Missouri, Secretary Snow also will discuss the Administration's
efforts to control health care costs, reduce frivolous lawsuits and ensure that
America has reliable and affordable sources of energy. "While the economy is on
solid footing, we are not satisfied and there is still more work to be done. We need
to continue to push for pro-growth policies that will create jobs and raise standards
of living," Secretary Snow said.
Recent indicators show that President Bush's economic policies continue to move
the economy forward. According to the Labor Department, the national
unemployment rate declined to 5.4% in August - down 0.9 percentage point from a
peak of 6.3% in June 2003 and the lowest rate since October 2001. At 5.4%, the
unemployment rate is below the average of the 1970s, 1980s, and 1990s.
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down in all regions and in 45 of the 50 states.
The following event is open to the media, which must present media credentials or
photo 10:
Thursday, October 7
Roundtable with Local Business Leaders
8:30 am COT
The Independence Chamber
210 West Truman Road
Independence, MO
** Media should arrive by 8:00 am
Tour of Independence Center
10:00 am COT
Independence Center
2035 Independence Center Drive
Independence, MO
** media should gather at Main Entrance on 39 th St.
** There will be a brief press availability immediately following the event
-30-

http://www.ireas.gov/press/releases/js~992.htm

113/2005

js-1993: MEDIA ADVISORY Secrdary Snow to Visit Toledo, Ohio on Friday to Discuss ... Page 1 of2

PHCSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 6, 2004
js-1993
MEDIA ADVISORY Secretary Snow to Visit Toledo, Ohio on Friday to Discuss
U.S. Economy
Treasury Secretary John W. Snow will visit Toledo, Ohio on Friday, October 8 to
meet with local business leaders and discuss the President's efforts to strengthen
the economy and create jobs.
"As a result of the President's economic leadership, we have overcome a recession
and seen 12 straight months of job creation, totaling 1.7 million new U.S. jobs since
August 2003," said Secretary Snow. "Ohio has gained new jobs so far this year,
and the President's tax reform policies have ensured that more than 4.4 million
Ohio taxpayers will have lower income tax bills in 2004."
During this trip to Ohio, Secretary Snow also will discuss the Administration's efforts
to control health care costs, reduce frivolous lawsuits and ensure that America has
reliable and affordable sources of energy. "While the economy is on solid footing,
we are not satisfied and there is still more work to be done. We need to continue to
push for pro-growth policies that will create jobs and raise standards of living,"
Secretary Snow said.
Recent indicators show that President Bush's economic policies continue to move
the economy forward. According to the Labor Department, the national
unemployment rate declined to 5.4% in August - down 0.9 percentage point from a
peak of 6.3% in June 2003 and the lowest rate since October 2001. At 5.4%, the
unemployment rate is below the average of the 1970s, 1980s, and 1990s.
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down in all regions and in 45 of the 50 states.
The following event is open to the media, which must present media credentials or
photo 10:

Friday, October 8
Roundtable with Toledo Center for Family Business Administrators
8:30 am EDT
University of Toledo Center for Family Business
2801 W. Bancroft Street
Toledo,OH
** Media should arrive by 8:00 am
** There will be a brief press availability immediately following the event
Tour of Dana Automotive Systems Technology Center
12:30 pm EDT
Dana Automotive Systems Technology Center
3939 Technology Drive
Maumee,OH
** Media should arrive by 12:00 pm
-30-

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js-1994: ')tatement by Secretary l~i.n W. Snow Meeting with Ministers from Bolivia,... Page 1 of 2

PHESS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 2, 2004
js-1994

Statement by Secretary John W. Snow
Meeting with Ministers from Bolivia, Chile,
Colombia, Ecuador, and Peru
October 2, 2004
I had an excellent meeting this morning with economic leaders from Bolivia,
Colombia, Chile, Ecuador, and Peru to discuss our joint efforts to raise living
standards and reduce poverty in our region.
I am pleased to report that economic performance in these countries has
strengthened dramatically over the past year. Economic growth in these five
countries is set to average 4.5 percent this year. A large portion of these gains has
been powered by exports, which are growing at high double-digit rates in several
countries. I commended my colleagues on the significant improvements in
macroeconomic policies that have underpinned the stability that has allowed their
countries to reap the benefits of the global economic recovery.
My colleagues and I agreed that the critical challenge now is sustaining high levels
of economic growth, since faster growth is the most important tool for reducing
poverty and raising the incomes of the poor. We discussed the various elements of
our strategy for achieving higher growth and ensuring that the benefits of growth
are shared by all.
Free trade is clearly central to that strategy. Chile and the United States are already
deepening their economic ties in response to the new opportunities created by the
recently implemented U.S.-Chile Free Trade Agreement. Further efforts to reduce
trade barriers through successful negotiation of an Andean Free Trade Agreement,
Free Trade Area of the Americas, and the Doha Development Agenda are essential
to fueling this engine of prosperity.
We discussed the importance for growth of increasing investment in infrastructure
and education. My colleagues stressed opportunities for attracting private
investment in these areas. There is a real emphasis on identifying and using
successful models for public-private partnerships. And we agreed that the work
undertaken by the IMF now to define best practices in budgetary accounting for
these kinds of arrangements is very important.
Making markets work better within countries is also critical. This means creating an
environment in which businesses have incentives to invest, innovate, and create
jobs and people have the opportunities to 11ft themselves out of poverty. Locking in
the progress that has been made in improving macroeconomic policies is one pillar
supporting higher levels of growth. Now countries must also take on the challenge
of expanding access to capital, making labor markets more flexible, reforming tax
systems so they don't discourage hiring in the formal sector, and making it easier to
start and grow a business.
The United States is committed to assisting countries in the region raise growth and
reduce poverty through more effective development assistance. We all agreed that
multilateral development bank projects must reflect countries' priorities and lessons
learned from proven successes. This requires strengthened systems for measurin9
results. Increasing economic growth was a major theme at the Summit of the
Americas earlier this year, where leaders agreed to act together to cut the time to
start a business, triple credit to small businesses by 2007 with the Inter-American
Development Bank, and halve the average cost of remittance transfers to the region
by 2008. On the bilateral side, the new Millennium Challenge Account will direct aid
to support the poorest countries' efforts to invest in education and health, build

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markets. and fight corruption.

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js-1995: Mark Sobel Deputy Assistant Secretary, International Monetary Policy I... Page 1 of 3

PHLSS

f~OOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 6,2004
js-1995

Mark Sobel
Deputy Assistant Secretary, International Monetary Policy
International Affairs, Department of Treasury
Remarks to Central America in the United States Conference held at the
Department of State
A year ago, when we at Treasury spoke to many of our colleagues around the world
about remittances, why remittances were an important public policy issue, and why
remittances were a focal point for the US Treasury, our colleagues looked at us
quizzically You, the members of this audience, have a keen appreciation of the
importance of remittances, and I'm pleased to say that now, so do most of our
colleagues.
But let me not get ahead of myself. On the international side of the Treasury, we
have many objectives. A first objective is:
•

Promoting growth - not just in the major economies, but globally -- drives
much of our work with emerging market and developing countries, including
through the IMF and the MOBs.
• Growth in our view is the most important contributor to poverty reduction.
and growth should be led by the private sector.
• The Treasury is quite understandably interested in promoting more robust
financial systems around the world.
• And, of course, we want the international financial system to be safe and
sound, and one aspect of that is promoting compliance with anti-money
laundering and counter terrorist financing standards.
Remittances are extremely relevant to all of these objectives. Remittances are a
growing and key source of capital and income for developing countries.
•

Reported global remittance flows last year were almost $100 billion and
some estimates put unrecorded remittance flows at % that level.
• The recorded flows were nearly twice official development assistance and
exceeded 10% of GOP for many countries.
• These flows are more stable than many other sources of capital flows.
• These are private sector flows. They reach isolated segments of society,
and are used not just for basic subsistence, but also for such development
purposes as financing education and housing.
• Remittances flow through many channels - banking systems, money broker
services, and cash couriers. Needless to say, personal transfers of cash are
dangerous and unsound financial structures are vulnerable to abuse.
Remittances playa particularly important role in the Latin American, and especially
Central American, economies.
•
•
•

Flows to Latin America last year were $38 billion.
To Central America, flows were $6.1 billion, up 12% from '02.
Remittances constitute a large part of the Central American economies - in
2001, they were 24% of Nicaraguan GOP; and 14% of EI Salvadorean GOP.
28% of the EI Salvador's population received remittances.

Remittances are different than the financial flows we in the United States are used
to dealing with. We have huge computer systems for moving large and small
amounts of money around domestically. I can send money anywhere in the US
virtually cost free.

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js-1995: Mark Sobel Deputy A,9sistant Secretary, International Monetary Policy I... Page 2 of 3
But the cost of international transmission of money can be much higher - often up
to $30 on a transaction of $150 to $300. Why is it so costly? Simply put, the
financial infrastructure for moving money efficiently across borders, especially small
scale flows, is often weak.
The high cost lessens the amounts remitted, reduces flows and their development
impact and increases the vulnerability of the financial system to abuse.
To address these problems, I think that technological innovation, clearing regulatory
hurdles, and greater awareness among remitters and private institutions are
essential elements.
For example, if a payment system in the US can communicate seamlessly with a
payment system abroad, this will lower transmission costs. But if a bank in the US
and a bank in EI Salvador can only interact through costly correspondent relations,
the costs will be high.
One need not be pessimistic on this front. The Federal Reserve and the Bank of
Mexico have just developed a system to facilitate transmission of retail cross-border
payments, including remittances. Existing proprietary cross-border payment system
operators, such as VISA, have developed remittance specific products; new
proprietary cross-border payment systems have been developed by organizations
of financial service providers, such as the World Council of Credit Unions
(WOCCU); and Citibank's purchase of Banamex now means remittances can be
transmitted for $5 within the network. Already, in the US-Mexico remittance corridor,
the cost of transmitting remittances has been cut 60%.
To reap these benefits more fully, Treasury has launched a "Global Remittance
Strategy" which brings together many different initiatives. Our overall objectives are
simple:
•
•
•
•
•
•

To promote private sector outreach to stimulate competition in remittance
services;
To bring together statistical experts to improve remittance data;
To gather standard setters to work on prudential standards for remittance
service providers;
To offer bilateral and multilateral assistance to strengthen financial systems;
To provide technical assistance on anti-money laundering and counter
terrorist financing; and
To promote "financial literacy" as it called, or to "bank the unbanked."
People who don't understand basics about how to open an account and
what services can be provided will not use banks. Addressing this challenge
requires a significant educational effort. In the United States, for example,
the FDIC offers its Money Smart Training program, a train-the-trainer tool
available in four additional languages (Spanish, Chinese, Korean,
Vietnamese) targeting key immigrant communities.

Let me touch on our initiatives.
•

Under the US/Mexico Partnership for Prosperity initiative, launched in fall
2001, Mexico and the US have worked together to promote competition
among private providers, expand financial literacy, and improve the
payment systems. This effort has galvanized significant attention: Last June,
Treasury Deputy Secretary Bodman chaired the remittance roundtable
discussion at the Second Annual Partnership for Prosperity conference
which brought together over 600 people. The centerpiece of this effort has
been the development of the Automated Clearing House (ACH) system by
the Atlanta Fed and the Bank of Mexico, creating a connection between the
retail inter-bank payment systems of the two countries.

•

Under the APEC Remittance Initiative launched in fall 2002, the APEC
economies have undertaken a regional effort to examine factors that
contribute to the use of informal channels for remittances. By co-hosting
with the World Bank and the Asian Development Bank a very successful
Remittance Symposium this past June in Tokyo, APEC brought together
the public and private sector to work toward creating a more competitive
environment for remittances.

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js-1995: Mark Sobel Oeputy Assistant Secretary, International Monetary Policy I... Page 3 of 3
•

Under Summit of the Americas Initiative, launched in January, our aim is to
halve the cost of sending remittances by 2008 from 12% to 6% of a
transaction. To this end, bilateral and multilateral efforts are being launched.
On the bilateral front, Treasury and other US agencies will begin working
intensively with pilot countries soon to be identified. A member of Treasury
staff just returned from an assessment mission in Central America. These
pilot projects will focus upon strengthening financial institutions, identifying
and addressing impediments to remittance flows, working with the IFls to
target assistance to promote financial sector development and conducting
civil society outreach. The Federal Reserve will host a conference next
month on payment systems and the OAS is hosting outreach events.

•

Under the 2004 Sea Island Remittance Initiative, each G-8 country studied
the role remittances play in each of their economies, identified regulatory
and other barriers to efficient delivery of remittances, selected a remittance
partner country with which it would work, and approached the IFls to explore
what role each institution could play in furthering the goal of enhancing
remittance services. Later this week, during the IMF/World Bank meetings,
discussions will be held with the IFls on remittance issues, including
improving remittance data and developing prudential guidelines for
remittance service providers.

I will turn the floor over to my fellow panelists now, but I hope in these brief
moments, I have been able to share with you the importance that US public policy
officials attach to facilitating the flow of remittances in an efficient and safe manner
which enhances their development impact.

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JS-1996: The Honorable John W. &flow Prepared Remarks: Independence Cham...

Page 1 of 2

PHCSS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 7, 2004
JS-1996
The Honorable John W. Snow
Prepared Remarks:
Independence Chamber of Commerce
Independence, MO
October 7, 2004
Good morning: it's great to be here in Independence. I appreciate the opportunity to
talk with you about the economy both here in Missouri, and all across this great
nation of ours.
Here in Missouri, you've added thousands of jobs to your payrolls so far this year.
That's good news for a lot of Missouri families ... but I know it could be even better.
There are still people here in the "Show Me State" who are saying: "Show me
where my new job will come from!"
And we can't be satisfied until those folks have found jobs.
I am often asked where the jobs of the future will come from - a month from now, a
decade from now. That's a pretty tough question to answer. No one can predict
what the next great technology or industry will be, but I know it's safe to say that
most of America's jobs will always come from people like the ones gathered in this
room today.
Your businesses may be small. They may never show up on the New York Stock
Exchange or the Fortune 500 list. .. but they create jobs for the people of your
community, and that means everything.
When our country goes through a rough patch, economically, small business has
always been there to pull us out. You are part of the most powerful elements of our
economy, which I see as a combination of: small-business owners and
entrepreneurs, our outstanding workforce and the simple fact that we operate as a
free market. These elements add up to the most open, flexible, adaptive and
resilient economy in the world today.
The President understands how important you are to our economy, and he's made
you a priority in his economic policies.
He understands that, as small-business owners and operators, fairness and
freedom are the only two things that you really want from your government.
You seek the freedom to start up a new business venture, to run it and grow it, or to
close the door and go fishing if that's what you want to do. You also want to be
treated fairly, and you deserve nothing less.
In exchange for fairness and freedom, your unspoken promise to your country and
our economy is: job creation and the fuel our economic engine runs on.
This is why the President cut your taxes and has called on Capitol Hill to give you
the option of Association Health Plans to reduce your health insurance costs. That's
why he wants to make the tax code simpler, fairer, and pro-growth. And it's why he
wants to reduce that fear of baseless lawsuits that haunts you, costs you money,
and ultimately acts as a tax on economic growth in this country.

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Page 2 of 2

With small business in the lead, our economy has come a long way.
When he took office, President Bush inherited an economy in steep decline. The
stock market bubble had been pierced. We were then shocked by terrorist attacks
and wounded by reprehensible behavior by corporate CEOs that hurt employees,
investors and investor confidence.
Those key elements that I mentioned earlier - small business, outstanding workers,
and a free-market system - proved to be the foundation, as they always have been,
for our impressive economic recovery following this series of economic blows.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged investment, which is critical for
economic recovery and growth.
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation.
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, 1.7 million jobs have been
created over the past year - 12 straight months of job growth. More people than
ever before own their own homes. People are finding new jobs or getting a raise at
work. They have more money in their pockets and can better afford things from cars
to appliances to shoes for their children. That said, we are not satisfied.
The President's tax relief is still working for the people of Missouri, with more than 2
million taxpayers saving money on their income tax bills in 2004 and 440,000
business taxpayers like you able to use your 2004 tax savings to invest in business
equipment and employee compensation.
At this point, it is critical to make that tax relief permanent, and to continue lifting the
barriers to growth in other areas as well - by making health care more affordable,
abusive lawsuits more scarce, and energy costs more reasonable.
Thank you so much for having me here today in this great American city, and thank
you for the work you do to keep our economy strong.

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jS-1997: Treasury Issues Guidance

<1n

Classification of European Entities

Page 1 of 1

I-'HlSS fWOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

October 7,2004
js-1997

Treasury Issues Guidance on Classification of European Entities
Today, the Treasury Department and the Internal Revenue Service issued guidance
on the classification of certain European business entities for U.S. tax purposes.
In general, the status of a business entity for tax purposes - for example, as a
corporation or as another type of entity such as a partnership - depends on its form
of organization. Regulations provide that entities that take particular forms in their
country of organization are always treated as corporations for U.S. tax purposes.
Notice 2004-68 supplements this list of "per se" corporations to reflect recent
developments in Europe. First, it provides that the Societas Europaea, which is a
new type of entity in the European Union, will be treated as a corporation for U.S.
tax purposes. Second, the notice provides that public limited liability companies
under the laws of Estonia, Latvia, Liechtenstein, Lithuania, and Slovenia will also
generally be treated as corporations for U.S. tax purposes

A copy of Notice 2004-68 is attached.

-30-

REPORTS
•

Notice 2004-68

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113/2005

Part III - Administrative, Procedural, and Miscellaneous

Classification of Certain Foreign Entities

Notice

2004~68

This notice announces that Treasury and the Internal Revenue Service (the
Service) will amend § 301. 7701 ~2(b )(8) of the Procedure and Administration
Regulations to include certain foreign entities on the list of entities always treated as
corporations under section 7701 of the Internal Revenue Code.
BACKGROUND
The Service and Treasury issued final regulations concerning the classification
of entities under section 7701 on December 18,1996 (final regulations). See generally
TD 8697 (1997-1 C.B. 215) and §§ 301.7701-1 through 3. Under the final regulations,
a business entity that is not specifically classified as a corporation is an eligible entity
that can elect its classification for federal tax purposes under certain circumstances.
However, § 301.7701-2(b)(8) provides a list of certain foreign business entities that are
always classified as corporations for federal tax purposes (the per se corporation list).
These foreign business entities are generally referred to as per se corporations.
On October 8, 2001, the Council of the European Union adopted Council
Regulation 2157/2001 2001 O.J. (L 294) (the EU Regulation) to provide for a new
business entity, the European public limited liability company (Societas Europaea or

SE). The EU Regulation will enter into force on October 8, 2004, and will have legal
effect in all the Member States of the European Economic Area (which includes all
Member States of the European Union plus Norway, Iceland, and Liechtenstein). An
SE must have a registered office in one of the Member States.
The SE is a public limited liability company. The EU Regulation provides general
rules that govern the formation and operation of an SE, and supplements those rules for
specified issues and issues it does not otherwise address by reference to the laws with
respect to public limited liability companies for the country in which the SE has its
registered office. Most of the countries in which an SE can have its registered office
have a business entity that constitutes a public limited liability company and that
currently is on the per se corporation list. However, an SE can have its registered office
in the following countries that have a business entity that is a public limited liability
company but that is not yet on the per se corporation list: Estonia, Latvia, Lithuania,
Slovenia, and Liechtenstein.
DISCUSSION
The Service and Treasury have concluded that an SE is properly classified as a
per se corporation because it will function as a public limited liability company. The
Service and Treasury will issue temporary and proposed regulations that will modify §
301.7701-2(b)(8) to include the SE on the per se corporation list.

Further, the

temporary and proposed regulations will modify § 301.7701-2(b)(8) to include as per se
corporations the Estonian Aktsiaselts, Latvian Akciju Sabiedriba, Lithuanian Akcine
Bendroves, Siovenian Oelniska Druzba, and Liechtenstein Aktiengesellschaft. These
2

entities are the public limited liability companies in their respective countries.
The status of an SE may be relevant to the application of various federal income
tax provisions, such as the subpart F same-country exception under section 954(c)(3).
Treasury and the Service are considering these issues and invite comments on any
additional areas in which guidance on the federal tax treatment of an SE may be
warranted.
EFFECTIVE DATE
The temporary and proposed regulations to be issued adding the Estonian
Aktsiaselts, Latvian Akciju Sabiedriba, Lithuanian Akcine Bendroves, Siovenian
Delniska Druzba, and Liechtenstein Aktiengesellschaft to §301. 7701-2(b )(8) generally
will apply to such entities formed on or after the date of this notice. However, they shall
also apply to an entity formed before such date upon a 50 percent or greater change of
ownership subsequent to such date. The temporary and proposed regulations to be
issued adding the SE to § 301. 7701-2(b }(8) will apply to entities formed on or after
October 8,2004.
DRAFTING INFORMATION
The principal author of this notice is Ronald M. Gootzeit of the Office of Associate
Chief Counsel (International). For further information regarding this notice
contact Ronald M. Gootzeit at (202) 622-3860 (not a toll-free call).

js-1998: JJS-Africa Mortgage

Mar~~t

Initiative Roundtable on Developing the Nigerian ...

Page 1 of2

PH[SS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 5, 2004
jS-199B
US-Africa Mortgage Market Initiative Roundtable on Developing the Nigerian
Mortgage Market U.S. Treasury Under Secretary John B. Taylor Opening
Remarks, October 1, 2004
Thank you Mr. Rosenfeld for the warm welcome. Over the past year Ginnie Mae
has provided critical support to the African Mortgage Market Initiative. I hope we
can continue to work together to develop mortgage markets in Africa.
I would like now to welcome to Minister Ngozi Okonjo-Iweala and her delegation
which includes Mr. Tanimu Yakubu, Managing Director of the Federal Mortgage
Bank. Minister Okonjo-Iweala is Minister of Finance for the Federal Republic of
Nigeria. Before becoming Minister in July 2003 she was a Vice President and
Corporate Secretary of the World Bank.
I would also like to welcome the participants seated here today. We have
representatives from a number of private sector companies, including banks, law
firms, consulting firms, mortgage banks and investment banks. I am also happy to
have representatives from the IFC, the World Bank and from a number of US
government agencies including the White House, State Department, USAID, OPIC
and of course Ginnie Mae.
This roundtable is being held under the auspices of the President Bush's African
Mortgage Market Initiative, which he announced in Abuja, Nigeria a little over a year
ago. In his announcement the President called for the US government to assist
African countries develop mortgage markets. The rational for this focus on
mortgage market is compelling. Development of robust mortgage markets result in
increased wealth and welfare for households. Development also deepens retail
banking and helps create local capital markets. In short, mortgage finance and all
related activities contributes greatly to an economy. In developed countries such as
the United States, the housing sector and all related sectors contribute over 25% to
GDP.
The US government is currently working on 20 projects in nine African countries,
including Nigeria. Since the President's announcement the US has over $260
million in firm OPIC loan commitments and has an additional $100 million in loan
commitments awaiting approval. USAID has funded a $4 million micro-lending
program in Nigeria - with the first loan schedule to be originated by the end of the
year. It has also funded over $300 thousand in technical assistance for Southern
Africa. In addition to managing the initiative, Treasury, with the help of Ginnie Mae,
has undertaken a number of government-to-government technical assistance
programs aimed at primary and secondary mortgage market development.
We are here today to talk about how best to develop the Nigerian mortgage
market. Nigeria is a country of 137 million with virtually no mortgage market or
housing market to speak of. With an estimated housing deficit of over 5 million
units, Nigeria desperately needs housing and housing finance.
Today's discussion will focus on a number of aspects of the market including land
title issues, mortgage funding, credit risk management, mortgage servicing and the
role of government in the market.
I encourage you to also discuss how the expatriate Nigerian population in the
United States might be integrated into the Nigerian mortgage market.
The market for expatriate mortgage services could be large as there are currently

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over 700,000 Nigerians of working age living in the USA. Tapping these
expatriates might help develop the Nigerian real estate and mortgage markets and
provide business opportunities for both US and Nigerian companies.
Thank you. I believe that we will have a lively and productive discussion this
morning.

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113/2005

JS- l ')l)l):

Treasury Deputy Assistant Secretary Iannicola Launches Financial Education Te... Page 1 of 1

I-'HlSS H()()M

FROM THE OFFICE OF PUBLIC AFFAIRS
September 28. 2004
js-1999

Treasury Deputy Assistant Secretary lannicola Launches Financial Education
Technical Assistance Center at Credit Industry Conference in Las Vegas
Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr. today
introduced a new service offered by Treasury's Office of Financial Education. The
Office's new Technical Assistance Center will advise groups or individuals wishing
to start or enhance financial education programs in their communities. lannicola
made the announcement before senior credit executives from more than 30
organizations at the fall conference of the Credit Industry Research Council.
During his remarks, lannicola described the Technical Assistance Center as a place
where those with an interest in financial education can receive input on program
design and available resources, explore partnerships with other organizations and
learn about best practices in financial education. lannicola also commended those
members of the credit industry that have devoted resources to financial education.
"The credit industry is uniquely positioned to provide meaningful education to
millions of Americans, and we can help," said lannicola. "With today's launch of the
Technical Assistance Center, Treasury recommits itself to improving financial
education in America, and one the best ways to do that is by offering our support
and advice to those trying to bring financial education to their communities. By
helping financial education programs get started or get better, the center fills an
important need in the financial education community."
lannicola explained that the center can be accessed online at
http/lwwW tre3sury.gov/fillclilcialeduc3110n or by telephone at (202) 622-9372. He
said the two goals of the center were to increase the reach and impact of financial
education programs nationwide and to lever federal financial education resources in
the most efficient way possible. "When we support the expansion of financial
education, we increase levels of ownership, of financial security and of consumer
protection, and we go a long way toward helping people help themselves" said
lannicola.
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education in May of 2002. The Office
works to promote access to the financial education tools that can help all Americans
make wiser choices in all areas of personal financial management, with a special
emphasis on saving, credit management, home ownership and retirement
planning. The Office also coordinates the efforts of the Financial Literacy and
Education Commission, a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments, agencies and
commissions, which works to improve financial literacy and education for people
throughout the United States. For more information about the Office of Financial
Education visit: wWW.trpclS ~J(Jv;flllallClalp(jllcall(Jn.
-30-

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JS-LOOO. The Honorable John W. &lOw Prepared Remarks: The Toledo Center for Fa ... Page 1 of3

I-'HLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 8.2004
JS-2000

The Honorable John W. Snow
Prepared Remarks: The Toledo Center for Family Business
Toledo,OH
October 8, 2004
Good morning; it's great to be home in Toledo'
I'm proud to have grown up here, and it's always great to come back. Toledo will
always be home to me.
Furthermore, I'm delighted to be visiting the Toledo Center for Family Business. I
think that family businesses are taken for granted far too often, and it's terrific to
see a group of people so devoted to the study of something that is such a powerful
economic phenomenon in this country.
When you run a family business, you face challenges that few outside of your world
appreciate. From acquiring investment capital - which often means signing up for a
new credit card - to resolving conflicts among family members ... from managing
employees to negotiating contracts with vendors ... from paying the taxes bills to
paying the insurance bills and puzzling through all those regulations. Your
challenges are constant and incredibly varied. And yet you persevere to maintain
your status as this country's strongest economic force and premier job creator.
Everyone here today is on the front lines of our country's economic recovery and
growth, and I value the work that each of you are doing.
I know that it hasn't been easy. As a manufacturing state, Ohio has recently felt the
pain of an economy that was in decline. The citizens of this area have lost jobs.
Getting them back to work is a top priority for President Bush, and for me.
We understand that bad economic times hit the Buckeye state hard. And the effort
to get your economy on solid footing, to a place where you can expand, grow and
create more jobs, is a continuing priority; as the President has often said we will not
be satisfied until everyone looking for work can find a job.
Some things we know for certain. Like the fact that new jobs cannot come soon
enough for the people who have lost theirs. The question is: where will those jobs
come from?
The short answer to that question: the jobs will come from the people in this room
today.
That's why the President's goal is to make sure that the work you do, on the front
lines of job creation and economic growth, isn't over-burdened by unfair levels of
taxation and regulation. We know that, as small-business owners and operators,
you simply ask for two things from your government: fairness and freedom.
You seek the freedom to start up a new business venture, to run it and grow it, or to
close the door and go fishing if that's what you want to do. You also want to be
treated fairly, and you deserve nothing less.
In exchange for fairness and freedom, your unspoken promise to your country and
our economy is: job creation and the fuel our economic engine runs on. This is why
we've got to keep tax rates Iowan business owners like you, and on every

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American who pays taxes.
An important. ongoing truth of the American economy is this: the government won't
choose what jobs are created; entrepreneurs and innovators will. Government's
responsibility is to make sure they have the freedom to do so.
That's why entrepreneurs and small-business owners are at the heart of President
George W. Bush's economic policies. The President understands that creating an
environment in which you can flourish is the essential ingredient in any recipe for
economic growth.
Free and fair trade is an important element in this. Ninety-seven percent of all
identified exporters are small businesses like yours. Free trade helps you, and it
helps to create more higher-paying jobs for American workers by opening new
markets for American products and services, bringing lower prices and more
choices to American consumers, and attracting foreign companies to invest and
hire in the United States. America is economically stronger when we participate fully
in the worldwide economy. When 95% of the potential customers for American
products live outside the U.S., America must reject policies that would result in
economic isolationism. Here in Ohio thousands of workers' jobs depend on trade
agreements that enable Ohio-made products to compete in markets around the
world. Since the enactment of NAFTA in 1994, Ohio's exports to Mexico have
tripled, and last year exports totaled more than two billion dollars. Since the end of
2000. Ohio's exports increased more than any state in the country. Exports are
clearly vital to our Nation's economic strength.
The President appreciates that small businesses create two-thirds of new private
sector jobs in America. He knows that you employ more than half of all workers.
and account for more than half of the output of our economy. As the President often
says, what's good for small business is good for America. Because when small
business is growing, the American economy is growing.
That's why the President's tax cuts allowed small-business owners like you to keep
more of your business income, and encouraged you to invest in the growth of their
companies. For example, nearly 860,000 business taxpayers here in Ohio will save
money on their 2004 taxes.
Similarly, the tax cuts have allowed individuals to keep more of their income. More
than 4.4 million Ohio taxpayers will have lower income tax bills in 2004 thanks to
the tax relief.
The results of letting people keep more of their own money, and spend it how they
see fit, have helped put our nation on the right track. We've had 12 straight months
of job growth. More people than ever before own their own homes, and new homes
are being purchased every day. People are finding new jobs. They have more
money in their pockets and can better afford things from cars to appliances to
shoes for their children. That said, we are not satisfied.
Our economy has come a long way. When he took office, President Bush inherited
an economy in steep decline. The stock market bubble had been pierced. We were
then shocked by terrorist attacks and wounded by reprehensible behavior by
corporate CEOs that hurt employees, investors and investor confidence.
We are fortunate that our economy is the most open, flexible, adaptive and resilient
in the world. Our powerful core elements - small-business owners and
entrepreneurs, an outstanding workforce, and the simple fact that we operate as a
free market - have enabled us to recover from those very difficult economic times.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged investment, which is critical for
economic recovery and growth.
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation.
How to help our economy right itself when it is in distress is a lesson in American
history. We know from long experience that our economy responds best to the very

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thing that created it: freedom.
Freedom from excessive taxation. Freedom from abusive, frivolous lawsuits and of
course freedom from terrorist assaults.
As I said before, small firms like yours also respond to fairness. That's why the
President wants to bring fairness to the purchase of health insurance by allowing
you to pool your purchasing power to buy your policies anywhere in the U.S,
putting you on a better footing with bigger businesses - that's only fair. The
President believes in small businesses, and the spirit of enterprise it represents. He
wants you to have a level playing field. That's why he has worked so hard to bring
the perspective of small business to government regulations.
When freedom, fairness and American entrepreneurs are combined, the end
product is jobs and growth.
We have plenty of work to do - in Ohio and across America. But if we continue on
the path of freedom and making sure individuals, entrepreneurs and family
businesses have an open and fair environment in which they can work and grow,
our best economic days will remain ahead of us and I am optimistic about our
future.
Thank you so much for having me here today; I look forward to our discussion.

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PHCSS fWOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Arlo/Jo"'! AcroiJalh Redrl!?I"'!.

October 7, 2004
JS-2001

The International Implications of October 1979:
Towards a Long Boom on a Global Scale
Remarks Presented at the
Reflections on Monetary Policy Conference
25 Years After October 1979
John B. Taylor
Under Secretary of Treasury for International Affairs
Federal Reserve Bank of St. Louis
October 7, 2004
I am pleased and honored to be here to share my thoughts on the momentous
event that occurred on October 6, 1979, and I thank Bill Poole, Bob Rasche, and
Dan Thornton for being such gracious hosts. I will argue tonight that the masterful
decisions made that day represented a critical first step in reasserting American
leadership in economic policy around the world. This leadership, which continues
today, has benefited not only the United States but also the entire international
community. It has brought forth policies that have increased price stability,
lessened fluctuations in output and employment, and promoted longer, more
sustained, economic expansions around the globe, while restoring the dollar as a
stable reserve currency.
Anyone who was more than just a casual observer of economic policy making at
the time realized that the measures announced on October 6 represented a major
change in the conduct of monetary policy. If pursued to their conclusion, the
measures would break the back of a vicious cycle of accelerating prices. If
translated into new lasting principles of monetary policy, the specific measures
would represent a true "regime" change. However, armed with monetary policy
models that incorporated both inflation momentum and rational expectations, I also
realized that tighter control of money was going to be associated with considerable
economic strain for a period of time--not as bad or as long lasting a strain as some
pessimists had predicted, but a severe strain nonetheless. This would require
exceptional fortitude by the Federal Reserve and broad support from elsewhere in
the government.
Events Preceding October 6, 1979
It is difficult today to appreciate how desperate the economic situation had become
25 years ago. It is difficult because the United States has enjoyed a prolonged
period--a long boom--of low inflation and long economic expansions since the early
1980s. But by 1979, inflation had moved up to a double-digit pace and threatened
to spiral higher. The economy was showing signs of weakness, and many were
predicting recession and rising unemployment. The mood in financial markets was
becoming one of deep gloom, as the dollar was sinking and interest rates were
soaring. Surveys showed that inflation expectations were climbing to
unprecedented, double-digit levels, and public opinion polls were consistently
indicating that inflation was the number one worry.
Needless to say, confidence in U.S. macroeconomic management had been
plunging both at home and abroad, and no doubt fallen to a post World War II low.
For its part, the Federal Reserve had been setting ranges for money growth that it
thought to be consistent with bringing inflation down. However, it had been
overshooting or pressing the upper limits of those ranges regularly. To many
observers, the Fed's difficulty in keeping the monetary aggregates within the
announced ranges owed to its operating procedures that involved actions to move

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the federal funds rate that were too little and too late, leaving the Fed behind the
curve.
On August 6, 1979 a new chairman of the Fed--Paul Volcker--took office. At first,
the arrival of Volcker came as a relief to market participants. Through his public
record and statements, Paul Volcker was seen to challenge the common wisdom of
the time that inflation had favorable effects on employment. Instead, he believed
that inflation was a corrosive force that undermined economic performance. His
views were consistent with then new advances in macroeconomics that pointed to
the futility of trying to exploit an inflation-unemployment trade-off, and perhaps he
was influenced by such views. In any case many market participants hoped that he
would succeed in bringing inflation down. He was experienced having served for
four years as president of the New York Fed and five years as Under Secretary of
the Treasury.
However, the confidence of market participants in Volcker's ability to lead the Fed
on a disinflationary path was shaken on September 18. On that day the Federal
Reserve Board approved a discount rate hike of 50 basis points to accompany an
FOMC decision to tighten policy. But the vote, publicly announced, was very close,
only 4 to 3: and commentary that followed suggested that the chance of further
tightening was all but gone. With money and prices accelerating, the situation
looked bleak.
October 6, 1979

What followed was one of the most masterful efforts in history by the head of a
central bank to deal with a growing national and international problem. In the
weeks after the September meeting, Paul Volcker put together a package that
received the support of every member of the Board and every Reserve Bank
president. It contained three key items: First, a full percentage point increase in the
discount rate; that appealed to those believing the situation called for another
traditional dose of monetary medicine. Second, a marginal reserve requirement on
managed liabilities of large banks; that appealed to those who wanted to take action
to restrain the surge in bank lending. And third, the new reserve-based operating
procedures.
The new operating procedures allowed the Fed to say, with some legitimacy, that it
was the market, and not the Fed, that was setting the level of the funds rate. The
procedures also appealed to those who believed that a reserve-based operating
procedure would result in more timely and sizable interest rate responses to
inflation, which would help the Fed stay in front of rather than fall behind the
inflationary curve. In retrospect that may have been the most lasting feature of the
October 1979 measures. The procedures also offered more two-way flexibility for
prompt downward movements in the federal funds rate, which appealed to those
who voted against the September 18 discount rate hike, fearing the economy was
already sliding into recession.
The Aftermath of October 6, 1979

The sustained monetary restraint called for by the operating procedures implied a
protracted period of economic weakness. It called for a degree of fortitude by
Chairman Volcker and his colleagues that had been highly atypical of central banks
in the late 1960s and 1970s. This had to have been a very lonely and nervewracking period for the Federal Reserve. Stories abound about the daily mail
deliveries of scraps of two-by-fours from the ailing construction sector with
inscriptions begging for relief, and about angry farmers who circled the Fed building
on Constitution Avenue, not to mention the countless letters protesting high interest
rates.
Chairman Volcker and his colleagues were resolute for the next couple years and
their efforts, along with subsequent ongoing vigilance to prevent the economy from
overheating, paid tremendous dividends for the United States. Core CPI inflation,
which surpassed 11 percent in 1979, fell to under 5 percent in 1982. It has since
been brought down further and held down under Chairman Alan Greenspan's
leadership. With this, inflation expectations have marched down to very low levels,
while public opinion polls have shown that inflation worries have moved completely
off the radar screen.

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Knowledge and Leadership
The October 6 events and their immediate aftermath provide a wonderful case
study on implementation of economic policy in practice. In my view, both knowledge
and leadership are essential if one is to get the job done. Simply knowing the
economic theory or proposing the economic reform is not enough. The Fed, under
Chairman Paul Volcker, understood the true seriousness of the inflation problem.
They and many others in academia and elsewhere understood the economic forces
that were causing the rising inflation that had plagued the United States through
much of the 1970s.
But implementing the solution required leadership and skillful coalition-building. As
I have emphasized, the measures taken on October 6, 1979 were designed to
receive wide support at the FOMC, and they got wide support. Implementation also
required a high level of technical knowledge and good operational management
within the Fed staff - especially given that the lagged reserve requirements in place
at the time were not well suited for reseNe-based monetary control. Moreover,
implementation required staying the course for several years through very difficult
times, and this is where support from elsewhere in the government--both the
Administration and Congress--was essential.

/nternationa//mpacts and the Spread of Know/edge and Leadership
The United States was not the only country struggling with inflation in the late
1970s. Inflation had reached double digits in the United Kingdom, Italy, France,
and Canada and was even high in Germany. The policy shift by the United States
was followed by the United Kingdom, which adopted a monetary targeting
framework in March 1980.[1] Many of the other countries, however, held to the
view that monetary policy was ineffective in controlling inflation and focused on
incomes policies to restrict the growth of wages and prices. These differences in
views were evident at the Executive Board of the IMF .[2] Over time, however, this
shift in focus of monetary policy occurred in all the developed economies and also
in many emerging market and developing economies.
To understand this diffusion of knowledge, note that two lasting monetary principles
emerged from the specific monetary measures of October 6, 1979, even though the
measures themselves ended in 1982. It was these principles that spread around
the world.
First is a commitment to price stability. A central bank needs to be committed to
price stability, and this view is now widespread. Indeed, according to a recent
sUNey of 94 central banks, 96 percent have price stability as a statutory goal.[3] A
milestone in this area occurred in 1989 when New Zealand adopted legislation that
required the central bank in consultation with the government to set an inflation
target, a change that was followed by other countries. By 1998, fifty four central
banks had set inflation targets.[4]
Second is the focus of central banks on more systematic and transparent
procedures for setting the policy instruments in a way that will bring about the goal
of price stability. Both theory and empirical studies indicate that monetary control is
easier if monetary policy objectives are seen as credible, enabling economic agents
to adjust their behavior to those objectives; and policy transparency has enhanced
credibility. In comparing the pre and post October 1979 periods, one finds that
monetary policy in the United States has become more responsive both to changes
in inflation and changes in output. During the late 1960s and the 1970s, a 1
percentage point rise in the rate of inflation resulted on average in a less than 1
percentage point rise in the federal funds rate. Since then, the federal funds rate
has increased by more than 1 percentage point for every 1 percentage point rise in
inflation. This difference is of fundamental importance. If the federal funds rate
rises by less than the inflation rate, real interest rates decline. It was this failure to
focus on real interest rates that allowed inflation to accelerate in the 1970s. This
greater responsiveness is not unique to the United States but also has been
obseNed in other countries.[5]
[1] Goodhart (2004) notes that the Bank of England was considering changing its
operating procedures in 1979.
[2] Boughton (2001).
[3] Mahadeva and Sterne (2000).
[4] Mahadeva and Sterne (2000)

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[5J Clarida, Gali and Gertler (1998).
The focus on price stability and on accompanying policy procedures has resulted in
a sustained decline in inflation throughout the world. The developed economies
showed a declining trend after 1980. Inflation in these economies fell from an
average of 13 percent in 1980 to 2 percent in 1997, and has remained close to 2
percent since then--tracking closely the experience in the United States.
Inflation in the emerging markets remained persistently high well after the
drop in the developed economies. By the mid 1990s, however, the changes in the
monetary policy process had become more common throughout the world. The
deceleration in inflation has been amazing. As recently as 1994 inflation in the
emerging markets averaged 65 percent; over the last four years, in contrast, it has
been around 6 percent.
As inflation has declined so has its variability. In the developed economies inflation
variability, as measured by its standard deviation, fell from 3.4 percent in the 1980s
to 1.3 percent in the 1990s and so far this decade is less than 1 percent. In the
emerging markets the variability of inflation fell from 24 percent in the 1990s to less
than 1 percent this decade. There is now little difference between the variability of
inflation in the developed and emerging economies. This remarkable
accomplishment is a direct result of the changes in the monetary policy process that
began 25 years ago.

Reduction in Output Variability and the Long Boom
Impressive as these results are, they are only one part of a good story. At about
the same time that the Fed was implementing the famous October 6 measures, I
published a paper with an estimate of an efficiency frontier between the variability of
inflation and output, noting that, with policy in place up until that time, the United
States was off the frontier.[6J Looking at the evidence, it is clear that since then we
have either gotten closer to the frontier or that the frontier itself has shifted in a
favorable direction. In other words output variability has declined along with inflation
variability.
In a Homer Jones Lecture I gave several years ago, I referred to this period of low
output volatility in the United States as the "long boom." The "great moderation" is
another term that has been used to describe the same phenomenon. Since 1955
there have been eight recessions, as determined by the NBER. Two things stand
out about the recent recessions. First, they were relatively mild. The average
decline in output from peak to trough in the previous six recessions was 2.0
percent. Output in the 1990 recession declined by 1.3 percent. In 2001, output
rose slightly (0.5 percent) from (the quarter of the) NBER peak to (quarter of the)
trough. Second, these two recessions were relatively short; both lasted less than
eight months. The six previous recessions lasted slightly more than 11 months.
Equally important, the past two expansions were the longest peacetime
expansions, over the entire NBER measurement period that began in 1854. The
most recent expansion lasted 120 months, surpassing by 14 months the Vietnam
War era expansion of the 1960s.
The same phenomenon is found in other counties. In the developed economies as
a whole the variability of the real GDP (measured as a deviation from trend), fell
from 1.8 percent in the 1980s to 1.0 percent in the 1990s and has remained steady
since then.[7] The experience of the United Kingdom is particularly impressive.
Since 1992 the United Kingdom has not had a single quarter of negative output
growth, as measured by the quarter-to-quarter changes in real GDP. Over the last
4~ years output volatility has only been about 50 basis points.
[6] Taylor (1979
In the emerging markets, the decline in inflation is still recent, but some emerging
market economies have already seen a lowering of the variability of output. In Chile
output variability declined by half in the 1990s. In Brazil, output variability has begun
to decline too. I am optimistic that given continued progress by the emerging
markets in maintaining low and stable inflation, these economies will experience a
longer boom over the course of this decade.
Several arguments are often cited for the improvement in the output-inflation

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variability frontier. According to the "good luck" argument, the number and
magnitude of shocks hitting the world economy has declined. According to the
"structural change" argument, supply shocks have a less pronounced effect on the
economy as a result of changes in the structure of the economy. Some changes
often cited include an increase in the service sector's share in the economy and
improvements in inventory management.
I prefer a policy explanation closely connected to the monetary policy changes that
began in October 1979. Reducing substantially the boom-bust cycle has been an
important contributor. Recessions in the post-war period typically have been
preceded by rises in the rate of inflation. Thus, by keeping inflation low monetary
policy has reduced the likelihood of recessions. Moreover, ending inflation and
keeping inflation expectations low has given central banks the credibility to address
adverse supply shocks. In the past, in the face of an oil price shock, central
bankers were faced with the vexing choice of whether to cushion the loss in output
or resist the upward pressure on prices. If they pursued the former, they risked
dealing with higher and more entrenched inflation expectations. In contrast, around
the globe today, people have become more confident that central banks are not
going to allow such shocks to feed into more long-term inflation. As a result, central
banks can respond more to the output and employment effects.
It is informative to contrast the discussion of policy responses to the recent run-up
in oil prices with discussions that took place in the early 1990s. At that earlier time,
there was the widespread view that central banks had to steer a narrow course and
provide resistance to the price-level effects of the shock so as to avoid reigniting
inflation expectations. Today, the anti-inflation credibility earned over the past
couple decades has served to anchor inflation expectations and give central banks
more leeway to cushion the output effects.
. Conclusion
In sum, reflection on the international implications of the momentous event of
October 1979 in the United States reveals powerful lessons. I am convinced that
the hard-fought gains from new policies that began to be adopted then will continue
to pay large dividends in the future. As long as monetary policymakers retain the
lessons learned. the long boom that more and more countries are experiencing
around the world will be sustainable at a global scale. By remaining vigilant against
inflation, central bankers will be able to keep inflation expectations low. giving them
more scope to counter shocks. And the more stable economic and financial
environment will foster more productivity-enhancing business decisions.
I am optimistic that policymakers in emerging market and developing countries are
learning these lessons as well. Given the hyperinflation and economic instability
these countries have experienced in the past, the rewards from better policy are
huge. During the last few years, I have worked closely with policymakers in many
countries. We have conSistently supported these leaders as they implement
policies that promote price stability and transparent systematic procedures for
adjusting policy instruments. I am convinced these principles will bring substantial
long-term benefits to this part of the world. too.
[7] Trend output is calculated using a Hodrick-Prescott filter.

References
Boughton, James (2001), Silent Revolution: The International Monetary Fund 19791989, Washington D.C.: International Monetary Fund.
Clarida. Richard, Jordi Gali and Mark Gertler (1998), "Monetary Policy Rules in
Practice: Some international Evidence," European Economic Review 42(6), pages
1033-1067.
Goodhart, Charles A. E. (2004), Comments at Reflections on Monetary Policy
Conference, Federal Reserve Bank of St. Louis, October 8.
Mahadeva, Lavan and Gabriel Sterne, editors (2000), Monetary Frameworks in a
Global Context, New York: Routledge.

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Taylor, John B. (1979), "Estimation and Control of a Macroeconomic Model with
Rational Expectations," Econometrica 47(5), pages 1267-1286.

REPORTS
•

TZlyim CIlZllis

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Figure 1. Consumer Price Inflation (1970-2004)
40

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Source: IMF, International Financial Statistics and U.S. Treasul}'.

JS-2002: Statement of Secretary S~w on September Employment Report

Page 1 of 1

PHLSS FWOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 8, 2004
JS-2002
Statement of Secretary Snow on September Employment Report
The steady increase in jobs, which we've seen now for thirteen consecutive
months, continued in September. Since August of last year, America has added
more than 1.9 million workers to the payroll, including the addition of 96,000 last
month and the upward revisions announced today by the Labor Department
showing that job growth has been stronger than previously reported. The
unemployment rate of 5.4 percent remains under the average of each of the past
three decades.
Today's employment report shows the steady creation of jobs fueled by the progrowth policies and strong economic leadership of President Bush. While we're
encouraged with today's report, we're not satisfied. The President has made clear
his continuing commitment to keep this economy on an upward path of economic
growth and job creation.

httn:llwww ireas.gov/press/releases/js.2.f)02.htm

113/2005

--....------..----........----..

JS-2003. Debt For Nature

Agreem~1t

to Conserve Jamaica's Forests

Page I of 1

PF4[SS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 8, 2004
JS-2003
Debt For Nature Agreement to Conserve Jamaica's Forests
The Governments of the United States of America and Jamaica, together with The
Nature Conservancy, recently concluded agreements to reduce Jamaica's debt to
the United States by nearly $16 million dollars. In return, the Government of
Jamaica has committed to providing these resources over the next twenty years to
fund projects to conserve and restore important tropical forest resources on the
island nation of Jamaica.
The agreements were Signed by U.S. Ambassador to Jamaica Sue Cobb, Jamaican
Minister of Agriculture Roger Clarke, and The Nature Conservancy Country Director
Terence Williams. The agreements were made possible through a grant of $6.5
million from the U.S. Government and a contribution of $1.3 million from The Nature
Conservancy.
Jamaica has unique flora and fauna composed of a high percentage of endemic
species, including 28 percent of its flowering plants and 25 breeding bird species. A
growing number of plant and animal species are identified as vulnerable to
extinction, critically imperiled or rare. The aim of this debt-far-nature swap is to help
Jamaica in its fight to safeguard the valuable forests and rich biodiversity in several
areas. This includes areas such as the Blue and John Crow Mountain Forest
Reserve/National Park, home of the island's tallest peak, the endangered Giant
Swallowtail Butterfly and a number of endemic orchids. It also includes the Portland
Bight Protected Area, the only place on the island where the Jamaican Iguana,
once thought to be extinct, is found in the wild.
The Tropical Forest Conservation Act of 1998 was first funded in 2000 to provide
eligible developing countries opportunities to reduce concessional debts owed the
United States while generating funds to conserve their forests. Jamaica is one of
eight countries to benefit from the Act so far; other countries are Bangladesh,
Belize, Colombia, EI Salvador, Panama, the Philippines, and Peru. Together these
agreements will generate over $95 million to protect tropical forests over the next
10-25 years.

httn·!!www.l.reas.gov/press/releases/js.2i)03.htm

11312005

J~-LUU4:

Statement of Anna

PHLSS

Escob~o

Cabral Nominee for United States Treasurer...

Page 1 of 1

f~OOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 8,2004
JS-2004

Statement of Anna Escobedo Cabral
Nominee for United States Treasurer
before the Committee on Finance
United States Senate
Thank you, Chairman Grassley, Ranking Member Baucus, Senator Hatch, and
Members of the Committee. I am honored to have been nominated by President
George W. Bush to serve as U.S. Treasurer, and grateful for the opportunity to
appear before you today in consideration of that nomination.
If confirmed, I look forward to working closely with this Committee, as well as a\l
Members of the Senate and House of Representatives, on issues related to the
office of the Treasurer.
Before proceeding further, please allow me a moment of personal privilege to
introduce those members of my immediate family who join me today: my wonderful
husband, Victor, and two lovely daughters, Viana and Catalina. Our son, Victor
Christopher, our eldest daughter, Raquel and her husband, David Sours, are
unable to attend, but I know they are here in spirit, as are the many members of my
extended family.
I am a third generation Mexican American and first generation college graduate. My
family came from Mexico in the early 1900s in search of the American Dream. Like
so many others, they labored to build the railroads, factories, farms, and cities of
this great nation. Four generations on my father's side toiled in California's
agricultural fields. I am the manifestation of their dreams and aspirations - that their
hard work would earn a better life for their children. I remain eternally grateful to
them for the values they instilled in me - for our faith in God and country, a sense of
personal responsibility, and a commitment to family and community. This
nomination honors each of them.
None of us stands alone. We rest on the shoulders of those who have gone before.
We are expected to repay their sacrifices by working to ensure that our children and
our children's children inherit a safer, better world.
This great nation serves as a beacon for freedom and opportunity in the world.
Among its hallmarks are a free enterprise system, solid financial markets, and
sound banking and monetary systems. As Treasurer I would seek to continue and
contribute to the great work of the President and the Treasury Department by
ensuring that our coin and currency systems remain safe, that anti-counterfeiting
measures are strengthened, that our Savings Bond Programs provide greater
investment opportunities, and that financial literacy grows at all levels, for all
generations.
I am eager to contribute to the work of the Department and the office of the
Treasurer. I consider it a privilege and honor to serve the public. I will work to the
best of my abilities to maintain a strong working relationship with the Committee,
uphold the duties of the office, and assure accountability within the Department.
Thank you for your time. I would be pleased to answer any questions.

http://www~reas.gov/press/releases/js2004.htm

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JS-Lu05: Remittance Corridors and £conomic Development: A Progress Report on a ...

PH[SS

Page 1 of 5

F~OOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 8, 2004
js-2005

Remittance Corridors and Economic Development:
A Progress Report on a Bush Administration Initiative
John B. Taylor
Under Secretary of Treasury for International Affairs
Remarks Presented at the
Payments in the Americas Conference
Federal Reserve Bank of Atlanta
October 8, 2004
I am delighted to be here in Atlanta to join this distinguished group of experts on the
payments system, which is so important to the efficient functioning of the economy.
Your work today is having a profound impact on a top priority of the Bush
Administration: the efficient and secure flow of remittances from developed
countries to developing countries and the role of these remittances in economic
development. The efficiency of cross-border payment systems is a major factor in
determining the cost and quality of remittance services. The remittances, in turn,
have a substantial impact on economic development, poverty reduction, and
financial stability around the world.
Because of the growing role that remittances play in the world economy, the Bush
Administration, and the U.S. Treasury in particular, embarked several years ago on
a multifaceted effort to enhance the environment for the provision of remittance
services. We have worked this priority at every appropriate opportunity and venue.
We began in 2001 with the Partnership for Prosperity with Mexico, and we have
already seen a significant reduction in the cost of remittances from the United
States to Mexico. A more recent example is the goal established at this year's
Summit of the Americas in Monterrey to halve the cost of sending remittances by
2008, from 12 percent to 6 percent, with the Multilateral Investment Fund of the
Inter-American Development Bank taking an important role based on their long
experience in this area. The APEC (Asian Pacific Economic Cooperation)
remittance initiative is another example.
And this past June there was an agreement made here in Georgia at Sea Island by
the leaders of the G8 countries to take actions to improve remittance transfers; this
was, in my view, one of the most significant and lasting initiatives announced at that
summit.
My hope is that you leave this conference with a heightened sense of the
importance and urgency of your work. Without efficient electronic retail payment
systems, the prospects for lowering the cost, and increasing the efficiency and
accessibility of remittance services would be dim.
In my remarks, I would like to discuss (1) why the Bush Administration cares so
much about remittances; (2) the impediments to the efficient handling of remittance
flows with existing cross-border payment systems; (3) progress already achieved;
and (4) what more we are doing to facilitate and stimulate the development of
innovative, cost effective remittance services.

Why Do We Care about Remittances?
Remittance flows, once largely ignored by economists and policy makers, have
grown over the past decade to the point where they playa huge role.
Over the past two years alone, remittance flows to developing economies
jumped by 20 percent to nearly $100 billion dollars and likely will keep growing.

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They are three and half times net official flows.

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[KK1]

These estimates do not include unrecorded flows, much of which travel
through informal, or even underground, financial channels; these are thought to be
at least half the magnitude of recorded flows.
Remittance flows to Latin America comprise almost a third of the world's
recorded flows and for the first time edged out net foreign direct investment flows to
the region.
In some countries, remittances as a share of GOP are substantial; for
example, this share is 15 percent in EI Salvador and 35 percent in Haiti. About 28
percent of households in EI Salvador receive remittances.
Remittances serve as an important means of reducing poverty. Remittances are
private sector transfers that go directly to the poorer, economically isolated
segments of the population. With no government involvement, these flows go
directly to those who most need them. Often these flows are critical for the survival
of the receivers, and under the right circumstances can be used by the sender
and/or recipient to break the grip of poverty. Studies have shown that remittance
recipients are more likely to send their children to school, have more access to
health care, and are more likely to start small businesses. Product options
introduced recently in some remittance services allow remittance senders to directly
pay for a house or to save money in a bank account from overseas.
Remittances can also serve as a catalyst to financial market deepening. According
to a recent survey, 33 percent of Mexican remittance recipients report having a
bank account, which is significantly higher than the 22 percent reported for the
general population. Credit unions in Central America have reported that remittance
receivers are more likely to open accounts, aided by financial products tailored to
their needs.
Often households receiving remittances never had sufficiently liquidity to merit
consideration of a bank account; with remittance flows they are allowed the
possibility of accumulating savings, accessing other financial service products such
as loans and insurance, and establishing a credit history.
Impediments to Remittance Flows with Existing Cross-Border Payment
Systems

While domestic retail payment systems can be extremely efficient, cross-border
payment mechanisms are generally far less efficient, especially for small retail
payments such as remittances. It is a Treasury priority to look for ways to address
the impediments to efficiently sending small payments across borders.
Competition, technology and the high daily volume of business have combined to
spur the development of efficient, electronic, domestic payment systems in some of
our economies. For example, in the United States, banks can rely on their own
internal systems, the existing national large-value systems such as Fedwire and
CHIPS, the newly created Continuous Linked Settlement Bank (CLS), or the retail
Automated Clearing House (ACH) system and checks to execute payments.
As a result, the fees charged by domestic payment systems to the financial
institution and the speed, precision and reliability of the service provided are highly
competitive. The retail customers of financial institutions in the U.S. can send funds
to an individual in virtually anywhere else in the U.S. for a nominal fee.
In contrast, existing cross-border payment systems generally lack efficient,
automated links for retail transfers. Completing a single transaction can involve a
multi-layer series of correspondent bank transactions that raise the cost of the
transaction and add to the time it takes to get the funds to the ultimate recipient. In
order for an individual to process a single payment through these correspondent
cross-border arrangements, hand entry of information is required at various points
of the transaction.
Establishing and maintaining a correspondent bank network is expensive. For
institutions that hold acr'lunts with one another or with multiple banks,

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correspondent services can be automated - using SWIFT messaging or internet
access - and inexpensive. However, for institutions that lack such relationships or
for individual account holders. correspondent banking services can be quite
expensive. The cost of using these correspondent services, in combination with the
costs to the originating and recipient institutions of hand processing information
result in the high fee, typically in the range of $30, for individual customers to send
money (wires) via banks from one country to another. Such a fee, though hardly
trivial, is still relatively insignificant for a large value transfer.
The average remittance to Latin America is under $300, making the fee for using
correspondent banking services a sizable chunk of the total amount sent As a
result of the lack of an automated link for cross border retail payments and, in many
instances, limited competition, the cost to the customer of sending funds across
borders can be dramatically higher than sending it across the United States. For
example, I can send $150 from my home in DC to a friend in California for less than
30¢, using online banking.
But if my friend moves to Peru, I would have to spend close to $30 to send him
$150, unless he happens to reside near and bank at one of six branches of a
particular U.S. bank and I also happen to have an account at that same U.S. bank.
In the latter case the fee would be $10. Obviously, 30¢ is a much cheaper
proposition than $30. And just as obviously, a $30 fee on a $10,000 transaction is
a far smaller percentage than a $30 fee on a $150 transaction.

How Remittance Corridors are Already Changing
Fortunately, the situation is changing. Partly as a result of efforts by the U.S.
Treasury, other domestic and foreign policy makers and development institutions
(in particular the Inter-American Development Bank's Multilateral Investment Fund),
a number of new private sector initiatives and product offerings have emerged to
service remittance markets. In a handful of remittance markets, also known as
remittance corridors, new low cost, accessible and efficient remittance services
have been introduced. As a result, the fees for sending remittances through those
corridors have dropped sharply.
The introduction of these new services -- or remittance products - has been
spurred on by the confluence of changes in regulatory environments, technological
innovation and changes in perception of the size of the market. Changes in the
regulatory environment are often needed for private-sector participants to gain
access to or be able to serve the relevant segments of domestic markets.
Innovation and automation in payment systems are necessary to reduce the cost of
handling small cross- border transfers. And finally, financial institutions have to
believe that remittance flows will be large enough to justify the expense of
developing payment systems that can communicate across borders, or even to
develop products that can use existing payment systems such as credit card and/or
ATM products.
But in the final analysis, technological innovation in payments systems to facilitate
cross-border transmission is key.
In order to appreciate the role of technology in remittance services, it is useful to
think of a single remittance transaction as having three components: [1] the
initiation of the transfer or the collection of the funds, i.e., the point at which the
customer sends the money; [2] the actual transfer of the funds and the instructions
from one country to another via a payment system; and [3] the delivery of the funds
to the recipient. The technology, or instruments, employed to do the first and third
component of the transaction are visible to the sender and/or recipient, and include,
for example, cash, ATM cards, store of value cards, and direct bank account
deposit. As you know, the technology, or payment system, used to actually transfer
the funds is usually invisible to the client.
In the creation of innovative remittance services, existing instruments to collect and
deliver the funds, such as ATM cards, have been used by the remittance service
providers with a variety of cross-border payment systems. For example,
•

Some financial institutions have extended the reach of their internal
electronic proprietary payment systems to their overseas branches, and
coupled that payment system with an account-to-account collection and

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JS-LOO): Remittance Corridors and)~conomic Development: A Progress Report on a .. ,

Page 4 of 5

delivery system. Citibank has deployed such a service for the U.S'/Mexico
corridor. Citibank customers can now send money from their Citibank
account in the U.S. to a Citibank account in Mexico for $5.
• Existing proprietary cross-border payment system operators, such as VISA,
have developed remittance specific products and services which member
financial institutions can use to offer remittance services. Some banks are
now offering VISA debit card based remittance services. With this service,
the recipient receives a VISA debit card which she/he can use at any retail
outlet than accepts VISA. The sender can add money, that is, recharge the
card, from the States. This service does not necessarily require access to a
bank account on either end.
• There also have been various new initiatives involving proprietary crossborder payment systems developed by financial institutions or
organizations. One example is the initiative by Vi go and the World Council
of Credit Unions (WOCCU), which enables the sender to send money
through US credit unions or Vi go offices for a low-cost fixed fee to credit
unions and banks in receiving countries. It is not necessary for the recipient
to have an account, but with an account, A TM machines can be used to
retrieve the funds.
Looking ahead, international ACHs, such as the recently linked U.S.lMexico,
U.S.lCanada, and US/Europe ACHs, can offer even more efficient and cost
effective platforms for the transmission of remittances across borders.
When the regulatory and technological conditions for more efficient remittance
services converge, the result can be dramatic rise in competition and a resulting
sharp drop in the cost of sending payments between economies. There is no
better illustration of this effect than the transformation of the U.S.lMexico remittance
corridor, where the fees have dropped over 60 percent since the end of the 1990s.
What We Have Done

Against this background, the U.S. government has embarked upon a multifaceted
global remittance effort to enhance the environment for the provision of remittance
services. We are focusing our efforts on six broad areas:
[ 1 1 To promote more competition in remittance services, we have undertaken
outreach with the private sector to underscore the potential of this market, identify
regulatory impediments to remittance services and eliminate anti-competitive
practices.
[21
To enhance the quality and cross-country comparability of remittance data,
we are encouraging the formation of an expert working group to develop guidance
for countries on how to gather and report data on remittance flows.

[ 3 1 To ensure a level playing field for a wide range of financial institutions, the
international standard setting bodies have been asked to develop prudential
guidelines for the regulation of remittance service providers.
[41
To strengthen the financial infrastructure for electronic transmission of
remittances, we are working with bilateral and multilateral partners on how to
improve financial institutions, build strong domestic payment systems, and lay the
ground for eventual cross-border links. This involves outreach with the private
sector and collaboration with the Federal Reserve, among other activities.
To bring more remittance flows into the formal financial sector, major
[5J
financial literacy efforts have been implemented. In the United States, the FDIC,
the Federal Reserve, plus Citibank and others are undertaking major educational
efforts throughout the United States. For example, FDIC offers its Money Smart
Training program, a train-the-trainer tool available in four additional languages
(Spanish, Chinese, Korean, Vietnamese) targeting key immigrant communities.
[6]
To make sure remittance channels are not abused by criminals or terrorists,
we are working with the IMF, World Bank and FATF to enhance country compliance
with anti-money laundering and counter terrorist financing standards. It is in all of
our interests to make formal channels more efficient and attractive for users so that
leqitimate flows need not flow outside of these formal institutions.

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As I already mentioned, these efforts are being carried out via a series of bilateral
and multilateral engagements with other countries. To summarize:
Under the Partnership for Prosperity, the United States and Mexico have
worked closely together to promote competition, expand financial literacy, and
strengthen the payment system links. The centerpiece of this effort has been the
development of the ACH system by the Atlanta Fed and the Bank of Mexico,
creating a connection between the retail interbank payment systems of the two
countries. We owe a debt of gratitude for this accomplishment.
Under the APEC Remittance Initiative, the APEC economies have undertaken
a regional effort to examine economic and institutional factors that contribute to the
use of informal, rather than formal, channels for remittances. Significant headway
has been made in raising public and private sector interest in the Asian remittance
corridors.
The G-8 leaders committed to work to enhance efficient remittance services.
Work to improve data on remittance flows and develop international guidelines for
the prudential regulation of remittance service providers is being launched.
Under Summit of the Americas initiative, Treasury and other U.S. agencies
will begin working intensively with pilot countries to identify the impediments in the
relevant bilateral remittance corridor and implement a strategy to address those
impediments.
Concluding Remarks
Today's conference supports the Bush Administration's objectives by emphasizing
the critical role of cross-border payment systems in the provision of cost effective
remittance services. By bringing together the technical and policy experts on
payment systems and remittances, this conference should lay the foundation for
significant progress.
While creating linked cross-border payment systems--such as the ACH between the
United States and Mexico--will not remove all impediments to the use of formal
financial systems for remittances, it will substantially reduce the cost and time
involved in processing such transactions for those institutions with direct or indirect
access to those linked payment systems. These impediments involve increased
financial literacy, improving the regulatory framework, competitiveness of the
market, and the physical infrastructure of the banks in the receiving countries.
Collaborating to harmonize payment systems and work towards connecting them is
an ambitious and long-term goa\. But as we move toward this goal, we will be
contributing to the smoother, and hopefully less expensive, flow of remittances.
Working towards these goals we can all contribute to strengthening our own
domestic financial infrastructure so that this infrastructure can eventually be linked.
We plan to continue to work to make these remittance transactions more efficient,
accessible, and less expensive.

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JS-2006~ MEDIA ADVISORY<br~';Secretary Snow to Visit Ohio Next Week to Discuss '"

Page 1 of2

PH[SS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 8, 2004
JS-2006

MEDIA ADVISORY
Secretary Snow to Visit Ohio Next Week to Discuss U.S. Economy
Treasury Secretary John W. Snow will visit Mansfield, Lima and Ada, Ohio on
Monday, October 11 and Cleveland, Ohio on Tuesday, October 12 to meet with
local business leaders and students to discuss the President's efforts to strengthen
the economy and create jobs. On Monday, he will be joined by U.S. Congressman
Michael Oxley of Ohio.
"As a result of the President's economic leadership, we have overcome a recession
and seen 13 straight months of job creation, totaling more than 1.9 million new U.S.
jobs since August 2003," said Secretary Snow, a native of Toledo, OH. "Ohio has
gained new jobs this year, and the President's tax reform policies have ensured that
more than 4.4 million Ohio taxpayers will have lower income tax bills in 2004."
During this trip to Ohio, Secretary Snow also will discuss the Administration's efforts
to control health care costs, reduce frivolous lawsuits and ensure that America has
reliable and affordable sources of energy. "While the economy is on solid footing,
we are not satisfied and there is still more work to be done. We need to continue to
push for pro-growth policies that will create jobs and raise standards of living,"
Secretary Snow said.
Recent indicators show that President Bush's economic policies continue to move
the economy forward. According to the Labor Department, the national
unemployment rate was 5.4% in September - down 0.9 percentage point from a
peak of 6.3% in June 2003 and the lowest rate since October 2001. At 5.4%, the
unemployment rate is below the average of the 1970s, 19805. and 1990s.
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down in all regions and in 45 of the 50 states.
The following events are open to the media, which must present media credentials
or photo ID:

Monday, October 11
Mansfield-Richland Area Chamber of Commerce
Holiday Inn
116 Park Avenue West
Mansfield, OH
8:00 am EDT
** Media should arrive by 7:30 am
** There will be a brief media availability immediately following the event
Lima Rotary Club luncheon
Lima Rotary Club
Allen County Veterans Memorial Civic and Convention Center
7 East Town Square
Lima,OH
12:00 pm EDT
** Media should arrive by 11 :30 pm
** There will be a brief media availability immediately following the event
Remarks to Ohio Northern University Business Students
James F. Dicke Hall
Ohio Northern University

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Ada,OH
1:45 pm EDT
** Media should arrive by 1 :15 pm

TUESDAY, OCTOBER 12
Meeting with Representatives of the JumpStart Program
City Club of Cleveland
850 Euclid Ave
Cleveland OH
12:00 pm EDT
** Media should arrive by 11 :30 am
Tour of Cuyahoga Community College Corporate College
25425 Center Ridge Road
Westlake, OH
1:30 pm EDT
** Media should arrive by 1 :00 pm
** There will be a brief media availability immediately following the event

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"G-' "
;"

rJ'-

ROOM

FROM THE OFFICE OF,PUBLIC AFFAIRS
ober6,2004
14-10-6-14-21-23-25533
U.S. International Reserve Position
l Treasury Department today released U,S, reserve assets data for the latest week, As indicated in this table, U,S, reserve assets
lied $82,688 million as of the end of that week, compared to $82,310 million as of the end of the prior week,

I. Official U.S. Reserve Assets (in US millions)
September 24, 2004

October 1, 2004

82,310

82,688

TOTAL

Foreign Currency Reserves

Securities

Euro

Yen

TOTAL

Euro

Yen

TOTAL

11,071

14,206

25,277

11,204

14,241

25,445
0

which, issuer headquartered in the U.S,
Total deposits with:
10,928

Other central banks and BIS

2,855

13,783

2,862

11,060

13,922

" Banks headquartered in the U. S,

, Of which, banks located abroad

19,531

19,475

12,676

12,803

11,043

'j,

Banks headquartered outside the U. S,

i. Of which, banks located in the U,S,
IMF Reserve Position

Special Drawing Rights (SDRs)
30ld Stock

)ther Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
October 1, 2004

September 24, 2004
Euro
=oreign currency loans and securities

Yen

TOTAL

Euro

Yen

TOTAL

\ggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U,S, dollar:

, Short positions

, Long positions

o
o

)ther

o
o
o

...,,~,~

III. Contingent Short-Term Net Drains on Foreign Currency Assets
October 1! 2004

September 24, 2004
Euro

Yen

TOTAL

Euro

Yen

TOTAL

2. Foreign currency securities with embedded options

3. Undrawn, unconditional credit lines

o
o

1. Contingent liabilities in foreign currency
1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities

3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U. S.
3.c. With banks and other financial institutions
Headquartered outside the U. S.
4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
4.a. Short positions
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. 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/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 IMF data for the prior month end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.

JS-20~;

The Honorable Jon!'\ W. Snow Prepared Remarks: Mansfield-Richland <B...

Page 10f3

PH[SS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 11 . 2004
JS-2008

The Honorable John W. Snow
Prepared Remarks: Mansfield-Richland
Chamber of Commerce
Mansfield, OH
October 11, 2004
** Updated Version **
Good morning: it's great to be home in Ohio!
I'm proud to have grown up northwest of here in Toledo, and to have gone to a
great little college a few miles from here in Gambier, Ohio. It's always great to
come back to the Buckeye state.
Thanks so much for having me here at the Mansfield-Richland Chamber. The
people in this room today are the heart of Ohio's economy, and I value the work
that you are doing.
I know that it hasn't been easy. As a manufacturing state, Ohio has recently felt the
pain of an economy that has been hit hard from a number of quarters. The citizens
of this area have lost jobs. Getting them back to work is a top priority for President
Bush, and for me.
We understand that bad economic times hit Ohio hard. And the effort to get your
economy on solid footing, to a place where you can expand, grow and create more
jobs, is a continuing priority; as the President has often said we will not be satisfied
until everyone looking for work can find a job,
Some things we know for certain. Like the fact that new jobs cannot come soon
enough for the people who have lost theirs, The question is: where will those jobs
come from and what can government do to help?
The short answer to that question: the jobs will come from the people in this room
today and others like you all across the country,
That's why the President's goal is to make sure that the work you do, on the front
lines of job creation and economic growth, isn't over-burdened by unfair levels of
taxation and regulation, We know that, as small-business owners and operators,
you simply ask for two things from your government: fairness and freedom,
You seek the freedom to start up a new business venture, to run it and grow it, or to
close the door and go fishing if that's what you want to do. You also want to be
treated fairly, and you deserve nothing less,
In exchange for fairness and freedom, your unspoken promise to your country and
our economy is: job creation and the fuel our economic engine runs on, This is why
we've got to keep tax rates low on business owners like you, and on every
American who pays taxes.
An important, ongoing truth of the American economy is this: the government won't
and shouldn't choose what jobs are created; entrepreneurs and innovators will do
that. Government's responsibility is to make sure they have the freedom to do so
and often the best thing government can do to help is simply get out the way.
That's why entrepreneurs and small-business owners are at the heart of President

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George W. Bush's economic policies. The President understands that creating an
environment in which you can flourish is the essential ingredient in any recipe for
economic growth.
Free and fair trade is an important element in this. Ninety-seven percent of all
identified exporters are small businesses like yours. Free trade helps you, and it
helps to create more higher-paying jobs for American workers by opening new
markets for American products and services, bringing lower prices and more
choices to American consumers, and attracting foreign companies to invest and
hire in the United States. America is economically stronger when we participate fully
in the worldwide economy. When 95% of the potential customers for American
products live outside the U.S., America must reject policies that embrace economic
isolationism. Here in Ohio thousands of workers' jobs depend on trade agreements
that enable Ohio-made products to compete in markets around the world. Since the
enactment of NAFTA in 1994, Ohio's exports to Mexico have tripled, and last year
exports totaled more than two billion dollars. Since the end of 2000, Ohio's exports
increased more than any state in the country. Exports are clearly vital to our
Nation's economic strength. At the same time, it is critically important that our trade
partners play by the rules. America's markets are the most open anywhere and
trade has to be a two-way street. That is why we are pressing the Chinese and
others to open their markets and live up to their commitments to the WTO. That is
one reason why we are pressing the Chinese so hard to stop pegging their currency
and allow it to move freely like other currencies. Currency is a critical factor in
global trade and we have pressed the Chinese hard on this point and they have
heard us. The Chinese are now committed to moving to a flexible exchange rate
and we are going to continue to monitor their progress closely.
The President appreciates that small businesses create two-thirds of new private
sector jobs in America. He knows that you employ more than half of all workers,
and account for more than half of the output of our economy. As the President often
says, what's good for small business is good for America. Because when small
business is growing, the American economy is growing.
That's why the President's tax cuts allowed small-business owners like you to keep
more of your business income, and encouraged you to invest in the growth of their
companies. For example, nearly 860,000 business taxpayers here in Ohio will save
money on their 2004 taxes.
Similarly, the tax cuts have allowed individuals to keep more of their income. More
than 4.4 million Ohio taxpayers will have lower income tax bills in 2004 thanks to
the tax relief.
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, over 1.9 million jobs have been
created since last August - 13 straight months of job growth. More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are finding new, good jobs. They have more money in
their pockets and can better afford things from cars to appliances to shoes for their
children. National income and national wealth have never been higher. That said.
we are not satisfied.
Our economy has come a long way. When he took office, President Bush inherited
an economy in steep decline. The stock market bubble had been pierced. We were
then shocked by terrorist attacks and wounded by reprehensible behavior by
corporate CEOs that hurt employees, investors and investor confidence.
We are fortunate that our economy is the most open. flexible. adaptive and resilient
in the world. Our powerful core elements - small-business owners and
entrepreneurs, an outstanding workforce, and the simple fact that we operate as a
free market - have enabled us to recover from those very difficult economic times.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged investment, which is critical for
economic recovery and growth.
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
Itself, and continue on a path of growth and job creation.

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How to help our economy right itself when it is in distress is a lesson in American
history. We know from long experience that our economy responds best to the very
thing that created it: freedom.
Freedom from excessive taxation. Freedom from abusive, frivolous lawsuits and of
course freedom from terrorist assaults.
As I said before, small firms like yours also respond to fairness. That's why the
President wants to bring fairness to the purchase of health insurance by allowing
you to pool your purchasing power to buy your policies anywhere in the U.S.,
putting you on a better footing with bigger businesses - that's only fair.
The President believes in small businesses, and the spirit of enterprise it
represents. He wants you to have a level playing field. That's why he has worked so
hard to bring the perspective of small business to government regulations.
When freedom, fairness and American entrepreneurs are combined, the end
product is jobs and growth.
We have plenty of work to do - in Ohio and across America. But if we continue on
the path of freedom and making sure individuals, entrepreneurs and family
businesses have an open and fair environment in which they can work and grow,
our best economic days will remain ahead of us and I am optimistic about our
future.
Thank you so much for having me here today; I look forward to our discussion.

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JS-2011: Depuly Assistant Secretary TallIlicola to Deliver Remarks at National Financial Education ...

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r-'H L S S H l'L' r'.',

FROM THE OFFICE OF PUBLIC AFFAIRS
October 11, 2004
JS-2011

Deputy Assistant Secretary lannicola to Deliver Remarks at
National Financial Education Web site and Hotline Launch
Treasury's Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr,
will deliver remarks at the Financial Literacy and Education Commission's launch of
a new national financial education Web site and toll-free hotline at the National
Credit Union Administration's headquarters.
National Credit Union Administration Chairman JoAnn Jollnson will welcome
Commission representatives and congratulate them on the development of this new
service. Government officials from the Commodity Futures Trading Commission,
Federal Deposit Insurance Corporation, and General Services Administration will
also deliver brief remarks

WHO: Dan lannicola, Jr, Deputy Assistant Secretary for Financial Education,
Treasury
JoAnn Johnson, Chairman, National Credit Union Administration
Sharon Brown-Hruska, Chairman, Commodity Futures Trading Commission
Donna Gambrell, Deputy Director of Compliance and Consumer Protection, FDIC
WHAT: Launch of new national financial education Web site and toll-free hotline
WHEN Tuesday, October 12, 2004
11 :30 a m. (EDT)
WHERE: National Credit Union Administration
1775 Duke Street
Room No. 7047
Alexandria, VA 22314
Members of the press should plan to arrive 30 minutes prior to the media availability
to check in With security and set up equipment.

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js-2Q12: Under Secretary Tayior Remarks at Wharton Finance Conference

Page 10f3

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 12, 2004
js-2012
Under Secretary Taylor Remarks at Wharton Finance Conference
Bullish News about the World Economy
John B. Taylor Under Secretary of the Treasury for International Affairs Written
Version of Keynote Address Presented at the Annual Wharton Finance Conference
"Global Finance: Unleashing the Bull" Wyndam Hotel Philadelphia, Pennsylvania
October 8, 2004
Thank you for inviting me to speak here today. It is a pleasure to be here in
Philadelphia and to participate in this discussion on the global economy with
students, industry professionals, and finance scholars. The conference theme Global Finance: Unleashing the Bull - couldn't be more topical, for a bullish
assessment of the global economy is exactly what the facts tell us today.
I am going to let the facts speak for themselves tonight. First, let's start right here
at Wharton. I hear that the number of firms coming to interview at Wharton is way
up this year, compared to last year. That is good news for the students in the
audience, but it is just one of many signs of significantly improving conditions in job
markets in the United States. Data showing improvements in the job market for the
country as a whole were announced this morning. They show that the U. S.
economy is continuing to grow. Estimated job creation was revised upward by
more than 200,000 jobs through August, and with September's increase of another
96,000 jobs, we have 1.9 million jobs created since August of last year. Most
economists now estimate that economic growth in the third quarter will turn out to
be at least as great as the 3.3 percent in the second quarter.
And the global economy is strong too. The International Monetary Fund's most
recent estimate of global growth for this year is higher than it has been in three
decades' And this good global economy is good news for the United States
economy because it means that the growth in exports, in jobs, and in incomes for
Americans will be more certain and lasting.
But there is much more. This year there are no major financial crises in the world to
talk about. This is in striking contrast to the 1990s when one financial crisis after
another brought high interest rates and soaring unemployment to the economies of
Latin America, Asia, and Russia.
A related favorable development is that contagion of financial crises across
countries, which was discussed so much by market analysts in the 1990s, also
seems to have disappeared from the scene. It was in 1998 that the default on
Russia's debt caused financial storms as far away as Africa, Latin America, and
East Asia. In the more recent Argentina default in 1998 there was no contagion
beyond Uruguay, just next door.
And there is no major economy in recession. The only recession that I heard about
recently was the recession in the "crisis expert" business. One expert jokingly
asked if I could do something about it.
Most economies in the world are now growing at a healthy "gold i-locks" pace-neither too fast, nor too slow--suggesting that global economic growth will continue.
The United States is expanding at a sustainable pace--for the third year in a row.
The second largest economy in the world, Japan, has also been growing nicely, in
contrast to its lost decade of the 1990s. China's rapid growth earlier in the year has
slowed to a more sustainable pace, and the rest of Asia is again doing well after
last year's SARS scare. In Latin America, growth has picked up in Mexico,

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Columbia, Peru, Chile, Brazil, and Argentina. Latin America grew at over 5 percent
so far this year. Russia and most of the European economies are also growing
strong. Even the French and German economies have shown signs of growth this
summer.
Yet another favorable development is that interest rate spreads between emerging
market bonds and U.S. Treasuries are at historically low levels. The spreads are
important measures of global risk. Spreads have come down markedly during the
last two years. They have stayed down despite the forecasts early this year that
spreads would rise sharply throughout the year as monetary tightening in the United
States began.
Another measure of risk--volatility in financial markets--is also low. You can clearly
detect this by looking at the implied volatility in the options price formula that you
have been studying at Wharton, but ask traders and they will tell you about it.
One of the most auspicious developments in the world economy is that there are no
major inflation scares. Inflation is low and stable in the United States and Europe,
and the persistent deflation in Japan is past its low point and price stability is
expected soon. That inflation is low in emerging markets is especially significant.
The average inflation rate in emerging markets was 65 percent in the mid 1990s.
Now it is less than one-tenth of that. That benign inflation environment in the United
States and other large economies is more evidence that the global economic
expansion should continue.
The one element of risk we clearly see today is the high price of oil. West Texas
Intermediate closed at $52.58 per barrel today. Those higher prices are a drag on
economic growth, but the global economy is strong and the expansion in the United
States can withstand such shocks. But such risks are a reminder that we cannot be
complacent, despite the otherwise excellent economic situation.
Why are economic times so good? In my view, a big part of the answer can be
found in improved economic policies, whether in the United States, Japan, Brazil,
Turkey, or elsewhere. The United States economy is growing--despite the setback
of the downturn starting in 2000, the 9/11 terrorist attacks, and the corporate
scandals--because of the timely response of monetary and fiscal policy, especially
President Bush's tax cuts of 2001 and 2003. The Japanese economy is growing
because Prime Minister Koizumi insisted on fundamental change, and monetary
growth was increased and non-performing loans were reduced. Improved
economic relations between the United States and Japan--Ied by President Bush
and Prime Minister Koizumi--had a lot to do with these changes.
Similar explanations hold for other good performances, including the high growth,
declining inflation, low spreads under President Lula in Brazil and Prime Minister
Erdogan in Turkey, two countries that had been plagued by crisis at the start of the
Bush Administration. As with Japan, support by the United States for these allies
and their economic policies has been important. The path breaking Agenda for
Growth with the G7 and the new Group for Growth with Brazil has reinforced and
supported pro-growth policies by sharing experiences and knowledge.
What about the decline of crises and risk spreads and volatility? One reason they
are down is because of the more credible focus on price stability by central banks-aided by market-determined flexible exchange rates--which has largely ended the
boom-bust cycle in many countries and is now laying the foundation for what may
be the longest global boom we have ever seen. This trend began with the Federal
Reserve years ago but has spread around the world in more recent years.
In addition, the international financial institutions have begun to reform, following
calls by the Bush Administration joined by many of our allies. Important reforms
include greater clarity and predictability in the use of large-scale financing from the
International Monetary Fund, the use of collective action clauses in emerging
market debt, and the movement toward grants rather than loans at the World Bank.
Such reforms themselves--while still very recent in their implementation--improve
confidence, showing that international financial officials can work to make needed
changes in the international financial system. Greater transparency at central banks
and governments has also helped to reduce contagion by enabling market analysts
to better discriminate between countries that follow good policies and those that do
not.

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is-21)12: Under Secretary T~ylor Remarks at Wharton Fmance Conference

Page 3 of3

I suspect that some of you may find the bullish situation I am describing here
tonight a bit surprising. One reason may be that you do not read much about in the
press. Most journalists I talk to agree that the global economic situation is indeed
unusually good, but few think it is news worthy enough to write about. One reason
is simply that it is good news, not bad news. As one of the journalists told me, "We
won a prize for our coverage of the terrible Russian financial crises in 1998. There
is no way we could win a journalism prize for covering the current good state of the
world economy. I'm not going to cover it. I'd be surprised if anyone here covers it."
The recent cover of the Economist magazine illustrates this point well. The cover
story described world economic facts that are not much different from the facts I just
described After all, we look at the same facts. But the headline on the magazine
cover was "Scares Ahead for the World Economy," perhaps more sensational, but
certainly less descriptive of the facts than the title of my remarks tonight.

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js-2GJ 3: Treasury VllIClal Kemarks betore lSAC Meeting

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PH[SS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 11. 2004
js-2013
Treasury Official Remarks before ISAC Meeting

Remarks of Critical Infrastructure Protection Deputy Assistant Secretary D. Scott
Parsons before Information Sharing and Analysis Center Congress Meeting Miami
Beach, Florida

I appreciate the opportunity to speak with you this evening on the important role
that Information Sharing and Analysis Centers (ISACs) have in protecting our
critical infrastructures.
The President has put into action a comprehensive plan to protect our country from
physical and cyber threats. This plan has been instrumental in keeping our citizens
safe, and our country is stronger today than ever before. The plan is also flexible
and adaptive, allowing us to stay one step ahead of those who
wish to do us harm.
There are many elements to the plan. One of the most important elements is how
the President structured the government to carry out its protective mission. starting
with creation of the Department of Homeland Security (DHS). The President also
identified lead agencies for vital, at-risk sectors, designating the Department of the
Treasury as the lead agency for the banking and finance sector.
One of the many responsibilities of the Treasury is creating conditions that promote
a strong economy and a resilient financial sector. We implement the pro-growth
economic policies of the President that lead to job creation and economic growth.
For example. over 1.9 million jobs have been created since August of 2003.
families have seen their after tax income rise more than 10 percent since the
President took office. and national homeownership is at an all time high. In a very
real sense, the financial system is the life blood of our economy. Our citizens rely
on the sector for many of their daily needs, including purchasing groceries and
saving for education and retirement. The Department of the Treasury works to
ensure the resiliency of the thousands of financial institutions that comprise the
financial sector. One of our most important tools that we use to achieve this
mission is an ISAC. in this case the Financial Services ISAC (FS-ISAC).
A unique insight of the President's strategy is that most of the critical infrastructure
is owned by the private sector. As the President stated in his National Strategy for
the Physical Protection of Critical Infrastructures and Key Assets. "it is important to
remember that protection of our critical infrastructures and key assets is a shared
responsibility. Accordingly, the success of our protective efforts will require close
cooperation between government and the private sector at all levels."
Homeland Security Presidential Directive - 7 (HSPD-7) spelled out very clearly how
the President wants us to organize in order to face the challenges of protecting our
critical infrastructures. It mandates that federal departments and agencies work
with state and local governments and the private sector. It calls for the Department
of Homeland Security to coordinate the overall national effort. Recognizing that
each sector has its own unique attributes and operating models, it designates
"sector specific agencies." or lead agencies, which have the expertise to
understand best the needs of their sector.
Long before the 9/11 commission began its work, the President called for better
information sharing between the public and private sectors. In the National
Strategy for the Physical Protection of Critical Infrastructures and Key Assets and

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js-2v13: Treasury Offir.ial Remarks before ISAC Meeting

Page 2 of2

the National Strategy to Secure Cyberspace, both published in February of 2003,
the President called for a public-private partnership built on the exchange of
information. HSPD-7, signed in December of 2003, reinforced this important
concept by calling for the establishment of "mechanisms to facilitate sharing of
information about physical and cyber threats, vulnerabilities, incidents, potential
protective measures, and best practices."
ISACs are the cornerstone for information sharing between the public and private
sector. The FS-ISAC is the mechanism we choose to use to communicate with the
banking and finance sector. In August, the threat level for several regions of the
financial services sector was raised from yellow to orange based on specific and
credible threat information. It was the first time that the threat level was raised in
such a targeted way. The FS-ISAC was instrumental in providing timely, actionable
information and keeping the sector informed. The sector, and especially the
affected institutions, did not panic. Rather, they responded in a business like
manner, acting responsibly on the information that was provided to them. The FSISAC provided insight into the types of information the sector needed, and ensured
that information got to the people who needed it most.
It is vitally important that we continue to have sector specific ISACs that understand
the characteristics of their sector, the people and institutions that comprise the
sector, and the best method to put actionable information in the hands of those who
need it.

As our national strategy has evolved, the fundamental objective remains to protect
against the incapacitation and destruction of critical sectors, and ensure that each
of the sectors is resilient against threats that are man made, or natural. ISACs play
a vital role in this mission. I commend you on the work and progress you have
made over the past few years. And I wish you a productive and successful meeting
during the next few days here in Miami.
-30-

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js-2(jJ 4: TreaslIry Official 00 Address Cleveland Chartered Financial Analyst Program

.~
/','-r-:

. ;..1

;

PHlSS rWOM

..... -

FROM THE OFFICE OF PUBLIC AFFAIRS
October 12, 2004
js-2014

Treasury Official to Address Cleveland Chartered Financial Analyst Program
Treasury Under Secretary Brian C, Roseboro will be in Cleveland Wednesday to
meet with local investment analysts and discuss the President's efforts to
strengthen the economy and create jobs. Roseboro will address Cleveland's
Chartered Financial Analyst Program.

The following event is open to the media:
WHO
Under Secretary for Domestic Finance, Brian C. Roseboro
WHAT
Remarks to the Chartered Financial Analyst Program of Cleveland
WHEN
Wednesday, October 13, 2004
12 p.m. (EDT)
WHERE
Sammy's Metropolitan Ballroom
Executive Room
925 Euclid Avenue
21 st Floor of the Huntington Bank Building
Cleveland, OH
-30-

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JS-lD15; MEDTA ADVISORY Secretary Snow to Visit St. Louis, Missouri Tomorro...

PH[SS

Page 1 of 1

f~OOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 12, 2004
JS-2015

Secretary Snow to Visit

MEDIA ADVISORY
Louis, Missouri Tomorrow to Discuss U.S.
Economy

st.

Treasury Secretary John W. Snow will visit the St. Louis, Missouri area on
Wednesday, October 13 to meet with local business leaders and students to
discuss the President's efforts to strengthen the economy and create jobs.
"As a result of the President's economic leadership, we have overcome a recession
and seen 13 straight months of job creation, totaling more than 1.9 million new U.S.
jobs since August 2003," said Secretary Snow. "Missouri has gained new jobs this
year, and the President's tax reform policies have ensured that more than 2 million
Missouri taxpayers will have lower income tax bills in 2004."
During this trip to Missouri, Secretary Snow also will discuss the Administration's
efforts to control health care costs, reduce frivolous lawsuits and ensure that
America has reliable and affordable sources of energy. "While the economy is on
solid footing, we are not satisfied and there is still more work to be done. We need
to continue to push for pro-growth policies that will create jobs and raise standards
of living," Secretary Snow said.
Recent indicators show that President Bush's economic policies continue to move
the economy forward. According to the Labor Department, the national
unemployment rate was 5.4% in September - down 0.9 percentage point from a
peak of 6.3% in June 2003 and the lowest rate since October 2001. At 5.4%, the
unemployment rate is below the average of the 1970s, 1980s, and 1990s.
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down in all regions and in 45 of the 50 states.
The following event is open to the media, which must present media credentials or
photo 10:

Wednesday, October 13
Tour and Roundtable with Local Business Leaders at Keller Laboratories
Keller Laboratories
160 Larkin Williams Industrial Court
Fenton, MO
10:30 am COT
** Media should arrive by 10:00 am
** There will be a brief media availability immediately following the event

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JS-20 16: The Honorahle John W. Snow Prepared Remarks: Cuyahoga Communi... Page 1 of 3

Pf~[SS

FWOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 12, 2004
JS-2016
The Honorable John W. Snow
Prepared Remarks:
Cuyahoga Community College's Corporate College
Westlake, OH
October 12, 2004
** Updated Version **
Good morning; it's great to be home in Ohio!
I'm proud to have grown up west of here in Toledo, and it's always great to come
home to the Buckeye state.
The opportunity to visit Corporate College means a lot to me because your program
is such a good example of what the future of worker training in this country needs to
look like. Your curriculum corresponds directly to the needs of local employers; this
concept is critical for efficient and successful worker training and placement.
The first thing I'd like to mention today, especially since we're talking about the
importance of life-long learning, is the launch of a new website and toll-free hotline
that are going "live" today ... and this new program is something that I think a lot of
Americans are going to find very helpful. It offers tips, advice and information about
personal finances. The program offers guidance that will help Americans choose
and use credit cards, get out of debt, protect their credit records, understand their
Social Security benefits, insure their bank deposits, and start a savings and
investment plan.
This new educational program is called "MyMoney" and the website address is
www.IllYllloney.gov. The phone number you can call to request a My Money Tool
Kit is 1-888-mymoney. The service is available, both online and on the phone, in
English and Spanish.
The launch of mymoney.gov is an outstanding contribution to the public and private
efforts to improve financial literacy in America because gaining a better
understanding of your money, and how to manage it, is critical to raising your
quality of life The MyMoney service is going to help millions of people across
America improve their lives through a better understanding of their own finances.
Anyone who spends money is managing money, and learning more about money
management is an awfully important step in improving our lives. Financial education
and literacy is a terrific example of the life-enhancing benefits of continued learning,
throughout our lives and careers.
We're gathered here today to talk about a lifetime of learning, and I'm so pleased to
do so in this college that is changing people's lives through education and training.
The primary goal of continuing education is to prepare a person for a job - whether
it's their first job, a better job than they had before, or a new job after being laid off.
And if the education they receive cannot be applied to a local industry or business
looking for workers, the additional training doesn't deliver the goods.
Colleges like yours offer great hope to workers and employers alike, especially in a
changing economy. In this part of the country, manufacturing jobs are often being
replaced with new and different kinds of work, often high tech jobs - little comfort to
the manufacturing worker who doesn't have high-tech skills. And that's where a

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JS-LQ 16: The Honorable JORl1 W. Snow Prepared Remarks: Cuyahoga Communi... Page 2 of 3
school like Corporate College comes in.
This is why the President is committed to finding new ways for Americans to
improve their lives through local community colleges. He's encouraging
partnerships between community colleges and employers, so that the colleges can
design training programs that meet the local employment needs. His Jobs for the
21 st Century program would make it possible for more people to get good, relevant
training and education at institutions like Corporate College.
Matching employer needs with worker skills results in higher employment, and
that's what Ohio needs. I commend you for this important work.
Hard economic times hit Ohio hard. Buckeyes have lost jobs. Getting them back to
work is a top priority for President Bush, and for me. As the President has often
said we will not be satisfied until everyone looking for work can find a job.
We have work to do, and critical economic goals to reach. That said, our economy
has come a long way. When he took office, President Bush inherited an economy in
steep decline. The stock market bubble had been pierced. We were then shocked
by terrorist attacks and wounded by reprehensible behavior by corporate CEOs that
hurt employees, investors and investor confidence.
We are fortunate that our economy is the most open, flexible, adaptive and resilient
in the world. Our powerful core elements - small-business owners and
entrepreneurs, an outstanding workforce, and the simple fact that we operate as a
free market - have enabled us to recover from those very difficult economic times.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged investment, which is critical for
economic recovery and growth
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation.
Here in Ohio, the President's tax cuts allowed small-business owners to keep more
of your business income, and encouraged them to invest in the growth of their
companies. For example, nearly 860,000 business taxpayers here in Ohio will save
money on their 2004 taxes.
Similarly, the tax cuts have allowed individuals to keep more of their income. More
than 4.4 million Ohio taxpayers will have lower income tax bills in 2004 thanks to
the tax relief.
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, over 1.9 million jobs have been
created since last August - 13 straight months of job growth. More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are finding new, good jobs. They have more money in
their pockets and can better afford things from cars to appliances to shoes for their
children. National income and national wealth have never been higher.
That said, we are not satisfied. New jobs cannot come soon enough for the people
who have lost theirs. The question is: where will those jobs come from?
An important, ongoing truth of the American economy is this: the government won't
and shouldn't choose what jobs are created; entrepreneurs and innovators will.
Government's responsibility is to make sure they have the freedom to do so.
That's why entrepreneurs and small-business owners are at the heart of President
George W. Bush's economic policies. The President understands that creating an
environment in which they can flourish is the essential ingredient in any recipe for
economic growth. Often it is best if government simply gets out the way.
Free and fair trade is an important element in this. Ninety-seven percent of all
identified exporters are small businesses. Free trade helps them, and it helps to
create more higher-paying jobs for American workers by opening new markets for

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American products and services, bringing lower prices and more choices to
American consumers, and attracting foreign companies to invest and hire in the
United States. America is economically stronger when we participate fully in the
worldwide economy. When 95% of the potential customers for American products
live outside the U.S., America must reject policies that would result in economic
isolationism. Here in Ohio thousands of workers' jobs depend on trade agreements
that enable Ohio-made products to compete in markets around the world. Since the
enactment of NAFTA in 1994, Ohio's exports to Mexico have tripled, and last year
exports totaled more than two billion dollars. Since the end of 2000, Ohio's exports
increased more than any state in the country. Exports are clearly vital to our
Nation's economic strength. At the same time, it is critically important that our trade
partners play by the rules. America's markets are the most open anywhere and
trade has to be a two-way street. That is why we are pressing the Chinese and
others to open their markets and live up to their commitments to the WTO. That is
one reason why we are pressing the Chinese so hard to stop pegging their currency
and allow it to move freely like other currencies. Currency is a critical factor in
global trade and we have pressed the Chinese hard on this pOint and they have
heard us. The Chinese are now committed to moving to a flexible exchange rate
and we are going to continue to monitor their progress closely.
How to help our economy right itself when it is in distress is a lesson in American
history. We know from long experience that our economy responds best to the very
thing that created it: freedom.
Free trade. Freedom from excessive taxation. Freedom from abusive, frivolous
lawsuits and of course freedom from terrorist assaults.
When freedom, fairness and American entrepreneurs are combined, the end
product is jobs and growth. Add relevant worker training to that equation, and you
have high employment-and that's the path we're on.
We have plenty of work to do - in Ohio and across America. But if we continue on
the path of freedom and making sure individuals, entrepreneurs and family
businesses have an open and fair environment in which they can work and grow,
our best economic days will remain ahead of us and I am optimistic about our
future.
Thank you so much for having me here today.

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PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 8,2004
JS-2017

Deputy Secretary Samuel Bodman
Treasury Department's Hispanic Heritage Month Celebration Event
U.S. Department of the Treasury
October 8, 2004
Thank you, Rebecca [Contreras]. I want to thank our guest speaker, Leslie
Sanchez, for being here. Thank you for joining us today to share your experiences
and inspiring life story.
Let me add my welcome to all of you as we celebrate the culture, the spirit and the
contributions of Hispanic Americans. The contributions of Hispanic Americans are
indeed many and important - to our communities and schools, our businesses, and
our government at all levels. As the theme for this month says: Hispanic
Americans are truly making a difference across our nation.
It's always good to see representation at events like this from across the
Department, and I know that some of you had a hand in organizing today's event.
Thank you for your hard work.
I've had the privilege to work with you for about eight months now. And, as we
gather in this beautiful and historic room, I hope you all share my feeling of
tremendous pride in working for this esteemed Department.
I also hope that you know that each of you makes very real and important
contributions to the economic health of this nation and the well being of our fellow
citizens.
Since joining the Department in February, I have found here what I also found in my
three years as Deputy at the Commerce Department - a cadre of dedicated, hardworking and talented employees creating results for the American people.
And that brings me to one of the reasons why I wanted to join you today. I believe
that the strength and talent of the federal workforce derives from many sources:
from your skill and knowledge, your strong sense of commitment to our fellow
citizens and the good of our nation, and also from your diversity.
The diversity of the federal workforce - and of the American people in general has been, and will continue to be, a great advantage. Our diversity - of race and
religion, of background, of culture, and of ideas - makes us stronger.
And it is not only our differences that push us forward as a nation, but our
apprecia'tion of those differences. That is why it is particularly important that we
make time for events like this one, to celebrate who we are as a country and where
we are headed.
And so, my message to you today is simple. As you go about your work today and
everyday, please know this: YOU are this Department's most important assets. Not
our buildings, or our equipment, or our technology, but all of you.
I thank all of your for your service to this Department and this great - and diverse nation. I look forward to continuing to work with you and see the results of the
positive changes that you bring about for our fellow citizens, our communities, and
our world.

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PFlLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 12, 2004
js-2020

Secretary Snow Announces Launch of MyMoney Web site and Toll-Free
Hotline
Treasury Secretary John Snow today announced the launch of the new national
financial federal education Web site, mymoney.gov, and toll-free hotline, 1-888mymoney, during the his visit to Ohio. Secretary Snow commended the efforts of
numerous federal government agencies in launching the new, free service, which
provides the American public with easy access to important information on a widerange of personal finance topics.
"The launch of mymoney.gov is an outstanding contribution to the public and
private efforts to improve financial literacy in America," said Snow. "Gaining a better
understanding of your money, and how to manage it, is critical to raising your
quality of life. The mymoney service is going to help millions of people across
America improve their lives through a better understanding of their own finances."
The my.money.gov Web site and the toll-free 1-888-mymoney hotline were
launched today by several representatives of a federal government commission, the
Financial Literacy and Education Commission, which was created to improve
financial education in America. The launch of the new service was announced
today at the National Credit Union Administration's headquarters in Alexandria,
Virginia. Several government officials gathered including: Chairman JoAnn
Johnson, National Credit Union Administration; Acting Chairman Sharon BrownHruska, Commodity Futures Trading Commission; Assistant Secretary Wayne
Abernathy, Department of the Treasury; Deputy Assistant Secretary Dan lannicola,
Jr., Department of the Treasury; and Director Donna Gambrell, Federal Deposit
Insurance Corporation.
Treasury's Assistant Secretary for Financial Institutions Wayne Abernathy praised
the coordination efforts of the Financial Literacy and Education Commission's Web
site and hotline subcommittees. "I applaud the Commission's coordination efforts.
Each agency involved lent its time, insight and expertise to the hotline and Web site
subcommittees and helped bring about this new personal finance resource," said
Abernathy. "The mymoney Web site and toll-free hotline are a result of twenty
federal agencies' partnership and their commitment to a common goal of improving
financial education acrosS.the country."
Treasury's Deputy Assistant Secretary for Financial Education Dan lannicola also
remarked on the importance of this new service. "The federal government offers the
public a treasure of financial education materials free of charge. Up until today,
though, it has been a hidden treasure." lannicola continued, "With the new
mymoney Web site and hotline people all across America can get easy access to
the information they need to make smarter financial decisions."
The Web site and hotline were created to help the public gain easier access to
information that can help them better understand their money - how to save it,
invest it and manage it wisely to meet personal goals. The public can visit
mymoney.gov or order a tool kit, which includes a sample of what the Web site has
to offer. The Web site has all the downloadable information found in the My Money
Financial tool kit in addition to more resources. Many of the publications are also
available in Spanish. Individuals that order the toolkit will receive information to help
them choose and use credit cards, get out of debt, protect their credit records,
understand Social Security benefits, insure bank deposits and start a savings and
investments plan. A free My Money Financial Tool Kit can be obtained by placing
an order either through mymoney.gov or by calling 1-888-mymoney. A similar
version of the My Money Financial Toolkit is also available in Spanish

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The General Services Administration's Federal Citizen Information Center in
Pueblo, Colorado assembles and mails the tool kits, and provides hotline operators,
which support English and Spanish requests for the financial education tool kits.
The average time for delivery of a tool kit is two to three weeks.
The new Web site and toll-free hotline were created in response to federal
legislation, which tasks the Financial Literacy and Education Commission with
establishing and maintaining a Web site to serve as a coordinated point of entry to
information about federal financial literacy and education programs, as well as to
establish a toll-free hotline for those seeking information about issues pertaining to
financial education. The Fair and Accurate Credit Transactions Act (Public Law
108-159 Section 511), signed by President Bush on December 4,2003, established
the 20 member Commission to develop a national financial education Web site and
hotline, as well as a national strategy on financial education.
The Financial Literacy and Education Commission, is chaired by the Secretary of
the Treasury and is also made up of the heads of 19 other federal agencies
including: the Office of the Comptroller of the Currency; the Office of Thrift
Supervision; the Federal Reserve; the Federal Deposit Insurance Corporation; the
National Credit Union Administration; the Securities and Exchange Commission;
the Departments of Education, Agriculture, Defense, Health and Human Services,
Housing and Urban Development, Labor, and Veterans Affairs; the Federal Trade
Commission; the General Services Administration; the Small Business
Administration; the Social Security Administration; the Commodity Futures Trading
Commission; and the Office of Personnel Management. The Department of the
Treasury is a leader in promoting financial education. Treasury established the
Office of Financial Education in May of 2002. The Office works to promote access
to the financial education tools that can help all Americans make wiser choices in all
areas of personal financial management, with a special emphasis on saving, credit
management, homeownership, and retirement planning. The Office also
coordinates the efforts of the Financial Literacy and Education Commission, a
group chaired by the Secretary of Treasury and composed of representatives from
20 federal departments, agencies and commissions, which works to improve
financial literacy and education for people throughout the United States. For more
information about the Office of Financial Education visit:
www.tr·ea s. gov/flnancla leel ucatlon.

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FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
JS-2021
Treasury Deputy Assistant Secretary lannicola to TeamTeach Savings and Investing Skills to High School
Students in Weare, New Hampshire
Treasury's Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.
will teach a financial education lesson on the topic of savings and investing to high
school students at John Stark Regional High School in Weare, New Hampshire. Mr.
lannicola will emphasize the importance of acquiring the personal finance skills to
make wise financial decisions throughout their lives.

WHO: Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.
WHAT: Financial education team-teach on the topic of savings and investing.
WHEN: Wednesday, October 13, 2004
9:45 a.m.
WHERE: John Stark Regional High School
618 North Stark Hwy, Route 114

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JS-1022~ The Honorable John

W. Snow Prepared Remarks: Tour and Roundtable at '"

Page 1 of2

PHCSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
JS-2022

The Honorable John W. Snow
Prepared Remarks: Tour and Roundtable at Keller Laboratories
Fenton, MO
October 13, 2004
Good morning: it's great to be here in Missouri. I appreciate the opportunity to talk
with you about the economy both here, and all across this great nation of ours.
Here in Missouri, you've added thousands of jobs to your payrolls so far this year.
That's good news for a lot of Missouri families ... but I know it could be even better.
There are still people here in the "Show Me State" who are saying: "Show me
where my new job will come from!"
And we can't be satisfied until those folks have found jobs.
I am often asked where the jobs of the future will come from - a month from now, a
decade from now. That's a pretty tough question to answer. No one can predict
what the next great technology or industry will be, but I know it's safe to say that
most of America's jobs will always come from people like you and Tom Keller.
Your businesses may be small. They may never show up on the New York Stock
Exchange or the Fortune 500 list. .. but they create jobs for the people of your
community, and that means everything. In fact, 2 out of 3 new jobs come from small
businesses.
When our country goes through a rough patch, economically, small business has
always been there to pull us out. You are part of the most powerful elements of our
economy, which I see as a combination of: small-business owners and
entrepreneurs, our outstanding workforce and the simple fact that we operate as a
free market. These elements add up to the most open, flexible, adaptive and
resilient economy in the world today.
The President understands how important you are to our economy, and he's made
you a priority in his economic policies.
He understands that, as small-business owners and operators, fairness and
freedom are the only two things that you really want from your government.
You seek the freedom to start up a new business venture, to run it and grow it, or to
close the door and go fishing if that's what you want to do. You also want to be
treated fairly, and you deserve nothing less.
In exchange for fairness and freedom, your unspoken promise to your country and
our economy is: job creation and the fuel our economic engine runs on.
This is why the President reduced your taxes and has called on Capitol Hill to give
you the option of Association Health Plans to reduce your health insurance costs.
That's why he wants to make the tax code simpler, fairer, and pro-growth. And it's
why he wants to reduce that fear of baseless lawsuits that haunts you, costs you
money, and ultimately acts as a tax on economic growth in this country.
With small business in the lead, our economy has come a long way.

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When he took office. President Bush inherited an economy in steep decline. The
stock market bubble had been pierced. We were then shocked by terrorist attacks
and wounded by reprehensible behavior by corporate CEOs that hurt employees,
investors and investor confidence.
Those key elements that I mentioned earlier - small business, outstanding workers,
and a free-market system - proved to be the foundation, as they always have been,
for our impressive economic recovery following this series of economic blows.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged investment, which is critical for
economic recovery and growth.
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation.
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, over 1.9 million jobs have been
created since last August - 13 straight months of job growth. More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are finding new, good jobs. They have more money in
their pockets and can better afford things from cars to appliances to shoes for their
children. National income and national wealth have never been higher. That said,
we are not satisfied.
The President's tax relief is still working for the people of Missouri, with more than 2
million taxpayers saving money on their income tax bills in 2004 and 440,000
business taxpayers like you able to use your 2004 tax savings to invest in business
equipment and employee compensation.
At this point, it is critical to make that tax relief permanent, and to continue lifting the
barriers to growth in other areas as well - by making health care more affordable,
abusive lawsuits more scarce, and energy costs more reasonable.
Thank you so much for having me here today in this great American city, and thank
you for the work you do to keep our economy strong.

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Treasury Deputy Assistant Secretary Iannicola To Lead Adult Financial Lit... Page 1 of 1

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
JS-2023

Treasury Deputy Assistant Secretary lannicola To Lead Adult Financial
Literacy Roundtable in Portland, Maine
Treasury's Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.
will lead an adult financial literacy roundtable in Portland, Maine. The roundtable
discussion, hosted by the Institute for Financial Literacy, will focus on adult financial
literacy initiatives. Roundtable participants will include representatives of major
financial literacy initiatives in Maine.
WHO: Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.
WHAT: Mr. lannicola will deliver remarks on the importance of improving adult
financial literacy.
WHEN: Thursday, October 14, 2004
9:00 a.m. - 12:00 p.m. (EST)
WHERE: One City Center
Portland, Maine 04112

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PHlSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
js-2024

Remarks by D. Scott Parsons, DAS for Critical Infrastructure Protection
Before the National Association of Federal Credit Unions Regulatory
Compliance Seminar Albuquerque, New Mexico

I want to thank you for the opportunity to be here today in Albuquerque with the
community of credit unions represented by the National Association of Federal
Credit Unions. Today, you have asked me to talk about the Treasury Department's
approach to rule making for the USA Patriot Act. I also want to provide you with an
update of some of our policies on the growing problem of identity theft.

The Importance of Credit Unions
Credit Unions are important to our financial system, providing services to many
citizens. Your motto says it all- "not for charity, not for profit - but for service."
The service you provide to your members and the communities you serve enable
Americans to pursue their dreams and to take ownership of their futures. The
seminar today on regulatory compliance is an example of how the credit union
community works together to provide your members with good service and to
ensure you are meeting the safe and sound regulatory requirements.
Treasury Secretary Snow has said that the financial system is the engine of our
economy, and credit unions play an important role. Our economy is strong. For
example, the President's pro-growth economic policies have created over 1.9
million jobs since August of 2003 and the national home ownership rate is at an all
time high. Real after tax income is up over 10% since President Bush took office,
which means your members have more money to save, invest, and provide for their
families.
I want to make one more point about tax policy. The President is very clear about
this - he strongly supports the tax-exempt status of credit unions and will oppose
any effort to change your tax status.
Your leadership in supporting financial literacy is exemplary. The Department of
the Treasury has awarded the John Sherman Award for Excellence in Financial
Education to several credit unions for their innovative finanCial education efforts.
And just yesterday, the Treasury, which chairs the Financial Literacy and Education
Commission, partnered with the National Credit Union Administration (NCUA) to
announce a new Financial Education Website and Hotline that will promote financial
literacy and education. This is yet another example of the outstanding service that
credit unions provide.

Why the Patriot Act was Created
Before commenting on specific sections of the USA Patriot Act, I think it's important
for us to step back and remember why the Patriot Act was created in the first place.
It was created in response to the unprovoked terrorist attacks on America on
September 11, 2001. It rose out of the rubble of the World Trade Center, the
Pentagon, and the wreckage in a Pennsylvania field. On that day, 3,000 of our
fellow citizens lost their lives. The terrorists have continued their violent and
destructive killing spree elsewhere in the world, striking in Indonesia, Spain, Saudi
Arabia, Pakistan, Morocco, Turkey, the Philippines, Israel, and most recently in a
school house in Russia.
The Patriot Act was created to make Americans safer by providing law enforcement
the tools it needed to investigate and prosecute those who wish to do harm to

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Americans. Preventing attacks like these is why Congress passed the Patriot Act
and why we need your continued partnership in fighting the war against terror.
Because, while hatred fuels the terrorist agenda, money makes it possible.

USA PATRIOT Act
Our primary philosophy in our rule making is, where possible, to provide you with
the flexibility to implement rules in a manner that best meets your members'
needs.

Section 326
Customer Identification Programs (CIPs): These regulations, issued jointly with the
NCUA, require credit unions, as a part of their anti-money laundering program, to
have procedures to verify the identity of all new accountholders.
The goals set a target, rather than describing in minute detail how best to achieve
that target. As you all know from your own organization, credit unions are
organized around a group of members that are related by a common field of
membership, such as a common employer, membership in a common association
or another linkage. Credit unions often will have a far better understanding of the
identity of their members than larger financial institutions, because your members
and those working in your credit unions literally know each personally, from the
office space, from neighborhood, or from the community organization where both
volunteer.
In addition to verifying the identity of a member, credit unions must collect the
member's name, physical address, date of birth, and taxpayer identification number
or foreign government issued document number, such as a passport number issued
by a foreign government.
The bottom line is that Section 326 and the CIP obligation contained therein require
verification of identity. How that goal is achieved is up to each credit union to
decide for itself. We've worked hard to make sure that your members are able to
make responsible decisions regarding the many forms of identification used by your
members. We believe that the flexibility makes it easier for you to be vigilant, and to
have an effective anti-money laundering program.

Section 312
This regulation applies to financial institutions with international correspondent
accounts, and to financial institutions with a large customer base of foreigners,
generally living abroad.
It is the Treasury Department's understanding that most credit unions do not have
international correspondent accounts directly with foreign depository institutions.
Where this rule may apply is to credit unions that have in their field of membership
non-U.S. citizens. For those credit unions where this is applicable, please do not
hesitate to discuss your situation with the FinCEN panelist.

Section 314
Your compliance with Section 314 of the Patriot Act - which requires everyone to
share information - has been extraordinary. I know you are going to be hearing
about this directly from FinCEN later this morning, but we want you to know that we
recognize that cross referencing your list of members against the list of terrorists
every two weeks is a big job. We are in this fight together, and your efforts help
make the country safer.
It's important for you to know that your efforts are making a difference. Working
together, you have accomplished a lot in the last three years. The United States
has designated 387 entities as terrorists or supporters of designated terrorists and
frozen over $142 million in terrorist-related assets. More than $37 million has been
frozen in the United States.
Identity Theft

Identity theft is another issue that we at Treasury have spent a good deal of time on
in the past couple of years. The Federal Trade Commission has estimated that as
many as 10 million Americans a year fall victim to some form of the crime

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somewhere. Identity theft is an epidemic across the entire United States. While
many may believe that this crime only affects residents of highly populated states,
for instance New Jersey, you may be surprised to find out that the residents of New
Mexico have an even higher incidence of this crime ..
In 2003, the FTC, which keeps a centralized data base of victims' identity theft
reports, found that 70.3 of every 100,000 New Mexicans reported being a victim. In
New Jersey, where there were more than four times as many reported crimes over
all, only 68.9.out of every 100,000 citizens reported being a victim of identity theft.
Identity theft is a crime that keeps on taking. That is what spurred the
Administration's concern and subsequent action. Secretary Snow announced
Administration proposals for combating identity theft in June 2003, and by the end
of the year President George W. Bush had signed the Fair and Accurate Credit
Transactions Act (FACT Act).
In July this year the President went on to sign the Identity Theft Penalty
Enhancement Act that increases federal criminal penalties for identity theft.
Together. the new laws will increase our ability to stop the crime and increase our
ability to catch the crooks. Both laws complement each other and give new tools to
members, business, regulators and law enforcers. Both statutes strengthen
collaboration between Federal, State, and local law enforcement, and the Federal
Trade Commission by creating joint task forces, specialized training, and citizen
education and outreach programs.
Rulemaking on the FACT Act
Treasury is closely involved with implementation of the FACT Act. Two of our
bureaus. for example, are involved in promulgating a host of new rules to help
consumers and financial institutions deter, detect, and derail the criminals.
Beginning on December 1, 2004, the three nationwide consumer reporting agencies
will roll out the system for requesting one free credit report every 12 months.
Implementation of this important new system will begin in the Western United
States and is scheduled to be available to all U.S. citizens by September 1,2005.
All Americans will be able to check their credit reports for errors without charge, by
making a single contact to one of the three agencies.
The FACT Act also established a fraud alert system. Regulators are working on the
final rules for how this one-call system will work and how consumers will be able to
show that they have been victimized. The idea is that consumers will be able to
report the theft of their identity to one consumer reporting agency and the
information will be shared with the other national agencies.
Let me spend a moment on this, because the alert system will include a special
alert for military personnel to activate with the national credit bureaus before the
soldiers are sent on active duty. The Administration and the Congress wanted to
give our soldiers, sailors, marines, and airmen a chance to let prospective lenders
know that they were away from home and not likely to be requesting credit to
remodel the kitchen. We know that many credit unions have a military base as their
field of membership or have many military members within their membership. This
new alert will benefit both you and your members by cutting down on fraud, both by
making it easier for your members to rectify the situation and by reducing the
financial losses you may incur. We expect the new rule to go into effect shortly.
Credit union officials no doubt are waiting for implementation of the red flag
indicators of identity theft. Again, the regulators are working hard to develop
guidance for spotting red flag indicators of identity theft in member account
transactions. The rule makers understand that the red flags must be easy to
update, because the criminals are highly adaptive and constantly developing new
techniques.
One last matter. The Treasury is working aggressively with the financial services
industry to find more ways to address "phishing" - a form of online identity theft in
which criminals pose as a member's financial institution and request sensitive
personal information in order to steal funds or to establish new lines of credit using

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the member's identity. We have a "Lessons Learned" brochure on detecting and
fighting phishing on our website. I also encourage you to look at the NCUA's
website for a document entitled "You Can Fight Identity Theft", available in a print
ready version that you can distribute to your members, either by printing or by
linking it to your website, and also to visit the FTC's website for valuable
information.

Closing
Our commitment to you is to continue a dialog, to clearly explain what regulations
mean, and to tailor the regulations to both the threat and to the specific sector
within the financial services industry. Let us know when we're confusing you, or
when we can do better - because the better you understand our regulations, the
more successful our efforts will be. Although we continue to have much work to do,
we have a bright future ahead of us. Thank you for your time, and for all that each
of you do to keep our country safer.
-30-

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:SS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
2004-10-13-13-52-0-19129
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 $82,817 million as of the end of that week, compared to $82,688 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)

TOTAL
1. Foreign Currency Reserves

a. Securities

October 1, 2004

October 8, 2004

82,688

82,817

Euro

Yen

TOTAL

Euro

Yen

TOTAL

11,204

14,241

25,445

11,240

14,373

25,613

Of which, issuer headquartered in the US.

b. Total deposits with:

b.i. Other central banks and BIS

11,060

2,862

13,922

11,080

2,889

13,969

b.ii. Banks headquartered in the US.

b.ii. Of which, banks located abroad

b.iii. Banks headquartered outside the US.

b.iii. Of which, banks located in the U.S.

19,475

19,423

12,803

12,769

11,043

2. IMF Reserve Position

3. Special Drawing Rights (SDRs)
4. Gold Stock

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
October 1, 2004
Euro
1. Foreign currency loans and securities

Yen

October 8, 2004
TOTAL

Euro

Yen

TOTAL

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:

2.a. Short positions

2.b. Long positions

o
o

3. Other

o
o
o

III. Contingent Short-Term Net Drains on Foreign Currency Assets
October 8, 2004

October 1, 2004
Euro

1. Contingent liabilities in foreign currency

Yen

TOTAL

Euro

Yen

TOTAL

o
o

1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
3. Undrawn, unconditional credit lines
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U. s.
3.G. With banks and other financial institutions
Headquartered outside the U. s.

4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
4.a. Short positions

4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions

4.b.1. Bought calls
4.b.2. Written puts

Notes:

11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Accoun
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, (
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/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 IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.

JS-2025; Treasury Designatss Global Network, Senior Officials of lARA for Supporting ...

Page 1 of3

PfiESS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
JS-2025
Treasury Designates Global Network, Senior Officials of lARA for Supporting
bin Laden, Others
The U.S. Department of the Treasury today designated the worldwide network of
the Islamic African Relief Agency (lARA), along with five senior officials, pursuant to
E.O. 13224. This action blocks all accounts, funds and assets of lARA in the United
States and criminalizes the provision of money or other types of support to any of
its offices.
"This is an excellent example of how U.S. Government agencies coordinate their
efforts to achieve the maximum impact against supporters of terrorism. The
Treasury Department has been working closely with its colleagues in other
agencies to ensure that, as a government, we do everything possible to shut down
the flow of money to terrorists," said Stuart Levey, Treasury's Under Secretary for
the Office of Terrorism and Financial Intelligence (TFI).
Islamic Africa Relief Agency (lARA)
lARA is headquartered in Khartoum, Sudan and maintains over 40 offices
throughout the world, including in the United States.
AKAs: lARA. Islamic Relief Agency, ISRA. Islamic American Relief Agency, AIWakala al-Islamiya I'il-Ighatha , AI-Wakala al-Islamiya al-Afrikia I'il-Ighatha
lARA Support for Usama bin Laden (UBL), al Qaida and the Taliban
lARA is identified as a non-governmental organization (NGO) formerly affiliated with
Maktab AI-Khidamat (MK), which was co-founded and financed by UBL and is the
precursor organization of al Qaida.
Information available to the U.S. indicates that international offices of lARA
provided direct financial support for UBL. lARA, MK and UBL commingled funds
and cooperated closely in the raising and expenditure of funds. lARA engaged in a
joint program with an institute controlled by UBL that was involved in providing
assistance to Taliban fighters.
In 2000, one of lARA's Afghanistan leaders accompanied the Afghanistan MK
leader on a fundraising trip to Sudan and other locations in the Middle East during
which $5 million was raised for MK activities.
Information available to the U.S. shows that the overseas branches lARA provided
hundreds of thousands of dollars to UBL in 1999. In 1997, there was an individual
who acted as a liaison between UBL and terrorist-related NGOs, distributing funds
from UBL to MK, lARA and others. Later that year, lARA and MK reportedly
provided financial support for a group of Arab terrorists planning to travel to Saudi
Arabia to conduct unspecified operations against U.S. military personnel.
Additionally, information identifies a UBL lieutenant and former MK official as having
been the director of lARA's operations in Afghanistan. This individual was identified
as an expert in terrorism, bomb planning and guerilla operations.
Information indicates an lARA leader was involved in discussions to help relocate
UBL to secure safe harbor for him. Among others, these discussions included
representatives for UBL and MK, along with Lajnat al-Dawa (LDI), which is listed as
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JS-2025: Treasury Designates Global Network, Senior Officials of lARA for Supporting .,.

Page 2 of3

a Specially Designated Global Terrorist pursuant to E.O. 13224, as well as listed by
the UN 1267 Sanctions Committee. In addition, a Sudanese individual traveled to
Mali and stayed with an lARA director while assessing whether Mali could seNe as
a safe harbor for UBL.
lARA Support for Hamas
As of early 2003, information available to the U.S. shows that lARA was responsible
for moving funds to the Palestinian territories for use in terrorist activities, notably
seNing as a conduit to Hamas in one Western European country. In part, funds
were raised through lARA collection boxes marked "Allah" and" Israel," signaling
the funds would be directed towards attacks against Israelis.
Within the last year, lARA was reportedly linked to the Belgium office of the AI-Aqsa
Foundation, a Specially Designated Global Terrorist, pursuant to E.O. 13224.
lARA Support for AI-Ittihad al-Islamiya (AlAI)
lARA offered financial support for the development of AlAI, which is listed as a
Specially Designated Global Terrorist, pursuant to E.O. 13224, as well as listed by
the UN 1267 Sanctions Committee.
Senior Officials
Dr. Mohammed Ibrahim Sulaiman
Position: Secretary General, lARA Headquarters, Khartoum, Sudan
Home Address: House Number 27, Block Number 29, Manishia District, Khartoum,
Sudan
Mailing Address: P.O. Box 3372, Khartoum, Sudan
Jaffar Ahmad Abdullah Makki
Position: lARA South Asia Region Director
DOB: 1956
POB: Sudan
Passport #1 : 079925
Issued: September 7, 1992
Passport #2: A553077
Issued: April 16,2000
Abdul Aziz Abbakar Muhamad
Position: lARA Peshwar, Pakistan Director
DOB: 1961
POB: Sudan
Passport: 562605
Issued: October 28, 1998
Abbakar Muhamad was identified as one of several individuals involved in lARA's
terrorist support operations in South Asia. This support was provided to al Qaida,
Gammat al Islamiya and the Taliban and reportedly included money, supplies and
housing for terrorists in South Asia. He previously seNed as the Executive Director
of the lARA operating from Afghanistan.
Khalid Ahmad Jumah AI-Sudani
Position: lARA Middle East Regional Director
Location: Amman, Jordan
Passport: H649956
Issued: April 8, 2002
Ibrahim Buisir
Position: lARA Representative in Ireland
Location: Ireland
DOB: circa 1962
POB: Libya
Buisir, originally from Libya, has been lARA's representative in Ireland. Following
the 9-11 terrorist attacks, Buisir was arrested by local authorities based on evidence
that he provided financial support for the al Qaida network. Information available to
the U.S shows that Buisir directed a European al Qaida cell that provided support to

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JS-2025: Trea~aJry De~ignates Global Network, Senior Officials ofIARA for Supporting ...

Page 3 of 3

operations in Europe by arranging travel and accommodations.
The entities were designated today pursuant to Executive Order 13224 pursuant to
paragraphs (d)(i) and (d)(ii) based on a determination that they assist in, sponsor or
provide financial, material, or technological support for, or financial or other services
to or in support of, or are otherwise associated with, persons listed as subject to
E.O.13224.
Blocking actions are critical to combating the financing of terrorism. When a target
is blocked, all of its assets in the formal financial system must be frozen and it can
no longer operate as a conduit to move money to illicit purposes. This, in turn,
forces terrorist networks to rely on alternative, more costly and higher-risk means of
financing their activities. Blocking actions also expose money trails that may point to
previously unknown terrorist cells and financiers and serve as a deterrent to other
would-be financiers or donors.
The United States has designated 393 individuals and entities as terrorists, their
financiers or facilitators. In addition, the global community has frozen over $142
million in terrorist-related assets.
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113/2005

JS-L.D26: Statement hy Trea£1lry Secretary John W. Snow on Treasury's Designation ... Page 1 of 1

pr~[ss

HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 13. 2004
JS-2026

Statement by Treasury Secretary John W. Snow on
Treasury's Designation of lARA
Treasury Secretary John W. Snow made the following statement today regarding
the Treasury Department's designation of the worldwide network of the Islamic
African Relief Agency (lARA), along with five of its senior officials:
"The Treasury today designated the global network of the Islamic African Relief
Agency along with five of its senior officials. This action marks another crucial step
in the United States Government's continuing efforts to close down the conduits
that allow terrorists to raise and move money.
"The international offices of lARA were providing direct financial support to Usama
bin Laden. al Qaida. Hamas and other terrorist groups. Today's action shuts down
financial channels that were being used to propagate terrorist activity.
"This action again reveals the intent by terrorists to abuse charitable networks and
organizations for their evil purposes.
"In designating lARA, Treasury blocked all accounts, funds and assets of the
organization in the United States and criminalized the provision of money or other
types of support to any of its offices.
"Today's action highlights the important role of designations in the war on terrorist
finance - freezing assets that might otherwise have been used to support terrorists;
preventing future funds from flowing through tainted channels; and making clear to
the public and our international partners the conduits being used to fuel terrorism.
"The designation process is a key weapon in our arsenal to combat terrorism;
however. it represents just one of the tools at our disposal. A host of U.S.
Government agencies work hand-in-hand to combat terrorist networks from every
angle of attack. The tools and expertise of our colleagues in law enforcement
agencies. as well as the intelligence and diplomatic communities. all play
indispensable roles in this fight.
"Actions like the one taken today make it costlier and riskier for al Qaida and other
terror groups to raise and move money. Under President Bush's leadership, we
have designated 393 individuals and entities as terrorists or their facilitators and.
working in concert with our global partners. we have frozen over $142 million in
terrorist-related assets.
"The financial war on terror is fought on a different kind of battlefield, one that
includes formal financial institutions. as well as shadowy underground networks that
the terrorist use to move money. Terrorists are fueled by hate, but money allows
terrorists to carry out their vile plans. Therefore our efforts to staunch terrorist
financing are a vital part of the overall war on terror. The Bush Administration
remains committed to using any means necessary to stop terrorists in their tracks,
and the Treasury will continue to wield all of its authorities to bankrupt terror," said
Snow.
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ln1200S

js-2027: Statemr.nt from Secretary John Snow on Comments Made in Findlay, Ohio ... Page 1 of 1

.~
<'-'--'

".;..

,",",-"-

PF~[SS

rWOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
js-2027
Statement from Secretary John Snow on Comments
Made in Findlay, Ohio on October 11, 2004
I regret that recent remarks of mine have been misconstrued by critics of the
Administration. Let me be clear, I regret the loss of any job. I know what it is like to
lose a job. I know the pain it brings. That is why our focus every day is to put in
place policies that will create jobs. In my comments, I was responding to criticisms
of the President's economic policies and unfounded comparisons that are being
made. Those charges are simply not credible.
The President inherited an economy in sharp decline and collapsing stock market
bubble. Just as the economy was beginning to recover, it was hit by 9/11 and the
corporate scandals. The President's leadership and policies turned this economy
around and put it on a strong upward path. This was the key point I was making.
Since the President's policies have been implemented, we've seen continued
strong economic growth: 13 straight months of job creation; an unemployment rate
down to 5.4% -- lower than the average of the 1970s. 1980s, and 1990s; the
highest level of home ownership in history; low inflation and low interest rates.
Clearly this is a strong record.
We need to continue with the President's pro-growth policies that are working -- not
raise taxes as some have suggested. Raising taxes would be a burden for families,
hurt America's job creators and be a setback for the economy.

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113/2005

js-201S; Treasury Deputy Assistant Secretary Iannicola Teaches Savings and Investment .,.

Page 1 of 2

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 13, 2004
js-2028

Treasury Deputy Assistant Secretary lannicola Teaches Savings and
Investment Lesson to High School Students in Weare, New Hampshire
Treasury's Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.
today taught a financial education lesson on the topic of savings and investment to
John Stark Regional High School students in Weare, New Hampshire. While there,
lannicola also led a financial education roundtable hosted by the New Hampshire
Jump$tart Coalition and discussed federal financial education resources, which can
be used to integrate personal finance lessons into different class subjects and
settings.
John Stark Regional High School students learned basic savings and investment
concepts. lannicola commended New Hampshire school administrators and
educators that are working to improve and integrate financial education in their
schools. He also thanked grass roots organizations like the New Hampshire
Jump$tart Coalition for supporting these schools in their efforts to improve financial
literacy. "The financial futures of New Hampshire kids are in good hands."
lannicola continued, "Young people who graduate high school without exposure to
financial education risk making costly mistakes as adults. By contrast, those who
are exposed to financial concepts early on can look forward to a more secure, more
prosperous future."
While in New Hampshire, lannicola also addressed the board of the New
Hampshire Jump$tart Coalition, a non-profit organization that seeks to improve the
personal financial literacy of young people. Its board members include the State of
New Hampshire Insurance Department, the University of New Hampshire
Cooperative Extension, New Hampshire Partners in Education, TIAA-CREF and
Consumer Credit Counseling of New Hampshire and Vermont, Inc. lannicola
encouraged their continued commitment to improving financial education in the
state. He also discussed with them Treasury's Office of Financial Education's
perspective on the importance of improving financial literacy and how these
organizations can continue to expand financial education efforts.
During the roundtable, lannicola heard from the participants and learned about their
financial education initiatives. In turn, lannicola provided the participants with
detailed information about existing and new financial education resources available
through the federal government, including those offered by the Treasury
Department, as well as by nineteen other federal agencies that comprise the
Financial Literacy and Education Commission. First, he urged the participants to
visit www.rnyrnoney.gov, which is a new national service launched yesterday by the
Financial Literacy and Education Commission. Second, he urged the participants
to consider responding to Treasury's request for public comment on what the
national financial education strategy should be. Finally, he told them about
Treasury's new Technical Assistance Center, which lannicola described as a place
where those with an interest in financial education can receive input on program
design and available resources, explore partnerships with other organizations and
learn about best practices in financial education. Both the request for public
comment and the Technical Assistance Center can be accessed at
www.treasury.gov/financialeducation.
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education ("Office") in May 2002. The
Office works to promote access to the financial education tools that can help all
Americans make wiser choices in all areas of personal financial management, with
a special emphasis on saving, credit management, home ownership and retirement
planning. The Office also coordinates the efforts of the Financial Literacy and

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js-202~:

Treasury Deputy Assistant Secretary Iannicola Teaches Savings and Investment ... Page 2 of 2
Education Commission, a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments, agencies and
commissions, which works to improve financial literacy and education for people
throughout the United States. For more information about the Office of Financial
Education visit: www.trccisliry ~JOV!flndIICIClledLicatlon.
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113/2005

JS-2029: l,etter from Secretruy Snow to Congress Regarding Debt Limit

Page 1 of 1

PHCSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

October 14, 2004
JS-2029
Letter from Secretary Snow to Congress Regarding Debt Limit
The Honorable
Bill Frist Majority Leader
United States Senate
Washington, DC 20515
REPORTS
•

Fnst pdf

http://www.treas.gov/press/releasis/js2029.htm

113/2005

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SliCRETARY OF THE TREASURY

October 14, 2004

The Honorable Bill Frist
Majority Leader
United States Senate
Washington, DC 20515
Dear Senator Frist:
On August 2,2004, I wrote to Congress regarding the need to increase the statutory debt
limit. Because the debt limit has not been raised, I must infoITI1 Congress, pursuant to 5 U.S.C.
8438(h)(2), that it is my detennination that, by reason of the public debt limit, I will be unable to
fully invest the Government Securities Investment Fund ("G-Fund") of the Federal Employees
Retirement System in special interest-bearing Treasury securities, beginning on October 14,
2004. The statute governing G-Fund investments explicitly authorizes the Secretary of the
Treasury to suspend investment ofthe G-Fund to avoid breaching the statutory debt limit. Such
a suspension action has been taken in the past by my predecessors and by me.
G-Fund beneficiaries are fully protected and will suffer no adverse consequences from
this action. The statute ensures that once the Secretary of the Treasury can make the G-Fund
whole without exceeding the public debt limit, he is to do so. Under the governing law in this
case, the G-Fund will receive complete restoration of all funds temporarily affected by this
necessary action, including full and automatic restoration of any interest that would have been
credited to the Fund. Consequently, once I am able to make the G-Fund whole, the effect on the
G-Fund and its beneficiaries will be the same as if this temporary action had never taken place.
Given current projections, it is imperative that the Congress take action to increase the
debt limit by mid-November, at which time all of our previously used prudent and legal actions
to avoid breaching the statutory debt limit will be exhausted. I know that you share the
President's and my commitment to maintaining the full faith and credit of the U.s. Government.
Sincerely,

~w~
John W. Snow

JS-2021); Implementing Refonns that Drop and Stop the Debt ofthe Heavily Indebted ... Page 1 of2

PHlSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 14, 2004
JS-2030

Implementing Reforms that Drop and Stop the Debt of the
Heavily Indebted Poor Countries
John B. Taylor
Under Secretary of Treasury for International Affairs
Remarks at the Poverty and Debt Relief Photo Exhibit
United States Senate
October 14, 2004
It is a pleasure to join you here today. I want to thank all of you for the help and
advice that you have given to the Bush Administration, and the Treasury in
particular, in our efforts to help poor countries address their serious debt problems,
especially their debts to the international financial institutions. I have benefited from
many interactions with you in my office at Treasury and elsewhere.
The Reform Agenda So Far
It was more than three years ago that President Bush--in a speech at the World
Bank in July 2001--made a proposal that in his words "doesn't merely drop the debt;
it stops the debt" of the poorest countries. The proposal called for a dramatic
increase in grant funding to the world's poorest countries from the multilateral
development banks.
I recall the welcoming support that many of you gave to that proposal and the help
you gave us in winning essential international support in a very tough and skeptical
environment. It took about a year, but with this help, the Bush Administration was
able to win broad international support and thereby substantially shift funding from
loans to grants at IDA and the African Development Fund. And this summer we
obtained agreement at the Asia Development Fund for substantially increased grant
funding. The aim of the President's proposal was to augment the heavily indebted
poor country program by reducing the amount of debt counties would accumulate in
the future.
Assessing Progress
Now, three years later, we are able to assess how this new grants program is
working, and I have made several trips to Africa this year to do just that. Experts
from the World Bank and from the U.S. Treasury have accompanied me on these
trips. We visited schools, health care centers, and small village construction
projects. We traveled to some of the world's poorest rural villages (especially in
Niger) and some of the world's worst urban slums (especially in Nairobi). We talked
with village chiefs, teachers, principals, nurses, doctors, AIDS patients, and school
children and their parents. We talked with finance ministers--Kaberuka of Rwanda,
Mwiraria of Kenya, Zeine of Niger, and Diop of Senegal, Osafo-Maafo of Ghana,
and Manuel of South Africa--and asked how they assessed the new grants
programs from IDA and from the African Development Fund. We also met with
health ministers and education ministers, and we interviewed World Bank people
responsible for administering the programs.
I am happy to report that President Bush's new grants initiative is very popular and
enormously well received in all the places we visited, especially by those in the
heavily indebted countries. They like how the grants deal with the debt problem.
But they also pOinted to other advantages of grants, including fewer bureaucratic
hurdles and a greater show of support by donors. The Health Minister in Rwanda
(where the grants were for HIV/AIDs) was particularly appreciative of what he called
the "Bush Grants." The Education Minister in Kenya (where the grants are used to
buy textbooks) said he was surprised, thrilled, and grateful that the World Bank had

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JS-2u30: Im111e:menting Refol'1ns that Drop and Stop the Debt of the Heavily Indebted... Page 2 of 2
given grant support. The Finance Minister of Niger concluded our meeting by
saying, "Long Live the Doctrine of Grants." They all thanked the U.S. because they
knew that these grants would not exist had President Bush not proposed them.

Next Steps: Completing the Reform Agenda
Based on this success we would like to work with the international community to
implement additional reforms to help countries fully achieve debt sustainability.
Debt sustainability is a prerequisite for private investment, economic growth, and
the reduction of poverty. In a nutshell, we need to complete the "drop the debt and
stop the debt" vision put forth by President Bush at the start of his administration.
How do we do this? As Secretary Snow indicated in a recent speech at the Bretton
Woods Committee, we should help poor countries make their debt sustainable and
we should not make loans (as they are made now) when it is highly probable that
they will be forgiven. To do so, we should substantially increase both grant
financing and debt relief--up to 100 percent--from the international financial
institutions. Moving boldly in this way would give lagging countries an opportunity
to wipe the slate clean and begin anew following a prudent and sustainable path to
financing development.
In addition, at the IMF we should create a new non-borrowing facility aimed at
promoting strong country ownership. Such a facility would allow the IMF to work
with countries to set and assess policy benchmarks in the absence of further debt
accumulation. This would strengthen the IMF as an institution of international
economic cooperation where each country assumes its responsibility for growth and
stability.
As we engage with the international community, we must insist that no reform
inadvertently causes a reduction in the funding for poor countries. On the contrary,
with these additional reforms we feel we can greatly improve the case for additional
support for effective development assistance to the poorest countries, and thereby
increase economic growth, reduce poverty, and improve the lives of people around
the globe.
I am looking forward to working with you as we continue our reform agenda.

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113/200:)

js-203 J; Treasury Deiignotes North Valle Drug Cartel Traffickers

Page 1 of2

PH[SS HuOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Aliu/)I' '-' ALI ll/ld/' ) Rf!rll/f"i."

October 14, 2004
js-2031

Treasury Designates North Valle Drug Cartel Traffickers
The U ,S, Department of the Treasury targeted the financial network of the North
Valle drug cartel by adding two of its leaders, Gabriel Puerta Parra and Luis Antonio
Hernandez Zea, to the list of Specially Designated Narcotics Traffickers (SDNTs),
SDNTs are subject to the economic sanctions imposed against Colombian drug
cartels in Executive Order 12978,
"With actions like today's, the U.S. Government is helping to topple the financial
empires of drug cartels in Colombia and around the world, This designation
exposes and undermines the financial network of the North Valle drug cartel in
Colombia and denies these drug lords and their businesses access to the U.S.
financial sector," said Juan Zarate, Treasury's Assistant Secretary for Terrorist
Financing and Financial Crimes,
"DEA is steadfast in its mission to strip illicit profits from the organizations that
supply if/ega I drugs to the United States. Today's action is a testament to our
partnership with OFAC and our foreign law enforcement counterparts. The power of
combining the enforcement tools of DEA with the immense regulatory authority of
the Treasury Department casts a shadow from which drug traffickers cannot hide,"
said Karen P. Tandy, Administrator of the Drug Enforcement Administration (DEA),
Puerta Parra is a leading member of the North Valle drug cartel and is the subject
of two federal criminal indictments in the United States, both unsealed earlier this
year. The indictments filed in the District Court for the District of Columbia and the
Southern District of Florida charge Puerta Parra with violations of the Racketeer
Influenced and Corrupt Organizations Act and with conspiracy to import, possess
and distribute cocaine in the United States. On October 7,2004, Colombian
National Police arrested Puerta Parra near Bogota, Colombia. He is currently
awaiting extradition to the United States. Considered the statesman of the North
Valle cartel, Puerta Parra has long played an influential role among drug cartel
leaders, including resolving disputes within the North Valle cartel and with other
drug cartels.
"We are financially isolating Puerta Parra, his business associates, and his
facilitators and wiping away the veneer of legitimacy of any of their activities,"
Zarate continued.
In addition. the Colombian airline, Intercontinental de Aviacion S,A, and 14 other
North Valle cartel businesses were also added to the list of SDNTs today, These
entities were designated as they are owned or controlled by Puerta Parra and
Hernandez Zea, as well as Piedad Velez Rengifo, the widow of deceased North
Valle cartel kingpin Jose Orlando Henao Montoya
Intercontinental de Aviacion S,A. is a small. regional Colombian airline that has
facilitated the North Valle cartel's drug trafficking and money laundering activities
since the late 1980s. The network also includes two key offshore companies, Largo
Leasing Limited in the Cayman Islands and Trans Pacific World Leasing Limited in
Vanuatu. which are incorporated by and directly support Intercontinental de
Aviacion. The other front companies announced today include a mining company,
Industrial Minera y Pecuaria S.A, two financial investment firms, Accirent S.A, and
Comercializadora Andino Brasilera S,A, a civil engineering firm, Inversiones y
Comercializadora Incom Uda., an airline finance company, Intercontinental de
Financiacion Aerea S.A, an aircraft parts supplier, Aerocomercial Alas de Colombia

http://www.treas.gov/Press/release:::iis2031.htm

1/3/2005

Page 2 of2

js-2031: Treasury Designates North Valle Drug Cartel Traffickers
Ltcla, , a tr-avel services provider, Asociacion Turistica Internacional S. C. S., and a
hotel management company, Cia. Constructora y Comercializadora del Sur Ltda.,
all of which are located in Columbia.
Also designated today are 14 individuals who act as agents for Gabriel Puerta
Parra, Luis Antonio Hernandez Zea and Piedad Velez Rengifo in the designated
companies. Today's action freezes any assets found in the United States and
prohibits all financial and commercial transactions between the designated persons
and entities and any U.S. person.
A total of 417 Colombian drug cartel businesses are now on the SDNT list. The list
also includes the paso fino horse farm Criadero La Luisa E.
the industrial paper
manufacturer Unipapel S.A., the agro-industrial business Viscaya Uda., the
Obursatiles stock brokerage firm, and the America de Cali professional soccer
team, as well as other agricultural, pharmaceutical, consulting, construction,
distribution, financial, investment, manufacturing, mining, real estate and service
firms.

u.,

This action is part of the ongoing interagency effort, that includes the Departments
of the Treasury, Justice, State and Homeland Security, to implement Executive
Order 12978, signed on October 21, 1995, which applies economic sanctions
against Colombia's drug cartels. Today's announcement is a result of the Treasury
Department's Office of Foreign Assets Control's continuing close working
relationship with U.S. law enforcement authorities, and particularly, in this case,
DEA field offices in Phoenix and Miami. The U.S. government continues to work
with and support the Colombian government in attacking the finances of Colombia's
drug cartels.
The assets of a total of 1,125 businesses and individuals in Colombia, Costa Rica,
Ecuador, Panama, Peru, Spain, Vanuatu, Venezuela, the Bahamas, the British
Virgin Islands, and the Cayman Islands, are now blocked under E.O. 12978. The
SDNT list includes 16 kingpins from the Cali, North Valle, and North Coast drug
cartels in Colombia, including Gabriel Puerta Parra and Luis Antonio Hernandez
Zea.
For a complete list of the entities designated today, please visit:
http//www.treas gov/offices/enforcementlofac/actions/

LINKS
•

Diagram of the North Valle Drug Cartel Financial Network

http://w~.W.treas.gov/press!releaSb.. /is2031.htm

113/2005

North Valle Drug Cartel
Financial Network

Department of the Treasury
Office of Foreign Assets Contro

October 2004

-----(/
U.S. Federal Indictment

l,_,jl

April 2004

Gabriel PUERTA PARRA
DOB 1 Oct 1942
C.C. 8238830

r·!--

:-~

r-·~t

lose Orlando HENAO MONTOYA
(Deceased)

Luis Antonio HERNANDEZ ZEA
DOB 7 Mav 1960
C.C. 79252957

INTERCONTINENTAL DE AVIACION S.A.
Bogota, Colombia
NIT # 860009526-3

Widow

I
I

Board Member

("')

('")

rv-.

"""""

piedad VELEZ RENGIFO
DOB 22 Oct 1959

Isabel Cristina GALVEZ FERNANDEZ
DOB 23 Sept 1955

c.c. 31835778

C.C.31280944
Wife of PUERTA PARRA

INTERCONTINENTAL SHAREHOLDERS
VELEZ RENGIFO FRONT

HERNANDEZ ZEA FRONTS

PUERTA PARRA FRONTS

,
~I

iL?:)

ACCIRENT S.A.
NIT # 830088969-0

INVERSIONES Y COMERCIAUZADORA
INCOMLTDA.
NIT # 890329658-9

INDUSTRIAL MIN ERA Y PECUARIA S.A.
"IMPECUA"
NIT # 830000855-1

!~I

AEROCOMERCIAL ALAS DE COLOM8IA LTDA.
NIT # 800049071-7

LA FRONTERA UNION GALVEZ Y CIA S EN C
NIT # 800050795-2

~il
AEROVIAS ATLANTICO LTDA•
..AEROATLANTICO LTDA"
NIT # 890109958-1

i~1
ASOCIACION TURISTICA INTERNACIONAL S.C.S.
NIT # 890325040-4

RELATED COMPANIES
llELI:Z BE;f:UiIEIl

PUEBTA pARRA EBONT

EBg~I

tI~B~ArH~I;Z:

L~d

~:I

"
I~l:

OESARROLLOS AGROINDUSTRIAlES 5.A.
NIT # 830000782-2

COMERCIALIZADORA ANDINO BRASILERA 5.4.

GREEN ISLAND 5.A.

"CABRASA"

NIT # 830067456-4

ZEA ES12HI5

"INTERFlARn
NIT # 800043810-6

NIT # 8300032982

OFF-SHORE FRONT COMPANIES
CONTROLLED BY HERNANDEZ ZEA

~.I

'~]'

:~ll

CIA CONSTRUCTORA Y COMERCIALIZAOORA DEL SUR LTDA.

TRANS PACIFIC
WORLD LEASING LIMITED
Vanuatu

LARGO LEASING LTD.
Cayman Islands

"C05UR"
NIT # 890329758-7

BUSINESS ASSOCIATES

Melba Rosa ARCE JARAMILLO
C.C. 31945032

Manuel Antonio CUBILLOS CORREOOR
C.C. 19057000

~
Luis Alfredo GALLEGO RAMOS
C.C. 16585721

Ana Elvia HERNANDEZ ZEA
C.C. 41503907

'~I

INTERCONTINENTAL DE
FJNANCIACJON AEREA S.A.

Hilda Nelly MERCHAN PERILLA
C.C. 41474108

Antonleta NUMA SANJUAN
C.C. 60291819

Jaime Antonio OLIVELLA CELEDON
C.C. 17100787

Oliverio PEREZ NARVAEZ
C.C. 6488451

Alfonso RAMIREZ VALDIVIESO
C.C. 17035234

Alfonso SANCHEZ LOPEZ
C.C.318356

Elsa Yaneth TRIVINO RODRIGUEZ
C.C. 20484603

William VELEZ MONTES
C.C. 17086144

JS-2032: Joint Statement of.:::BR>John W. Snow, Secretary of the Treasury, an... Page 1 of 1

PH[SS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free A(irJ/),/1 . Aun/Jd/'. Ru,j(jr',' '.

October 14, 2004
JS-2032
Joint Statement of
John W. Snow,
Secretary of the Treasury,
and
Joshua B. Bolten,
Director of the Office of Management and Budget,
on
Budget Results for Fiscal Year 2004
SUMMARY
The Administration today is releasing the September 2004 Monthly Treasury
Statement of Receipts and Outlays of the United States Government[1J. The
statement shows the actual budget totals for the fiscal year that ended September
30,2004, as follows:

•
•
•

A deficit of $413 billion;
total receipts of $1 ,880 billion; and
total outlays of $2,292 billion.

[1] The September 2004 Monthly Treasury Statement of Receipts and Outlays of
the United States Government containing these results can be found on the
Financial Management Service website at: www.fms.treas.gov.

LINKS
•

Budget Results for FY 2004

REPORTS
•

•

Jomt Statemen of Jolln W Snow Secretary of the Treasury and Josilua B
Bolten Director of the Office of Management and Budget on Budget Results
for Fiscal Year 2004
FY 2004 Budget ellalts

http://w\\.W.treas.gov/presslreleas~/is2032.htm

113/2005

EMBARGOED UNTIL 3:30 P.M. EDT
October 14,2004

Treasury Contact: Rob Nichols
(202) 622-2920
OMB Contact: Chad Kolton
(202) 395-7254

JOINT STATEMENT OF
JOHN W. SNOW,
SECRETARY OF THE TREASURY,
AND
JOSHUA B. BOLTEN,
DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET,
ON
BUDGET RESULTS FOR FISCAL YEAR 2004

SUMMARY
The Administration today is releasing the September 2004 Monthly Treasury Statement
of Receipts and Outlays of the United States Government I. The statement shows the
actual budget totals for the fiscal ye ar that ended September 30, 2004, as follows:
•

A deficit of $413 billion;

•

total receipts of $1 ,880 billion; and

•

total outlays of $2,292 billion.

(MORE)

I The September 2004 Monthly Treasury Statement of Receipts and Outlays of the United States Government
containing these results can be found on the Financial Management Service website at: www.fms.treas.gov.

"We are encouraged by the progress our economy has made - GDP is growing, more than
1.9 million new jobs have been created in the past 13 months, unemployment rates are
below the averages of the 1970's, 1980's, and 1990's, homeownership is at an all-time high,
and government receipts are rising. All of this shows that the President's tax relief
initiatives are having the intended effects.
With the economy performing better, the deficit is lower than originally forecast in the MidSession Review and the President's FY 2005 Budget. The combination of a growing
economy bringing in increased revenues, along with tight controls on spending, will enable
us to reach the President's goal of cutting the budget deficit in half in five years, bringing it
to a level that will be low by historical standards at less than 2 percent ofGDP."
- Secretary John W. Snow
"The improvement in the Nation's budget picture since the President's Budget was released
last February is a clear reflection of our strengthening economy and improving fiscal
performance. While the deficit is unwelcome, if we stick with the President's plan of
economic growth and spending discipline, we will continue to see improvement ani we will
cut the deficit by more than half in five years. The President's budget policies have steadily
reduced the growth of discretionary spending in non-defense, non-security-related areas of
the bUdget. And thanks to tax relief, regulatory reform, and expanded international trade,
the economy is strong and this year's deficit is below the level previously forecast by the
Administration, the Congressional Budget Office, and private forecasters. "
- Director Joshua B. Bolten

Table 1. TOTAL RECEIPTS, OUTLAYS AND SURPLUS/DEFICIT (-)
(in billions of dollars)
Receipts
1,782

2003 Actual...................... ..............
FY 2004 Estimates:
FY 2005 Budget........................ 1,798
FY 2005 Mid-Session Review... 1,874
ActuaL........... ......... .................... 1,880

Outlays
2,159

Surplus/Deficit (- )
-377

2,319
2,319
2,292

-521
-445
-413

NOTE: Details may not add to totals due to rounding. The FY 2003 deficit is $2 billion
higher than previously reported due to a retroactive accounting revision in Federal
Communications Commission outlays.
The FY 2004 unified deficit was $413 billion, or an estimated 3.6 percent of the Gross
Domestic Product (GDP). As a percent of GOP, the 2004 deficit is lower than the deficits

of nine of the last 25 years. The deficit for FY 2004 is $32 billion, or 7.2 percent, lower
than projected in the Mid-Session Review (MSR). Receipts were higher by $5 billion and
outlays were lower by $27 billion. The deficit is $108 billion, or 20.8 percent, lower than
projected less than a year ago in the FY 2005 Budget. Receipts were higher by $82
billion and outlays were lower by $27 billion.
Receipts in 2004 were 5.5 percent higher than in 2003, the first increase in receipts since
2001. Outlays grew by 6.2 percent above the previous year, lower than the prior year's
growth rate of 7.4 percent.

RECEIPTS
Total receipts for FY 2004 were $1,880 billion, $5 billion higher than the MSR estimate
of $1 ,874 billion. Nearly $3 billion of this increase was attributable to higher-thanestimated collections of corporation income taxes and social insurance and retirement
receipts, which were partially offset by lower-than-estimated collections of individual
income taxes. Most of the remaining increase was attributable to higher-than-expected
collections of estate and gift taxes and miscellaneous receipts. Table 2 displays actual
receipts and estimates from the Budget and the MSR by source.
Individual income taxes were $809 billion, $7 billion lower than the MSR estimate. This
decrease was due in large part to lower-than-estimated payments of withheld taxes and
higher-than-estimated refunds. Reallocations of receipts from the Social Security and
Medicare Trust Funds to individual incomes taxes were lower-than-expected and
accounted for about $2 billion ofthe shortfall in individual income taxes. These
reallocations, which are accounting adjustments based on more recent data, did not
change the overall level of receipts, only the allocation of collections between individual
income taxes and the social insurance trust funds (see the discussion of social insurance
and retirement receipts below).
Corporation income taxes were $189 billion, $8 billion greater than the MSR estimate.
Under the Economic Growth and Tax Relief Reconciliation Act, corporations were
allowed to delay 20 percent of the estimated payment otherwise due on September 15,
2004 until October 1, 2004. Delayed payments were $2 billion less than expected, which
increased fiscal year 2004 collections by $2 billion relative to the MSR. Higher-thanexpected payments, unrelated to timing delays, and lower-than-estimated refunds
accounted for most of the remaining increase of $6 billion.
Social insurance and retirement receipts were $733 billion, $2 billion higher than the
MSR estimate. This increase was primarily attributable to lower-than-expected
reallocations of receipts from the Social Security and Medicare Trust Funds to individual
income taxes. The adjustment offsets the adjustment to individual income taxes described
above; there is no impact on total receipts.

Estate and gift taxes and miscellaneous receipts each exceeded the corresponding MSR
estimate by $1 billion.

OUTLAYS
Total outlays were $2,292 billion, $27 billion or 1.2 percent below the MSR estimate.
Most agency outlays were down from the MSR, although increases occurred in Defense
operations and maintenance and the Department of Justice. Table 3 displays actual
outlays by agency and major program as well as estimates from the Budget and the MSR.
The largest changes in outlays were in the following areas:
•

Department of Health and Human Services - Actual outlays for the Department of
Health and Human Services were $543 billion, $9 billion lower than the MSR
estimate. Actual Medicare outlays were $2 billion lower than the MSR estimate.
This reflects the net impact of lower spending for Medicare Part A and Medicare's
Transitional Prescription Drug Assistance, partly offset by higher spending for
Medicare Part B. Although FY 2004 outlays for Medicaid were nearly 9.7 percent
higher than in FY 2003, the outlays were $4 billion less than the MSR estimate,
which assumed an even higher rate of growth in State spending. Outlays for the
Temporary Assistance for Needy Families program were $1 billion less than the
MSR estimate as a result of slower-than-expected spending by States.

•

Department of Agriculture - Actual outlays for the Department of Agriculture
were $72 billion, a decrease of $4 billion from the MSR estimate. Commodity
Credit Corporation (CCC) outlays were $2 billion below the MSR estimate due to
higher-than-anticipated surplus commodity sales proceeds and loan repayments
for the commodity marketing loans, lower-than-anticipated storing and handling
costs, and lower-than-expected payments for Non-Insured Assistance Payments
and environmental programs. Net outlays for the Rural Utilities Service were $1
billion below the MSR mainly due to increased collections of borrower
prepayments on pre-Credit Reform loans, as borrowers refinanced at current low
interest rates. Crop insurance outlays were $1 billion lower because crop
insurance losses were lower than forecast. Food and Nutrition Service outlays of
$1 billion below the MSR estimates were caused by lower-than-anticipated costs
for Child Nutrition and Food Stamps.

•

Department of Homeland Security - Outlays for the Department of Homeland
Security were $27 billion in FY 2004, $4 billion below the MSR estimate. Much
of this difference is attributable to the rate at which state and local governments
have drawn down obligations of grant funds. Outlays for Science and Technology
and Emergency Preparedness and Response were $1 billion lower in FY2004 than
estimated as a result of later-than-anticipated signing of Inter- Agency agreements
and obligations of funds for the Flood Map Modernization program.

•

Department of Defense - Military- In FY 2004, outlays for the Department of
Defense - Military were $437 billion, an increase of$3 billion from the MSR
estimate. This difference can be attributed primarily to higher- than-anticipated
fuel prices as well as the increased operational activity resulting from the Global
War on Terror.

•

Department of Education - Department of Education outlays in FY 2004 were
$63 billion, $3 billion below the MSR estimates. Most of this decrease was in the
Office of Elementary and Secondary Education, and was attributable to slowerthan-anticipated State implementation of some elementary and secondary
education programs.

•

Department of Transportation- Department of Transportation outlays were $55
billion in FY 2004, $3 billion below the MSR estimate. Outlays were $1 billion
below the MSR for the Federal Highway Administration dte to the delayed
enactment of pending surface transportation legislation that prevented the
obligation of some funding for the Federal-aid Highway Program. Federal
Aviation Administration (FAA) outlays were $1 billion below MSR estimates due
to slower-than-anticipated obligation and spend ing of funds for capital
modernization and airport grants.

•

Department of Justice - FY 2004 outlays for the Department of Justice were $29
billion, up $3 billion from the MSR estimates. The largest difference, $1 billion,
was in the Federal Bureau of Investigation, due to stronger funds management
and improved adherence to project schedules. Outlays for the Office of Justice
Programs were $1 billion higher than anticipated because State and local agencies
are submitting requests for reimbursement more quickly than in previous years.

•

International Assistance Programs - In FY 2004, outlays for International
Assistance Programs were $14 billion, $3 billion less than the MSR estimate. A
large difference, as in previous years, was in the International Monetary Program,
which was $1 billion lower than the MSR estimate due to valuation changes in the
US. reserve position (which is similar to a deposit) in the International Monetary
Fund (IMF). Outlays for the Foreign Military Sales program were $1 billion lower
than the MSR due to higher-than-estimated payments that arrived in the last
quarter of FY 2004. Other differences from the MSR estimates included slight
decreases in outlays for Foreign Military Financing and other International
Assistance Programs, and in the U.S. Agency for International Development.

•

Federal Communications Commission- FY 2004 Federal Communications
Commission (FCC) outlays were $4 billion, $3 billion less than the MSR
estimate. Actual outlays for the Universal Service Fund (USF) were $3 billion, $3
billion lower than the MSR estimate. This difference was largely related to a
transition from private sector to government reporting standards. As part of the
transition, USF cash balances previously held in non-Federal money market funds
were moved into Federal investments to ensure sufficient budgetary resources to

meet program obligations. The redemption of non-Federal securities resulted in
lower net outlays in 2004.
-30-

Table 2.--2004 BUDGET RECEIPTS BY SOURCE
(fiscal years; in millions of dollars)

2003
Actual

2004
Estimate
Budget Mid-Session

Actual

Change, 2004 Actual from:
Budget Mid-Session

Receipts by Source
Individual income taxes
Corporation income taxes ............................................................. ,....... .
Social insurance and retirement receipts:
Employment and general retirement:
On-budget. .....................................................................................
Off-budget. .....................................................................................
Subtotal, Employment and general retirement... ...................... .
Unemployment insurance ..................................................................
Other retirement contributions .......................................................... .
Subtotal, Social insurance and retirement receipts ...................... .
Excise taxes ....................................................................................
Estate and gift taxes ..............................................................................
Customs duties ...................................................................................
Miscellaneous receipts ............................................................. .
Adjustment for revenue uncertainty ............................................. .
Total, Receipts ............................................................................... .
On-budget.
Off-budget. .............................................................................. .

NOTE: Detail may not add to totals or changes due to rounding.

793,699
131,778

765,399
168,741

816,296
181,503

808,958
189,370

43,559
20,629

-7,338
7,867

151,139
523,842
674,982
33,366
4,631
712,979

154,425
534,004
688,429
39,227
4,736
732,392

153,969
533,514
687,483
39,016
4,736
731,235

154,615
534,744
689,359
39,453
4,596
733,408

190
740
930
226
-140
1,016

646
1,230
1,876
437
-140
2,173

67,522
21,959
19,862
34,309
Q

70,776
23,909
22,595
34,281
-20,000

69,727
23,601
21,197
30,854
Q

69,851
24,831
21,083
32,299
Q

-925
922
-1,512
-1,982
20,000

124
1,230
-114
1,445

1,782,108
1,258,265
523,842

1,798,093
1,264,089
534,004

1,874,413
1,340,899
533,514

1,879,799
1,345,055
534,744

81,706
80,966
740

5,386
4,156
1,230

Table 3.--2004 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

2003
Actual

2004
Estimate
Budget Mid-Session

Actual

Change, 2004 Actual from:
Budget Mid-Session

Outlays by Major Agency
Legislative Branch ................................................................................ .
The Judiciary ....................................................................................
Agriculture:
Farm Service Agency:
Commodity Credit Corporation ..................................................... .
Other..............................................................................................
Food and Nutrition Service:
Food stamps ..................................................................................
Other..............................................................................................
Risk Management Agency .................................................... .
Rural utilities service ............................................................ .
Foreign agriculture service ................................................... .
Agriculture Marketing Service ................................................ .
Forest Service ...................................................................................
Offsetting receipts ............................................................... .
Other. .................................................................................................
Subtotal, Agriculture ........................................................... ,......... .
Commerce ............................................................................................ .
Defense-Military:
Military PersonneL .............................................................. .
Operations and Maintenance ................................................. .
Procurement. ..................................................................... .
Research, Development, Test, and Evaluation .......................... .
Revolving and management funds .......................................... .
Other ..................................................................................................
Subtotal, Defense-Military ............................................................ .
Education:
Office of Elementary and Secondary Education ............................... .
Office of Special Education and Rehabilitative Services .............. .
Office of Postsecondary Education ....................... .
Office of Federal Student Aid .......... .
Other..................................................................................................
Subtotal, Education .......................................................................
Energy:
Atomic energy defense activities .................................................... .
Other..................................................................................................
Subtotal, Energy ............................................................................
Health and Human Services:
Medicare (gross outlays) .................................................................. .

3,420
5,123

4,269
5,306

4,269
5,358

3,880
5,396

-389
90

-389
38

17,421
923

14,833
947

12,306
947

10,567
778

-4,266
-169

-1,739
-169

25,325
15,771
3,347
-2,703
840
1,433
5,147
-3,056
8,033
72,483

29,044
16,487
4,034
-1,453
1,058
1,141
5,174
-2,952
9,426
77,739

29,081
16,707
3,957
-1,453
1,058
1,141
5,174
-2,528
9,136
75,526

28,624
16,369
3,269
-2,169
1,438
1,089
5,481
-2,529
8,798
71,714

-420
-118
-765
-716
380
-52
307
423
-628
-6,025

-457
-338
-688
-716
380
-52
307
-1
-338
-3.812

5,680

6,194

5,853

-341

106,746
151,430
67,925
53,102
-265
9,953
388,891

117,352
165,719
77,687
60,593
4,827
9,496
435,674

115,765
165,719
77,687
60,593
4,827
9,496
434,087

113,576
174,018
76,217
60,756
2,372
10,173
437,111

-3,776
8,299
-1,470
163
-2,455
677
1,437

-2,189
8,299
-1,470
163
-2,455
677
3,024

19,751
11,528
2,132
20,424
3,565
57,400

24,968
12,482
2,379
19,067
3,919
62,815

23,968
12,482
2,379
22,750
3,919
65,498

21,293
12,816
2,247
22,877
3,581
62,814

-3,675
334
-132
3,810
-338
-1

-2,675
334
-132
127
-338
-2,684

15,480
3,905
19,385

16,129
4,494
20,623

16,132
4.485
20,617

16.083
3,891
19,974

-46
-603
-649

-49
-594
-643

277.875

302,619

303,801

301,505

-1,114

-2,296

Table 3.--2004 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

2003
Actual
160,693
4,335
41,239

2004
Estimate
Budget Mid-Session
177,282
180,163
4,997
5,232
44,040
44,128

Actual
176,231
4,607
44,418

23,141
24,404
-26,277
505,410

22,964
24,710
-28.949
547,898

-28.705
551,730

21,540
24,466
-29,550
543,215

-1,424
-244
-601
-4,683

-1,096
-244
-845
-8,515

Homeland Security:
Transportation Security Administration ..................................... .
Other border and transportation security ............................... .
Coast Guard ...................................................................... .
Emergency Preparedness and Response ................................ ..
Departmental Management. ................................................. ..
Science and Technology ...................................................... .
Other ................................................................................ .
Subtotal, Homeland Security .............................................. .

8,261
8,579
6,093
8,780
868
86
-824
31,843

2,810
10,197
6,372
4,774
4,925
1,293
292
30,663

2,810
10,197
6,372
4,774
4,925
1,293
332
30,703

2,839
11,036
6,842
4,315
2,442
432
-1.242
26,665

29
839
470
-459
-2,483
-861
-1,534
-3,998

29
839
470
-459
-2,483
-861
-1,574
-4,038

Housing and Urban Development:
Public and Indian Housing Programs ....................................... .
Federal Housing Administration ........................................... .
Other housing programs ..................................................... .
Community Planning and Development. ................................... .
Other. .................................................................................................
Subtotal, Housing and Urban Development... .............................. .

29,522
-689
1,062
8,662
-1,088
37,470

30,988
4,420
1,154
9,598
46,177

30,888
5,078
1,154
9,160
17
46,297

30,523
5,183
859
8,590
-130
45,024

-465
763
-295
-1,008
-147
-1,153

-365
105
-295
-570
-147
-1,273

9,204

9,965

9,716

9,065

-900

-651

4,395
709
4,216
16,672
21,775

3,808
3,928
3,767
11.985
23,488

3,808
6,471
3,767
11,985
26,031

4,710
6,309
4,927
13.005
28,950

902
2,381
1,160
1,020
5,462

902
-162
1,160
1,020
2,919

5,972
58,392
229
2,350
2,649
69,592

5,600
49,377
-55
2,567
2,460
59,949

5,600
45,834
422
2,568
2,289
56,713

5,606
46,323
-171
2,486
2,540
56,784

6
-3,054
-116
-81
80
-3,165

6
489
-593
-82
251
71

Medicaid ........................................................................................ .
State children's health insurance fund .............................................. .
Public Health Service ....................................................................... .
Temporary assistance for needy families and payments to States for
child support enforcement and family support programs .............. ..
Other Administration for Children and Families ................................ .
Other................................................................................................. .
Subtotal, Health and Human Services ........................................ ..

Interior...................................................................................................
Justice:
Office of Justice Programs .................................................... .
September 11th victims compensation .................................... .
Federal Bureau of Investigations ........................................... ..
Other ..................................................................................................
Subtotal, Justice ........................................................................... .
Labor:
Training and employment services .................................................. ..
Unemployment trust fund ................................................................. .
Pension Benefit Guaranty Corporation ............................................ ..
Employment Standards Administration .................................... .
Other..................................................................................................
Subtotal, Labor. ........................................................... ·........ ·.. ·· .. ··
State:

22,636

24,710

Change, 2004 Actual from:
Budget Mid-Session
-1,051
-3,932
-390
-625
290
378

Table 3.--2004 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

Administration of Foreign Affairs ......................................... .
International organizations and conferences ............................. .
Other ................................................................................ .
Subtotal, State ............................................................................. ..

2003
Actual
5,941
1,837
1,479
9,257

2004
Estimate
Budget Mid-Session
7,053
7,053
1,989
1,989
2.259
2.259
11,301
11,301

Actual
7,233
1,870
1.844
10,947

Transportation:
Federal Highway Administration ....................................................... .
Federal Transit Administration ......................................................... .
Federal Aviation Administration ....................................................... ..
Other..................................................................................................
Subtotal, Transportation ......................................................... .

30,773
4,926
12,561
2,549
50,808

32,Q48
8,570
14,015
3,377
58,010

32,048
8,570
14,015
3,377
58,010

30,666
8,011
12,835
3,027
54,539

-1,382
-559
-1,180
-350
-3,471

-961
318,149

-484
319,157

-484
320,965

-604
321,566

-120
2,409

-120
601

31,961
6,435
13,112

33,551
7,447
13,361

33,383
8,899
15,533

33,134
8,857
15,403

-417
1,410
2,042

-249
-42
-130

5,000
1,717
6,158
1,303
-18,210
1,859
366,523
56,892
4,749
39,881
8,065

5,000
1,707
5,850
-962
-17,380
1.734
368,981
60,318
4,308
41,881
8,129

5,000
2,217
5,876
-962
-17,521
1,858
374,764
59,372
4,308
41,881
8,379

5,000
2,187
5,481
-1,043
-16,905
1,722
374,797
59,550
4,842
41,754
8,335

0
480
-369
-81
475
-12
5,816
-768
534
-127
206

0
-30
-395
-81
616
-136
33
178
534
-127
-44

58
330
388
323

6,274
338
6,612
778

2,401
338
2,739
778

3,006
303
3,309
-403

-3,268
-35
-3,303
-1,181

605
-35
570
-1,181

5,748
3,429
-536
4,024
2,115

5,432
3,760
384
4,613
2,632

5,432
2,871
384
4,613
2,632

5,302
2,854
255
4,322
2,640

-130
-906
-129
-291
8

-130
-17
-129
-291
8

Treasury:
Exchange Stabilization Fund ........................................................ ..
Interest on the public deb!.. ...................................................... ..
IRS:
Earned income tax credit.. ....................................................... ..
Child tax credit. ............................................................... .
Other..............................................................................................
Financial Management Service:
Temporary State Fiscal Relief Fund ........................... .
Payment to Resolution Funding Corporation ...................... ..
Other.................................................................. .
Federal Financing Bank ............................................. .
Offsetting receipts ..............................................................
Other..................................................................................................
Subtotal, Treasury .........................................................................
Department of Veterans Affairs ................................................ ..
Corps of Engineers .............................................................................. ..
Other defense civil programs ............................................................... .
Environmental Protection Agency ....................................................... ..
Executive Office of the President:
Iraqi relief and reconstruction fund .................................... ..
Other ................................................................................ .
Subtotal, Executive Office of the President. ........................... .
General Services Administration ......................................................... .
International Assistance Programs:
International Security Assistance:
Foreign Military Financing ......................................................... .
Economic Support Fund .............................................................. ..
Other..................................................................................... .
Agency for International Development... ......................................... ..
Multilateral assistance .......................................................................

Change, 2004 Actual from:
Budget Mid-Session
180
180
-119
-119
-415
-415
-354
-354

Table 3.--2004 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

Military sales programs ......................................................................
International monetary programs ............................................ .
Other ..................................................................................................
Subtotal, International Assistance Programs ............................... .
National Aeronautics and Space Administration .................................. .
National Science Foundation .................................................................
Office of Personnel Management:
Civil Service Retirement and Disability Fund ............................. .
Employees and Retired Employees Health Benefits Funds .......... .
Other ................................................................................ .
Subtotal, Office of Personnel Management... ............................... .
Small Business Administration ............................................................. .
Social Security Administration:
Old age and survivors insurance (off-budget) .................................. .
Disability insurance (off-budget) ....................................................... .
Supplemental security income program ........................................... .
Other:
On-budget. .....................................................................................
Off-budget.. ... ' ...............................................................................
Subtotal, Social Security Administration ................................... .
Other independent agencies:
Corporation for National and Community Service ....................... .
District of Columbia ...........................................................................
Export-Import Bank ............................................................................
Federal Communications Commission:
Universal service fund (net) .......................................................... .
Spectrum auction subsidies ......................................................... .
Other ............................................................................................. .
Subtotal, Federal Communications Commission ..................... .
Federal Deposit Insurance Corporation:
Bank insurance fund ......................................................................
Savings association insurance fund ............................................. .
FSLlC resolution fund (including RTC) ......................................... .
Other FDiC ................................................................................... .
Subtotal, Federal Deposit Insurance Corporation ................... .
Federal drug control programs ............................................... .
National Credit Union Administration ............................................... .
Postal Service:
On-budget. .....................................................................................
Off-budget. .....................................................................................
Subtotal, Postal Service ........................................................... .
Railroad Retirement Board ......................................................... .

2003
Actual
150
-1,722
259
13,466

2004
Estimate
Budget Mid-Session
3
3
0
0
541
541
16,476
17,365

Actual
-1,239
-647
301
13,788

14,552
4,735

14,604
5,346

15,186
5,118

582
-228

50,368
-1,482
5,248
54,134
1,559

52,830
-1,035
5,773
57,568
3,978

52,830
-1,274
5,773
57,329
4,044

52,277
-1,721
5,979
56,535
4,077

-553
-686
206
-1,033
99

-553
-447
206
-794
33

402,776
71,982
35,146

417,293
78,973
37,431

417,939
77,480
37,275

417,078
78,550
36,411

-215
-423
-1,020

-861
1,070
-864

11,188
-13,358
507,734

11,189
-14,391
530,495

13,131
-14.438
531,387

12,595
-14.428
530,206

1,406
-37
-289

-536
10
-1,181

839
781
-3,248

609
802
-1,582

585
802
-1,582

765
805
-1,902

156
3
-320

180
3
-320

8,406
515
-121
8,799

6,587
624
-101
7,110

3,378
641
-125
3,894

-3,209
17
-24
-3,216

-571
-288
41
26
-793
620
-572

-427
-350
-31
30
-778
500
-613

-850
-569
-131
30
-1,520
500
-613

-1,006
-411
-163
26
-1,554
398
-351

-579
-61
-132

-156
158
-32

::1

-776
-102
262

-34
-102
262

76
-5,245
-5,169
3,056

60
-4,956
-4,896
3,781

60
-4,781
-4,721
2,851

60
-4,130
-4,070
2,792

0
826
826
-989

0
651
651
-59

Change, 2004 Actual from:
Budget Mid-Session
-1,242
-1,242
-647
-647
-240
-240
-3,577
-2,688

Table 3.--2004 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

2003
Actual
-532
267
4,902
8.949

2004
Estimate
Budget Mid-Session
-874
-874
-188
-188
7,524
7.524
11.395
9,874

Actual
-685
-413
6,168
5.847

Change. 2004 Actual from:
Budget Mid-Session
189
189
-225
-225
-1,356
-1,356
-5,548
-4,027

Securities and Exchange Commission ............................................. .
Tennessee Valley Authority ......................................................... .
Other (net) ........................................................................................ .
Subtotal. other independent agencies .......................................... .
Undistributed offsetting receipts:
Employer share. employee retirement (on-budget):
Military retirement and health .............................................. ,
Other .............................................................................
Employer share, employee retirement (off-budget) .......................... .
Interest received by on-budget trust funds ....................................... .
Interest received by off-budget trust funds ....................................... .
Rents and royalties on the Outer Continental Shelf lands ............... .
Spectrum auction receipts .................................................................
Outer Continental shelf receipts escrow interest and other............. .
Subtotal, undistributed offsetting receipts .................................... .

-210,446

-212,995

-214.235

-212,520

475

1.715

Total. Outlays ...................................................................................
On-budget. ...................................................................................
Off-budget. ......................................................................................... .

2.159.246
1,796,237
363.010

2.318,834
1.938,855
379.979

2,319.096
1.940.541
378.555

2.292.352
1.912,841
379.512

-26,482
-26.014
-467

-26,744
-27.700
957

DefiCit (-) I Surplus (+)
On-budget. .........................................................................................
Off-budget. ........................... ,............................................................ ..

-377,139
-537.972
160.833

-520.741
-674.766
154.025

-444,683
-599,642
154.959

-412,553
-567,786
155.233

108.188
106.980
1,208

32.130
31.856
274

NOTE: Detail may not add to totals or changes due to rounding.

-21.920
-17,829
-9.602
-72,522
-83,544
-5.029
0

-23.150
-20.930
-10.654
-67.388
-86,286
-4.587
0

-23.150
-19,509
-11.331
-68,153
-86,314
-5,778
0

-22.210
-19.889
-11.331
-67,757
-86.227
-5.105
0

940
1.041
-677
-369
59
-518
0

940
-380
0
396
87
673
0

JS-20jJ;

Statem~nt

from Tony Fratto regarding the Report to Congress on Internatio... Page 1 of 2

FROM THE OFFICE OF PUBLIC AFFAIRS
October 15, 2004
JS-2033

Statement from Tony Fratto regarding the Report to Congress on
International Economic and Exchange Rate Policies
"The foreign exchange report I)as not been transmitted to Congress today. Wrlen
the report IS complete and has received review and clearance from the Secretary of
the Treasury, It will be sent to Congress and made public.
Because of the scope and complexity of the foreign exchange report, It has often
reqUired more time to complete. in most occasions over the past 15 years of the
report's eXistence, addllional time needed for the pre para lion of the report has been
required, With it transmitted to Congress weeks, and on some occaSions, months
late. In fact, the Treasury Secretary failed to transmit any reports In either 1997 or
1998 (see attached table) Last year's report was transmitted two weeks late to
cOincide With a scheduled Senate hearing on the issue.
While we always strive to meet the legislation's deadlines, somelimes delays are
unaVOidable, given the compleXity of the issue and necessity of monitoring ongolflg
developments In the currency aclivity of our major trading partners."
-30Treasury's Report to Congress on international Economic and Exchange Rate
PoliCies
Dates of submisSion -- October 1988-April ?004. (Source US. Treasury
Department)

Report Due Submilted

15-0cl-88 24-0cl-88
15-Apr-89
15-0c/-89
15-Apr-90
15-0cl-90
15-Apr-91
15-0cl-91
15-Apr-92

Apr-89
Oct-89
18-Apr-90
3-oec-90
May-91
Nov-91
May-92
15-0cl-92 Oec-92

15-Apr-93
15-0c/-93
15-Apr-94
15-0cl-94
15-Apr-95
15-0cl-95
15-Apr-96
15-0cl-96
15-Apr-97
15-0c/-97
15-Apr-98
15-0cl-98
15-0cl-98
15-Apr-99
15-0c/-99
15-Apr-OO

May-93
Nov-93
JUI-94
3-Jan-95
25-Aug-95
15-oec-95
9-Aug-9f:
21-Feb-97
No Report
No Report
No Report
22-Jan-99 'Combllles reports due 15-Apr-97. 15-0c/-97. 15 Apr-98 and
No Report
3-Sep-99 'Combmes reports due 15-Aprl-99 and 15-0cl 99
9-Mar-OO

http://www.treas.gov/press/releasc.)/js2033.htm

1/3/2005

JS-2033: Statement from Tony Fratto regarding the Report to Congress on Intematio...

Page 2 of 2

15-0ct-OO 18-Jan-01
15-Apr-0 1
15-0ct-01
15-Apr-02
15-0ct-02
15-Apr-03
15-0ct-03
15-Apr-04

22-Juo-01
24-0ct-01
24-Apr-02
12-Nov-02
2-MAy-03
30-0ct-03
15-Apr-04

http://www.treas.gov/press/releasesljs2033.htm

113/2005

JS-2034: Statement hy Treasury Secretary John W. Snow On Septcmber's Retail Salc... Page I of I

FROM THE OFFICE OF PUBLIC AFFAIRS
October 15, 2004

JS-2034
Statement by Treasury Secretary John W. Snow
On September's Retail Sales Data
October 15, 2004

We were pleased to learn, today, that retail sales made a 1.5 percent leap in
September - more than double the 0.7 percent increase anticipated by financial
markets. This indicator is one more sign that our economy is growing stronger and
IS on the right path for future growth and Job creation. The fiscal poliCies
Implemented by President Bush, coupled with the actions of the Federal Reserve,
have led our country out of difficult economic times into recovery, growth and job
creation. I am optimistiC that our best economic days are ahead of us.

http://wv..W.treas.gov/press/reiea~es/js2034.htm

1/3/2005

JS-2035: The Latin Americ~m Economic Recovery John B. Taylor Undcr Secreta...

Page 1 of 5

FROM THE OFFICE OF PUBLIC AFFAIRS
To view 01 IJlIIltthc PDF colltellt Gil this fldOf' Linwil/Odi/ /lIU fruf! Adobe® Acrobat® Reader®.

October 15. 2004
JS-2035
The Latin American Economic Recovery
John B. Taylor
Under Secretary of Treasury for International Affairs
Remarks at the Group of 50
Washington, DC
October 15, 2004
Thank you very much for inviting me to be here today I look forward to a good
discussion. I always enJoy the opportunity to discuss Latin American economic
issues with financial experts and business people from the region I particularly
enjoy It when the economic news is good. as it IS in so much of the region today.
The Bleak Situation Several Years Ago
To put this good news In perspective, I would like to begin by noting how different
the current economic situation is from the bleak situation Just a few years ago. I
vividly remember my very first days on the Job in early 2001 at the start of the Bush
Administration. I remember being briefed about the crisIs in Argentina and the latest
IMF $14 billion rescue package approved on January 12, 2001 I remember being
visited by MexIco's economic team to get the bad news about the sinking Mexican
economy. I remember getting many calls from my fflends In Brazil about the knifeedge situation there. And I will never forget the fears of contagion expressed by
nearly everyone.
The Remarkable Improvement
Consider how different things i. -e now. Economic growth thiS year In Latlll America
IS estimated to be about 4-1/2 percent--much higher than the measly 1/2 percent
growth in 2001 and a big improvement over the 2-3/4 percent average of the past
two decades. Growth rates in Brazil and Mexico are expected to come In at 4
percent and Argentina at 7 percent
And there are now no countries in the region in a recession or a financial criSIS,
except for our unfortunate friends on tile Island of Hispaniola They have been hit
by severe shocks ranging from hUrricanes to bank fraud to armed conflict. I Visited
the Dominican Republic and Haiti over the summer. I am pleased to see how the
Fernandez government IS working to formulate an economic strategy. The situation
in Haiti IS clearly a difficult one. We are working closely with the LaTortue
government to effectively coordinate donor assistance.
And I am happy to say that there is little talk of contagion. Many have noticed how
little contagion there was following the Argentina default in 2001 compared With the
Asian and RUSSian defaults In 1997-98.
Another improvement observed across the region IS the low interest rate spread
Investors and credit rating agencies have taken note of poliCY Improvements. BraZil.
Chile, Ecuador, Paraguay and Uruguay--among others--recelved ratings upgrades
dUring 2003 and 2004. Despite the increase In the federal funds rate In the United
States, the Latin America average spread is now only about 415 baSIS POllltS over
U.S. Treasuries.
Latin American countries are tapping capital markets With notable success. MeXICO
recently obtained ItS lowest-ever Yield and spread on a 30-year global bond and

http://wv:w.treas.gov/preSS/reieasc.)/js2035.htm

1/3/2005

JS-203~:

The Latin American

~konomic Recovery John

B. Taylor Under Secreta... Page 2 of 5

Guatemala issued a 30-year bond at 400 bps over Treasuries. Several large
countries, sLlcil as MexIco, Brazil, and Peru, have already met their financing needs
for the entire year. Some have begun pre-financing obligations (or next year
Another Improvement, which IS the culmination of contlllulllg progress (or many
years, is the declille III inflation. Inflation In the region In 2004 IS now estimated to
be about 6.5 percent. That compares with average annual inflation of 196 percent
III the ten years from 1986 to 1995. That low inflation bodes well for continued
expansion with fewer recessions and crises in the region In the future.
The highlights of thiS recovery al'e the rapid growth of exports and strengthened
external balances. Export growth is up across the board in the region, and IS
projected to be 21 percent for the region as a whole thiS year after 10 percent
growth in 2003. TillS not Just a commodity price phenomenon export volume
growth is up and IS actually acceleratlllg. The strong performance of exports Ilas
Ilelped reverse CUITent account deficits, whicll have historically been a source of
vulnerability for Latin American economies. In 2003, for the first time In 35 years,
the current account as a share of GOP for the region swung into surplus.
The Improved economiC situation in Latin America is important not only for the
people of Latin America but also for the whole hemisphere, including ~eople of the
United States. Stronger economies III Latlll America create Jobs In the United
States by Increasing demand for US exports, With exports to Latin Amerrca
representing about one-seventh of total U.S exports. Stronger economies in Latin
Amenca reduce the Incentives for Illegal migration and reinforce popular support for
market-oriented poliCies that create opportunity and enhance economic freedom.
Stronger economies in Latin America also help strengthen democracies, which
become better allies in the war on terror, the fight against international narcotics
trafficking, and initiatives to combat money laundering and terrorist financlllg.
Of course, thiS greatly improved economic situation should not be a time for
complacency. Oil prices are high and are a drag on economic growth in many
countries. And there is stili a need for structural reform to strengthen and lengthen
the economic expansion In the region as a whole and thereby take a bigger bite out
of poverty. Nevertheless, we should note the Improvements and consider the
factors that led to those improvements.
Better Economic Policies throughout the Hemisphere
In my View, better economic policies explain much of the Improvements that we
have seen in the region. First, the economic recovery in the United States is a
huge factor In the Latin Amencan recovery. Every finance minister and central
bank governor from the region we meet tells us that. And the U.S. economic
recovery was based on timely Changes in monetary and fiscal policy including
PreSident Bush's tax cuts In 2001, which resulted in one of the shortest recessions
III US. history, and his tax cuts of 2003, which solidified the recovery
There are also better economic policies pursued by Latin American governments.
Last year, SIX of Latin Amenca's seven largest economies Improved their fiscal
poliCies by IIlcreasing their pnmary surpluses to bring down debt levels. Pnmary
fiscal balances have continued to strengthen thiS year, helping to further reduce
debt levels.
We have also seen a movement toward better monetary policies based on price
stability goals and clear systematic procedures for adjusting the instruments of
monetary policy to achieve these goals, frequently helped by fleXible exchange
rates. BraZil, Chile, Colombia and Peru all have well-established monetary poliCies
based on inflation-targeting frameworks. Mexico, Chile, Peru and Colombia have
mdependent central banks. Finance Minister Palocci of Brazil has declared hiS
Intention of taking up the issue of central bank independence in 2005.
The results of more effective monetary policies were clearly displayed In the wake
of financial cnses in BraZil and Argentllla. Both countnes experienced large
currency depreciations in 2002 All too often in the past, such depreciations
produced out-of-control inflation. However, prudent monetary management
prevented these depreciations from turning into inflationary spirals. The pattern that
we saw in both countries is strikingly similar a bulge in inflation as the effects of

http://wW".\V.treas.gov/press/reJeases/js2035.htm

113/2005

JS-203S; The

Latin American Economic Recovery John B. Taylor Under Secreta... Page 3 of 5
the depreciation worked their way into consumer prices, followed by a sharp and
sustained reduction rn inflation resulting from prudent and effective monetary
restraint
Perhaps the clearest single example of how sOllnd econOllllC policies and
management have paid dividends In the form of robust economic growth IS Brazil
under the Lula administration. When President Lula took office, he reiterated hiS
commitment to sound fiscal and monetary policies. Given Brazil's high debt levels,
the Lula administration established an ambitious fiscal surplus target for 2003 With
the objective of lowering the debt over time--then went on to beat the target. In light
of the strong fiscal performance, the Lula administration recently announced that It
will build on thiS progress by Increasrng the target for 2004
These fiscal and monetary policies have helped underpin an rncrease rn economic
growth In Brazil Real GOP has grown at rates of more than 6 percent for the last
three consecutive quarters Real Interest rates have fallen to roughly 10 percent
today, after being as high as 19 percent In the summer of 2003. The real and
Inflation are relatively stable and external borrowrng spreads are below 500 baSIS
points Brazilian authOrities are focused on consolidating these gains by locking-in
improvements in fiscal policy through steps like pension reform They are also
focused on advancing mlcroeconomlC reforms crrtical for sustaining growth such as
streamlining the process of startlf)g a business and worklf)g to expand credit to
small bUSinesses. And they are working to find ways to Invest in high-return
If)frastructure projects Within responsible fiscal constraints
There are many examples of improved poliCies in the region. In Mexico, the
government has been successful at achieving fiscal deficit targets. In Colombia,
President Uribe IS pursuing policies to reduce rnflexlble government spending and
streamline the penSion system. In Peru, the government has increased its efforts to
improve ItS tax administration and fight tax evasion. In Uruguay, the primary
surplus has nearly trrpled in the first half of this year compared to last year.
Support from the United States
The Bush Administration's basic economic strategy for the region is to provide
strong support to countrres that are pursuing sound economic policies. From my
own perspective and that of the US Treasury, I can say that under PreSident
Bush's leadership we have maintained a sustained and If)tense focus on the region,
even if that does not always get newspaper headlines. Our strategy is based on
our firm belief that without sound policies on the part of the country itself,
If)ternational assistance cannot yield successful results. With this philosophy In
mind, we have worked aggressively along multiple fronts to prevent and contain
financial crises and to bolster economic growth in the region.
An early focus of the Bush Administration was to deal with financial contaglon--the
spread of crises from one country to another--and define clearly when a response
from the international poliCY community IS appropriate and desirable. We
emphasized early on that contagion was not automatic, and that policy responses
had to take this Into account. ThiS is important because reacting to false alarms
about contagion can lead to support of countries that are not follOWing strong and
sustainable poliCies.
At the same time, it IS important to recognize instances where countries are
pursuing strong policies but are hit by external shocks beyond their control that
damage their economies. ThiS was the case In Uruguay In the aftermath of the
Argentine crrsis. The Uruguayan government had a record of market-Oriented
economic policies when the crisis in Argentina caused a bank run in the Uruguayan
banking system. The Uruguayan authorities launched strong policy steps, Including
floating the currency and a complete restructuring of the banking system. The
United States responded sWiftly, providing a short-term $1.5 billion loan to bolster
Uruguay's reserves until further support from the IMF, World Bank, and InterAmerican Development Bank could be mobilized to assIst. This timely financial
support ended tile bank run, and allowed the Uruguayan government to keep ItS
economic poliCies on track. The result has been a period of strong economic
growth in Uruguay.
Another example was the IMF program for Brazil durrng the election In 2002, based
on the strong commitment of the Brazilian government to economic policies aimed
at strengthening Brazil's public finances and restoring economic stability. Thanks to

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JS-20j-5: The Latin American Economic Recovery John B. Taylor Under Secreta ... Page 4 of5
these policies. Brazil was able to overcome pre·electlon finanCial market uncertainty
that had caused the Brazilian real to drop precIpitously and pushed risk spreads on
Brazilian bonds to almost 2,400 basIs pOints over US Treasuries. It allowed
incoming President Lula to take office and have the space to implement a
disciplined economic policy program ttlat Ilas restored market confidence and
boosted economic growth
Helping to prevent and contam financial crises IS not the only way the United States
has supported economic growth III Latin America It IS equally important to pursue
deep economic reforms that are aimed at addressing the Impediments to the
development of a Vibrant pnvate sector. Bilateral policy dialogues focused on these
very Issues are a Vital component of our engagement In the region
One example IS the U.S.-Brazil Group for Grow\ll, established at the first sumrnlt
meeting between PreSidents Bush and Lula In June 2003. The Group's main
purpose IS to advance poliCies that raise economic groWtll and create Jobs In both
coulltnes by fOCUSing on areas such as increasing credit to small bUSinesses.
streamlining business registration to encourage entrepreneurs. and Improving
public Investment. The Group for Growth Ilas already yielded concrete results our
Brazilian counterparts tell us that the Group's diSCUSSion of small businesses
helped shape recellt legislation submitted to the BraZilian Congress that reduces
taxation and streamlines labor and pension regulations for Brazilian small
businesses.
The U.S.-Mexico Partnership for Prospenty IS another important bilateral forum. the
goal of which IS to promote economic development on both sides of the border With
a particular focus on the most Impoverished parts of Mexico. Launched In 2001,
the Partnership actiVIties encompass several agencies of both governments.
At Treasury. our major area of focus in the Partnership has been on lowering the
costs of remittances from workers in the United States to their families In MeXICO.
Our hard work to foster competition in the remittances industry and increase access
to the formal finanCial system under the Partnership has borne frUit the cost of
remittance transfers from the United States to Mexico has been halved Since 1999,
and a range of new finanCial products have been introduced ThiS means more
options and more money in the pockets of families
The Bush Admlnlstrallon's development assistance poliCy also emphaSizes support
for countnes that pursue responsible poliCies. This admlfllstratlon has sought to
reorient US development assistance by creating the Millennium Chailenge
Corporation (MCC) and ItS Millennium Challenge Account (MCA). The MCC
channels aid funds to countries that Invest In people, pursue good governance and
the rule of law. and promote economic freedom. The U.S. Congress has
appropriated $1 billion to the MCA in fiscal year 2004 and the Bush Administration
is requesting $2.5 billion III 2005, ramplllg up to $5 billion by 2006. Three countries
from Latin Amerlca--Bolivla. Nicaragua and Honduras--have been selected by the
MCC Board of Directors to submit proposals. After the countnes have developed
their own proposals. the MCC will evaluate and select the highest quality proposals
that also have a strong likelihood of success and measurable results.
We have also used multilateral fora to promote sound economic poliCies that
encourage growth. At the SpeCial Summit of the Amencas meetlllg held In
Monterrey thiS January. President Bush secured agreement among the
Hemisphere's leaders to take steps necessary to cut the tlTne needed to start a
business and to triple bank credit to small business by 2007 With the help of the
Inter-Amencan Development Bank.
At the Summit. we also sOLight to expand to the rest of the region tile success that
has been achieved With MeXICO in redUCing the cost of remittance transfers
Leaders agreed to work together to halve the average cost of remittance transfers
In the region by 2008. I cannot emphaSize enough how Significant thiS commitment
is. Annual remittance flows are roughly five limes annLlal offiCial development
assistance and are a conSiderable share of the economy for many countries.
Remittance flows are becoming IIlcreasingly important as a source of funds tilat
support economic development, flew bUSlllesses, alleViate poverty and prOVide
opportunities for children to stay in school and thus build human capital In the
region
Under PreSident Bush's leadership the United States has also been committed to

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JS-2035; The Latin American Economic Recovery John B. Taylor Under Secreta...

Page 5 of 5

expanding free trade In Latin America Tliis entails, first of all, strengthening the
global tradlllg system and a successful outcome to the WTO Doha negotiations
We are very pleClsed with the progress at the Geneva meetings thiS summer and
optimistic that we are again on the rigllt track III these negotiations At the same
time, the Bush Administration has pursued an aggressive trade agenda through
bilateral and regional free trade agreements withlll Latin America In addition to
pursulllg the 34-country FT AA. we have concluded FT As With Chile and With five
Central AmericCln countnes and the Dominican Republic. Panama talks are
progressing nicely, and we anticipate that ollr dialogue With Andean countries will
deepen and accelerate now that both Sides have tabled proposals In most areas.

Conclusion
As we take stock of the amazing progress to date, we should emphaSize the work
that remains Pnor-Itles are to (1) continue sound macroeconomic poliCies to keep
Inflation and debt levels down and keep tile expansion gOing. and (2) focus more on
illicroeconoillic reforms to raise growth performance and poverty reduction over the
long run Governments need to strengthen the rule of law, streamline regulation.
combat corruption. and develop Infrastructure.
PreSident Bush has demonstrated hiS commitment to the region over the past four
years by supporting countnes that follow sound economic poliCies and open their
economies to the world. I am confident that the United States will continue to playa
constructive role In helping the region to sustain growth and raise livlIlg standards III
the years ahead.

REPORTS

•
•

GSO graphs
Contagion Slides

http://w\Vw.treas.gov/press/re1eas~/js2035.htm

1/3/2005

Brazil: Consumer Price Inflation
_

Monthly Rate (LHS) - - Annual Rate (RHS)

percell!

{}ereen!

3.5

3.0

2.5

2.0
1.5

12
10

1.0

0.5
0.0

·11 I III II 1 IIriII'

, .111 ., .• 1III 11.1

-0.5
~,

,,\::S

\~.::;~

4
2

~\::S

~'\;

~\::S

~'\;

,,\::S

I(--~<:~

Arge ntina: Cons "me r Price Inflation
percent

percent

Monthly Rate (LHS)

Annual Rate (RHS)

: I .• •
-2

III! 11111111111_ . III _.II ;;.I .' ~o
-10

Sovereign Risk Spreads After the Russian and Argentine Defaults

Asia EMBI+ (1998-1999)

IR~ian D~~faQUIt
~gust 1998)

Asia EMBI+ (2001-2002)

11\

-----------

600

1~ ~v,",f'A')

\\~"'"~
O~

Ap'-98

Ja>.98

Jue98

Oct-98

Apr-99

Jan-99

Africa EMBI+ (1998-1999)
1800

Aug-01

___

Nov-01

____

Feb-02

May-02

Aug-02

Africa EMBI+ (2001-2002)
1800

Russian Default

~gust1998)

1500

May-01

[ Argentine Default
(December 2001)

1500

'--

1200

"li
~

1200

"li

900
600

900

300

Jan-98

600

Apr-98

Jul-ge

Oct-98

Jan-99

Apr-99

May-01

Latin America EMBI+ (1998-1999)
1500

Nov-01

Feb·02

May-02

Aug-02

Europe EMBI+ (2001-2002)
1500

Russian Default
(August 1998)

Argentine Default
(December 2001)

1200

Aug-01

900

600

300

Jan-98

Apr-98

Jul-98

Oct-98

Jan-99

Apr-99

May-01

Aug-01

_-01

Feb-02

May-02

Aug-02

JS-2036; Secretary Snow to Vu;lt Lancaster, Pennsylvania on Tuesday to Discuss U ....

Page 1 of 1

FROM THE OFFICE OF PUBLIC AFFAIRS
October 15, 2004
JS-2036
Secretary Snow to Visit Lancaster, Pennsylvania
on Tuesday to Discuss U.S. Economy
Treasury Secretary John W Snow will VISit the Lancaster, Pennsylvania area on
Tuesday, October 19 to meet With local business leaders and students to diSCUSS
the President's efforts to strengthen the economy and create jobs
"As a result of the President's economiC leadership, we have overcome a recession
and seen 13 straight Illonths of job creation, totaling more than 1.9 million new U S
lobs since August 2003," said Secretary Snow. "Pennsylvania has gained new
jobs this year, and the President's tax reform policies have ensured that more than
4.6 million Pennsylvania taxpayers will have lower Irlcome tax bills in 2004."
During this trip to Pennsylvania, Secretary Snow also will discuss the
Administration's efforts to control health care costs, reduce frivolous laWSUits and
ensure that America has reliable and affordable sources of energy. "While the
economy IS on solid footing, we are not satisfied and there IS stili more work to be
done. We need to continue to push for pro-growth policies that Will create jobs and
raise standards of liVing," Secretary Snow said.
Recent indicators show that President Bush's economic policies continue to move
the economy forward. According to the Labor Department, the national
unemployment rate was 5.4% in September - down 0.9 percentage pOint from a
peak of 6.3% in June 2003 and the lowest rate since October 2001. At 5.4%, the
unemployment rate is below the average of the 1970s, 1980s, and 1990s
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down In all regions and in 45 of the 50 states.
The follOWing events are open to the media, which must present media credentials
or photo 10.
Tuesday, October 19
Roundtable with Local Business Leaders, with U.S. Congressman Joe Pitts
1000 a.m. EDT
Lancaster General Health Campus
2100 Harrisburg Pike
Lancaster, PA
** Media should arrive by 930 a.m
Tour of Sechan Electronics, Inc. and Roundtable Discussion
2:00 p.m. EDT
Sechan Electronics, Inc.
525 Furnace Hills Pike
lititz, PA
'* Media should arrive by 130 pm
** There will be a brief media availability Immediately following the event

http://www.treas.gov/preSS/relem>O.l/js2036.htm

1/3/2005

js-2037: Treasury International Capital (TIC) Data For August

Page I of2

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

October 18. 2004
IS-2037
Treasury International Capital (TIC) Data For August
We recommend prillt1lJg this release uSlIlg the PDF file below.

Treasury Internatlollal Capital (TIC) data for August are released today and posted
on the US Treasury web site (: \ "" ,; ':''. II'). The next release date, which will
report on data for September, IS scheduled for November 16, 2004
Long-Term Domestic Securities
Gross purchases of domestic seCUrities by foreigners were $1,3594 billion In
August, exceeding gross sales of dornestlc securities by foreigners of $1,299.1
billion dUring the same month.
Foreign purchases of domestic seCUrities reached $602 billion on a net baSIS In
August. relative to $792 billion during the previous month. Private net flows
reached $374 billion In August. Net private purchases of Treasury Bonds and
Notes fell to millus $44 billion from $18.3 billion the preceding month Net private
purchases of Government Agency Bonds were $186 billion, up frolll $17.7 billion
the prevIous month. Net private purchases of Corporate Bonds were $254 billion,
slightly lower than $271 billion the previous month. Net pnvate purchases of
Equities dec\Jned to Illinus $2.1 billion frolll $97 billion
Official net purchases of US secuflties were $22.8 billion in August, relative to $64
billion in July. Official net purchases of Treasury Bonds and Notes of $19.1 billion
accounted for the bulk of offiCial Inflows In August, up from $4.1 billion the prevIous
month.
Long-Term Foreign Securities
Gross purchases of foreign secufltles owned by US reSidents were $2557 billion
in August. relative to gross sales of foreign securities to US residents of $2569
billion dUring the same month.
Gross sales of foreign securities to US residents exceeded purchases by $1.3
billion, highlighting net U S. sales of $1.3 billion In Foreign EqUities and net
acquiSitions of $2.6 billion In Foreign Bonds.
Net Long-Term Securities Flows
Net foreign purchases of both domestic and foreign long-term secuntles fro III U S
reSidents were $590 billion III August compared With $63.1 billion In July. Net
foreign purchases of long-term securities were $775.5 billion in the 12-months
through August 2004 as compared to $700.0 billion dunng the twelve months
through August 2003
The full August data set, Including adjustments for repayments of prlllcipal on
asset-backed securilies, as well as histoncal series, call be found on the TIC web
site www.treas.gov/financialeducation.
REPORTS

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113/2005

js-20Ti: Treasury International ~--'apital (TIC) Data For August
•

Page 2 of2

Treasury International Capital Data For August

http://www.treas.gov/press/release:>/js2037.htm

1/3/2005

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
October 18,2004
EMBARGOED UNTIL 9:00 AM
Contact Tony Fratto at 202-622-2910.
TREASURY INTERNATIONAL CAPITAL DATA FOR AUGUST
Treasury International Capital (TIC) data for August are released today and posted on the U.S.
Treasury web site (www.treas.gov/tic). The next release date, which will report on data for
September, is scheduled for November 16, 2004.
Long-Term Domestic Securities
Gross purchases of domestic securities by foreigners were $1,359.4 billion in August, exceeding
gross sales of domestic securities by foreigners of $1,299.1 billion during the same month.
Foreign purchases of domestic securities reached $60.2 billion on a net basis in August, relative
to $79.2 billion during the previous month. Private net flows reached $37.4 billion in August.
Net private purchases of Treasury Bonds and Notes fell to minus $4.4 billion from $18.3 billion
the preceding month. Net private purchases of Government Agency Bonds were $18.6 billion,
up from $17.7 billion the previous month. Net private purchases of Corporate Bonds were $25.4
billion, slightly lower than $27.1 billion the previous month. Net private purchases of Equities
declined to minus $2.1 billion from $9.7 billion.
Official net purchases of U.S. securities were $22.8 billion in August, relative to $6.4 billion in
JUly. Official net purchases of Treasury Bonds and Notes of $19.1 billion accounted for the bulk
of official inflows in August, up from $4.1 billion the previous month.
Long-Term Foreign Securities
Gross purchases of foreign securities owned by U.S. residents were $255.7 billion in August,
relative to gross sales of foreign securities to U.S. residents of $256.9 billion during the same
month.

Gross sales of foreign securities to U.S. residents exceeded purchases by $1.3 billion,
highlighting net U.S. sales of$1.3 billion in Foreign Equities and net acquisitions of$2.6 billion
in Foreign Bonds.
Net Long-Term Securities Flows
Net foreign purchases of both domestic and foreign long-term securities from U.S. residents
were $59.0 billion in August compared with $63.1 billion in July. Net foreign purchases of longterm securities were $775.5 billion in the 12-months through August 2004 as compared to $700.0
billion during the twelve months through August 2003.
The full August data set, including adjustments for repayments of principal on asset-backed
securities, as well as historical series, can be found on the TIC web site,
http://www .treas. gov Itie/.

Foreigners' Transactions in Long-Term Securities with U.S. Residents
(Billions of dollars, not seasonally adjusted)
2003

12 Months Through
Aug·04
AtJg·03

May-04

Jun-04

Jul-04

Aug-04

13.022.9 14.922.1
12.4754 14.175.0
747.1
547.6

14,361.4 16.223.7
13.641.9 15,368.8
719.5
854.9

1.436.9
1,380.4
56.5

1,338.7
1,253.5
85.2

1,309.2
1,230.0
79.2

1,3594
1.299.1
60.2

2002
I

1
3

Gross Purchases of Domestic Securities
Gross Sales of Domestic Securities
Domestic Securities Purchased, net (line I less line 2) /1

4
5
6
7
8

Private, net /2
Treasury Bonds & Notes, net
Gov't Agency Bonds. net
Corporate Bonds. net
Equities, net

50S.3
112.8
166.6
176.7
52.2

607.7
168.8
1361
264.7
38.1

627.0
188.6
183.4
225.1
300

604.5
156.6
166.8
264.1
17.0

42.6
9.0
22.1
19.3
-7.8

66.9
23.0
15.2
26.5
2.2

72.9
18.3
17.7
27.1
9.7

37.4
-44
18.6
254
-2.1

9
10
II
12
13

Onicial, net
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net

39.3
7.1
28.6
5.6
-2.0

139.4
109.3
24.9
5.5
-0.4

92.5
66.5
21.7
4.2
0.0

250.4
211.9
31.0
8.3
-0.7

13.9
14.4
-1.2
0.5
0.2

18.3
17.5
0.6
0.7
-0.5

6.4
4.1
1.4
0.8
0.1

22.8
19.1
2.6
1.1
0.1

2,640.0
2,613.0
27.0

3,037.8
3,086.4
-48.7

2,799.1
2,818.6
-19.4

3,564.5
3,643.9
-79.5

294.4
285.9
S.5

291.7
303.9
·12.2

287.0
303.1
-16.2

255.7
256.9

28.5
-1.5

22.3
-71.0

37.9
-57.3

-6.2
-73.3

15.3
-6.8

-7.0
-5.2

-7.3
-8.9

-2.6
1.3

574.6

698.4

700.0

775.5

65,0

73.0

63.1

59.0

14
15
16
17
18

Gross Purchases of Foreign Securities
Gross Sales of Foreign Securities
Foreign Securities Purchased, net (line 14 less line 15) /3
Foreign Bonds Purchased, net
Foreign Equities Purchased, net

Net Long-Term Flows (line 3 JlIus line 16)

/1
/2
/3

Net foreign purchases of U.S. securities (+)
Includes International and Regional Organizations
Net U.S. acquisitions of foreign securities (-)

Source: U.S. Department of the Treasury

-1.3

js-2038: U.S. TreaslJry Department General Counsel Arnold I. Havens Remarks to th...

Page 1 of 3

FROM THE OFFICE OF PUBLIC AFFAIRS

October 18. 2004
IS-2038
U.S. Treasury Department General Counsel Arnold I. Havens
Remarks to the Nevada Development Authority President's Council Luncheon
Las Vegas, Nevada
October 18, 2004

Thank you so much for Inviting me: it's great to be here In Nevada
I appreciate the opportunity to talk with you today about the most profound threat to
our Nation's economy terror
We learned, painfully, of the financial Impact of a major terrorist attack three years
ago this fall In addition to the hOrrific loss of life In New York and Pennsylvania and
at the Pentagon that day, our economy suffered a loss of about a million jobs In its
aftermath.
As you well know, 9/11 hit Nevada particularly hard due to he;wy reliance on
tourism and travel. However, thanks to the resiliency and entrepreneurial SPirit of
the people III thiS room and your fellow Nevadans, you rebounded quickly and your
economy is dOlllg very well today.
Employment III the leisure and hospitality sector has recently returned to lis preattack level and gaming revenues. Visitor volume and hotel occupancy rates began
to strengthen notably in mid 2003 and were quite strong through thiS spring
And I'm pleased to see that, today, Nevada's unemployment rate IS below the
national average and failing. You added 2,800 new jobs to your state economy in
August and have added 31,100 new jobs so far th is year
I want to congratUlate you on thiS Impressive recovery. I hope you found the
PreSident's tax cuts provided you With the stimulus you needed at that Critical time
We also worked hard, In those days and months following 9/11, to stabilize
Insurance markets With the Terrorism Risk Insurance Act--you know It as TRIA. Its
purpose was to bring stability to Insurance markets and the broader economy so
that terrorism risk Insurance could be offered after the shock of 9/11
The President's economic policies, combined With the resiliency and perseverance
of American employers and workers, brought us out of those difficult days follOWing
the ~errorrst attacks. Since then we have also been committed to using every
available tool In waging a comprehenSive campaign against terrorism, and
preventing further attacks
At the Treasury Department we, along with those of you in the financial community,
are fighting on a critical front of the war on terror, and that IS the finanCial war We
have accomplished a lot In the last three years In close coordination with the
finanCial community, we are tracking and freezing the assets of terrorists and their
supporters. ThiS IS a fundamentally important front In the war because a terrorist
act, no matter how Simple, IS usuallv supported by a sophisticated finanCial and
operational network. Terrorist orga, .. lations need to pay for recruitment,
II1doctrination, training, matenals, housing, transportation . the list IS long, and it
requires quite a bit of money. Cutting off their money is therefore essential
As Secretary Snow often says "hatred fuels the terrorist agenda, but money makes
It possible."

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js-2038.

U.S. Treasury Department General Counsel Arnold I. Havens Remarks to th... Page 2 of 3
SlIlce September 11, 2001, tile United States 11as designated close to 400
individuals or enllties as terrorists or supporters of terrorists Worldwide, we and our
allies ilave frozen over $142 million In terrorist-related assets. TillS has made It
ilal'der, costilel', al1d riskier for al Oaida cmd Ilke-mlllded terrorist groups to raise and
move money amund tile world.
Our efforts to stop money laundering also are critical, and tiley are making a
difference The USA PATRIOT Act, among otiler provIsions, expands tile anllmoney laundering system to make sure tilere are no gaps for terrOrists, or their
flllanciers, to explOit
Many businesses represented here today, Including caSinos, are required to
develop antl-money-Iaunderlng programs and to file Suspicious ActiVity Reports
with tile Treasury Department
All flllancial Institutions, Includlllg many of you in today's audience, ilave done
every tiling tilat tile Treasury Department ilas asked of you during tillS fight, and I
want to personally thank you for your efforts. Our country IS safer because of tile
illgh levels of cooperallon between the publiC and private fmancial sectors
In spite of our best efforts to stop tile terrorists before they can strike, we must also
be prepared for potential attacks. As part of a broader, Administration-wide effort to
pmtect our critical infrastructure, tile Treasury Department is the lead agency for
protectlllg the finanCial infrastructure and keeping finanCial institutions operational in
the face of any effort to disrupt them
The success of our protective efforts requires close cooperation between the
government and the private sector, We saw this cooperative effort put Into action
late summer, when we were made aware of a terrorist threat to certain buildings
that ilouse flllanCial Institutions in the New York metropolitan area and In
Washlllgton, some of the symbols of our nation's finanCial strength

III

The response of the financial community was inspiring More employees came to
work at the New York Stock Exchange that Monday in August than any other
Monday in August in the history of the Excilange.
Throughout the finanCial sector, customers were able to contlllue busllless as
usual. And while there was Justifiable concern, there was no criSIS.
Our progress In tile financial war on terror since 9/11 is in no small measure due to
the cooperative spirit and effort of the businesses large and small In Nevada and
across the country.
We are mindful of the added burden resulting from the additional regulations In thiS
area and we continue to want to work With you to make them as effective and
efficient as possible.
As I noted earlier, I believe that terrorism IS the most profound threat to our
economy But of course It is not the only Significant challenge our economy has
faced over the last few years.
The events of 9/11 were preceded by the bursting of the stock market bubble and
by a recession that began In 2000. Nine-eleven was followed by the corporate
scandals that understandably shook confidence in our market-based economy,
Because of the PreSident's pro-growth policies and strong economic leadership-and because of the resiliency and entrepreneUrial spirit of our fellow cltlzens--we
have not only made significant progress in the war on terror, but we've turned tile
corner on tile economy.
We've seen a steady increase In Jobs for thirteen consecullve months, tilrougil
September.
SlIlce August of last year, America has added more than 19 million workers to the
payroll, including 96,000 In September. The national unemployment rate IS 5.4
percent, lower than the average of each of the past three decades
But clearly there is more work to be done to make sure our economy remallls
strong.

http://www.treas.gov/press/release:::Jjs2038.htm

1/3/2005

js-2038~ U.S. Tre(lsury D()partMlent General Counsel Amold I. Havens Remarks to th...

Page 3 of 3

For example, the President believes that we need to reduce our dependence on
foreign energy sources The current price per barrel of oil simply underscores the
need to pass the President's comprehensive energy plan
The President also IS committed to ending the fnvolous lawsuits tllat threaten every
business, particularly small business Baseless SUitS Increase the cost of all goods
and serVices, and drive up tile costs of tlealth care
ThiS is why tile President continues to ul·ge Congress to pass several Important
liability proposals before tillS session adjourns
Victims should, of course, be compensated fairly when they al·e Injured due to the
fault of another person But important contributors to our economY--lncluding
hospitals and businesses, large and small--are put at risk by fnvolous SUitS.
The current tort system costs America well over $200 billion each year. That's a tort
tax - paid In the form of lower wages, higher product prices, and reduced
investments - of $809 for every individual and more than $3200 for a family of four.
Let me focus on healthcare for a moment, to underscore how disruptive and costly
frivolous lawsuits are.
As of 2002, 58 percent of physicians reported that they had been the target of a
lawsuit, and their malpractice insurance costs typically rose between 30 and 75
percent over three years, from 2000 to 2002. Many doctors are forced to retire early
or cut back their practices
You've seen the effects right here in Nevada. A major trauma center here

III

Las

Vegas was forced to close briefly In 2002 because it was not able to obtain
Insurance coverage.
Of course, medical liability reform is Critical to helping provide quality, reasonably
priced health care. But the Administration also has advanced two other important
inltlatlves--Assoclation Health Plans (AHPs) and Health Savings Accounts (HSAs)-to make health Insurance more affordable and give indiViduals more direct
Involvement In their health care decisions.
AHPs would allow small businesses to band together, across state lines, to form
health-lilsurance purchaslllg groups The Congressional Budget Office estimates
that small businesses could save 13-25 percent on premiums With AHPs. These
savings Will allow more people to be insured.
HSAs are already bnnging a revolutionary option to Americans when it comes to
purchaSing health coverage. They were created as part of the PreSident's Medicare
reform legislation An HSA is like an IRA you own it, you control It, and you can
leave It to your heirs.
Companies that offer HSAs are reporting to the Treasury Department that among
those who sign up for the program, 25-40% of the enrollees were previously
uninsured.
I'd like to close with the words of Secretary Snow, who recently remarked, "We
know from long experience that our economy responds best to the very thing that
created it: freedom. Freedom from excessive taxation. Freedom from abusive,
frivolous lawsuits. And of course freedom from terrorist assaults."
This Administration has worked hard to help expand those freedoms in America
today, and I feel privileged to be playing a role in those efforts through my position
at the Treasury Department.
Thank you so much for having me here today.

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\/3/2005

js-203tr. Secretary Snow'g Remarks to Lancaster, PA Health Alliance

Page I of 4

f-f-: L S S H l'l' ~.1

FROM THE OFFICE OF PUBLIC AFFAIRS
October 19. 2004
IS-2039
Secretary Snow's Remarks to Lancaster, PA Health Alliance
Thank you so much for having me here today: It'S great to be In Lancaster. I'm
dellgllted to be viSiting thiS outstanding medical facility. It is a reminder of the fact
that American health care, with ItS outstanding level of innovation and technology. IS
the envy of the world While we have a long way to go In terms of controlling costs
and Increasing access. we must not lose the things that are working so well. the
things that are saving and Improving lives
It's good to be here with Congressman Joe Pitts. who is doing a terrifiC Job
representing the people of this district in Congress He's been a partner in passing
tax relief and I appreciate his work and I know the President does too.
I'm looking forward to our discussion. It's Important to talk about health care - It'S
one of the most pressing issues our country faces today. It's a complex Issue. and
some of the best answers and Ideas come out of forums like thiS one.
Secretary Thompson and I recently hosted a diSCUSSion on healthcare issues at
another leadlllg medical center where we stressed the critical role that choice and
the underlYing doctor/patient relationship must play in our healthcare system.
We both learned a lot as well. For public officials like Secretary Thompson and
myself there IS no substitute for getting out of Washington and hearing directly from
healthcare providers and reCipients.
I'd like to set the stage for our discussion of healthcare. which has such significant
economic implications. with an overview of how our economy is dOlllg.
I'm pleased to report that we're dOing qUite well. Here are a few of the key signs:
GOP growth is the strongest in 20 years. 1.9 million new Jobs have been created
over the past 13 months. and homeownership IS at an ali-time high. Since August
2003. employment has increased In 47 states and unemployment rates have
decreased III 45 states. We're on the right path
Several of you here today are on the front lines of economic recovery and growth_
You are small-busilless owners. the backbone of our economy. And the President's
goal IS to make sure that the work you do. on the front-lines of Job creation and
economic growth. isn't over-burdened by unfair levels of taxation and regulation
We know that, as small-business owners and operators, you Simply ask for two
things from your government: fairness and freedom.
You seek the freedom to start up a new business venture. to run it and grow It. or to
close the door and go fishlllg if that's what you want to do. And you want to be
treated fairly and you deserve nothing less.
In exchange for fairness and freedom, your unspoken promise to your country and
our economy IS Jobs and the fuel our economic engine runs on ThiS is why we've
got to keep tax rates Iowan busilless owners like you, and on every American who
pays taxes.
Here If) Pennsylvania, you have gained 57.600 Jobs so far thiS year - 6.400 in
August alone - and that's great news for Pennsylvania families. I'm optimistic that
the economy III Pennsylvania will continue to Improve. espeCially If we make the
President's tax cuts permanent.

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js-203tr.. Secretary Snow'!; Rem-arks to Lancaster, PA Health Alliance

Page 2 of4

More than 4.6 million taxpayers in Pennsylvania will have lower IIKome tax bills In
2004 under the President's tax relief, and my hope is that Pennsylvanians will be
able to plan on lowel' taxes for years to come. More than 910,000 bUSiness
taxpayers in Pennsylvania will be able to use their 2004 tax savings to IIlvest In new
equipment, hire additional wOl'kers and increase pay My hope 's that those
bUSiness owners will be able to plan on low taxes for yeal's to corne as well
Our economy has corne a long way. When he took office, President Bush inherited
an economy In steep decline. The stock market bubble had been pierced We were
then shocked by terrorist attacks and wounded by reprehensible behavior by
corporate CEOs that hurt employees, Investors and Investor confidence. All of that
took a toll on jobs, but now we are coming back strong
We are fortunate that our economy IS the most open, flexible, adaptive and resilient
in the world Our powerful core elements - small-business owners and
entrepreneurs, an outstanding workforce, and the Simple fact that we operate as a
free market - have enabled us to recover from those very dlffrcult economiC limes.
Sound monetary poliCy from the Federal Reserve Board helped our recovery as
well. Lower Interest rates encouraged investment, which IS critical for economic
recovery and growth
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation The tax relief allowed
indiViduals and small bUSinesses to keep more of their own money and spend or
invest it how they saw fit. This method of economic stimulus is tried-and-true: It
worked thiS time and it worked extremely well. And thanks to the PreSident's
leadership the Amerrcan economy IS now on the right path
That said, we have many challenges ahead. We know we can do better and we Will
not rest while there are still Americans seeking work. Our economy IS so resilient,
yet we have to keep constant watch on what might be weighing It down
RISing health-care costs are acting as an economic head-Wind, and that's one of
the reasons I'm so glad we're talking about It here today.

When It comes to politics and government, people often refer to health care as a
"social Issue." And there is no doubt that few things mean more to a family, on a
very personal level. But it is also an economic Issue of staggering proportions. I'm
concerned With what the cost of health care means to a family's budget. and what
it means to the federal government's budget.
One thing is for sure both family budgets and government budgets are bending
under the weight of IIlcreasing costs for health care and health insurance.
The real issue here is how to slow the growth if health-care costs. A good place to
start is ending baseless. frivolous malpractice laWSUits that are driving doctors and
health-care providers out of the profession
As of 2002, 58 percent of physicians reported that they had been the target of a
laWSUit, and their malpractice Insurance typically rose between 30 and 75 percent
over three years, from 2000 to 2002.
Many doctors I know have thrown in the towel. Retired early. Taken their life-saVing
abilities out of the medical system, because the rrsks of staYing In are just too high,
and because they've had enough
Does anyone really believe that 58 percent of doctors are negligent? Of course not.
Some members of any profession are going to turn out to be bad apples
but
when 58 percent of them are being sued. well, that explains why the term
"ambulance chaser" is part of our national vocabulary.
For some families and indiViduals, the terrible result of high, rapidly increasing costs
has been: going without health insurance coverage. Forty-five million people are
uninsured, and that is of great concern to President Bush.

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js-203<l: Secretary Sno\V'~ Remarks to Lancaster, PA Health Alliance

Page 3 of 4

A closer look at that number reveals tilat more than half of those Wltilout coverage
are working for small businesses. I'm sure thiS comes as a surprise to no one In tillS
room today. And any public official who has ever talked to a small-business owner
has likely heard the same urgent plea "please do something about my health
Insurance." Tilis IS what I hear, time and time again, as I travel the country and
Illeet bUSiness ownel·s.
Small bUSiness is caught In a very, very tough spot when It comes to purchaSing
health care coverage I'm not sure any other Issue feels less fair to the operator of a
small firm than the Inability to pool pLnchaslllg power with other small bUSinesses to
get a better deal on healthcare purchases Just like Uilions and bigger bUSinesses
do.
In much the same way that It IS more affordable per Item to buy grocenes "In bulk,"
It IS more affordable, per employee, to purchase insurance for hundreds or
thousands of employees Purchasing it for four or five employees IS the economic
eqUivalent of bUYlllg water one bottie at a time instead of Installing a cooler holding
multiple gallons III your ilome or office.
Add to that the Insurance reality of "rtsk pools" The more people in the group, the
larger the risk pool
and the more affordable the Insurance IS. per person
The President appreciates how Important this issue is to those of you who own
small firms. He knows that employees of a small or medium-Sized bUSiness are like
extended family to you Many of them are actual family members. So when health
Insurance rates are nsing steeply and becoming harder and harder to afford. a good
bUSiness owner has many sleepless nights.
Small bUSiness needs help here .. and they have for some time. We hear you.
That's why the President has made the creation of a vanety of more affordable
insurance options a pnonty.
The creation of ASSOCiation Health Plans (AHPs) would go a long way In addreSSing
these cost Issues for small businesses and their employees. The PreSident has
fought for legislation that would allow for their creation since the day he took office.
Congress needs to pass this Important part of the PreSident's agenda. It has
passed the House tWice and now it IS time for the Senate to act.
AHPs would allow small firms like the ones represented In thiS room today to band
together. across state lines, to form health-Insurance purchasing groups. ThiS
would bring the benefit of economies of scale. dramatically broaden nsk pools, and
therefore lower the cost of health insurance for thiS group of people who struggle so
much with the ever-rising cost of premiums. The Congressional Budget Office
estimates that small businesses could save 13-25 percent on premiums with AHPs.
AHPs speak to that Issue of fairness .. it's only fair that the owners and employees
of small firms have the same purchasing power as larger companies and unions
ThiS Administration Will continue to fight for AHPs on Capitol HIli. In the mean time,
we have enacted another reform that IS helplllg small busillesses and indiViduals
today.
The creation of Health Savings Accounts (HSAs) IS bnnglng a revolutionary option
to Amencans when it comes to purchaSing health coverage. HSAs were created as
part of the PreSidents Medicare reform leglslatton They are like super-charged
IRAs that put patients back In charge of their health care You own It, you control it,
and you can leave It to your heirs.
One of the top benefits of HSAs is the fact that both employers and employees can
save money by uSing them. And that's good news for the future of health coverage
in this country. We need it to be more affordable so we can get more people
covered.
I was delighted to learn that companies who offer HSAs are reporting to the
Treasury Department that among those who sign up for the program. 25-40% of tile
enrollees were previously uninsured

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1/3/2005

js-2039' Secretary Snow'~ Remarks to Lancaster, PA Health Alliance

Page 4 of 4

HSAs are a great start, a terrific new option for the small business community" but
more must be done to address the rising cost of health care In this country Health
Insurance premiums are acting as a drag on the small employers that mean so
much to our economy,
Health care IS an economic Priority, and smelll bUSiness IS an economic prlol'lty, He
understands that creating an elWlronmellt III which America's rnnovators can
flourish is the essential ingredient III any recipe for economic growtll
We have plenty of work to do - III Pennsylvania and across America But If we
continue on the patll of freedom and making sure indiViduals and entrepreneurs
have an environment In which they can work and grow and afford health care for
themselves and their employees, our best economic days will remain ahead of us
and I am optimistiC about our future,
-30-

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1/3/2005

js-2040. MEDIA ADVISORY: Secretary Snow to Visit Florida This Week to Discuss U....

Page 1 of2

FROM THE OFFICE OF PUBLIC AFFAIRS
October 19. 2004
js-2040
MEDIA ADVISORY: Secretary Snow to Visit Florida This Week to Discuss U.S.
Economy
Treasury Secretary Jolm W Snow will visit Tampa. Florida on Wednesday. October
20 and Orlando. Florida on Thursday. October 21 to meet with local business
leaders to diSCUSS the President's efforts to strengthen the economy and create
jobs
"As a result of the President's economic leadership. we have overcome a recession
and seen 13 straight months of Job creation, totaling more than 1.9 million new US
jobs since August 2003," said Secretary Snow. "Florida has gained nearly 100,000
new Jobs this year, and the President's tax reform poliCies have ensured that more
than 6.1 million Florida taxpayers will have lower income tax bills m 2004 "
During this trip to Florida, Secretary Snow also will diSCUSS the Administration's
efforts to control health care costs, reduce frivolous lawsuits and ensure that
America has reliable and affordable sources of energy. "While the economy is on
solid footmg, we are not satisfied and there is still more work to be done. We need
to contmue to push for pro-growth policies that will create Jobs and raise standards
of livmg," Secretary Snow said
Recent indicators show that President Bush's economic poliCies continue to move
the economy forward. Accordmg to the Labor Department, the national
unemployment rate was 5,4% In September - down 0.9 percentage point from a
peak of 6.3% m June 2003 and the lowest rate Since October 2001. At 5,4%, the
unemployment rate is below the average of the 1970s, 1980s, and 1990s.
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down In all regions and In 45 of the 50 states.
The followmg events are open to the media, which must present media credelltlals
or photo 10
Wednesday, October 20
VISit to ProStart program classroom at Wharton High School
1130 a m. EDT
Wharton High School
12050 Bruce B. Downs Blvd.
Tampa, FL
** Media should arrive by 11 :00 a.m.
** The National Restaurant Association Educational Foundation's ProStart
program is designed to encourage high school students to consider careers
in the restaurant and foodservice industry.
** There will be a brief media availability immediately following the event
Thursday, October 21
FinanCial Forum With Local BUSiness Owners and
Representatives of Local Universities and FinanCial Illstitutions
130 pm. EDT
Banco Popular
8523 Commodity Circle, Suite 100
Orlando, FL
** Media should arrive by 1 :00 p.m.
** There will be a brief media availability immediately following the event

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1/3/2005

js-2040:

MEDIA ADVISORY: Secretary Snow to Visit Florida This Week to Discuss U....

Page 20f2

Speech to the Florida Bankers Association
630 p.m. EDT
JW Marriott Hotel Grand Lakes
Mediterranean Ballroom, Salon Room 4
4040 Central Florida Par-kway
Orlando, FL
.. Media should arrive by 6:00 p.m.
-30-

http://www.treas.gov/press/releast?);/js2040.htm

1/3/2005

js-204i-: Statement by Secretary Snow on Charitable Giving During Ramadan

Page 1 of2

I--'I-:LSS HL'OM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view

01 pI lilt

the PDF content on

tillS

page. downloael the free Adobe® Acrobat® Reader®.

October 19. 2004
Js-2041

Statement by Secretary Snow on Charitable Giving During Ramadan
Treasury Secretary John W Snow made the followlflg remarks regardlllg the
sanctl/y of charitable givtng during Ramadan.'
"Assalamualaikum and Ramadan greetings to our Muslim Amencan brethren in the
United States and Muslim friends around the world.
"Ramadan. a month of giving and benevolence. is a very special time for Muslims.
marked by worship. contemplation. prayers and fasting. Amencan Muslims
practicing the Five Pillars of the Islamic faith, Shahada (affirmation). Salat (prayer),
Zakat (almsgiving). Sawm (Fasting) and Hajj (pllgnmage), enrich our lives by
strengthenlllg the bonds of family, community and countlY
"Indeed. charity IS a fundamental element of American and Islamic culture.
Americans give billions of dollars each year to help their neighbors In the United
States and around the world. Ttlrougtl Zakat, Muslims have helped countless
people around the globe With their charity and kindness.
"Sadly, some have preyed on the charitable spirit of Americans and our friends
worldwide by USing charities as a condUit to finance terrorist activity. Those who
have corrupted the goodWill of donors do not represent the mainstream values of
people of good faith. Including Muslims. As President Bush has said, the face of
terror is not the true faith of Islam, which is a religion of peace.
"The Treasury Department is working to stop the flow of terrorist funds that Infiltrate
the charitable sector by identifying and designating charities that finance al Oaida.
Hamas and other terrorist organizations In addition. we contillue to work closely
with the Arab and Muslim cormnunltles, as well as the chantable sector at large. to
develop voluntary gUldelllles and practices to help protect the integrity of the
chantable sector and ensure confidence In the donor community.
"When you open your hearts to chanty dunng Ramadan. we encourage you to
educate yourself on the activities of the chanties to which you donate. to help
ensure that your generosity is not exploited for nefarious purposes
"The kindness of Muslim Amerrcans, and tile generosity of people of all faiths, truly
makes our world a better place. Happy Ramadan, Ramadan Mubarak," said Snow.
US Department of the Treasury Anlt- Terrorist Fmancmg GUidelmes. Voluntary
Best Practrces for US-Based Chanties

http://www.treas.gov/press/releases/docs/tocc.pdf
The followmg charitable orgallizatrons have been designated by the United States
Government for supporting terrorism
•
•
•
•
•

Makhtab al-KhldamatlAI Kifah (formerly US-based)
AI Rashid Trust (Pakistan)
WAFA Humanitarian Organization (Pakistan, Saudi Arabia, Kuwait and
UAE)
Rabita Trust (Pakistan)
The Holy land Foundation for Relief and Development (US)

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1/3/2005

js-2041-: Statement hy SecretaI)' Snow on Charitable Giving During Ramadan
•
•
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•
•
•
•
•
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Page 2 of2

Ummah Tamer E-Nau (Pakistan)
Revival of Islamic Heritage Society (Kuwait. Afghanistan and Pakistan)
Afghan Support Committee (Pakistan)
Aid Organization of the Ulema (Pakistan)
Global Relief Foundation (U.S.)
Benevolence International Foundation (U.S.)
enevolence International Fund (Canada)
Bosanska Idea Ina Futura (Bosnia)
LaJnat al Daawa al Islamiyya (Kuwait)
Stichting Benevolence International Nederland (Netherlands)
AI Aqsa Foundation (U.S .. Europe. Pakistan. Yemen. South Africa)
Commite de Blenfaisance et de Secours aux Paiestilliens (France)
Association de Secours Palestinien (Switzerland)
Interpal (UK)
Palestinian Association in Austria (Austria)
Sanibil ASSOCiation for Relief and Development (Lebanon)
AI Akhtar Trust (Pakistan)
AI Haramain Foundation (Afghanistan. Albania. Bangladesh. Bosnia.
Ethiopia. Indonesia. Kenya. the Netherlands. Pakistan. Somalia, and
Tanzania)
Islamic African Relief Agency (Global network)
Taibah International (Bosnia)
AI-Haramain & AI Masjed AI Aqsa Charity Foundation (Bosnia)
AI Furqan (Bosnia)

-30-

http://www.treas.gov/press/releases/js2041.htm

1/3/2005

JS-204'2~ Treasury Officials to 10in

Bankers in Schools Across the Country to Prom...

Page 1 of 2

PHCSS F-WOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 19, 2004
JS-2042
Treasury Officials to Join Bankers in Schools Across the Country
to Promote the Wise Use of Credit
Treasury is teaming up with the American Bankers Association Education
Foundation this week for the second annual Get Smart about Credit Day. Several
Treasury officials will join local bankers across the country who are visiting colleges,
high schools, freshman orientations, youth groups, and continuing education
classes to teach students how to budget, use credit cards responsibly and build a
positive payment history.
More information on Get Smart about Credit Day can be found at:
http Ilwww.aba.com/Consumer+Connection/getsmartaboutcredit.htm .
Media interested in covering these events should contact Treasury's Public Affairs
Office at (202) 622-2960 or Catherine Pulley
with the ABA at (202) 663-5468. The following events are open to the press:
Jesus H. Delgado-Jenkins, Acting Assistant Secretary for Management
·South Division High School
1515 West Lapham Blvd.
Milwaukee, WI
10:15 am COT
D. Scott Parsons, Deputy Assistant Secretary for Critical Infrastructure
Protection
·Newark High School
14 Granville Street, Building G
Newark,OH
9:30 am. EDT
Sandra Pedroarias, Office of Financial Education Director of Outreach
'Miami Palmetto Senior High School
7460 SW 118th Street
Miami, FL
10:45 am EDT
Jeffrey Kupfer, Deputy Chief of Staff
·Taylor Allderdice High School
2409 Shady Avenue
Pittsburgh, PA
9:00 am EDT
South Fayette High School
2246 Old Oakdale Road
McDonald, PA
12:45 pm EDT
Michelle Brough, Senior Advisor to Assistant Secretary for Financial
Institutions
·Harrisburg Area Community College
Gettysburg Campus
731 Old Harrisburg Rd.
Gettysburg, PA
8:45 am. EDT

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113/2005

JS-2042:Treasury Officials to Join Bankers in Schools Across the Country to Prom...

Page 2 of2

Henrietta Holsman Fore, United States Mint Director
'Montgomery Blair High School
51 University Boulevard East
Silver Spring, MD
9:00 am EDT

Joseph Dillon, Senior Advisor to the Under Secretary for Domestic Finance Central
Elementary School
5 Baxter Street
Buckhannon, WV
1:15pmEDT
Edward Christovich, Office of Financial Education Director
'Fletcher High School
700 Seagate Avenue
Neptune Beach, FL
10:25 am EDT
Greg Zerzan, Deputy Assistant Secretary for Financial Institutions Policy
. Mt. Tabor High School
342 Petree Road
Winston-Salem, NC
9:45 am EDT

http://www.treas.gov/press/releasesljs2042.htm

113/2005

PRESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 19, 2004
2004-10-19-16-45-49-16613
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 $83,142 million as of the end of that week, compared to $82,817 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)

TOTAL
1. Foreign Currency Reserves

a. Securities

October 8, 2004

October 15, 2004

82,817

83,142

Euro

Yen

TOTAL

Euro

Yen

TOTAL

11,240

14,373

25,613

11,313

14,412

25,725
0

Of which, issuer headquartered in the US.
b. Total deposits with:
11,080

b.i. Other central banks and BIS

2,889

13,969

11,138

2,897

14,035

b.ii. Banks headquartered in the US.

b.ii. Of which, banks located abroad

b.iii. Banks headquartered outside the US.

b.iii. Of which, banks located in the U.S.

19,423

19,511

12,769

12,827

11,043

2. IMF Reserve POSition

3. Special Drawing Rights (SDRs)
4. Gold Stock

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
October 15, 2004

October 8, 2004
Euro
1. Foreign currency loans and securities

Yen

TOTAL

Euro

Yen

TOTAL

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:

2.a. Short positions
2.b. Long positions
3. Other

o
o
o

III. Contingent Short-Term Net Drains on Foreign Currency Assets
October 8, 2004
Euro
1. Contingent liabilities in foreign currency

Yen

October 15, 2004
TOTAL

Euro

Yen

TOTAL

o
o

1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
3. Undrawn, unconditional credit lines

3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U. S.

3.c. With banks and other financialmstltutions
Headquartered outside the U. S.

4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
4.a. Short positions

4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions

4.b.1. Bought calls
4.b.2. Written puts

JS-204'3~

Treasury Deputy

A~~istant Secretary Iannicola Applauds Youth Financial E...

Page I of I

I-'HLSS HOt.)M

FROM THE OFFICE OF PUBLIC AFFAIRS
October 20, 2004
JS-2043

Treasury Deputy Assistant Secretary lannicola Applauds Youth Financial
Education Efforts in Midwestern States
Deputy Assistant Secretary for Financial Education Dan lannicola, Jr. applauded
the financial education efforts of Junior Achievement staff from eight Midwestern
states at the organization's Midwestern Regional Conference In Grand Rapids,
Michigan today.
"Junior Achievement has been a powerful force in providing financial education to
young people in so many communities across the United States and beyond," said
lannicola. "Here in Michigan, and throughout the Midwest, young people are on the
road to becoming fiscally responsible adults because of the work of those gathered
here. Please know that all of us at the Department of Treasury are supportive of
your efforts and that we share your paSSion for financial literacy"
The Conference, which featured the theme "Make the Connection," will re-energize
Junior Achievement field office leaders and staff from eight Midwestern states.
Junior Achievement, which is headquartered in Colorado Springs, Colorado, was
founded in 1919 as a collection of small, after-school business clubs for students in
Springfield, Massachusetts. It is a non-profit organization dedicated to educating
and inspiring young people to value free enterprise, business and economics to
improve the quality of their lives. Junior Achievement offers economic education
programs that span grades K-12, with age-appropriate curricula designed to teach
elementary students about their roles as individuals, workers, and consumers and
to prepare middle-grade and high school students for the key economic and
workforce issues they will face.
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education in May of 2002. The Office
works to promote access to the financial education tools that can help all Americans
make wiser choices In all areas of personal financial management, with a special
emphasis on saving, credit management, home ownership and retirement
planning. The Office also coordinates the efforts of the Financial Literacy and
Education Commission, a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments, agencies and
commissions, which works to improve financial literacy and education for people
throughout the United States. For more information about the Office of Financial
Education visit: www tl{'~lc, Ij()viflll,IIICI:J!I:cillC>ltIOII.

http://www.treas.gov/press/release5ljs2043.htm

1I3/2005

f-'HLSS H(>OM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 20, 2004
js-2044

The Honorable John W. Snow Prepared Remarks: Wharton High School
Tampa, FL October 20,2004
**Updated Version **

Good morningl It's great to be here at Wharton High School. I'm excited to learn
more about your "Pro Start" program and to enjoy the fruits of your labors at
lunchtime.
Take it from someone who is more than a little bit older than you ... many things will
change in this world as the years go by, and you'll see many changes in this great,
flexible, resilient economy of ours. But one thing that doesn't change is this:
preparing for your career through lots of good educatIon and training is a recipe for
a lifetime of employment opportunity.
It's also true that training for jobs that don't exist isn't terribly helpful. Training for
jobs that are available in your community is the smart approach, and I understand
that's what "Pro Start" is all about.
And the restaurant industry IS a terrific place not only to work, but to build a base for
careers ranging from public relations to business ownership. It's an industry that
employs about 12 million people, which makes it the nation's largest private-sector
employer. According to the National Restaurant Association, more than 4 out of 10
adults have worked in the restaurant industry at some time during their lives, and
the number of food service managers is projected to increase by 15 percent over the
next ten years.
I recently met with a restaurant industry leader named Skip Sack, who got his start
in the world of work as a dishwasher at Howard Johnson's. He worked hard, served
in the military, and later went back to Howard Johnson's to work in their advertising
department. His career in the industry has been extremely impressive, from
restaurant ownership to management to serving on boards of national chains.
Today Skip is, among other things, the Chairman of the Board of the National
Restaurant Association - which is the sponsor of "Pro Start."
Skip proved that hard work and perseverance can bring you to the highest levels of
professional achievement. And I know he agrees that having a good education and
relevant job training makes you very desirable as a prospective employee; it makes
you more likely to get any given job than the other folks who are applying for it. If
you have knowledge and skills on your side, you can compete with anyone,
anywhere - whether the other Job-seekers are here in Tampa, or anywhere in the
world.
Living In a place where the economy is growing also helps, of course. That's why
stimulating and growing the United States' economy has been a priority for my
boss, President Bush.
We have work to do, and critical economic goals to reach. That said, our economy
has come a long way. When he took office, President Bush inherited an economy in
steep decline. The stock market bubble had been pierced. We were then shocked
by terrorist attacks and wounded by reprehensible behavior by corporate CEOs that
hurt employees, investors and shook investor confidence.
We are fortunate that our economy is the most open, flexible, adaptive and resilient
in the world. Our powerful core elements - small-business owners and
entrepreneurs, an outstanding workforce, and the simple fact that we operate as a
free market - have enabled us to recover from those very difficult economic times.

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js-2044~ The Honorable Jelwt W. Snow Prepared Remarks: Wharton High School Tampa, '"

Page 2 of 2

Sound monetary policy from the Federal Reserve Board helped our recovery as
well. Lower interest rates encouraged investment, which IS critrcal for economic
recovery and growth.
Finally, President BUSh's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation.
Here in Florrda, the President's tax cuts allowed small-business owners to keep
more of their business income, and encouraged them to invest in the growth of their
companies. For example, nearly 1.4 million business taxpayers here in Florida will
save money on their 2004 taxes.
Similarly, the tax cuts have allowed individuals to keep more of their income. More
than 6.1 million Flonda taxpayers will have lower income tax bills in 2004 thanks to
the tax relief.
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, according to the BLS's
establishment survey, over 1.9 million jobs have been created since last August13 straight months of job growth. More people than ever before own their own
homes, and new homes are being purchased every day at near record rates.
People are finding new, good jobs or getting a raise at work. They have more
money In their pockets and can better afford things from cars to appliances to
shoes for their children. National Income and national wealth have never been
higher and according to the BLS survey of jobs, the broadest survey of the
workplace, we have more people working today than at any other time In our
history, and 3.2 million jobs have been created since December 2001, according to
the Labor Department's Bureau of Labor Statistics Household Survey.
Here in Florida, I believe you economic recovery and growth means that you will be
more likely to find a good job after you graduate. The state has generated 99,200
jobs so far this year, 16,600 of those in August alone. This is good news for those
of you getting ready to enter the job market.
That said, we know we can do even better. There are also Americans who have lost
their jobs and have struggled to find new ones, and new jobs cannot come soon
enough for those folks. The question IS: where will those jobs come from?
An important, ongoing truth of the American economy is thiS: the government won't
and shouldn't choose what jobs are created; entrepreneurs and innovators will.
Government's responsibility is to make sure they have the freedom to do so. And
right at the center of job creation lie entrepreneurship and small businesses They
create two out of three new jobs In the U.S. and it IS because of them that Jobs are
growing at such a good rate across the country.
That's why entrepreneurs and small-business owners are at the heart of President
George W. Bush's economic policies. The President understands that creating an
environment in which they can flourish is the essential ingredient in any recipe for
economic growth. Often it is best if government simply gets out the way.
The "Pro Start" program here at Wharton is entrepreneurial in nature. It's that
entrepreneurial spirit that works so well here in America. You're taking a different
approach to preparing for life after high school, and it's working. I commend the
staff, sponsors and students for making this such a great success.
Thank you again for having me here today; I look forward to learning more about all
of you, and about "Pro Start," and wish you all the best in pursuing a lifetime of
learning and successful careers.

-30-

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JS-204~ .IN ~rnovoo from List of Countries Subject to Special Foreign Tax Cred... Page 1 of 1

Pf~ESS

HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adob~® Acrobat® ReaqerfE),

October 20,2004
JS-2045·

Iraq Removed from List of Countries Subject to
Special Foreign Tax Credit Restrictions
Today the Treasury Department issued Revenue Ruling 2004-103 to reflect the
decision of the Department of State to remove Iraq from the list of countries subject
to the special foreign tax credit and other restrictions of Internal Revenue Code
section 901 U) and related provisions.

u.s. tax rules generally allow taxpayers a credit against U.S. income tax for taxes
paid to a foreign country. SpeCial rules in sections 901 U) and 952(a)(5) generally
deny foreign tax credits and impose other restrictions if income is attributable to
countries with which the United States does not conduct diplomatic relations or
which have been identified as sponsors of international terrorism. These
restrictions cease to apply with respect to a particular country when the Secretary of
State certifies to the Secretary of the Treasury that the country no longer meets
these criteria. A list of countries described in section 901 (j)(2)(A) and the periods
for which they are subject to the restrictions of section 901 (j) and related provisions
is provided in Revenue Ruling 95-63.
The Department of State has certified that Iraq is no longer a country described in
section 901 U)(2)(A) effective June 28, 2004. Accordingly, Revenue Ruling 2004103 modifies the prior revenue ruling to reflect this determination effective for
periods after June 27,2004.

REPORTS
•

The text of Revenue Ruling 2004-103

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113/2005

Part I

Section 901.-Taxes of Foreign Countries and of Possessions of United States.

Modification of Rev. Rul. 95-63. Rev. Rul. 95-63, 1995-2 C.B. 85, with respect to
countries described in section 901 0)(2)(A) of the Internal Revenue Code ("Code"), is
modified.

Rev. Rul. 2004-103

This ruling modifies Rev. Rul. 95-63, 1995-2 C.B. 85, which lists countries subject to
certain special rules under sections 9010) and 952(a)(5) of the Code.
LAW AND ANALYSIS
Sections 901,902, and 960 of the Code generally allow U.S. taxpayers to claim a
foreign tax credit for income, war profits, and excess profits taxes paid or accrued (or
deemed paid or accrued) to any foreign country or to any possession of the United
States.
Section 9010)(1 )(A) denies the credit for taxes paid or accrued (or deemed paid or
accrued under sections 902 or 960) to any country described in section 901 0)(2)(A) if
the taxes are with respect to income attributable to a period during which section 9010)
applies. Section 9010)(1 )(B) requires taxpayers to apply subsections (a), (b), and (c) of
section 904 and sections 902 and 960 separately with respect to income attributable to
such a period from sources within such country. In addition, section 952(a)(5) provides
that subpart F income includes income derived by a controlled foreign corporation frolT'
any foreign country during any period during which section 9010) applies to that forei
country.
The special rules under sections 9010) and 952(a)(5) cease to apply to a coun,
.len
the Secretary of State certifies to the Secretary of the Treasury that such country is no
longer described in section 901 0)(2)(A). Revenue Ruling 95-63 sets forth the countries
which are (or were) described in section 901 U)(2)(A) and the period during which the
speCial rules under sections 9010) and 952(a)(5) apply with respect to each such
country. Based on the certification by the Secretary of State, this revenue ruling states
the date on which Iraq ceased to be described in section 901 0)(2)(A).
HOLDING AND EFFECTIVE DATES

The list of countries in Revenue Ruling 95-63 is modified by changing the reference to
Iraq as follows:

Country

Starting Date

Ending Date

Iraq

February 1, 1991

June 27, 2004

For guidance on issues arising in a taxable year when section 901 U) ceases to apply to
a country, see Rev. Rul. 92-62, 1992-2 C.B. 193.
EFFECT ON OTHER REVENUE RULINGS
This ruling modifies Rev. Rul. 95-63, 1995-2 C.B. 85, with respect to countries
described in section 901 (j)(2)(A) of the Code.
DRAFTING INFORMATION
The principal author of this revenue ruling is Mark R. Pollard of the Office of Associate
Chief Counsel (International). For further information regarding this revenue ruling,
contact Mr. Pollard at (202) 622-3850 (not a toll-free call).

JS-2046: Deputy A~~iEtant

~retary

Iannicola teaches Cleveland Youth to Save as P... Page 1 of 1

PRESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 20. 2004
JS-2046

Oeputy Assistant Secretary lannicola teaches Cleveland
Youth to Save as Part of "Roll Your Change Week" at the
Boys and Girls Club
Deputy ASSistant Secretal'y for Financial Education Dan lannlcola, Jr. today
participated In the 2nd Annual "Roll Your Change Week" at the Boys and Girls Club
in Cleveland, Ohio. Today's event was one of many week long events sponsored by
Clevelalld Saves to increase awareness about saving money among Greater
Clevelanders.
"COinS are Il0W most children are introduced to the concept of money," lannlcola
said "Therefore COIilS are a great vehicle for teaching early lessons on saving.
Today we showed kids how regularly setting aside something as insignificant as
pocket change can add up to real money and can help form good savings habits."
It is estimated that there IS over $10 billion in loose change sitting unproductlvely In
homes across America not earning interest During last year's "Roll Your Change
Week." over 1,798 people deposited $152,355 Into their savings accounts, which
averaged out to $84 per person in new deposits Every person who makes a
deposit of rolled change at one of the 17 partiCipating financial institutions during
this special week will be eligible to win a $1,000 Series I Savings Bond
Cleveland Saves is a nonprofit, community-based coalition consisting of over 200
Greater Cleveland banks, colleges, community development corporations,
companies, credit unions, faith-based organizations, government and nonprofit
agencies and trade unions. The Cleveland Saves program was developed to help
Clevelanders build wealth by saving money. Individuals enrolled In the program are
reqUired to set a financial goal for themselves and deSign a simple plan to reach
their savlllgs goal
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education In May of 2002. The Office
works to promote access to the fillancial education tools that can help all Americans
make wiser chOices In all areas of personal fillancial management, With a special
emphaSIS on savmg, credit management. home ownership and retirement
planning The Office also coordinates the efforts of the FinanCial Literacy and
Education CommiSSion, a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments, agencies and
commiSSions, which works to Improve finanCial literacy and education for people
throughout the United States For more IIlformatlon about the Office of Financial
Education Visit www.treas.gov/financialeducation.

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1/3/2005

JS-2lJ47: The: Honorable John W. Snow Prepared Remarks: Financial Forum at Bane...

Page I of 2

PRESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 21 , 2004
JS-2047

The Honorable John W. Snow
Prepared Remarks: Financial Forum at Banco Popular
Orlando, FL
October 21,2004
Thank you so much for Joining me for this fmum today, and thanks to Banco
Popular for hosting the event.
I'm looking forward to talking with you about Florida's economy, and about tho
national economy
Floridians know as well as anyone what it takes to recover from adversity That's
what you are dOing, after one of the worst hUrricane seasons In hlstmy, and that's
also what our national economy is doing, after suffering some of the worst
economic blows we've ever known.
We are fortunate to live In a country that has an incredible, naturally resilient
economy But sometimes government does need to take action to steer it back on
the right course, especially when outside forces cause harm.
In FlOrida. hurricanes left you needing a helping hand to get you back on your feet.
That's why President Bush has Signed legislation enacting hUrricane relief
assistance, carrying out his commitment to provide emergency assistance to areas
affected by the recent hurricanes.
The hUrricane relief package, which was Included In the Military ConstruclJon
Appropriations and Emergency Hurricane Supplemental Approprlatio:ls Act, 2005,
provides $11.6 billion III emergency relief to assist families, IndiViduals, and
communities In the wake of Hurricanes Charley, Frances, Ivan, and Jeanne.
Combined With the hUrricane relief signed by PreSident Bush on September 8,
2004, a total of $136 billion in emergency funding has been provided to assist
those recovering from the recent natural disasters
On the national level, we've recovered from different kinds of disasters, and we've
come a long way. When he took office, PreSident Busll inherited an economy In
steep decline. The stock market bubble had been pierced. We were then shocked
by terrorist attacks and wounded by reprehensible behaVior by corporate CEOs that
hurt employees, investors and investor confidence
We are fortunate that our economy is the most open, fleXible, adaptive and resilient
In the world Our powedul core elements - small-business owners and
entrepreneurs, an outstanding workforce, and the Simple fact that we operate as a
free market - have enabled us to recover from those very difficult economic times.
Sound monetary poliCY from the Federal Reserve Board helped to slimulate our
recovery as well. Lower Interest rates encouraged Investment, which IS critical for
economic recovery and growth.
Finally, PreSident Bush's tax cuts gave our economy tile oxygen It needed to fight
itself, and continue on a path of growth and Job creation
Here In Florida, the PreSident's tax cuts allowed small-busJlless owners to keep
more of your bUSiness Income, and encouraged them to invest in the growth of their

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JS-2047: The: Honorablo John W. Snow Prepared Remarks: Financial Forum at Bane...

Page 2 of 2

companies. For example, nearly 1.4 million business taxpayers here In Florida will
save money on ttleir 2004 taxes
Similarly, the tax cuts have allowed Inc!lvlc!uals to keep more of their Income More
than 6 1 million FlOrida taxpayers wil[ have lower Income tax bi[ls If) 2004 thanks to
the tax relief
Lettlllg people keep more of tlleir own money, and spend It how they see fil, has
helped put our nation on tile right track. Nationwide, over 1.9 1TlIIII0n jobs Ilave been
created since last August - 13 straight months of job growtll More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are flllding new, good jobs TileY have more lTloney in
their pockets and can better afford things from cars to appliances to shoes for their
children National Income and national wealth have never been higher
That said, we know we can do better. New Jobs cannot come soon enough for the
people who have lost theirs. The question is: where wil[ those jobs come from?
An important. ongoing truth of the American economy IS thiS the government won't
and Shouldn't choose what jobs are created: entrepreneurs and innovators Will
Government's responSibility is to make sure they have the freedom to do so. And
right at the center of job creation lie entrepreneurship and small businesses. They
create two out of three new jobs in the U.S and It IS because of them that jobs are
growing at such a good rate across the country.
That's why entrepreneurs and small-business owners are at the heart of PreSident
George W Bush's economic poliCies. The PreSident understands that creating an
enVIronment In which they can flourish IS the essentla[ Ingredient In any recipe for
economic growth. Often It IS best If government Simply gets out the way.
How to help our economy right Itse[f when It is In distress IS a lesson in American
history. We know from long experience that our economy responds best to the very
thing that created It: freedom
Free trade. Freedom from excessive taxation Freedom from abUSive, frivolous
lawsuits and of course freedom from terrorist assaults
When freedom, fairness and American entrepreneurs are combined, the end
product is jobs and growth Add relevant worker training to that equation, and you
have high employment-and that's the path we're on.
We have plenty of work to do - in Florida and across America But if we continue on
the path of freedom and making sure individuals, entrepreneurs and family
bUSinesses have an open and fair environment in which they can work and grow,
our best economic days will remalll ahead of us and I am optimistic about our
future.
I look forward to our discussion: let's get started.

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JS-20<7: The Honorabls John W. Snow Prepared Remarks: Financial Forum at Banc...
companies. For example, nearly 14 million business taxpayers here
save Illoney on their 2004 taxes.

Page 2 of 2

Florida will

Slmilal'ly, the tax cuts have allowed Incllvlciuals to keep more of their Income More
than 6.1 mlillon Flonda taxpayers Will have lower Ii1come tax bills II) 2004 thanks to
the tax relief.
Letting people keep more of their own money, and spend It how they see fil, has
helped put our nation on the Ilgllt track Nationwide, over 1.9 million jobs have been
created since last August - 13 straight months of job growtll More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are finding Ilew, good jobs They have Illore money In
their pockets and can better afford thmgs from cars to appliances to shoes for their
children Natlollallncome and national wealth have never been higher.
That said, we know we can do better. New jobs cannot come soon enough for the
people wtlO have lost theirs. The question IS where will those jobs come from?
An Importal)t, ongoing truth of the American economy IS thiS the government won't
and shouldn't choose what jobs are created: entrepl'eneurs and Innovators will
Government's responsibility IS to make sure they have the freedom to do so. And
right at the center of job creation lie entrepreneurship and small bUSinesses. They
create two out of three new jobs in the US and It is because of them that jobs are
growing at such a good rate across the country.
That's why entrepreneurs and smail-bUSiness owners are at the heart of PreSident
George W. Bush's economic poliCies. The PreSident understands that creating an
enVIronment In which they can flouflsh IS the essential ingredient In any recipe for
economic growth Often It is best If government Simply gets out the way.
How to help our economy right Itself when it IS III distress is a lesson in American
history. We know from long experience that our economy responds best to the very
thing that created It freedom
Free trade. Freedom from excessive taxation. Freedom from abUSive. fflvolous
laWSUIts and of course freedom from terroflst assaults.
When freedom, fairness and Ameflcan entrepreneurs are combined, the end
product is jobs and growth. Add relevant worker training to that equation, and you
have high employment-and that's the path we're on.
We have plenty of work to do - in Floflda and across Ameflca But if we continue on
the path of freedom and making sure Ifldlviduals. entrepreneurs and family
bUSinesses have an open and fair environment In which tlley can work and grow,
our best economic days will remain ahead of us and I am optimistic about our
future.
I look forward to our discussion, let's get started.

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1/3/2005

JS-2048; Treasury Offioials Join Bankers in Schools Across the Country to Promote ... Page 1 of 1

.. ...

•

~
;' ,-r----

':..

..,...--

PHlSS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 21 , 2004
JS-2048

Treasury Officials Join Bankers in Schools Across the Country
to Promote Financial Education
OffiCials from the US Treasury Department teamed up With local bankers from
around the country today for the second annual Get Smart about Credit Day.
Partnerlllg With the American Bankers Association Education Foundation. ten
Treasury officials viSited high schools. a community college. and an Airmen
Leadership School to teach young people how to budget. use credit responsibly.
and build a positive credit Ilistory.
"Today young people all across America are learnlllg how to get control of their
financial futures by managing their use of credit. Mismanagement of credit can
cause a host of problems. Including late fees. garnishment, repossession and
bankruptcy." said Treasury's Deputy Assistant Secretary for Financial Education
Dan lannicola. Jr. "However. the wise use of credit can bring into reach things like a
higher education. a home or a car. The difference IS education."
The ABA Education Foundation. a non-profit subSidiary of the American Bankers
Association. develops and provides financial literacy educational programs. The
foundation Ilas supported the banking IIldustry III teaching personal finance skills in
schools and communities across the country. It provides programs that are
specifically created for young children. teenagers. and adults to prOVide them With
the skills they need to budget. save. and manage credit
The Department of the Treasury IS a leader III promotlllg financial education.
Treasury established tile Office of Financial Education III May of 2002. The Office
works to promote access to the financial education tools that can help all Americans
make wiser chOices in all areas of personal financial management. With a speCial
emphaSIS on saving. credit management. home ownership and retirement
planning. The Office also coordillates the efforts of the Financial Literacy and
Education Commission. a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments. agencies and
commissions. which works to improve fillancial literacy and education for people
throughout the United States. For more information about the Office of FlIlancia\
Education VISIt: www.lreasgov/financialeducalion.

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JS-2049; The Honorable John W. Snow Prepared Remarks: Florida Bankers Associat... Page 1 of 4

FROM THE OFFICE OF PUBLIC AFFAIRS
October 21. 2004
JS-2049
The Honorable John W. Snow
Prepared Remarks: Florida Bankers Association's leadership Dinner
Orlando, Florida
It's wonderful to be here this evening: thank you so much for having me.
It's .always a pleasure to visit this wonderful state, and I'm delighted to see the
resiliency and the perseverance of the people of Florida after one of the worst
hurricane seasons on record.
On that topic, I want to begin today by thanking all of you who made funds available
early for September's Social Security direct-deposit payments. Hurricane Frances
was approaching. and honoring those direct deposits early was the definition of
being a good neighbor You came to the aid of your customers in their time of need,
and it was a display of instinctive compassion that showcased the very human side
of the banking industry.
Floridians understand how to prepare for, deal with and recover from adversity. You
also understand the special sense of community that comes from pulling through
something together.
I deeply appreciate the work you do, both for our economy and for our country's
safety.
As bankers, your role in our economic strength is critical. From simple checking
accounts to small business lending, you are a critical partner in the financial health
of your customers ... and their financial health determines that of the nation.
These have been busy years for you. The sound fiscal policies of low interest rates
and tax cuts combined to give citizens more financial options, and more incentives
to invest in their futures.
As bankers you've also faced new challenges associated with fighting the financial
war on terror, and I want to talk more about that later.
Thanks to the your efforts, the work of your customers, the sound fiscal policies that
came from the Federal Reserve Board and the President's tax cuts. our nation's
economy is doing quite well. But there is still much to be done, and much that you
will be doing to help.
Small business lending. for example, is awfully important. Small business is at the
foundation of this great economy.
Small business is where the jobs come from. We estimate that seven out of ten new
jobs are coming from that sector
In addition to providing your small-business customers With the capital they need to
start and grow, there is a new product that I would also encourage you to market to
them, and that's Health Savmgs Accounts (HSAs).
The recently enacted Medicare prescription drug bill created HSAs, an innovative
new program to empower consumers to make better health care choices HSAs are
really super-charged IRAs that put patients back In charge of their health care. You

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JS-2049: The Honorable John W. Snow Prepared Remarks: Florida Bankers Associat... Page 2 of 4
own it. you control it. you can leave it to your heirs.
It's a new option for health coverage that is good news for individuals and
employers who are struggling with their health-care costs.
I have good news for banks when it comes to offering this new product: first. any
bank IS automatically allowed to offer HSAs to your customers as either a trust or a
custodial account.
Second. the reporting on these accounts is minimal. You only need to report on
them once a year - to the customer and the IRS - one form to report contributions
to the account and another form to report the amount that has been taken out of the
account.
Best of all: you won't need any new forms. Treasury has model forms that you can
use. or you can adapt the forms you use for IRAs for HSAs.
In terms of the market for this product. I believe the future is bright. As smallbUSiness customers research the services you offer. adding HSAs to your portfolio
are bound to make you more attractive as the small-business financial service
provider of choice.
I believe the business opportunity for you is great.
HSAs are a critical step toward increasing the availability and affordability of health
insurance for all Americans. They are also helping to put individuals in charge of
their own health care ... and that's something that is good news both for the
American family and for the American economy as a whole.
Rising health-care costs are one of many factors that can act as a drag on our
economic health. And while our economy is the strongest and most resilient In the
world. it is important that we keep the burdens on free enterprise as light as
possible.
We want fairness and freedom for America's small-business owners. It's not fair to
add additional burdens to their already-heavy load. Lightening those burdens gives
them the freedom they need to open a business. expand it.
Lower costs for health insurance reduces one of the top burdens on America's
smallest employers - the employers who are also creating most of the new Jobs.
Lowering their tax burden is critical for their health as well. and that's why the
President's tax cuts paid particular attention to small business. In 2004. 25 million
small business owners will receive tax relief totaling about $75 billion.
Nearly 1.4 million business taxpayers here in Florida will have lower tax bills this
year.
Similarly. the tax cuts have allowed individuals to keep more of their income. More
than 6.1 million Florida taxpayers will have lower income tax bills in 2004 thanks to
the tax relief.
Those tax cuts helped to offset the serious blows to the U.S. including. in rapid
succession. the bursting of the stock market bubble back in March of 2000. the
economy in steep decline which President Bush inherited. the terrible behavior by
high ranking corporate executives who forgot their duties to shareholders. workers
and pensioners. and of course September 11 th which took such a toll. President
Bush saw the urgent need to act. to put oxygen into the economy and because of
his leadership the American economy IS now getting back onto a good course.
I am often asked: what is the most important thing I can do. as Treasury Secretary.
to strengthen the American economy? And I think that people appreciate the
economic significance of tax cuts ... that is the obVIOUS answer But It stnkes me that
this question is even better answered by Education Secretary Rodney Paige. For
nothing will have a bigger, more lasting impact on the American economy than
educating and preparing America's workforce for the Jobs of today and tomorrow.

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JS-2049' The Honorable- John W. Snow Prepared Remarks: Florida Bankers Associat... Page 3 of 4
Primary, secondary and continuing education - for generations to come - are by far
the most Important efforts toward achieving continued economic prosperity.
While recent economiC recovery and growth has been Impressive - with 1.9 million
new jobs created in the past13 months, strong GOP growth, and homeownership at
an all-time high - we are not satisfied, and we must always seek ways to increase
growth and job creation.
While no one can really predict what the next high-growth industry will be, in a
country where innovation is so wonderfully strong we know there will be plenty of
jobs for our families. The state of Florida overall has had some outstanding news on
jobs, with 16,600 created in August and 99,200 created so far this year.
I want to commend you for your contributions to this terrific economic growth, and I
also want to thank you for the work you've done that has helped to keep your
country safe as well as prosperous.
Six weeks ago, we marked the third anniversary of September 11 th , and I was once
again reminded of the tremendous resolve in the financial community that came out
of that day ... resolve to cut off the terrorists' lifeblood: their money.
Institutions large and small committed themselves to the task.
America's financial Institutions have done everything that the Treasury Department
has asked of you during this fight, and I want to personally thank you for your
efforts.
Your compliance with Section 314 of the Patriot Act - which requires everyone to
share information - has been exemplary.
We've asked that you cross-check a list of terrorists and their partners, sent to you
by Treasury's Financial Crimes Enforcement Network (FinCEN), every two weeks,
against your customer databases.
It's a big job to keep up with these lists, and it's one that is never finished. You're
doing it, and our country is safer because of it.
The list that comes to you from FinCEN is an important tool. .. but It would be
useless without your partnership. We're in this together.
We've also asked you to comply with Section 326 of the Patriot Act, which has to do
with record keeping. And I want you to know that you do have flexibility under those
regulations ... we've worked hard to make sure that your customers are able to use
as many forms of identification as possible under those rules. We hope the flexibility
makes it easier for you to be vigilant.
And we're always looking for ways to provide you with more and better information
about our regulations. So let's keep up the dialog ... let us know when we're
confusing you, or when we can do better - because the better our regulations are
understood by you, the more successful our critical enforcement efforts will be.
I know that complying with the regulations is burdensome, but it's for an important
cause. We want to work with you to ease the regulatory burden whtle tightening our
grasp around terrorist financiers.
Working together, we have accomplished a lot on this front of the war on terror in
the last three years. The United States has designated 393 entities as terrorists or
supporters of terrorists and frozen over $142 million in terrorist-related assets.
Our efforts are making a difference. So please know that we appreciate our working
relationship on the war on terror, and that we view you as a partner in other critical
ways, as well.
You're also a partner in the effort to increase financial literacy and protect our
citizens from identity theft. Both programs are critically important to the citizens of

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America.
You do so much for your customers, and for your country ... I'm thrilled to be here
with you today, and thrilled to have you as a partner in so many efforts.
I look forward to continued work with you on all fronts, and am pleased to share
with you an optimism and enthusiasm for the future of the American economy. We
have a shared belief that our best days are ahead of us. I am pleased to be working
toward that future together.
Thank you for having me here today.

-30-

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New Directions for U.S. Economic Policy towards Japan and China lohn B.... Page 1 of 5

f-'HLS S HO()M

FROM THE OFFICE OF PUBLIC AFFAIRS
October 21, 2004
JS-2050

New Directions for U.S. Economic Policy towards Japan and China
John B. Taylor
Under Secretary for International Affairs
United States Treasury
Deer Creek Club
st. Louis, Missouri
October 21, 2004
It is a pleasure to be here tonight in St. Louis. The last time I spoke In St. Louis-lust two weeks ago--the Cardinals won game 2 of the National League Division
Series. Tonight it's game 7 of the National League Championship Series. I hope
my visit here works again for the Cardinals.
Of course the real reason I'm here tonight is not to discuss baseball, but rather to
discuss another topic of great importance to the people of St. Louis--economic
policy.
My specific tOPIC is economic relations between the United States--the largest
economy in the world, and China and Japan, the second and third largest
economies In the world, at least when you rank economies by purchasing power.
Clearly the economies of China and Japan matter greatly for the United States and
the world economy. The United States, China, and Japan account for over 40
percent of the world's GOP. China and Japan are the two largest trading partners
of the United States, excluding our immediate neighbors, Canada and MeXICO.
And you can see the economic importance of China and Japan right here in
Missouri: Exports from Missouri to Japan increased by 35 percent in 2003 and
exports from Missouri to China have increased by 100 percent. During the last
three years, exports from Missouri have increased by an amazing 243 percent and
56 percent to China and Japan respectively.
So getting these two economic relationships right has been a high priority of the
Bush Administration, and in fact these relationships have changed directions in
important ways under President Bush's leadership, as suggested by these amazing
trade statistics. I want to focus on these new directions tonight.

Japan
Let me begin by recalling the economic situation in Japan at the start of the Bush
Administration, three and a half years ago. Growth In Japan was near zero, much
as it had been for the previous ten years - a period many economists called the
"lost decade" in Japan. Moreover, Japan was experiencing a deflation that had
persisted for more than six years. The deflation was holding back economic growth
because consumers and bUSinesses curtailed their spending plans, anticipating
lower prices in the future. The deflation and lack of growth made it difficult for
people to service their loans, so non-performing loans at banks were growing and
threatening the banking system.
A Japan in economic stagnation was clearly not in the interests of the United
States. Japan is an important ally. Stronger economic growth would benefit the
United States and the world. Stronger growth would provide the resources to help
Japan playa key role with the United States and other allies in providing security
and development assistance.
So, the lagging economy in Japan was a problem that President Bush and his

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Administration wanted to help the Japanese solve. After years of stagnation,
President Bush decided a new approach was needed. Two developments
presented an opportunity for a change in direction. First, Prime Minister Koizuml
was elected to the top leadership position in Japan. Second, the Bank of Japan
announced that it would follow a new type of monetary policy called "quantitative
easing." This announcement showed a willingness in Japan to take a fresh
approach to the economic stagnation problem.
Presented with these opportunities, President Bush and his team developed a new
approach for our economic relations with Japan. There were three key prinCiples.
First, there would be no "Japan bashing." The President wanted our economic
relations with Japan to be based on mutual respect and cooperation, not
antagonism Lecturing by the United States government had proven to be an
unhelpful way of advancing prosperity in Japan. The title of a 1999 Brookings book
"Troubled Times: U.S.-Japan Trade Relations in the 1990s" captured the
problematic nature of the relation. The President called for a very free and frank
exchange of views, but not lecturing one's friend.
Second, the Bush Administration emphasized monetary policy as the key way to
overcome deflation rather than additional short-term fiscal stimulus boosts which
had not sustained growth. We also focused on ways to address Japan's nonperforming loan problems, which were closely related to the deflation.
Third, we concentrated on structural, or supply side, obstacles to achieving stronger
long-term productivity growth, not on short-term solutions. This longer-term focus
on issues such as de-regulation and entrepreneurship would make us more
effective in working together with the Japanese authorities on ways to strengthen
their economy and ours
With these three principles in hand, work on implementation began.
When President Bush met with Prime Minister Koizumi in Camp David in June
2001, they began to talk about these economic issues - including the nonperforming loan problem in Japan. President Bush supported the Prime Minister's
reforms, saying to the press afterwards that: "I have no reservations about the
economic reform agenda that the Prime Minister is advancing. He talks about
tackling difficult issues that some leaders in the past refused to address." Their
friendship and mutual respect--which set the tone for discussions at all levels--was
symbolized by the frequent reference to the Prime Minister's favorite movie, High
Noon, and how it reminded him of PreSident Bush's strong determination and
economic leadership.
At that Camp DaVid meeting, the two leaders also announced the launch of a new
bilateral economic initiative called the U.S.-Japan Economic Partnership for Growth.
I recall the first senior official meeting under that new partnership in my Treasury
office with our counterparts from Japan in October 2001. We discussed these
issues as well as what actions the U.S. was taking to raise growth, in particular
President Bush's then recently enacted tax cuts. There were many other meetings
in the months and years that followed, including several in Japan. In each of these
meetings and in public speeches, we stressed the three principles underlying our
new approach.
I am very happy to say that this new approach has worked. We have tangible
results. Economic growth in Japan has returned. Experts say it is more
sustainable than they have seen in a dozen years. Deflation is receding. And all
these successes have followed the needed policy changes: increased growth of the
money supply and reduction of non-performing loans. And our Ambassador to
Japan, Howard Baker, reports that relations between the United States and Japan
have never been better.
To be specific about the economy, economic growth of 3.5 percent per year since
the beginning of 2002 make this the strongest recovery in Japan since the bubble
burst. Although risks remain, there are reasons for optimism that Japan's current
recovery will prove more durable than the abortive recoveries of 1995-96 and 19992000. First, growth has been led by private demand, not artificially boosted by
government spending. In addition, deflation has eased, with "core" consumer
prices falling only 0.2 percent year-on-year in the most recent month after posting
0.8 percent declines just last year.

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New Directi.ong for U.S. Economic Policy towards Japan and China John B....

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Japan's progress in cleaning up its banking sector will also sustain growth. The
major banks are on track to cut reported non-performing loans in half to meet the
government target of 4 percent of total loans by March 2005. And, after steady
deterioration during most of the 1990s Japanese firms have made real progress in
reducing their debt and improving profitability. Japanese corporations have raised
profit margins and return-on-assets by more than half since late 1998.
The challenge for Japan now is to raise its potential growth rate from the current
estimate of about 1'12 percent per year, to deal with its rapidly aging society and Its
fiscal problems. Japan's fiscal deficit, at 8 percent of GOP, and debt stock, at 166
percent, are the largest relative to output of any G-7 country.
Prime Minister Koizumi's current top reform priority is privatizing the postal system,
which includes the world's two largest financial Institutions - Japan's Postal Savings
and Postal Life Insurance systems. A successful privatization has the potential to
vastly Improve efficiency in Japan's financial markets. It also could drastically
reshape the competitive environment in Japan.
With the Bush Administration's new approach to Japan, we are also seeing other
results:
There is a new U.S.-Japan tax treaty, which will help facilitate U.S. investment in
Japan. There is far greater acceptance of foreign direct investment today than just
a few years ago, as Japan's people came to recognize the benefits from the capital
and skills that foreign firms offer. Foreigners now hold major equity stakes and play
management roles In Japanese auto manufacturers like Nissan, Mazda, and
Subaru. Foreign firms now control roughly 20 percent of Japan's life insurance
market, and account for more than 30 percent of trading volume on the Tokyo Stock
Exchange.
And you can see the new openness of Japan's economy wherever you go in
Japan. I visited a new retail outlet - Don QuiJote's - during my most recent trip to
Japan in May. The store, in downtown Tokyo, sells imported consumer goods
ranging from televisions, to clothing, to sporting goods. I remember trying on a
baseball glove and noting that the price was roughly the same as I'd pay at the
Sports Authority or another U.S. store. That almost never would have been the
case 10 years ago, when Japanese consumers routinely flew to Hawaii, not to
enJoy the beaches but to go shopping.
This new direction for U.S.-Japan economic relations does not, of course, mean the
end of all trade disputes or other frictions, but I believe the shared interest in a
stronger, more vibrant Japanese economy will continue to shape U.S. economic
policy towards Japan.

China
China's emergence as a major economy and trading partner is now so well known
that it's hard to remember the autarkic country of a generation ago. During the 25
years since China decided to move toward a market economy, the Chinese
economy has grown by 9% percent per year. Now, as I previously mentioned,
China is the second largest economy in the world and is a major contributor to
world growth; in fact, in the last three years, the United States and China accounted
for half of global growth. And exports from the United States to China are growing
rapidly.
Yet, more imports from China have led to difficult adjustments and to complaints
about Chinese trade practices. Most recently, groups in Industry and Congress
have focused on China's exchange rate, which has remained essentially
unchanged since 1995. Some have called for increased trade barriers and
economic isolationism.
To deal with these problems the Bush Administration decided early on to work With
the Chinese to open further their markets and to move to a market-based flexible
exchange rate. The entry of China into the WTO in 2001 presented the opportunity
to change directions. As President Bush recently said, summarizing this approach,
"The tendency in American politics is to fall prey to economic isolationism. That
would be bad for our workers. It would be bad for our consumers .... So I'm saying to
places like China, you treat us the way we treat you. You open up your markets Just

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like we open up our markets, And I say that with confidence because we can
compete with anybody, any time, anywhere so long as the rules are fair,"
To implement this approach in the difficult and highly technical case of the
exchange rate, the Administration decided that our economic relationship with
China should feature candid senior-level discussions, multilateral support from
other countries, and technical engagement. We emphasized the harm that
disruptive trade actions could bring, We stressed that a flexible exchange rate
would be good not only for the United States but also for China and the rest of the
world, We showed that a flexible exchange rate would better enable China to
conduct monetary policy and thereby contain Inflation and avoid overheating, We
argued that a market-based exchange rate would reduce concerns about exchange
rate manipulation and unfair valuations,
Based on these principles, the Administration formulated and implemented a
financial diplomacy strategy consisting of three parts
First, the Administration initiated an unprecedented level of engagement between
senior American and Chinese leadership, urging them to move more rapidly to a
flexible, market-based exchange rate, President Bush, Vice President Cheney,
Secretary Snow and other cabinet members have all been involved in this effort,
Second, the Administration has built multilateral support for greater exchange rate
flexibility in China, For example, one year ago, for the first time, the G7 Finance
Ministers and Central Bank Governors as a group called for exchange rate flexibility
in large economies such as China, and they have repeated this joint call several
times since then, And earlier this month in Washington, in a historic first, the G7
Finance Ministers and Governors met as a group with their Chinese counterparts
and had a candid engagement on the exchange rate issue,
Third, the Bush Administration has worked intensively with the Chinese on the
essential technical economic and financial steps needed move to exchange rate
flexibility, A detailed timeline of measurable reform actions was developed,
Secretary Snow appointed an emissary, Ambassador Paul Speltz, to the Chinese
government on the exchange rate issues, and the Ambassador has held many
operationally-oriented talks with the Chinese authorities and the business
community,
The Administration began a technical cooperation program last year as a means to
accelerate reforms in the financial sector and currency regime, Talks have been
held this year on foreign exchange risk, the use of derivatives, financial instruments
to manage currency risk, banking systems and foreign exchange futures markets,
The Chinese have publicly acknowledged the value of this program, and I am
convinced that it will facilitate a faster move to a fleXible exchange rate regime in
China, Just last month at the time of the G7 meetings in Washington China
"reaffirmed its commitment to further advance reform and to push ahead firmly and
steadily to a market-based flexible exchange rate," And China has made
measurable progress on this reform agenda, Specifically, it is relaxing restrictions
on the capital account, restructuring its banking system, taking steps to develop the
foreign exchange market, and building the trading systems necessary to hedge
currency risk, But our job is not finished, and we will continue to engage with them
frequently and firmly,
The Administration has also been actively engaging with China on trade, agriculture
and intellectual property rights, We are working to insure that the Chinese
generally fulfill their WTO commitments, In financial services, China has allowed
GM and Ford Motor to provide motor vehiCle financing to Chinese car buyers, And,
onerous funding and capitalization requirements for branching in both banking and
Insurance have been lowered,
China accelerated steps to allow U,S, companies to import, export, distribute, and
sell products in China without using local state trading companies, China has also
agreed to non-discriminatory tax treatment for U,S integrated circuits in China, the
world's fastest growing semiconductor market.
The United States has also promoted steps in China to expand agricultural trade,
China's commitment to reduce barriers in agriculture within the WTO has helped
spur growth in trade with the United States, The United Stats exported a record $5

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New Directions for U.S. Economic Policy towards Japan and China John B....

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billion in agricultural goods to China in 2003, and U.S. agricultural exports to China
in the first seven months this year rose by 35 percent over the same period last
year. In addition, China has agreed to implement new procedures and issue new
product approvals for U.S. biotech soybeans, canola and corn and twelve U.S.
biotech products have now been approved. Finally, as a result of U.S. efforts,
China has relaxed market constraints on soybeans and cotton trade, resulting in an
all-time high in soybean exports to China during 2003 and a 431 percent increase in
cotton exports in 2003 over the previous year.
Despite these significant, tangible improvements, a major concern for the United
States government remains China's failure to provide adequate protection for, and
enforcement of, intellectual property rights. Real progress in this area requires
China to show significant reductions in infringements of intellectual property rights
and substantial improvements in enforcement.
Looking ahead, the Administration will continue to engage with China on banking
sector reform, and financial market development, as well as the exchange rate. We
will continue to insist that China live up to its commitments in joining the WTO and
in abiding by the rules of the international trading system.
Concluding Remarks
The Bush Administration views the Japanese and Chinese economies and their
increasing integration into the global trade and financial system as a tremendous
opportunity for U.S. workers and businesses in producing the goods and services
that an expanding Asian economy will demand. The economic relationships
between the United States and Japan and between the United States and China
have changed direction under President Bush's leadership and the results have
already been excellent. For the first time in many years, Japan is growing again,
providing support to global growth and continued expansion in the United States.
China is opening up its markets to agriculture, financial services, and other U.S.
exports and it is taking concrete steps needed to create a market-based flexible
exchange rate.

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JS-20SI: Treasury and IRg Is~ue Guidance on Infonnation Reporting of Dividends from ...
~

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Page 1 of 1

I-'HLSS He'OM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

October 22,2004
JS-2051

Treasury and IRS Issue Guidance on Information Reporting of Dividends from
Foreign Corporations
Today, the Treasury Department and the IRS issued guidance on 2004 information
reporting of dividends from foreign corporations that are paid to individuals and that
may be eligible for reduced rates of tax. Notice 2004-71 provides guidance for
persons required to prepare form 1099-DIV and other Information reporting with
respect to dividends from foreign corporations and for individuals receiving such
forms.
Form 1099-DIV includes a separate box identifying the amount of dividends eligible
for reduced rates of tax. A dividend paid by a foreign corporation is eligible for the
reduced rates if it satisfies the special rules applicable to foreign dividends. Last
year, the Treasury Department and the IRS provided simplified procedures for 2003
information reporting of foreign dividends on Form 1099-DIV. Today's notice
extends those simplified procedures to apply to 2004 information reporting.
The Treasury Department and the IRS intend shortly to issue detailed guidance
regarding information reporting procedures to be applied for future years. This
guidance will be issued in proposed form in order to provide interested parties an
opportunity to comment.

REPORTS
•

A copy of Noller: 2004-71

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Part III - Administrative, Procedural, and Miscellaneous
Information reporting and other guidance regarding distributions with respect to securities
issued by foreign corporations.

Notice 2004-71

SECTION 1. OVERVIEW
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (P. L. 108-27, 117 Stat.
752) (the "2003 Act") was enacted on May 28, 2003. Subject to certain limitations, the
2003 Act generally provides that a dividend paid to an individual shareholder from either a
domestic corporation or a "qualified foreign corporation" is subject to tax at the reduced
rates applicable to certain capital gains. A qualified foreign corporation includes certain
foreign corporations that are eligible for benefits of a comprehensive income tax treaty with
the United States which the Secretary determines is satisfactory for purposes of this
provision and which includes an exchange of information program. In addition, a foreign
corporation not otherwise treated as a qualified foreign corporation is so treated with
respect to any dividend it pays if the stock with respect to which it pays such dividend is
readily tradable on an established securities market in the United States.
This notice provides guidance for persons required to make returns and provide
statements under section 6042 of the Internal Revenue Code regarding distributions with
respect to securities issued by a foreign corporation, and for individuals receiving such
statements. This notice provides generally that the simplified procedures and other rules
contained in Notice 2003-79 are extended to apply for 2004 information reporting of
distributions with respect to securities issued by foreign corporations.
SECTION 2. NOTICE 2003-79
In November of 2003, the Treasury Department and the IRS issued Notice 2003-79,
2003-50 I. R. B. 1206, which provided guidance for persons required to make returns and
provide statements under section 6042 of the Internal Revenue Code (e.g., Form 1099DIV) regarding distributions with respect to securities issued by a foreign corporation, and
for individuals receiving such statements. Notice 2003-79 identified a series of separate
determinations that must be made in order to determine whether a distribution with respect
to a security issued by a foreign corporation is eligible for the reduced rates of tax under
the 2003 Act. Notice 2003-79 provided simplified procedures to be used for 2003
information reporting of a distribution with respect to such a security. Notice 2003-79 also
provided guidance regarding the determination as to whether a security (or an American
depositary receipt in respect of such security) issued by a foreign corporation other than
ordinary or common stock (such as preferred stock) is considered readily tradable on an
established securities market in the United States for purposes of the 2003 Act.

In addition, Notice 2003-79 described certification procedures the Treasury
Department and the IRS intend to develop for use for information reporting in future years
of distributions with respect to securities issued by foreign corporations. Notice 2003-79
requested comments on the proposed certification procedures outlined, and several
comments were received.
SECTION 3. GUIDANCE FOR 2004
.01 Generally.
After reviewing the comments received and working further to develop procedures
as outlined in Notice 2003-79, the Treasury Department and the IRS have concluded that it
is appropriate to issue more detailed guidance setting forth the specific procedures to be
used for information reporting in proposed form in order to provide interested parties an
opportunity to comment. In order to allow for the issuance of proposed procedures and the
consideration of comments before such procedures are finalized, the Treasury Department
and the IRS are extending to 2004 information reporting the simplified procedures that
were provided in Notice 2003-79 for 2003 information reporting.
Section 3.02 of this notice provides guidance regarding whether a security is readily
tradable on an established securities market in the United States for purposes of section
1(h)(11). Section 3.03 summarizes guidance for 2004 information reporting of a
distribution with respect to a security issued by a foreign corporation. Section 3.04
provides guidance for 2004 for recipients of Form 1099-DIV.
.02 Readily Tradable.
Notice 2003-79 provided guidance for 2003 regarding whether certain securities
other than common or ordinary stock are considered readily tradable on an established
securities market in the United States for purposes of section 1(h)(11). Upon further
review, the Treasury Department and the IRS have concluded that the guidance provided in
Notice 2003-79 regarding this determination should be extended to future years.
Accordingly, for 2004 and future years, a security (or an American depositary receipt in
respect of such security) issued by a foreign corporation that is other than ordinary or
common stock (such as preferred stock) will be considered readily tradable on an
established securities market in the United States for purposes of the 2003 Act if the
security is listed on a national securities exchange that is registered under section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. § 78f) or on the Nasdaq Stock Market as
described in Notice 2003-71 .
.03 Persons Required to File Form 1099-DIV.
The rules for 2003 information reporting of a distribution with respect to a security
issued by a foreign corporation that are described in detail in sections 3.01 through 3.07 of

Notice 2003-79 will also apply for 2004 information reporting. Those rules are outlined in
the following summary. For 2004, a person required to make a return under section 6042
shall report a distribution with respect to such a security in Box 1b of Form 1099-01V as a
qualified dividend if:
1. either the security with respect to which the distribution is made is a common or an
ordinary share, or a public SEC filing contains a statement that the security will be,
should be, or more likely than not will be treated as equity rather than debt for U.S.
federal income tax purposes; and
2. either:
a. the security is considered "readily tradable on an established securities market
in the United States"; 1
b. the foreign corporation is organized in a possession of the United States; or
c. the foreign corporation is organized in a country whose income tax treaty with
the United States is comprehensive, is satisfactory to the Secretary for purposes
of section 1(h)(11), and includes an exchange of information program,2 and if the
relevant treaty contains a limitation on benefits proVision, the corporation's
common or ordinary stock is listed on an exchange covered by that limitation on
benefits provision's public trading test, unless the person required to file an
information return knows or has reason to know that the corporation is not
eligible for benefits under that treaty; and
3. the person required to file Form 1099-01V does not know or have reason to know
that the foreign corporation is or expects to be, in the taxable year of the corporation
in which the dividend was paid, or was, in the preceding taxable year, a foreign
personal holding company (as defined in section 552), a foreign investment
company (as defined in section 1246(b)), or a passive foreign investment company
(as defined in section 1297);3 and
4. the person required to make a return under section 6042 determines that the owner
of the distribution has satisfied the holding period requirement of section 1(h)( 11) or
it is impractical for such person to make such determination.
The IRS will exercise its authority under section 6724(a) of the Code to waive
penalties under sections 6721 and 6722 with respect to reporting of calendar year 2004
payments if persons required to file Form 1099-01V make a good faith effort to report
payments consistent with the rules summarized above and described in detail in sections
3.01 through 3.06 of Notice 2003-79. A person required to make a return under section
6042 may report a distribution in Box 1b as a qualified dividend even if the distribution
Notice 2003-71, 2003-43 I.R.B. 922, and section 3.02 of this notice provide guidance regarding when a
security is considered readily tradable on an established securities market in the United States for
purposes of section 1(h)(11).
2

Notice 2003-69, 2003-42 I.R.B. 851, contains a list of qualifying treaties for this purpose.
Notice 2004-70, 2004-44 I.R.B. 1, provides guidance regarding the extent to which distributions,
inclusions, and other amounts received by, or included in the income of, individual shareholders as
ordinary income from foreign corporations subject to certain anti-deferral regimes may be treated as
qualified dividend income for purposes of section 1(h)(11).

does not satisfy these simplified information reporting procedures for 2004, subject to the
applicable penalty provisions, as described in detail in section 3.07 of Notice 2003-79 .
.03 Recipients of Form 1099-DIV for 2004.
For taxable years beginning in 2004, a recipient of Form 1099-DIV may treat
amounts reported in Box 1b as qualified dividends, unless and to the extent the recipient
knows or has reason to know that such amounts are not qualified dividends, as described
in detail in section 3.08 of Notice 2003-79.
SECTION 4. EXPECTED GUIDANCE FOR FUTURE YEARS
The Treasury Department and the IRS are developing detailed procedures for
implementing the certification approach for information reporting outlined in section 5 of
Notice 2003-79. The Treasury Department and the IRS intend shortly to issue guidance
setting forth those detailed procedures in proposed form. This will provide interested
parties an opportunity to provide specific comments before the procedures are issued in
final form to be effective for information reporting for future years.
SECTION 5. EFFECTIVE DATE
This notice is effective for taxable years beginning on or after January 1, 2004.
SECTION 6. PAPERWORK REDUCTION ACT
The information collection referenced in this notice has been previously reviewed
and approved by the Office of Management and Budget as part of the promulgation of
Form 1099-DIV. See OMB Control Number 1545-0110. This notice merely provides
additional guidance regarding the proper filing of such returns and furnishing of such
statements.
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 OMS control
number.
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.
Generally tax returns and tax return information are confidential, as required by 26 U.S.C. §
6103.
SECTION 7. CONTACT INFORMATION
The principal author of this notice is Michelle L. Drumbl of the Office of Associate
Chief Counsel (International). For further information regarding this notice contact Ms.
Drumbl at (202) 622-3880 (not a toll-free call).

JS-2M3: TreasW'Y Official R..ecognizes Financial Education Program, Discusses Fin... Page 1 of 1

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f-'HLSS H()()M

FROM THE OFFICE OF PUBLIC AFFAIRS
October 22, 2004
JS-2053

Treasury Official Recognizes Financial Education Program,
Discusses Financial Literacy with Philadelphia Students
Treasury Under Secretary for Domestic Finance Brian Roseboro today presented
the John Sherman Award for Excellence in Financial Education to Operation HOPE
for its Banking on Our Future financial education program. Roseboro presented the
award at the Imani Education Circle Charter School in Philadelphia following a Joint
teaching session where he and John Bryant, founder, Chairman, and CEO of
Operation HOPE taught fourth and fifth graders the importance of money and how
to manage it effectively. Actor and recording artist Tyrese joined Roseboro and
Bryant to talk to the students about the importance of financial literacy.
"Any opportunity to teach young people about finances is an opportunity to provide
them with vital tools they will use for the rest of their lives," said Roseboro. "This
financial education program teaches students across the nation how to manage
money in a practical manner. It has been very rewarding for me to teach and see
firsthand the enthusiasm students have for financial education."
Banking on Our Future, which began in 1996, is a financial education program that
targets youth ages 10 to 20. Volunteer banker-teachers work with public schools to
teach students the fundamentals of banking, credit and investment using exercises
developed by the program.
Operation HOPE is a national provider of financial literacy and economic
empowerment programs. Through ongoing collaborations and long-term
partnerships with leading government, private sector, and community interests,
Operation HOPE works to bring self-sufficiency and a sustained spirit of
revitalization to America's inner-city communities.
The Department of the Treasury IS a leader in promoting financial education.
Treasury established the Office of Financial Education in May of 2002. The Office
works to promote access to the financial education tools that can help all Americans
make wiser choices in all areas of personal financial management, with a special
emphasis on saving, credit management, home ownership and retirement planning.
The Office also coordinates the efforts of the Financial Literacy and Education
Commission, a group chaired by the Secretary of Treasury and composed of
representatives from 20 federal departments, agencies and commissions, which
works to improve financial literacy and education for people throughout the United
States. For more information about the Office of Financial Education visit:
www trei'S rJCJv!fllldllClillcdllc<JtIOIl.

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JS-2054; Secretary Snow to VIsit Minneapolis, Minnesota On Tuesday to Discuss U.... Page 1 of 1

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FROM THE OFFICE OF PUBLIC AFFAIRS
October 22, 2004
JS-2054

Secretary Snow to Visit Minneapolis, Minnesota
On Tuesday to Discuss U.S. Economy
Treasury Secretary John W. Snow will visit Minneapolis, Minnesota on Tuesday,
October 26 to meet with local franchise business leaders to discuss the President's
efforts to strengthen the economy and create Jobs.
"As a result of the President's economic leadership, we have overcome a recession
and seen 13 straight months of job creation, totaling more than 1.9 million new U.S.
jobs since August 2003," said Secretary Snow. "Minnesota has gained new jobs
this year, and the President'~ tax reform policies have ensured that more than 1.9
million Minnesota taxpayers will have lower income tax bills in 2004."
During this trip to Minnesota, Secretary Snow also will discuss the Administration's
efforts to control health care costs, reduce frivolous lawsuits and ensure that
America has reliable and affordable sources of energy. "While the economy is on
solid footing, we are not satisfied and there is still more work to be done. We need
to continue to push for pro-growth policies that will create jobs and raise standards
of living," Secretary Snow said.
Recent indicators show that President Bush's economic policies continue to move
the economy forward. According to the Labor Department, the national
unemployment rate was 5.4% in September - down 0.9 percentage point from a
peak of 6.3% in June 2003 and the lowest rate since October 2001. At 5.4%, the
unemployment rate is below the average of the 1970s, 1980s, and 1990s.
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down in all regions and in 45 of the 50 states.
The following events are open to the media, which must present media credentials
or photo 10:

Tuesday, October 26
Franchise Business Roundtable
10:30 a.m. COT
International Dairy Queen headquarters
7505 Metro Boulevard, Minneapolis, MN
** Media should arrive by 10:00 a.m,
** There will be a brief media availability immediately following the event

-30-

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JS-20~5· <i~Celebroting and Learning from a Winning International Economic Strategy:...

Page 1 of 4

f-'HLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 22, 2004
JS-2055

Celebrating and Learning from a Winning International Economic Strategy:
John B. Taylor
Under Secretary for International Affairs
United States Treasury
Written Version of Remarks before the St. Louis Gateway Chapter of the
National Association of Business Economists
and the WeidenbaumCenter Forum
St. Louis, Missouri
October 22, 2004
Thank you for inviting me to speak here this morning. It is a special pleasure to be
here on the morning after that Cardinal victory last night. with SI. Louis fans in such
a good mood. My talk will be about the global economy, rather than baseball, but I
hope you will leave the talk in an equally good mood because we have a lot of good
news to celebrate about the global economy. And just as we can learn from the
winning sports strategy that brought the Cardinals victory, we can also learn from
the winning economic strategy that is leading to this good global economic
performance.
So I'm going to start by celebrating some important recent developments in the
global economy. And then, with the goal of learning in mind, I'm going to try to
answer the question: Why are global economic conditions so good? And how can
we keep them at least as good and even make them better?

How Strong is the World Economy Right Now?
To answer this question let me review the recent data. The International Monetary
Fund's most recent estimate of global growth for this year is 5 percent, higher than
in thirty years. And there is no major economy in recession. In fact, most economies
in the world are now growing at a healthy "gold i-locks" pace--neither too fast, nor
too slow--suggesting that the global economic expansion will continue.
The United States is expanding at a sustainable pace--3.3 percent in the second
quarter, with soon to be released data for the third quarter promising to look good
again. Japan has also been growing nicely at 3.5 percent since the beginning of
2002, in contrast to its lost decade of the 1990s with near zero growth. China's
rapid growth earlier in the year is slowing to a more sustainable pace, and the rest
of Asia is again doing well after last year's SARS scare. In Latin America, growth
has picked up in Mexico, Columbia, Peru, Chile, Brazil. and Argentina. Latin
America grew at over 5 percent so far this year. Russia and most of the European
economies are also growing strong. Even the French and German economies have
shown signs of growth this summer
One of the most auspicious developments In the world economy IS that inflation is
low in most countries, with global inflation much lower than in the 1990s. That
inflation is low In emerging markets IS especially significant. The average inflation
rate in emerging markets was 65 percent in the mid 1990s. Now it is about 6
percent. Such a benign inflation environment in the United States and other large
economies is more evidence that the global economic expansion should continue.
If you look around the world you see no major financial crises. This is in striking
contrast to the 1990s when one financial crisis after another brought high interest
rates and soaring unemployment to the economies of Latin America, Asia, and
Russia. One reason for this favorable development is that contagion of financial
crises across countries has diminished. Recall that contagion was a major concern
in the 1990s. It was in 1998 that the default on Russia's debt caused financial

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and Learning from a Winning International Economic Strategy:...

Page 2 of 4

storms as far away as Africa. Latin America, and East Asia. In the more recent
Argentina default in 1998 there was no contagion beyond Argentina's neighbor,
Uruguay,
Another favorable development is that interest rate spreads between emerging
market bonds and U,S. Treasunes are at historically low levels. The spreads are
important measures of global risk, Spreads have come down markedly during the
last two years They have stayed down despite the forecasts early this year that
spreads would rise sharply throughout the year as monetary tightening in the United
States began.
Of course, good times are no reason to be complacent. One element of risk today IS
the high price of oil. Those higher prices are a drag on economic growth, but the
global economy is strong and the expansion can withstand such shocks. But such
risks are a reminder that we cannot be complacent, despite the otherwise excellent
economic situation.
Why Are Economic Times Good?

A big part of the answer is found in economic policies--both better domestic policies
implemented in the United States and other countries and better international
economic policy implemented by the United States in partnership with the
international community.

Better Domestic Economic Policies
The United States economy is growing--despite the setback of the downturn
starting in 2000, the 9/11 terrorist attacks, and the corporate scandals--because of
the timely response of monetary and fiscal policy. President Bush's tax cut in 2001
was extraordinarily well-timed to help deal with the recession. It helped bring us out
of the downturn and make it one of the shortest and shallowest in U.S. history. The
second round of tax cuts in 2003 also helped bolster the economy, and we will
continue to see the benefits of that reduction in tax rates with higher growth
throughout the expansion.
The Japanese economy is growing because Prime Minister Koizumi insisted on
fundamental change, and monetary growth was increased and non-performing
loans were reduced. Improved economic relations between the United States and
Japan--Ied by President Bush and Prime Minister Koizumi--had a lot to do with
these changes, as I will discuss later.
Similar explanations hold for other good performances, including the high growth
and declining inflation under President Lula in Brazil and Prime Minister Erdogan in
Turkey, two countries that had been plagued by crisis at the start of the Bush
Administration. As with Japan, support by the United States for these allies and
their economic policies has been important.
What about the decline of crises and risk spreads? One reason they are down is
because of the more credible focus on price stability by central banks--aided by
market-determined flexible exchange rates--that has largely ended the boom-bust
cycle in many countries and is now laying the foundation for what may be the
longest global boom we have ever seen. This trend began with the Federal Reserve
years ago but has spread around the world in more recent years.

Better International Economic Policies
In addition, the international financial institutions have begun to reform, following
calls by the Bush Administration and joined by many of our allies. Important reforms
include greater clarity and predictability in the use of large-scale finanCing from the
International Monetary Fund, the use of collective action clauses in emerging
market debt, and the movement toward grants rather than loans at the World Bank.
Such reforms themselves--while still very recent in their implementation--improve
confidence, showing that international financial officials can work to make needed
changes in the international financial system. Greater transparency at central banks
and governments has also helped to reduce contagion by enabling market analysts
to better discriminate between countries that follow good policies and those that do

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JS-205S' <i~Celebroting and Learning from a Winning International Economic Strategy:...

Page 3 of 4

not.
There are a number of other international economic policy developments--many
initiated by the Bush Administration--that are contributing to improved economic
performance.
The Group of Seven-- Canada, France, Germany. Italy, Japan the United Kingdom
and the United States--has been the forum for a number of important economic
initiatives. The G-7 Agenda for Growth, which was implemented last year under
US. leadership, has brought a greater multilateral focus to structural, supply-side
policies, especially in Europe and Japan, to increase flexibility and boost
productivity growth and employment. The shift we have seen toward supply side,
pro-growth policies in the G-7 discussion has been marked in the last few years
Another multilateral initiative of the G-7 - embodied in the Boca Raton communique
- called for monetary policies based on market-determined flexible exchange rates
in large countries such as China as the key to promoting price stability and smooth
and widespread adjustments In the international financial system. And we are
pleased that the Chinese joined the G-7 in an historic, first time engagement to
discuss monetary and eXChange rate issues at a meeting earlier this month.
To help improve growth and reduce poverty in the poorest countries, President
Bush proposed the establishment of the Millennium Challenge Corporation, a new
U.S. organization which Will provide grant financing to very poor countries that are
choosing good economic policies based on clear strategies for measuring progress
toward stated results. This new corporation is now up and running, authorized and
funded by Congress.
Yet another international initiative is the new U.S.-Japan Partnership for Growth
established in 2001 by President Bush and Prime Minister Koizumi. It called for
candid, but not antagonistic, discussions on how to promote sustained economic
growth. Here we have focused on the importance of dealing with non-performing
loans and deflation, and we are grateful, as mentioned above, that Japan has made
important strides on these issues.
In another international effort, President Bush and President Lula created a new
U.S.-Brazil Group for Growth, a bilateral forum to review and assess strategies to
promote productivity growth and job creation. I am pleased to report that the
government of Brazil has already observed a positive impact of this undertaking on
small business lending programs.
Early in the Bush Administration, President Bush and President Fox of Mexico
created The Partnership for Prosperity, a private-public alliance to promote
Investment in parts of Mexico where growth has lagged; this has already generated
results in the form of falling costs of remittances. In fact, this experience helped
spur a new global remittances initiative in the G-8, through which we hope to extend
our success in Mexico to other parts of the world.
Most recently, President Bush, working together with his G-8 colleagues, has
established a new Broader Middle East and North Africa initiative, designed to
support economic freedom and financial integration in this crucial region. Very
successful first meetings on economic issues have already occurred in Dubai and
Washington, and a meeting in Morocco is being scheduled for later In the year.
Finance ministers and central bank governors from both Iraq and Afghanistan
attended and contributed to these meetings.
And in one of the most important policy developments, the Bush Administration is
following a multi-pronged trade agenda to reduce trade barriers through the Doha
Development Round, as well as bilateral and regional trade agreements. Free trade
agreements with Chile, Singapore, Australia, Morocco, Bahrain, and Central
America are either already in law or nearly finished.

Concluding Remarks
I think it's fair to conclude that this is a remarkable record of policy achievements
But the main lesson to learn from this list of achievements is that economic poliCies
are actually improving--both domestically and internationally--and along with them

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<i~Celebroting

and Learning from a Winning International Economic Strategy:...

Page 4 of 4

economic performance is also improving. There are indeed future challenges and
there is, of course, room for improvement. Nevertheless, such accomplishments
should give us confidence that by continuing and expanding this winning strategy
we can we can tackle these future challenges.

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1131200-;

JS-2056: Remarks on -the Ocrnston ofthe One-Year Anniversary of the Iraq Currency Exchange Joh... Page 1 of 2

PHlSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 22, 2004
JS-2056
Remarks on the Occasion of the One-Year Anniversary of the Iraq Currency
Exchange
John B. Taylor
Under Secretary of the Treasury for International Affairs
October 22, 2004
One year ago this week the Iraqi people, working with the United States and our
coalition partners, embarked on a difficult economic mission: to replace completely
Iraq's deteriorating and easily counterfeited currency and to restore economic and
financial stability to their ravaged economy. After years of hyper-inflation and falling
incomes under Saddam's regime, everyone knew this was an essential
reconstruction task. But many doubted that a nation-wide currency exchange could
be accomplished - What if the Iraqis didn't accept a new currency? How would the
new currency be distributed to millions of people in hundreds of cities and towns?
What if terrorists sabotaged the distribution?
Now, one year later, a new currency is circulating throughout Iraq and the Iraqi
currency exchange is hailed as a success. The exchange rate is steady, price
stability has been restored, and economic growth this year is 50 percent, one of the
highest rates in the world. The new Iraqi dinar is a sturdy and secure currency,
imprinted with traditional Iraqi symbols - altogether a great improvement over the
flimsy bills with Saddam's face. Demand for the new currency has been so strong
that the Iraqi government has earned an amazing $5 billion in seignorage during the
past year just supplying it. And Iraqis are using the newly-minted dinars to purchase
goods-- fresh bananas from the Americas, chickens from around the world, new
and used cars--at stable competitive prices in markets in Basra, Baghdad, Irbil and
Mosul.
The Iraqis are building upon these successes as they take responsibility for their
economic future. Iraqi officials in the newly constituted Central Bank now conduct
monetary policy, supervise the banking system, and review the growing number of
applications for banking licenses. At the Finance Ministry, Iraqis are developing
next year's budget according to international best practices as laid out in their new
Financial Management Law. Iraq has re-engaged with the international financial
community; it just entered into a strong agreement with the International Monetary
Fund, approved and welcomed by the all the G7 countries. Earlier this month, Iraq's
Finance Minister was in Washington at the annual meetings of the IMF and World
Bank to engage with the world's economic leaders and make the case for erasing a
large part of the crippling international debt run up by Saddam. As President Bush
mentioned in the St. Louis debate, the Finance Minister was amazed that the U.S.
press coverage missed all this good economic news about his country.
The successful introduction of a new currency--one of the crucial first steps in the
stabilization of Iraq's economy--did not occur by accident. It was the outcome of
extensive and careful advance planning and close international cooperation
begun in 2002 and culminating in the final approval by President Bush in the spring
of 2003. I remember putting the plan forward in the White House situation room
with the President asking tough questions of all of us--Treasury, Defense and State-about the economic significance, market acceptance, security, and logistics. Only
after all his questions were fully answered did he give the go ahead
Then the plans were put into operation with the Iraqis and the Coalition Provisional

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Authority working together. To make this all happen, twenty-seven 747 planeloads
of the new currency were printed in record time at seven different locations around
the world. The currency was then flown into Baghdad, and distributed to over 250
distribution points all over the country. Millions of Iraqis came with bags full of old
currency, and lined up to get the new currency. Finally, the old currency was
destroyed. A retired U.S. general, who had been running a bank in the United
States, volunteered to oversee logistical operations. He sent situation reports from
Baghdad to Washington and other coalition capitals everyday. Each report
concluded with his motto "Teamwork That Works I" And it did work.

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JS-20S7~ Treaiury

I<klntifie!t €uban-Controlled Dot Com

Page 1 0[2

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 25, 2004
JS-2057
Treasury Identifies Cuban-Controlled Dot Com
The U.S. Department of the Treasury today identified the electronic money transfer
business, SERCUBA, as a national of Cuba.
"As we have seen, the Castro regime uses a variety of schemes and businesses
located not only in Cuba, but also in countries around the world to feed its military
and security infrastructure - instead of the Cuban people. Today, we are financially
isolating SERCUBA to make it more difficult for the Cuban regime to obtain the hard
currency it uses to oppress its own people and to prop up its government," said
Juan Carlos Zarate, Treasury's Assistant Secretary for Terrorist Financing and
Financial Crime.
SERCUBA provides a means by which U.S. persons can forward remittances to
Cuban nationals via a third country or through SERCUBA's own website.
SERCUBA has a call center in Havana and sixteen offices located in Cuba, along
with two offices abroad - one in italy and one in Spain. The entity is organized
under Cuban laws and is supported by Cimex, a Specially Designated National of
Cuba.
Persons subject to U.S. jUrisdiction may not engage in any transactions with
SERCUBA unless authorized by Treasury's Office of Foreign Assets Control
(OFAC), and all property of SERCUBA that is in the possession of persons subject
to U.S. jurisdiction is blocked.
Today's action is part of the on-going effort by President Bush and his
Administration to choke off dollars streaming to the Castro regime and to make it
more difficult for the Cuban government to harden its internal security and military
infrastructure. These efforts are part of the Bush Administration's overall strategy to
hasten the day when the people of Cuba can live free, democratic lives. Both in
October 2003 and May 2004, President Bush announced stepped-up enforcement
of U.S. laws prohibiting travel-related transactions with the island.
Treasury's identification of Cuban-controlled businesses furthers these efforts by
culting the designees out of the U.S financial system, therefore keeping more hard
currency from flowing into the coffers of Castro's regime.
With today's announcement, the Treasury Department has now taken action
against 13 Cuban-controlled entities since President Bush's October 2003
statement.
ENTITY
SERCUBA
a.k.a.: http i,wwwscrcul)Cl

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Addresses
• Gral. Gomez #105 el Maceo e Independencia, CamagOey, Cuba
• Calle 29 #5218 el 52 y 54 Edif. Cimex, Cienfuegos, Cuba
• Libertad sin, el Honorato del Castillo y Maceo, Ciego de Avila, Cuba
• Calle 6 #408 esq. 3ra. Ave. Miramar Playa, La Habana, Cuba
• Edif. Las Novedades altos Ave. Frank Pais el Segunda y Aven.
Figueredo.
Rpto. Jesus Menendez. Bayamo, Granma, Cuba
• Crombet sin el Los Maceos y Moncada, Guantanamo, Cuba

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JS-20S7: Treasury Identifies Olban-Controlled Dot Com

Page 2 of2

• Frexes #216 el Maceo y Martires, Holguin, Cuba
• Ave. 1 roo De Mayo sin. Moa, Holguin, Cuba
• Vicente Garcia #28 el Julian Santana y Francisco Vega. Tienda La Nueva, Las
Tunas, Cuba
• Calle 40 esq Playa. Varadero, Matanzas, Cuba
• Calle Ayuntamiento el Medio y Rio, Matanzas, Cuba
• Gerardo Medina #633, Pinar del Rio, Cuba
·Independencia #171 Sur, altos, Sancti Spiritus, Cuba
• Felix Pen a #565 el Jose A. Saco y Aguilera, Santiago de Cuba, Cuba
• Carretera Central Km. 298 Banda Esperanza, Villa Clara, Cuba
• Calle 39 el 30 y 32 Altos del Servi Cupet "EI parque," Isla de la Juventud, Cuba.
For more information on previous Identifications of Cuban-controlled entities, please
visit the links below:
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..........--....--..........

JS-2058: Treaiury aRQ. IRS

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Final Version of Tax Fonn for Corporate Tax Returns

Page I of 1

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FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

October 25. 2004
JS-2058

Treasury and IRS Issue Final Version of Tax Form for Corporate Tax Returns
Today. the Treasury Department and Internal Revenue Service released the final
draft version of the Schedule M-3. Net Income (Loss) Reconciliation for
Corporations with Total Assets of $10 Million or More, for use by certain corporate
taxpayers filing Form 1120, US. Corporation Income Tax Return. The original draft
version of Schedule M-3 was released for public comment on January 28, 2004,
and a revised draft version was released on July 7, 2004.
Schedule M-3 is effective for any taxable year ending on or after December 31,
2004, and, in general, must be filed by a corporation required to file Form 1120,
U.S. Corporation Income Tax Return, that reports on Form 1120 at the end of the
corporation's taxable year total assets that equal or exceed $10 million. However, a
corporation is only required to complete certain sections of Schedule M-3 in the first
taxable year the corporation is required to file Schedule M-3.
This final draft version of Schedule M-3 was released in advance of the final
Schedule M-3 instructions to provide affected taxpayers, tax software vendors, and
other stakeholders immediate access to the form as they prepare to implement and
comply with Schedule M-3. This final draft version reflects changes to the Schedule
M-3 that the Treasury and IRS believe will greatly simplify completion of Schedule
M-3. The Treasury and IRS do not anticipate any further changes to Schedule M-3
and expect that the final version of SChedule M-3 will be available and posted on
www Irs qov in early December, 2004.
The Schedule M-3 is attached and may be accessed on www.lrs·CJov. The final
instructions for Schedule M-3 will be released as soon as possible and will also be
available on www Irs gov.

REPORTS
•

FII1<li (Jrafl SciledlJic: M-3

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113/2005

SCHEDULE M-3
(Form 1120)

Net Income (Loss) Reconciliation for Corporations
With Total Assets of $10 Million or More

Department of the Treasury
Internal Revenue Service

~©04

Attach to Form 1120.
See separate instructions.

Employer identification number

Name of corporation (common parent, If consolidated return)

':mil

OMS No. 1545-0123

Financial Information and Net Income (Loss) Reconciliation

1a Did the corporation file SEC Form 1O-K for its income statement period ending with or within this tax year?
Yes. Skip lines 1band 1c and complete lines 2a through 11 with respect to that SEC Form 10-K.
No. Go to line 1b.
b Did the corporation prepare a certified audited income statement for that period?
Yes. Skip line 1c and complete lines 2a through 11 with respect to that income statement.
No. Go to line 1c.
c Did the corporation prepare an income statement for that period?
Yes. Complete lines 2a through 11 with respect to that income statement.
No. Skip lines 2a through 10 and enter the corporation's net income (loss) per its books and records on line 11.

o
o

o
o
o
o

2a Enter the income statement period: Beginning
Ending
/
/
b Has the corporation's income statement been restated for the income statement period on line 2a?
Yes. (If "Yes," attach an explanation and the amount of each item restated.)
No.
c Has the corporation's income statement been restated for any of the five income statement periods preceeding the period
on line 2a?
Yes. (If "Yes," attach an explanation and the amount of each item restated.)
No.
3a Is any of the corporation's voting common stock publicly traded?
DYes.
No. If "No," go to line 4.

o
o

o
o
o

b Enter the symbol of the corporation's primary U.S. publicly traded voting common
stock. .
. . . . . . . . .
c Enter the nine-digit CUSIP number of the corporation's primary publicly traded voting
. . . . . . . . . . . . . . .
common stock
Worldwide consolidated net income (loss) from income statement source identified in Part I, line 1

5a (

5a Net income from nonincludible foreign entities (attach schedule) .

6a (

6a Net income from non includible U.S. entities (attach schedule) .

7a Net income of other includible corporations (attach schedule) .

7b (

b Net loss of other includible corporations (attach schedule) .
Adjustment to eliminations of transactions between includible corporations and nonincludible entities
(attach schedule) .

)

8
9

Adjustment to reconcile income statement period to tax year (attach schedule)

Other adjustments to reconcile to amount on line 11 (attach schedule) .

Net income (loss) per income statement of includible corporations. Combine lines 4 through
11

10 .
=or Privacy Act and Paperwork Reduction Act Notice, see the Instructions for
=orms 1120 and 1120-A.

)

b Net loss from non includible U.S. entities (attach schedule and enter as a positive amount)

)

b Net loss from non includible foreign entities (attach schedule and enter as a positive amount)

Cat. No. 37961C

Schedule M-3 (Form 1120) 2004

Page

Name of corporation (common parent. if consolidated return)

Employer identification number

Name of subsidiary (If consolidated return)

Employer identification number

Reconciliation of Net Income (Loss) per Income Statement of Includible Corporations With
Taxable Income per Return
(a)

Income (Loss) per
Income Statement
(optional)

Income (Loss) Items
1
2
3

4
5
6
7

8
9
10
11
12
13

14
15
16
17

18
19
20
21
22

(b)
Temporary
DIfference

(e)

Permanent
Difference

(d)
Income (Loss) per
Tax Return
(optional)

Income (loss) from equity method foreign corporations
Gross foreign dividends not previously taxed
Subpart F, QEF, and similar income inclusions.
Section 78 gross-up.
Gross foreign distributions previously taxed .
Income (loss) from equity method U.S. corporations
U.S. dividends not eliminated in tax consolidation.
Minority interest for includible corporations
Income (loss) from U.S. partnerships (attach schedule)
Income (loss) from foreign partnerships (attach schedule)
Income (loss) from other pass-through entities
(attach schedule)
Items relating to reportable transactions (attach details)
Interest income
Total accrual to cash adjustment
Hedging transactions
Mark-to-market income (loss) .
Inventory valuation adjustments
Sale versus lease (for sellers and/or lessors) .
Section 481 (a) adjustments
Unearned/deferred revenue
Income recognition from long-term contracts
Original issue discount and other imputed interest

23a Income statement gain/loss on sale, exchange,
abandonment, worthlessness, or other disposition of
assets other than inventory and flow-through entities
23b Gross capital gains from Schedule D, excluding
amounts from flow-through entities
23c Gross capital losses from Schedule D, excluding
amounts from flow-through entities, abandonment
losses, and worthless stock losses
23d Net gain/loss reported on Form 4797, line 17,
excluding amounts from flow-through entities,
abandonment losses, and worthless stock losses
23e Abandonment losses
23f Worthless stock losses (attach details)
23 9 Other gain/loss on disposition of assets other than inventory
24 Disallowed capital loss in excess of capital gains .
25 Utilization of capital loss carryforward .
26 Other income (loss) items with differences (attach schedule)
(loss)

items. Combine

lines

Total income
through 26

Total expense/deduction
line 36)

Other income (loss) and expense/deduction
items with no differences
Reconciliation totals. Combine lines 27 through 29 .

items (from Part III,

Note. Line 30, column (a), must equal the amount on Part I, line 11, and column (d) must equal Form 1120, page 1, line 28.
Schedule M-3 (Form 1120) 2004

Schedule M-3 (Form 1120) 2004

Page

Name of corporation (common parent. If consolidated return)

Employer identification number

Name of subsidiary (if consolidated return)

Employer identification number

Reconciliation of Net Income (Loss) per Income Statement of Includible Corporations With Taxable
Income per Return-Expense/Deduction Items
(a)
Expense per
Income Statement
(optional)

Expense/Deduction Items
1

2
3
4

5
6
7
8
9

10
11
12
13
14
15
16
17

18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36

(b)

Temporary
Difference

(d)
Deduction per
Tax Return
(optional)

U.S. current income tax expense
U.S. deferred income tax expense
State and local current income tax expense.
State and local deferred income tax expense
Foreign current income tax expense (other than
foreign withholding taxes)
Foreign deferred income tax expense
Foreign withholding taxes .
Incentive stock options.
Nonqualified stock options
Other equity-based compensation
Meals and entertainment
Fines and penalties
Punitive damages
Parachute payments
Compensation with section 162(m) limitation
Pension and profit-sharing
Other post-retirement benefits
Deferred compensation.
Charitable contribution of cash and tangible
property
Charitable contribution of intangible property
Charitable contribution limitation
Charitable contribution carryforward used
acquisition
Current
year
investment banking fees

reorganization

Current year acquisition or reorganization legal and
accounting fees
Current year acquisition/reorganization other costs
Amortization/impairment of goodwill
Amortization of acquisition, reorganization, and
start-up costs .
Other amortization or impairment write-offs
Section 198 environmental remediation costs
Depletion
Depreciation
Bad debt expense
Corporate owned life insurance premiums
Purchase versus lease (for purchasers and/or
lessees)
Other expense/deduction items with differences
(attach schedule)
Total expense/deduction items. Combine lines 1
throuqh 35. Enter here and on Part II, line 28 . .

Printed on recycled paper

Schedule M 3 (Form 1120) 2004

JS-20S,9:

The Honorable. John W. Snow Prepared Remarks: International Dairy Quee... Page I of 2

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 26,2004
JS-2059

The Honorable John W. Snow
Prepared Remarks: International Dairy Queen Headquarters
Minneapolis, MN
October 26, 2004
Good morning; it's great to be here In Minneapolis. I appreciate the opportunity to
talk with you about the economy both here, and all across this great nation of ours.
It's a pleasure to be visiting International Dairy Queen Headquarters. I want to
thank both Chuck Mooty, the CEO of Dairy Queen. and Brian Schnell, a member of
the International Franchise Association board of directors. for hosting this event.
Owning and operating a franchise is a great way to be self-employed and to create
Jobs for the people in your community, so I want to commend all of the franchise
owners here today.
As small-business owners, each one of you is the embodiment of America's
economic strength and dynamism, and you are also the embodiment of something
less tangible but even more important: the American Dream.
The work you do is critical to the health of your local and state economies. In part
thanks to that work, the Minnesota economy has added 18,100 jobs to the payrolls
so far this year. That's good news for a lot of Minnesota families ... but I know it
could be even better. We can't be satisfied until all Minnesotans who are looking for
work have found new jobs.
I am often asked where the jobs of the future will come from - a month from now. a
decade from now. That's a pretty tough question to answer. No one can predict
what the next great technology or industry will be, but I know it's safe to say that
most of America's jobs will always come from people like you and that by pursuing
good economic policies, keeping our system open. flexible and dynamic. we will
continue to create lots of good jobs in the future as our economic history shows so
well.
Your businesses may be small. They may never show up on the New York Stock
Exchange or the Fortune 500 list. .. but they create jobs for the people of your
community, and that means everything. In fact, 2 out of 3 new jobs come from small
businesses.
When our country goes through a rough patch, economically, small business has
always been there to pull us out. You are part of the most powerful elements of our
economy, which I see as a combination of: small-business owners and
entrepreneurs, our outstanding workforce and the simple fact that we operate as a
free market, which allows our economy to continuously adjust to changing
circumstances. These elements add up to the most open, fleXible, adaptive and
resilient economy in the world today.
The President understands how important you are to our economy, and he's made
you a priority in his economic policies.
He unG2~'3tands that, as small-business owners and operators, fairness and
freedom are the two things that you really want from your government
You seek the freedom to start up a new business venture, to run it and grow it, or -

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JS-20~?:

The Honorable John W. Snow Prepared Remarks: International Dairy Quee...

Page 20f2

as the head of the National Federation of Independent Business told me recently to close the door and go fishing for the afternoon if that's what you want to do'
You also want to be treated fairly, and you deserve nothing less.
In exchange for fairness and freedom, your unspoken promise to your country and
our economy is: job creation and the fuel our economic engine runs on.
This is why the President reduced your taxes and has called on Capitol Hill to give
you the option of Association Health Plans to reduce your health insurance costs.
That's why he wants to make the tax code simpler, fairer, and more pro-growth.
And it's why he wants to reduce that fear of baseless lawsuits that haunts you,
costs you money, and ultimately acts as a tax on economic growth in this country.
With small business in the lead, our economy has come a long way.
When he took office, President Bush inherited an economy in steep decline. The
stock market bubble had been pierced. We were then shocked by terrorist attacks
and wounded by reprehensible behavior by corporate CEOs that hurt employees,
investors and investor confidence.
Those key elements that I mentioned earlier - small business, outstanding workers,
and a free-market system - proved to be the foundation, as they always have been,
for our impressive economic recovery following this series of economic blows.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged investment, which is critical for
economic recovery and growth.
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation.
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, over 1.9 million jobs have been
created since last August - 13 straight months of job growth. More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are finding new jobs in industries across the board. They
have more money in their pockets and can better afford things from cars to
appliances to shoes for their children.
The President's tax relief is stili working for the people of Minnesota, with more than
1.9 million taxpayers saving money on their income tax bills in 2004 and 480,000
business taxpayers like you able to use your 2004 tax savings to invest in business
equipment and employee compensation.
Nationwide, in 2004, 25 million small business owners will receive tax relief totaling
about $75 billion.
At this point, it is critical to make that tax relief permanent, and to continue lifting the
barriers to growth in other areas as well - by making health care more affordable,
abusive lawsuits less common, and energy costs more reasonable.
Thank you so much for having me here today in this great American city, and thank
you for the work you do to keep our economy strong.
-30-

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JS-206Q: MEDIA ADVI£ORY: Secretary Snow To Visit Cedar Rapids, Iowa on ... Page 1 of2

f-'HLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 26, 2004
JS-2060

MEDIA ADVISORY:
Secretary Snow To Visit Cedar Rapids, Iowa
on Wednesday to Discuss U.S. Economy
Treasury Secretary John W. Snow will Visit Cedar Rapids, Iowa on Wednesday,
October 27 to meet with local business leaders to discuss the President's efforts to
strengthen the economy and create jobs.
"As a result of the President's economiC leadership, we have overcome a recession
and seen 13 straight months of job creation, totaling more than 1.9 million new U.S.
jobs since August 2003," said Secretary Snow. "Iowa has gained new jobs this
year, and the President's tax reform policies have ensured that more than 1 million
Iowa taxpayers will have lower income tax bills in 2004."
During this trip to Iowa, Secretary Snow also will discuss the Administration's efforts
to control health care costs, reduce frivolous lawsuits and ensure that America has
reliable and affordable sources of energy. "While the economy is on solid footing,
we are not satisfied and there is still more work to be done. We need to continue to
push for pro-growth policies that will create jobs and raise standards of living,"
Secretary Snow said.
Recent indicators show that President Bush's economic policies continue to move
the economy forward. According to the Labor Department, the national
unemployment rate was 5.4% in September - down 0.9 percentage point from a
peak of 6.3% in June 2003 and the lowest rate since October 2001. At 5.4%, the
unemployment rate is below the average of the 1970s, 1980s, and 1990s.
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down in all regions and in 46 of the 50 states.
The following events are open to the media, which must present media credentials
or photo 10:
Wednesday, October 27
Tour of precision contract manufacturer In Tolerance
and Roundtable With Local Business Leaders
11 :00 a.m. COT
In Tolerance, a precision contract manufacturer
126 29 th SI. Drive, SE
Cedar Rapids, IA
** Media should arrive by 10:30 a.m.
** There will be a brief media availability Immediately following the event

-30-

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~~'~ ....

;;;,.

""'-.

I. J ..

}RESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 26, 2004
2004-10-26-12-48-3-16345
U.S. International Reserve Position
The Treasury Department today released U.S reserve assets data for the latest week. As indicated in this table, US. reserve assets
totaled $84,067 million as of the end of that week, compared to $83,142 million as of the end of the prior week

I. Official U.S. Reserve Assets (in US millions)
October 15, 2004

October 22, 2004

83,142

84,067

TOTAL
1. Foreign Currency Reserves

a. Securities

Euro

Yen

TOTAL

Euro

Yen

TOTAL

11.313

14,412

25,725

11,465

14,643

26,108
0

Of which, issuer headquartered in the US.
b. Total deposits with:
11,138

b.i. Other central banks and BIS

2,897

14,035

2,943

11,284

14,227

b.ii. Banks headquartered in the US.

b.ii. Of which, banks located abroad

b.iii. Banks headquartered outside the US.

b.iii. Of which, banks located in the U.S.

19,511

19,723

12,827

12,966

11,043

2. IMF Reserve Position

3. Special Drawing Rights (SDRs)
4. Gold Stock

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
October 22, 2004

October 15, 2004
Euro
1. Foreign currency loans and securities

Yen

TOTAL

Euro

Yen

TOTAL

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the US. dollar:
2.a. Short positions

2.b. Long positions

o
o

3. Other

o
o
o

III. Contingent Short-Term Net Drains on Foreign Currency Assets
October 15, 2004
Euro

1. Contingent liabilities in foreign currency

Yen

October 22, 2004

TOTAL

Euro

Yen

TOTAL

2. Foreign currency securities with embedded options

3. Undrawn, unconditional credit lines

1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities

3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the US.
3.c. With banks and other financial institutions
Headquartered outside the US.

4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the US. dollar
4.a. Short positions

4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions

4.b.1. Bought calls
4.b.2. Written puts

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.
2IThe 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 IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.

js-206 i~ "Agenda for the new Indonesian Administration: a Rijsttafel of Policy Measures" ... Page 1 of 4

f-'HLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 26. 2004
js-2061

"Agenda for the new Indonesian Administration: a Rijsttafel of Policy
Measures" David P. Loevinger Deputy Assistant Secretary of Treasury for
Africa, Middle East and Asia
Remarks Presented at the USINDOIDAI Conference Luncheon Washington,
D.C. October 21, 2004
Thank you for the opportunity to explain Treasury's view on the new Indonesian
government's agenda. The U.S. Treasury does not spend nearly as much time on
Indonesia now as it did when I returned to Treasury from the IMF in January 2000 and that's a very good thing. This is not because Indonesia is not as important but
because Indonesia has made significant progress.
With over 250 million people - the world's largest Muslim democracy - the path that
the new government embarks on is important not only to Indonesia but to the
United States and the world. That's why I'm here today. Since I am a Finance
Ministry official and many areas have already been covered this morning by others,
I would like to focus my remarks on three issues Treasury views as critical for the
new Administration to tackle early on: continued fiscal consolidation, the investment
climate and banking reform.

Much Progress since 1998
First, it is worthwhile to take stock of the enormous progress achieved since the
1998 crisis. Inflation, interest rates, the fiscal deficit and external debt levels are all
down.
•

•
•

•

Year-on-year inflation dropped from a high of 70 percent in February 2002
to a low of 4.5 percent earlier this year, rising moderately to 6.2 percent in
September.
External debt has been reduced by half to 60 percent of GOP.
After receiving one of the largest IMF programs at the time as well as Paris
Club relief, Indonesia graduated from IMF financing and Paris Club
rescheduling. The IMF was much criticized and, admittedly, the IMF made
some mistakes. But in fairness and in hindsight, the IMF's role in Indonesia
should be viewed as one of great success.
Almost the entire banking sector had been nationalized; now almost all
intervened banks have been returned to the private sector.
In 1997 there were almost 240 banks, with very little foreign presence. Now
there are about 100 fewer banks, and foreign banks have now grown to
about one third of the banking system's assets.
Much private sector debt was in arrears, now a significant share has been
rescheduled. IBRA recovered 163 trillion rupiah in assets by the time of its
closure in February, a 28 percent recovery rate. These proceeds greatly
helped pay for lOR 650 trillion in public bonds issued to recapitalize the
banking system.
Perhaps most importantly, after fits and starts, a disciplined economic policy
team came into place that stayed "on message" and helped restore investor
confidence. Ministers Boedlono and oorodjatun deserve much credit. I
hope the new team will learn from their success.

Indonesian benefited from unusually benign environment
But Indonesia benefited from a favorable external environment. Keep in mind that
post-criSIS Indonesia gained from a buoyant international financial environment, a

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js-20M; "Agenda for the. new Indonesian Administration: a Rijsttafel of Policy Measures"... Page 2 of 4
tech boom that helped Indonesia's major trading partners. the lowest global interest
rates in a generation (that also spurred investor appetite for riskier debt), and a
booming Chinese economy (which increased demand for and prices of Indonesian
commodities)
Fiscal restraint played a key roll in restoring macroeconomic stability However,
due to limited capital markets. past governments didn't have the capacity to run
large deficits, particularly with a broken banking sector. While the government has
now made good progress developing a liquid Treasury bond market, this gives
future governments greater capacity to be less responsible.
The future environment may not be so forgiving and policy makers will need to
focus on structural reforms to make the economy less vulnerable. It is clear that
consumption-led GOP growth of 3 to 5 percent, compared to the 6 to 7 percent precrisis. is too low to reduce high unemployment and poverty. Peter Timmer of UC
San Diego's School of International Relations and Pacific Studies (IRPS) and Bill
Foerderer from USAID spoke earlier in more detail about poverty in Indonesia, but it
IS worth noting that 7.5 percent of the population still earns less than $1 a day. A
much larger share is precariously one shock away from poverty - 110 million
Indonesians make less than $2 per day. Furthermore, high debt levels still leave
the government and private sector vulnerable to exchange rate and interest rate
movements. I don't like uSing the term "second generation" reforms, but this is
what is currently needed in Indonesia.

Fiscal and Monetary Policy
With capital stock depreciating, increasing investment is needed to secure
sustained growth and employment. First, the authorities should build on the
macroeconomic gains made since 1997 through further consolidation and by
eliminating deficits, at least until debt falls to a level that will give the government
capacity to run counter-cyclical fiscal policy Without "spooking" investors. The
biggest enemy is complacency, as Argentina showed The IMF, Professor Carmen
Reinhart at the University of Maryland, and others have done much recent research
on debt intolerance. Their research has produced three key conclusions:
a.
b.
c.

Safe levels of debt are country specific, but Indonesia's target level
should be well below current levels.
Institutions matter: a country like Sweden can tolerate more debt
because of its developed institutions.
Relying on growth alone is rarely suffiCient to get out of the danger
zone. Thus, highly indebted countries need large primary surpluses.

Also, studies show that fiscal contraction in highly-indebted countries is not
necessarily contractionary, as it might be in a less indebted country. Moreover,
IndoneSia could partially offset the contractionary impact of further fiscal
consolidation by making the composition of its spending more supportive of growth;
reducing fuel subsidies (which mainly benefit higher income households and
promote rent seeking); and devoting more resources to investments in health,
education, and public infrastructure.
Bill Foerderer earlier spoke about the need to reduce the number of off-budget
accounts. In 1996, the U.S. Congress passed legislation, which had Indonesia in
mind but which targeted all countries, requiring the United States to ensure that all
revenues that fund military activities are audited and reported to civilian authorities
before approving credits or grants from the international financial institutions. By
giving the Supreme Audit Agency authority to look into the finances of the military
foundations, Indonesia made Important progress, but much more could and should
be done.
On monetary policy, 8ank Indonesia should establish a much more transparent
inflation-targeting regime. 81's current policy is too eclectic and it is unclear
whether they are targeting base money, interest rates, the exchange rate or other
indicators. As part of this, Indonesia should have less "fear of floating" - though
Indonesia fares much better on this than the rest of Asia.

Improving the Business Climate
Others at this conference have already spoken at length about the micro efforts to

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improve the business climate. but I would like to highlight that investors still
complain of unfair treatment by local courts, corruption, lack of transparency and
high costs to starting a business. It is impossible to overestimate how damaging
high profile cases are. CEOs who read the Wall Street Journal have a hard time
justifying investment In Indonesia to their boards.
Governance continues to be a big challenge and was a key reason that Indonesia
was not selected to be eligible for the U.S. Millennium Challenge Account funds In
2004. In the previous seminar, Peter Timmer noted that Indonesia could be five
years away from passing the control of corruption indicator. The corruption
indicator is the only MCA indicator which the Board is singularly required to look at
when assessing a country's prospect for achieving MCA-eligible status. I would like
to point out that the MCC Board can use its discretion if it believes that a country is
making significant progress and that the numbers used in the calculation may not
reflect current conditions. In the first year of the MCA, for example, Bolivia was just
at the median for the corruption criteria and not above as is required by the rule but
was still nominated as an MCA candidate by the Board.
The top priority for the new administration will be to send strong signals that
corruption, particularly in the judiciary, won't be tolerated. We understand reforming
the judicial system takes time and it is much easier said than done given that It will
require educating an entire corps of lawyers and judges. We also understand that
judicial independence is a step forward. Furthermore, it is much easier to design
IFI conditionality on macro indicators (such as reserves, deficit, and asset sales)
than on judicial reform. But at the same time, allegations of judicial corruption need
to be investigated and, if discovered, dealt with unambiguously. There are still far
too many stories about judicial decisions being sold to the highest bidder. Recent
passage of the bankruptcy law and the establishment of the Anti-Corruption
Committee are welcome moves in this direction.
We've been talking today about the need to improve the investment environment
and eliminate bureaucratic red tape, but I think It's important to look at the numbers
to truly understand the situation in Indonesia. According to the World Bank, it's not
pretty:
•

It takes an average of 151 days to start a business in Indonesia, compared
to a regional average of 52 days and 8 days in OECD countries.
• The cost of starting a business is 131 percent of per capita income,
compared to 47 percent in the region and 8 percent in the OECD.
• Firing costs are 3 years of wages in Indonesia, compared to one year in the
region and 40 weeks in the OECD.
• The cost of enforcing a debt contract is 127 percent of the contract,
compared to 57 percent in the region and 11 percent in the OECD.
• Resolving bankruptcies takes 6 years on average with a recovery rate of
about 11 percent, compared to 3 Y, years and 30 percent in the region and
1 Y2 and 72 percent in the OECD.
Passage of an adequate investment law is also Critical to allow full repatriation of
profits, reduce restrictions on foreign Investment and simplify taxes and duties.

Banking Sector Reform
Continued reform of the banking sector would also help increase the efficiency of
financial intermediation, and therefore boost growth, while reducing the risk of
another build up of contingent liabilities. Moreover, the "movie" of credit boomfueled growth, which we are seeing in Indonesia and throughout Asia, is one we've
seen many times before. The question is whether this time there will be a happy
ending. And we won't know until growth slows.
While there have clearly been improvements in governance In the banking and
corporate sectors, it is hard to know how much the quality of intermediation has
improved, particularly credit assessment and risk management, though the fact that
a significant part of credit growth is coming from state banks is cause for concern.
We also won't really know whether creditors' rights are stronger until they're really
needed. Developing a credit bureau system now should be a key priority.
State banks remain a key systemic risk. Their average ratio of compromised assets
is four times the level of private banks. The government needs to get out of the

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js-206 t ~ "Agenda for t1w. aew-lndonesian Administration: a Rijsttafel of Policy Measures"... Page 4 of 4
commercial banking sector. We had seen time and again in Indonesia and
elsewhere that large state-owned commercial banks are fiscal time bombs.

Treasury Support
Treasury's Office of Technical Assistance has provided several advisors on a
variety of issues to Indonesia and sent a tax advisor in February. Treasury works
with the multilateral development banks as they coordinate their programs in
Indonesia. Treasury is also working with Indonesia to combat money laundering
activities and prevent the financing of terrorism. This is Critical, most importantly for
Indonesia which has suffered greatly from terrorist attacks. As we know, there are
terrorist groups in Indonesia using the financial sector. While some progress has
been made, getting off the FATF non-cooperative list will require demonstrable
signs that enforcement IS improving.
Treasury is also very supportive of Indonesia's White Paper, which provided
inspiration for the Policy Monitoring Arrangement (PMA) proposed by the United
States and being considered by the IMF Board of Directors. It is a new type of IMF
engagement based on enhanced surveillance, not lending.

Conclusion
In conclusion, the new president has a strong mandate to embrace a broad reform
agenda, strengthen substantially the investment climate, raise potential growth and
create jobs. I hope that the new government will shift into high gear and make
economic reform one of ItS top priorities for long-lasting benefits to the economy
and to the Indonesian people.
Thank you. I look forward to a vigorous debate.

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JS-206.2: Statement ~ Assi~tro1t Secretary Zarate on the Announcement by the Cuban Go... Page 1 of 1

......................................

~-~-

PHLSS HOCJM

~.r
V'

FROM THE OFFICE OF PUBLIC AFFAIRS
October 26. 2004
JS-2062

Statement by Assistant Secretary Zarate on the Announcement by the Cuban
Government to Prohibit U.S. Dollars from Circulating in Cuba
Juan Carlos Zarate, the US Department of the Treasury's Assistant Secretary for
Terrorist Financing and Financial Crime, made the foJ/owing statement today in
reaction to Fidel Castro's announcement that beginning November 8, Us. dollars
wi/! no longer be circulated in Cuba:
"The announcement by the Castro government to pull U.S. dollars from circulation
is an act of economic desperation and a clear signal that President Bush's
strengthened policies towards Cuba have hurt the Castro regime. In typical Castro
fashion, his solution to this problem is to implement a measure that will directly
benefit and bring profit to his regime, while hurting the Cuban people.
"Because of the bankruptcy of Castro's policies and economics, the freedomstarved people of Cuba depend on remittances from their families living in the
United States to survive. Castro will not only now attempt to pool these U.S dollars
for his own profit, but also is doing so by shaking down the Cuban people with a ten
percent penalty for the currency exchange. As to be expected, when the regime is
facing difficulty, Castro works to enrich himself on the backs of the Cuban people.
"The Bush Administration will continue to apply pressure to Castro and his cronies,
working toward a day when the Cuban people are free to build the strong
democracy and a thriving economy denied them by the Castro regime," said Zarate.
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JS-20&3: Wayne A. Aeef'PlatWy Assistant Secretary of the Treasury for Financial Instit... Page 1 of 4

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FROM THE OFFICE OF PUBLIC AFFAIRS
October 26. 2004
JS-2063

Wayne A. Abernathy
Assistant Secretary of the Treasury for Financial Institutions
Before the North Carolina Bankers Association's
2004 Management Team Conference
Pinehurst, North Carolina
A Good Time to Be In the Banking Business
Thank you for invitmg me to visit with you today. I always enjoy coming to North
Carolina. I have so much family here, I believe that my Dad liked to say that
everybody in Catawba County was either related to me or married to someone who
was, That might have been a mild exaggeration, but I do know that there are a lot
of Abernathies in North Carolina, and it always feels familiar and friendly to come
here.
I take it as a duty, and as a privilege, on behalf of President Bush and Secretary
Snow, to thank you, the bankers of North Carolina, for the important role that you
have played and are continuing to play in promoting job creation and economic
growth. Our economy is strong and growing, and that economic growth is steady
and sustainable. For over a year now, the nation has been adding new jobs every
single month, 1.9 million jobs and counting, Real after tax income is up by more
than 10%. We are approaching a homeownership rate of nearly 70%. That means
that thiS morning, something like 7 out of every 10 Americans woke up in a house
that they own. That is a record high, never seen before in this nation for as long as
we have been keeping homeownership records.
Let me share with you another important homeownership milestone. For the first
time in our history, minOrity homeownership rates have broken the through the 50%
mark. That means that over half of all minority families woke up this morning in a
home that they own. We have never been able to say that before. And because
that is important, it is important that we continue to make progress. That is why
President Bush has set the goal of 5 million more minority home owners.
It is important because homeownership is important to the economy. It creates
tremendous stability for the economy. But as important as homeownership is to the
economy, it is even more important to people and to their communities, When you
own your own house, that means something to you. It changes people. People
who own their own homes are more likely to put down roots, to get involved in their
communities, in their churches, in their schools. People who own their own homes
are more likely to build financial strength for their future, for their family's future.
Homeownership is an investment, but it IS also an achievement, a source of
satisfaction that you are reminded of every time you come home from work and
open the door to your own house.
America is a society of owners. People come to America to own a piece of
America, to own their homes, to own their futures. And as people own, they build.
And as people build, America grows and prospers, economically yes, but even
more Importantly, America grows socially. America progresses. We become
increasingly a society of communities, of communities owned by the people who
live in them. My father grew up here in North Carolina, in a little town called China
Grove, just south of Salisbury. He had a nice house, but his family did not own that
house. The mill owned that house. But my father's children grew up in a house
that my father owned. And my wife and I own our house. And I want my children to
be able to own their homes.
Of course, that is where all of you come in. America's bankers help people build.

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They help people save, invest. They help transform savings into financing, the
financing that someone with a good idea needs. That man or woman with a good
Idea needs that finanCing In order to put that good idea to work, and in the process
put the neighbors to work, creating new jobs with the financing that fuels that new
Idea.
You and I know that most of the new jobs created in America are created by small
bUSinesses. That small business is not likely to go to Wall Street to get the money
It needs to expand and hire new people. That small business is likely to go to the
local bank for a loan. Then, that small bUSiness is likely to call upon the local bank
to help With managing the finances of the business and for many other financial
services that are part of business today.
As we emerged out of the recent recession, America's banks were there with the
resources to fund that growth. The latest statistics from the Federal Reserve Board
show that bank lending to businesses, especially small and medium sized
businesses, is strong. America's banks emerged from the recession in strong
condition, ready with the money needed to put people to work. You have been
doing that here in North Carolina, and your colleagues have been doing that all
across the nation.
President Bush's idea IS that we ought to keep that going. When we were in the
midst of the recession, President Bush had a visionary idea. His idea was that we
could help get the nation back on its feet if we let people keep more of their own
money, so he sent to Congress a proposal that do just that. He proposed to lower
taxes for all taxpayers. A lot of people were critical of that idea. Well, it was the
right thing to do, Congress passed the President's plan, and every American
taxpayer got a tax cut. To keep the recovery going, we believe the tax cuts should
be made permanent.
A word on deficits: you do not have to raise taxes to cut the budget deficit. You
can't tax your way to prosperity, and you can't eliminate the budget deficit without
prosperity. The two ingredients to reducing the deficit are economic growth and
controlling government spending. In the budget that President Bush submitted to
Congress this year, he proposed that we apply both ingredients.
Let me give you a good example, one that I think bankers will increasingly find to be
of great value, of real value to your customers, and so of real value to your banks.
Healthcare costs too much in America. But we are unlikely to reduce the cost, or
improve the quality, by increasing government control of healthcare or by raising
taxes to pay for government controlled programs. What we can do, is empower
more people with resources of their own to buy and control their own healthcare, to
make their own decisions, to bring the consumers of healthcare back to being more
in charge of their own healthcare spending.
That is the idea behind health savings accounts, or HSAs. Rather than someone
else buying healthcare for you, you invest your healthcare funds in an HSA at your
local bank and spend what you need from it. What you don't spend stays in your
account. It's yours, and it builds up and grows from year to year. That is good for
you, and it is good for banks as a growing source of funds that banks can then lend
to finance new jobs and economic growth in their communities.
I also firmly believe that repeal of the death tax is vitally important for small
businessmen and women who hope to be able to pass on the family business to
their heirs. Some of the best banks in America are family owned banks that have
been serving their hometowns for generations. Too many of these bUSinesses get
busted up or sold off in order to meet inheritance taxes, and that is why this
Administration has worked to repeal that tax and is working to make that repeal
permanent.
I was thinking of bringing with me today a new form for you to fill out. I figured
though, that the arrival from Washington of a new form for bankers to fill out would
be about as well received as the arrival of General Sherman's army. It would
probably also be unnecessary, even though this was to be a happy form. This
would be a form that would say, please list for me what you see as the three
biggest problems for banking today, the three things that make it harder for you to
meet the needs of your customers. 1think that you would be happy to tell me, but
the form would be unnecessary, because I think I know what your answer would
be. I have spoken With a lot of bankers, from here in North Carolina and from other

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JS-206~:

Wayne A. Ab8mathy Assistant Secretary of the Treasury for Financial InstiL. Page 3 of 4
parts of the nation. At the top, or very near the top, of your list would be the
crushing burden of excess regulation.
I am with you on that. On a table in my office is this quote from President Bush,
something that he said on March 23 of this year, right after the end of a cabinet
meeting. President Bush gave us a standard by which to measure proposed new
regulations. He said, "We need to make sure that the regulations at the federal,
state and local level are absolutely necessary." That is a tough standard, and I
think that a lot of regulations don't meet that standard. But that is the standard to
use. And we apply that standard.
We applied that standard when people said we need a regulation that says that
banks have to keep a physical copy of the identification documents used by a new
customer opening an account. We asked, is it absolutely necessary to keep a
physical copy? The answer was, no.
We applied that standard when some said that we should tell banks just what
identification they should use and not use when a customer opens up an account.
We asked, does Washington need to be telling banks in North Carolina what
Identificallon works best for them in their cities and towns? The answer was, no.
Of course, stopping unnecessary new regulation is only part of the job We have
Joined with the leaders in Congress to find eXisting regulations that need updating,
revision, or elimination.
And, occasionally, there may even be some new regulation that is helpful and that
can actually in effect provide relief. One of the most significant examples of that
kind of relief was legislation to strengthen uniform national standards for financial
information, legislation signed in to law by President Bush last December. These
national standards mean that customers take their credit history with them wherever
they go. That means not only that a customer can do business in virtually any bank
anywhere in the country without having to reestablish a credit record, but it means
that every bank, large or small, can do business with any new customer, having the
customer's complete financial record. Because of that, today more people have
more access to more financial products, at lower costs, than ever before in our
history and better than in any other country in the world.
That legislation, the Fair and Accurate Credit Transactions Act, or FACT Act, that
your Senator Dole, as a member of the Senate Banking Committee, had an
important hand in enacting, enables banks and law enforcement officials to use the
national credit reporting system to fight identity theft and unmask fraudsters all over
the nation. We stop identity theft when bankers know more about their customers-even a new customer--than the thieves do. And starting next year, because of that
legislation called for by this Administration, customers will have expanded access to
free credit reports and new rules to Improve the accuracy of those reports. Banks
and customers will benefit from that improved Information.
And I think it would be a mistake for me not to mention today how important S
Corporation tax treatment is for thousands of banks in America. Recent legislation
signed by the President not only preserves the S Corporation option for many
banks, it expands the option to many more. Under the tax laws, S Corporations are
subject to individual income tax rules rather than corporate tax rules. That S
Corporation tax treatment IS particularly important to banks in small communities, a
major source or financial relief for these banks. Similarly, raising individual Income
tax rates would directly affect the ability of these S Corp banks to serve their
communities and pay their employees.
If time would allow, I would discuss the importance for banks of this Administration's
efforts to reform bankruptcy laws, to curb abusive predatory lawsuits, and to
strengthen the resilience of our financial system against natural disasters and
terrorist attacks. I would also talk about our efforts to raise the finanCial literacy of
Americans young and old, as well as our proposals to strengthen our deposit
insurance system by merging its two separate funds and by allOWing It to operate
more like an insurance company.
And if I had a lot more time, I would discuss with you this Administration's proposals
to make sure that our system of housing government sponsored enterprises enJoys
the world-class level of care and attention and supervision that we need to make

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Aeet'I'l:athy Assistant Secretary of the Treasury for Financial InstiL. Page 4 of 4

sure that they are able to do their vital work today and In the future. We need a
reliable system to make sure that the secondary market for mortgages remains as
strong as it is today, if not stronger.
A lot of good work has been done. More remains to be done. Some of this work
has been well begun and calls for perseverance to see it through
I congratulate you on the important work you are doing to help meet the financial
needs of your customers and your communities. Banking is a good busmess. You
are helping a lot of other people with their good businesses. The economy is
continuing to grow, we are gettmg more and more people into more and better
jobs. Inflation is low, interest rates are low, productivity is high, economic growth is
strong. In short, it's a good time to be in the banking business in America.
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f-'HlSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 26, 2004
js-2064

Under Secretary for International Affairs John B. Taylor
Remarks at the Cleveland Council on World Affairs
Case Western Reserve University
Cleveland, Ohio
Getting International Economic Development Right: Is Effective Foreign
Assistance Possible?
Thanks for Inviting me to be here at the Cleveland Council on World Affairs. We
have heard a lot about foreign policy in recent weeks, but one part of our foreign
policy that has received relatively little attention is the international economic part.
So I appreciate the opportunity to discuss this important subject with you tonight.
A major goal of U.S. international economic policy is to increase economic growth
and economic stability around the world. Measured by that goal, the international
economic policy of the Bush Administration is working very well right now. The
world economy is growing at the highest rate in thirty years. No major economy is
in recession, and there are no major financial crises. Interest rates in both
advanced and emerging market countries are at historically low levels. Inflation
throughout the world has declined substantially and is not threatening the global
expansion as it has so often in the past. The consensus is that the current global
expansion will continue into next year and beyond. And importantly economic
growth in emerging market and developing countries is picking up and is expected
to reach 6-112 percent this year. The growth rate in Africa--at about 4-112 percent-this year is still a bit lower than the world average, but it is half again higher than in
2000 and is expected to rise to 5-112 percent next year.
But why should it matter to the American people that economic growth and stability
are improving around the world? Why should we care about the foreign economic
policy of the United States, and whether it is working or can be improved? There
are at least three good reasons:
First, a growing world economy creates jobs and higher incomes for Americans
through exports. Right here in Ohio, for example, exports support 451,000 jobs and
have Increased by 7.4 percent in 2003. After a decline that began back in 2000, job
creation is picking up again in Ohio, with employment rising and unemployment
declining in September. In the United States as a whole 1.9 million jobs have been
created in the last 13 months. Another good sign is that Governor Taft's recent
trade miSSion to Japan this year was 50 percent bigger than in 2000, a reflection on
the fact that Japan is growing again after a lost decade of stagnation.
Second, economic growth in the very poor countries is the key to reducing poverty,
and U.S efforts to increase global growth are therefore part of a long American
tradition of providing humanitarian support to improve the well being of people. The
truth is that, despite significant progress, three billion people are still living in
poverty around the world. Two billion lack adequate sanitation or have no
electricity. And a billion do not have safe water to drink.
And these poverty measures bring me to the third reason to care about our foreign
economic policy. Reducing poverty and creating jobs throughout the world is an
essential part of the war on terror. As we clearly saw in Afghanistan under the
Taliban, terrorism breeds in poor failing states.
It is for all these reasons--economic, humanitarian, security--that the Bush
Administration has made international economic policy--and, in particular, the

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economic development agenda for poor countries--a major part of its national
security strategy.
In fact, under President Bush's leadership the Administration has developed a
whole new economic development agenda, and the aim is to "get economic
development right" and use foreign aid more effectively. The new development
agenda channels more funds to countries that follow pro-growth policies. It insists
that resource flows be tied to measurable results. It provides the poorest countries
with increased levels of grants, as opposed to loans. And, by publication and
greater transparency, it brings attention to objective indicators of pro-growth policies
in developing economies.
President Bush has advocated this agenda at the World Bank and other multilateral
development banks, and he has put it into practice with the creation of a new U.S.
program; the Millennium Challenge Account (MCA). With three billion people still in
poverty, it is clear that a new economic development agenda was needed, and it is
this economic development agenda that I want to discuss with you tonight. I will
focus my remarks on the design and implementation of the Millennium Challenge
Account, though many of the same ideas apply to design and implementation of our
reform agendas at the multilateral development banks.

Design
Good international economic policy reforms don't just "happen." You need to
understand the problem you are trying to solve, come up with a proposed solution,
and then get the solution implemented, which may require Congressional approval
or international negotiation or both.
In the case of economic development, the problem was clear: too many people
around the world were still in poverty because economic growth in many poor
countries was too slow.
But why has economic growth been too slow? More and more evidence has been
accumulating that there are significant impediments to growth in countries that need
it most.
These impediments can be grouped into three areas.

Poor governance, including the lack of rule of law or enforceable contracts and the
prevalence of corruption, raises the cost of doing business and creates
disincentives for the private sector to create high-productivity Jobs. For example, it
costs $230 to ship cattle from the Sahel area in Burkina Faso to the coast of Ghana
compared to only $80 to ship cattle all the way from Europe to the same point.
According to International Livestock Research Institute, which I visited in Africa,
"numerous checkpoints and bribes" factor into this large cost difference. World
Bank research shows that countries that tackle corruption and improve their rule of
law can increase their national incomes by as much as four times in the long term.
Inadequate education impedes the development of human capital. Workers without
adequate education do not have the skills to take on high-productivity jobs or to
adopt new technologies to increase the productivity of the jobs they do have. The
workers in a computer services firm I saw in Ghana had good writing, reading, and
computation skills and could thereby use the new computer technology to raise
their productivity.
Restrictions on economic transactions prevent people from buying or selling goods
or capital, or adopting new technologies. Lack of openness to international trade,
monopolistic state marketing boards, and excessive regulations and red tape are all
examples of restrictions that create disincentives for the private sector to invest and
innovate so as to boost productivity. For example, until recently the government of
Uganda operated a marketing board, which controlled most of the buying and
selling in the Ugandan green coffee market. The marketing board held down the
price paid to farmers for their coffee. After the government eliminated the marketing
board, income to coffee farmers increased by nearly a factor of four--from 20
percent of the world price to 70 percent of the world price. So even with the drop in
world coffee prices in recent years, many coffee farmers have begun to have higher
standards of living.

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But there are still many similar restrictions in other markets, m other countries, and
between countries. Restrictions on imports into developed countries still reduce the
opportunities to create jobs in the export sectors of developing countries. And there
are also significant barriers to international trade in developing countries. In
Uganda, for example, there is a 45 percent tariff on the import of specialty coffee
bags needed for shipping more perishable roasted beans. This tariff is a factor in
keeping Ugandan firms out of the international roasted coffee market.
For these reasons a key principle of the Bush Administration's approach to
increasing growth and reducing poverty is to encourage and assist countries taking
actions that remove these impediments to economic growth. Hence, the main
principle underlying the MCA: focus economic development assistance on nations
that are taking actions to remove impediments in these three areas; when President
Bush first announced the Millennium Challenge Account in 2002, he stressed
assisting countries that (1) govern justly, (2) invest in people, and (3) encourage
economic freedom. Policies promoting these goals underpin successful growth,
catalyze private investment, and increase the effectiveness of aid.
Another principle underlying the MCA is that it would establish a partnership in
which the developing country, with full participation of its citizens, proposes its own
plan. The point is to ask the qualifying countries: What are your development
priorities? What are your constraints to growth and to productivity increases? This
approach gives countries more ownership of their programs, which greatly
increases the lasting support for the policy reforms that underlie the programs.
A third key principle of the MCA is to insist on measurable results in all projects.
President Bush has called explicit measurable results throughout his administration,
and it has been a theme we have stressed in all our development assistance
programs. We must ensure that we measure whether or not we achieve our goals.
What gets measured gets done. In this way not only can we determine whether our
aid is effective but how we can better target assistance and correct our strategies if
they don't work.
The MCA focuses on measuring results by making sure that every MCA contract
includes quantitative objectives and clear expected outcomes. We will require a
clear strategy for gathering baseline data and measuring progress toward stated
results and assessing the reasons for success or failure. We will require
disbursements to be conditioned on achieving satisfactory performance on the
expected results. Evaluation of results will allow the MCA to incorporate lessons
learned into ongoing and future operations. All measurement and evaluation
reports, as well as the terms of each compact, will be made public in the US and in
the host country.
This MCA is a revolutionary approach to economic development. It emphasizes
providing assistance to countries that will use the aid most. We have also stressed
this approach at the multilateral development banks. While foreign aid should be
available for humanitarian assistance, these countries must take responsibility for
increasmg economic growth of they are to receive development assistance funds.
Aid is not effective when governments are not responsible, not accountable to their
people, or not committed to reforms that address governance, social capital, and
responsible economic policies.
Implementation
Given these new MCA principles laid out by President Bush, economists and many
other specialists throughout his administration--Treasury, State, USAID, CEA,
OMB, USTR--went to work to make them work in practice. We focused on
choosing indicators, operations, and measuring results.
The Indicators
We had to develop quantitative measures of good policy that would be used to
assess countries' qualification for assistance. We stressed that the indicators had to
be based on an objective and transparent assessment of their policy performance.
By giving complete access to the information countries needed to qualify, the MCA
would help give economic leaders the incentive and direction to develop good
policies.

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Weconsulted with people in the multilateral development banks, academiC policy
institutes, the private sector, and non-profit organizations In the end several
indicatorswere chosen ineach of the three categories: 6 in governing justly, 4 In
investing In people and 6 In encouraging economic freedom--a total of 16
indicators. We insisted that all this information be publicly available. The list of 16
indicators is shown on a few charts I brought for Ghana and Niger--scannlng
through these charts give you a good sense of the robustness of the indicators. To
qualify countries should do better than the median on half of the indicators in all
three categories, and perform above the median on control of corruption.
Even before fundinghasbeendistributed to the selected countries, the country
performance on the Individual indicators has had tremendous impacts. For
example, one of the Indicators IS a measure of the days It takes to start a business
in a country. This indicator is something concrete and tangible that countries were
able to improve upon almost immediately. Benin, Bolivia, Madagascar, Mongolia,
Nicaragua and Sri Lanka all improved their days to start a business indicator In the
run up to the selection of countries for 2004.

The Corporation
Another essential implementation task was the creation of a Millennium Challenge
Corporation (MCC) to carry out the operations of the MCA. The MCC was to be
separate from cabinet agencies and have a degree of independence with a Board
of Governors consisting of several cabinet members and outside representatives.
I am happy to say the MCC has now been authorized and funded by congress. You
can go to their website www I11CC.Cj()V to learn more and to look at the indicators.
Sixteen countries have been chosen to participate in the first round.

The Measuring of Results
Making the measurable results concept work in practice is not easy and is perhaps
the most challenging part of development assistance. You may be wondering what
exactly we mean by measuring results? When the Department of Transportation in
Ohio builds a highway, they should be able to answer whether it helps relieve traffic
congestion or creates a more efficient way to get to an airport or urban center? How
much will this highway cost to build or to maintain? How long will it take to be
built?
The same should be true for international development assistance. I can give many
examples from my own experience. Consider Afghanistan for example. The ASian
Development Bank (ADB) provided a $15 million grant to Afghanistan to rehabilitate
a large portion of the 1OO-kilometer Kandahar to Spin Boldak road, one of the
country's major links with its neighbors. Despite its dilapidated condition, some
4,000 vehicles use the road daily, and the Spln-Boldak area is heavily congested.
To get this done expeditiously we insisted on ambitious timelines with measurable
results. To emphasize the importance I traveled to Manila the home of the ADB as
well as to Afghanistan. Our executive director at the ADB played an essential role.
The ADB wasn't just building a road: they were providing increased access to what
was a major route between Afghanistan, its neighbors and their markets for goods
and services. I am happy to say that the project has been completed. It has also
reduced travel time from Spin Boldak to Kandahar to 1 % hours, down from 3-4
hours. It is not just about how much money went into building a road, It was also
about how measuring results got the job done on time to make a difference for
Afghanistan
Another example is an education project in Kenya. Kenya faces the challenge of
increasing attendance in schools and improving completion rates and the quality of
the education. To accomplish the project goals the Ministry of Education disbursed
money to the school districts to spend on textbooks, teacher's guides and training,
financial management systems, hiring guidance counselors, and Innovating new
programs and activities for the students. A common practice at the schools, I
witnessed, is to put on the blackboard the amounts of aid given to them by different
donors. The blackboard tabulations serve as a tracking mechanism to see where
the money had been spent, and what portions remained. This was an excellent
example of results measurement, as I could see how much was spent on textbooks,
how many textbooks were bought, and the students with the textbooks in hand. Not
only is the process transparent, but it also encourages project ownership, as the

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parents and school board are involved in deciding the types of text books to buy for
the school. The communities are also able to track their schools progress towards
meeting the overall goals of the project and to see whether the money spent on
textbooks and training is actually producing the desired results.
Americans are by nature a generous people but they want to see results from their
funds that are devoted to development, and their support for providing foreign
assistance will only increase if those results are demonstrated in a convincing and
straightforward manner. By measuring concrete results, we can focus our efforts
on what really matters: helping poor people around the world escape from poverty
and lead better lives.
The approach helps us cut through bureaucratic layers, ignore non-essentials. and
concentrate on development problems that must be solved. It is a way to maximize
the benefits of our funds.
Conclusion
I think the record demonstrates that we have made real progress in our
international development assistance. I can say that this is truly an exciting time for
those of us who have been working on international development issues in the
Bush Administration. In 2001 President Bush announced his new grants and
measurable results initiatives. Regarding the grants he explained that he aimed to
not only "drop the debt" of poor countries but also to "stop the debt." In 2002 he
announced the Millennium Challenge Account--which I have focused on here
tonight--saying "the bottom line for us. and for our developing country partners, IS
how much development they are achieving." Now the grants and measurable
results systems are operational at the World Bank and the MCA is up and running
too. And this year the World Bank issued its annual development report and
focused It entirely on economic growth as the key way to reduce poverty.
These International development reforms have the potential to provide profound
and far-reaching benefits for recipient countries around the world. The policy
reforms enacted in poor countries can provide opportunities to address key
bottlenecks to development, to increase international trade and private capital
inflow, and to ultimately help their citizens who will benefit from greater economic
and political freedom.
-30-

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PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 26, 2004
JS-2065
Air Transportation Stabilization Board's Statement
on ATA Airlines Decision to File for Chapter 11 Protection
The Air Transportation Stabilization Board (ATSB) has been in contact with ATA
Airlines over the past several weeks as the carrier prepared for today's filing. The
ATSB understands the issues confronting ATA and will work with the airline through
the bankruptcy process to ensure that the taxpayers' interests are protected. The
proposed sale of assets will be closely scrutinized by the Board to mitigate any
additional risks the transaction may pose to taxpayers.
-30-

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PH L S S

ti Li Li 1"1

FROM THE OFFICE OF PUBLIC AFFAIRS
October 14, 2004
js-2066
Remarks of Assistant Secretary for Economic Policy Mark J. Warshawsky
The Ownership Society: Health Care and Retirement
before the John Locke Foundation of North Carolina
The Administration's efforts to reduce the tax burden on millions of American
families and businesses is well known. I realize the John Locke Foundation shares
our views on the important benefits of tax relief.
Today, however, I would like to focus on the challenges of health care and
retirement reform. In particular, I will discuss health savings accounts (HSAs),
social security personal savings accounts, and employer-sponsored pensions. I
would like to put these reforms in an economic context and in the context of the
President's vision of an "ownership society."
The President's concept of "ownership" embraces, at its very core, principles that
the John Locke Foundation embodies: individual rights, limited government, free
markets, and a free society. The President has said that "when people have solid
assets to call their own, they gain independence and security and dignity, and more
control over their future."
Health Care
Treasury Secretary John Snow has stated that "people often refer to health care as
a social issue ... it is also an economic issue of staggering proportions." Health care
affects the financial security of households and collectively affects the economics of
our country. As health care costs rise for individuals and families, so too do the
overall costs of Medicare, Medicaid, and the employee compensation costs of
businesses both large and small.
For these reasons, President Bush is committed to health care reform that provides
all Americans with access to affordable, high-quality health care. He believes,
however, that reform must address the systemic, root causes of our national health
care problems rather than simply ameliorating its symptoms. To this end he has
proposed a plan that increases the power of individuals by allowing them to
participate in health savings accounts (HSAs). These HSAs became law last
December with the enactment of the 2003 Medicare bill.
Health savings accounts permit anyone who has qualifying high deductible health
insurance coverage to save tax-free dollars, earn tax-free interest, and withdraw
these dollars tax-free to pay for an array of qualifying medical expenses. Perhaps
most importantly, they are owned by the individual and not the employer. Secretary
Snow has described them as super-charged IRAs that put patients back in charge
of their health care. "You own it, you control it, you can leave it to your heirs," he's
said.
HSAs help control costs in a number of ways and can have greater positive
ramifications on the economy as a whole. Health Savings Accounts can help
reduce overall health care costs as Americans become more aware of how much
they spend on health care. Currently, insurance companies do put pressure on
providers to reduce unit costs. However, the current system can make actual
service costs elusive to the individual. Because they are handled almost entirely

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through a third party administrator, we may know our copay or our deductible, but
not necessarily our overall health costs.
The intuition that the HSA-high deductible health plan combination reduces costs is
supported by rigorous research. The RAND Corporation conducted a "Health
Insurance Experiment" from 1974 through 1982. The experiment measured both
use and health outcomes in populations carefully selected to be representative of
the U.S. population under the age of 65. Participants were enrolled in a range of
insurance plans requiring different levels of copayment for medical care, from zero
to 95 percent (With maximum dollar out-of-pocket expenditures set at $1,000). The
researchers found that those who paid nothing used 40 percent more services than
those required to pay a high deductible, but the effect on the health status of the
average person was negligible.
HSAs help control costs because owners are allowed the freedom to shop around
for the most economical health care services. Furthermore, as Americans become
more aware of their personal health care costs they may take more ownership of
their health. HSAs can push Americans to maintain better personal heath care such as an individual who changes their diet to avoid heart disease in the future.
By taking this step to offer HSAs we are helping to transform health care in the
United States. By making production of health care services more efficient, we
lower the costs of health care. By containing skyrocketing increases in health care
costs, we return to families more control over their budget, and we give our country
a better chance at maintaining balanced budgets at the levels of state and local
governments as well as the federal government.
Having discussed ways HSAs help control costs and stated their possible societal
effects, let me briefly explain how HSAs work.
HSAs can be easily set up along with the purchase of a low-cost, high-deductible
insurance policy to cover major medical expenses. They can be established
through any bank, credit union, insurance company or financial services firm that is
handling IRAs.
Pre-tax dollars (up to the amount of the major medical policy's annual deductible,
with a cap of $2,600 for individuals and $5,150 for families) are acceptable
contributions. Individuals over age 55 can make extra contributions to their
accounts and still enjoy the same tax advantages.
Money from the HSA can be withdrawn tax-free when it is used to pay routine
medical bills, such as doctor visits or for medicine. The money can also be saved in
the account and carried over into the next year, earning interest tax-free. It is the
choice of the account owners to consult with their doctors to determine which
medical goods and services they need, without undue interference from an
insurance company.
The President has also proposed allowing for the deduction of the cost of the
premiums paid for a high deductible health plan, thus reducing the cost of these
policies. This above-the-line deduction would be available whether deductions are
itemized on tax returns. The cost is already excluded from taxable income if it is
provided by an employer.
The high deductible health insurance policy of an HSA can protect against big
medical expenses, such as hospital stays, and provide peace of mind by limiting
total out-of-pocket medical costs in the event of serious illness.
It may be possible to save money with an HSA when compared to traditional health
insurance plans. This is because if expenses are not covered under the high
deductible health plan but are paid for from HSA funds they are, in essence,
excludable from taxable income. Out-of-pocket expenses under a traditional health
insurance plan are not deductible until they exceed 7.5 percent of an Individual's
adjusted gross income.

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Employers can contribute to these accounts, and their contributions are tax-free.
HSAs are portable. You can keep your HSA when you change jobs
You can pass HSAs to your spouse tax-free. (If you leave money to a beneficiary
other than your spouse, it is taxed, but then is passed on.)
HSAs give consumers the opportunity to budget for their health expenses over
many years.
Finally, to ensure that more Americans have access to these accounts President
Bush proposes giving direct help to low-income Americans to purchase these
accounts. The President proposes giving families a $1,000 direct, subsidized
contribution along with a $2,000 refundable tax credit to help purchase a policy to
cover major medical expenses Individuals would receive a comparable $300 HSA
contribution and $700 refundable tax credit.
To give you an idea of current HSA activity and accomplishments, the Treasury
Department has fielded thousands of emails and phone calls related to HSAs and
the number one page on the Treasury's Web site, in terms of "hits," is the HSA
page.
While the specific number of accounts established to date is unknown, we know
that many national and regional insurance companies, third-party health plan
administrators and financial institutions are offering them. The federal government,
additionally, will offer these as an option to its employees in 2005.
I've given you an overview of the specific mechanics and accomplishments of
HSAs. Let's talk about the criticisms. After all, criticisms can be expected of any
new plan.
First, there is concern that HSAs may bifurcate the risk pool by attracting the young,
rich, and healthy while the sick, poor, and elderly are left paying higher premiums
on their traditional plans. The evidence thus far indicates that the benefits outweigh
any potential costs. Indeed, the most recent HSA statistics indicate that people
conSisting of a variety of ages, incomes, and insurance needs are successfully
purchasing HSAs. According to one provider, 70 percent of HSA purchasers are
over age 40. Twenty-nine percent of HSA purchasers have family incomes of less
than $50,000. And 77 percent of purchasers are families with children.
Furthermore, this bifurcation could only occur where you have chOices among
health plan types. Today, too many people don't have any choices. In fact,
according to one provider, 43 percent of HSA applicants did not have prior health
insurance coverage. Small business owners, in particular, are a group looking for
any cost effective option in health care plans. Currently, small business owners are
oftentimes not able to offer their employees any health insurance at all. In this case,
HSAs are an important option to provide low-cost health care and increase
employee participation.
Additionally, critics have also claimed that these accounts may encourage people to
skimp on needed medical benefits in order to build up their savings. The health plan
allows for first dollar coverage for preventative care, It's in the regulations. More
generally, HSAs allow for rational and reasonable spending trade-offs, Again, we
can cite here the Health Insurance Experiment results,
The President's health care initiative, in addition to HSAs, includes a proposal to
give $4 billion in grants to support state-run insurance pools to help low-income and
high-risk Americans to get the most out of their health insurance tax credits, This
should encourage states to create purchasing pools that will help reduce the cost of
buying insurance and make it easier and faster to shop for coverage,
The President also proposes allowing local groups to band together through their
national or regional organizations to purchase insurance. Through these Associated

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Health Plans small business owners, civic groups and other community
organizations will receive the economies of scale needed to negotiate lower-priced
insurance coverage.
Additionally, we are determined to address the legal reform needed to curb frivolous
and unnecessary lawsuits.
Social Security
Moving on to the topic of retirement income security, I am aware that any such
discussion must feature Social Security. Economically speaking, the system as it is
currently structured is unsustainable.
In 1950, there were 16 workers to support everyone beneficiary of Social Security.
Today, there are only 3.3 workers supporting every Social Security beneficiary. By
the time our youngest workers - those just entering the workforce today - turn 65,
there will only be 2 workers supporting each beneficiary.
As a result of these demographic changes, as well as increases in longevity, the
current system will not be able to afford to pay the benefits scheduled for our
children and grandchildren without enormous payroll tax increases. The President
believes we can implement real reform to avoid these terrible outcomes.
He believes this untenable situation is fixable and that "Social Security is one of the
greatest achievements of the American government, and one of the deepest
commitments to the American people." Because of his deep commitment to the
Social Security program, President Bush supports Social Security reform that
increases the power of the individual, does not increase the tax burden, and
provides economic opportunity for more Americans. The President has issued
specific guiding principles for reforming Social Security.
One very important principle is that we must protect seniors by ensuring there will
not be any reductions in near-retiree or retiree benefits. And we must not raise
payroll taxes.
Another principle is that personal savings accounts (PSAs) should be made
available in order for younger workers to build a nest egg for retirement that they
own and control, and which they can pass on to their children and grandchildren.
Additionally, we must pursue the goal of a permanently sustainable system. As I
previously mentioned, the President stresses the need to treat the systemic
dysfunction within the Social Security system as opposed to treating only the
symptoms.
To further demonstrate our concept of an "ownership society," I would like to focus
on PSAs. President Bush talked about Social Security in his State of the Union
speech. He remarked, "We should make the Social Security system a source of
ownership for the American people."
PSAs provide individual control, ownership, and the opportunity for individuals to
receive the benefits of long-term investing in private-sector markets. They are
important because the retirement security of our current young and future workers
depends on them. Personal accounts allow us to save now to help fund our
retirement incomes. In theory, that could be done with reforms that save tax
revenues in the Trust Fund. But such "saving" would almost certainly be undone by
political pressures to increase government spending and, hence, produce larger
deficits outside of the Social Security budget.
Social Security was designed in 1935 amid a very different economic environment.
There was a perception that there were too many workers, so the government
wanted to encourage retirement. There was concern that Americans were saving
too much money and not spending enough. Today we are a society with entirely
different needs. We need to continue to make use of the talents of our most

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productive workers. We need to save more money and we have an abundance of
sensible investment opportunities. This is why we have proposed PSAs. This is the
only way to truly save for our retirement and give our children and grandchildren a
fair deal.
Pensions
Social Security and personal savings are just two legs of a three-legged stool that
supports retirees. The third leg of support is employer-sponsored pensions, both
defined contribution and defined benefit types. There are well-known problems in
these areas. Recent examples of corporate malfeasance by some executives have
served as a dramatic example of why we must have pension protection measures.
For some employees, a lifetime of savings was gone in an instant.
In response, the Administration proposed specific defined contribution protection
measures. The following two have been signed into law: every worker gets 30 days
advance notice before any blackout period--the time when they cannot sell, buy or
borrow from their 401 (k)s; and corporate executives must follow the same rules that
every other employee follows during blackout periods.
We are addressing other reform principles as well. The President believes workers
should be able to sell their company stock after holding it for three years so that no
one's nest egg is tied up in the stock of a single company. Investors should have
access to better information, including quarterly--not just yearly--reports on how
their 401 (k)s are performing. And, workers should have more access to
professional investment advice so they can make more informed decisions about
their savings.
We felt it was important to make positive changes in the pension system without
burdening employees with investment restrictions. For this reason, we did not
propose to place limits on the amount of an employee's account balance that can
be invested in company stock.
Let me next discuss some defined benefit pension issues and provide reasons,
through an example of airline pensions, of why reform is needed there. Before I do,
let me briefly give you an overview of how the U.S. defined benefit system works.
The ERISA of 1974 created the Pension Benefit Guaranty Corporation (PBGC).
This body was created to encourage the growth of defined benefit pension plans,
provide timely and uninterrupted payment of benefits, and keep pension insurance
premiums paid by plan sponsors at a minimum. The Secretaries of Labor,
Commerce and the Treasury sit on its board. The PBGC collects insurance
premiums from employers that sponsor defined benefit pension plans and it pays
monthly retirement benefits. Currently, PBGC insures the pensions of 44 million
workers and retirees and pays benefits to about 930,000 people from failed plans.
Some basic facts about the defined benefit system and PBGC's financial health
suggest that we need to be concerned about the current set of minimum required
funding rules for plan sponsors and the long-term solvency of the system.
For example, PBGC's single employer plan program ended 2003 with a record
deficit of $11.2 billion. This deficit is the result of two consecutive years of
staggering net losses. The net loss for 2002 was $11.2 billion. The net loss for 2003
was $7.6 billion.
The PBGC deficit will be increasing significantly for this fiscal year as a result of
problems with airline company pensions. The PBGC does have sufficient resources
to pay benefits for a number of years. Nevertheless, the Administration knows we
must act now to ensure the longer-term solvency of the pension insurance program.
Indeed, problems exist on a more fundamental level that are symptomatic of a
broader and deeper set of problems. These issues can be distilled into two central
themes--corporate responsibility and retirement security. Simply put, companies
should be held accountable to make good on the pension promises they have made

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to their workers and retirees. The consequences of not honoring these
commitments are unacceptable--the retirement security of millions of current and
future retirees is put at risk.
When underfunded pension plans terminate, three groups can lose: workers face
the prospect of benefit reductions; other companies, including those that are
healthy and have well funded plans, may face higher PBGC premiums; and,
ultimately, taxpayers may be called upon by Congress to bailout the pension
insurance fund, just as was the case more than a decade ago with the savings and
loan bailout. This is the unfortunate result of a system that allows--and, one might
even argue, sometimes encourages--companies to avoid paying for the promises
they have made.
In July of 2003, we released the Administration's Proposal to Improve the Accuracy
and Transparency of Pension Information. We designed this proposal to correct
fundamental and structural flaws such as inadequate funding rules, a lack of
transparency of funding disclosure and the moral hazards that result from a lack of
checks and balances.
First. we proposed that pension liabilities must be accurately measured to ensure
that pension plans are adequately funded to protect workers' and retirees' benefits
and to ensure that minimum funding rules do not impose unnecessary financial
burdens on plan sponsors. Liability estimates that are too low will lead to plan
underfunding, potentially undermining benefit security. Pension plan liability
estimates that are too high lead to higher than necessary minimum contributions,
reducing the likelihood that sponsors will continue to operate defined benefit plans.
We therefore proposed that a corporate bond yield curve be used to measure
pension liabilities that accurately reflects the demographic composition of the plan
participants.
Second, the transparency of information pertaining to pension plan funding needs
to be increased.
We proposed requiring that each year sponsors disclose to participants the value of
their defined benefit pension plan assets and liabilities measured on both a current
on-going liability and a termination liability basis.
Third, the Administration proposed to restrict benefit increases for certain
underfunded plans whose sponsors are financially troubled. When firms with below
investment grade credit ratings increase pension benefit promises, the costs of
these added benefits stand a good chance of being passed on to the pension
insurance system, frustrating the benefit expectations of workers and retirees and
penalizing employers who have adequately funded their plans.
When a plan sponsor files for bankruptcy the PBGC's guarantee limits would also
be frozen.
We felt this was a constructive, forward looking set of proposals that would help
ensure PBGC and plan solvency. Moreover, these proposals are consistent with the
President's views on an ownership society. We have made clear that employers are
responsible for ("they own") the pension promises that they make, and that, by
using benefit restrictions and enhancing disclosure, employees take more
ownership of their pensions, acting as watchdogs.
But clearly more is needed. At this point, I'd like to discuss some further
fundamental principles that the Bush Administration believes should be part of any
proposed, more comprehensive, future reforms.
First, we must protect the pensions of the 44 million workers and retirees covered
by the PBGC.
Second, American companies must responsibly fund the pension benefits promised
to workers.

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Third, shifting the costs of pension obligations that companies have made to their
workers to taxpayers is not acceptable.
The Administration, therefore, strongly believes that for any future reforms to be
comprehensive they must include the following tenets
They must create greater opportunity and incentive for employers to fund up in
good times to ensure against economic shocks, and reduce the volatility of
minimum required sponsor contributions.
Reforms must improve the PBGC's ability to deal with firms that fail to make
contributions while in bankruptcy.
Finally, comprehensive reform must include a premium structure for the PBGC that
meets its long-term revenue needs and reflects the risks that it covers.
To briefly conclude, I hope I have given you a better idea of the health care and
retirement challenges facing us and that I have imparted an appropriate
understanding of the President's vision of an "ownership society." Despite the
challenges we face, I believe the policies I have mentioned today show that the
Administration is committed to addressing these issues while preserving the very
liberties to which John Locke was so brilliantly dedicated.
-30-

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js-20b?: Trea'iury Deputy Assistant Secretary Iannicola Leads Adult Financial Literacy R...

Page 1 of 1

I-'HLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®

October 14, 2004
IS-2067

Treasury Deputy Assistant Secretary lannicola Leads Adult Financial Literacy
Roundtable in Portland. Maine
Treasury's Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.
today led an adult financial literacy roundtable hosted by the Institute for Financial
Literacy. lannicola discussed the special challenges in reaching adult populations
and how the federal government might help.
Roundtable participants shared information about their own efforts to target adults
with financial education. In response, lannicola praised their ongoing commitment
to help improve the financial knowledge of adults throughout Maine.
"You're never too old to benefit from financial education," said lannicola. "Adults
need financial knowledge to finance cars and homes, plan for retirement, care for
relatives and pay for education. The strong grassroots network of non-profits and
financial institutions here in Maine understand the need for adult financial education
and are making good progress toward meeting it."
lannicola also told the group about two new federal resources. The first is the
www Illymoney Web site and the 1-888-mymoney toll-free hotline which provide

access to federal financial education materials. The second resource is the
Technical Assistance Center provided by the Treasury's Office of Financial
Education, where organizations Interested in financial education can receive input
on program design, explore partnerships with other organizations and learn about
best practices. Finally, lannicola discussed Treasury's recent request for input on
the development of a national strategy for financial education. The request for
comment was published in the Federal Register and can be viewed at:
http ,,<3257 cl ClkLllllClltccl1 11cli7'25 7,242LIOf)jUlI20()41800/edocket clccess Upo Cjov/2004.1pdflU4
·1 ~!527 prJf . The deadline for submissions is October 31, 2004.
Founded in 2002, the Institute for Financial Literacy is a non-profit organization
focusing on helping Improve people's understanding of their own personal
finances. The organization works in partnership with other non-proftt organizations
across Maine to integrate financial literacy education into their current delivery of
services.
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education in May of 2002. The Office
works to promote access to the financial education tools that can help all Americans
make wiser choices in all areas of personal financial management, with a special
emphasis on saving, credit management, home ownership and retirement
planning. The Office also coordinates the efforts of the Financial Literacy and
Education Commission, a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments, agencies and
commissions, which works to improve financial literacy and education for people
throughout the United States. For more information about the Office of Financial
Education visit: WWW .lleas ~J()vlflrla nCld 11;(j LJCC1\I(lIl.
-30-

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Page 3 of7

HSAs give consumers the opportunity to budget for their health expenses over
many years.
Finally, to ensure that more Americans have access to these accounts PreSident
Bush proposes giving direct help to low-income Americans to purchase these
accounts. The President proposes giving families a $1,000 direct, subsidized
contribution along with a $2,000 refundable tax credit to help purchase a policy to
cover major medical expenses Individuals would receive a comparable $300 HSA
contribution and $700 refundable tax credit.
To give you an idea of current HSA activity and accomplishments, the Treasury
Department has fielded thousands of emails and phone calls related to HSAs and
the number one page on the Treasury's Web site, in terms of "hits," is the HSA
page.
While the specific number of accounts established to date is unknown, we know
that many national and regional insurance companies, third-party health plan
administrators and financial institutions are offering them. The federal government,
additionally, will offer these as an option to its employees in 2005.
I've given you an overview of the specific mechanics and accomplishments of
HSAs. Let's talk about the criticisms. After all, criticisms can be expected of any
new plan.
First, there is concern that HSAs may bifurcate the risk pool by attracting the young,
rich, and healthy while the sick, poor, and elderly are left paying higher premiums
on their traditional plans. The evidence thus far indicates that the benefits outweigh
any potential costs. Indeed, the most recent HSA statistics indicate that people
consisting of a variety of ages, incomes, and insurance needs are successfully
purchasing HSAs. According to one provider, 70 percent of HSA purchasers are
over age 40. Twenty-nine percent of HSA purchasers have family incomes of less
than $50,000 And 77 percent of purchasers are families with children.
Furthermore, this bifurcation could only occur where you have choices among
health plan types. Today, too many people don't have any choices. In fact,
according to one provider, 43 percent of HSA applicants did not have prior health
insurance coverage. Small business owners, in particular, are a group looking for
any cost effective option in health care plans. Currently, small business owners are
oftentimes not able to offer their employees any health insurance at all. In this case,
HSAs are an important option to provide low-cost health care and increase
employee participation.
Additionally, critics have also claimed that these accounts may encourage people to
skimp on needed medical benefits in order to build up their savings. The health plan
allows for first dollar coverage for preventative care. It's in the regulations. More
generally, HSAs allow for rational and reasonable spending trade-offs. Again, we
can cite here the Health Insurance Experiment results.
The President's health care initiative, in addition to HSAs, includes a proposal to
give $4 billion in grants to support state-run insurance pools to help low-income and
high-risk Americans to get the most out of their health insurance tax credits. This
should encourage states to create purchasing pools that will help reduce the cost of
buying insurance and make it easier and faster to shop for coverage.
The President also proposes allowing local groups to band together through their
national or regional organizations to purchase insurance. Through these Associated
Health Plans small business owners, civic groups and other community
organizations will receive the economies of scale needed to negotiate lower-priced
insurance coverage.
Additionally, we are determined to address the legal reform needed to curb frivolous
and unnecessary lawsuits.

Social Security
Moving on to the topic of retirement income security, I am aware that any such
discussion must feature Social Security. Economically speaking, the system as it is

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currently structured is unsustainable.
In 1950, there were 16 workers to support everyone beneficiary of Social Security.
Today. there are only 3.3 workers supporting every Social Security beneficiary. By
the time our youngest workers - those just entering the workforce today - turn 65,
there will only be 2 workers supporting each beneficiary
As a result of these demographic changes, as well as increases In longevity. the
current system will not be able to afford to pay the benefits scheduled for our
children and grandchildren without enormous payroll tax Increases. The President
believes we can implement real reform to avoid these terrible outcomes.
He believes this untenable situation is fixable and that "Social Security is one of the
greatest achievements of the American government, and one of the deepest
commitments to the American people" Because of his deep commitment to the
Social Security program, President Bush supports Social Security reform that
increases the power of the individual, does not increase the tax burden, and
provides economic opportunity for more Americans. The President has issued
specific guiding principles for reforming Social Security.
One very important principle is that we must protect seniors by ensuring there will
not be any reductions in near-retiree or retiree benefits. And we must not raise
payroll taxes.
Another principle is that personal savings accounts (PSAs) should be made
available in order for younger workers to build a nest egg for retirement that they
own and control, and which they can pass on to their children and grandchildren.
Additionally, we must pursue the goal of a permanently sustainable system. As I
previously mentioned, the President stresses the need to treat the systemic
dysfunction within the Social Security system as opposed to treating only the
symptoms.
To further demonstrate our concept of an "ownership society," I would like to focus
on PSAs. President Bush talked about Social Security in his State of the Union
speech. He remarked, "We should make the Social Security system a source of
ownership for the American people."
PSAs provide individual control, ownership. and the opportunity for individuals to
receive the benefits of long-term investing in private-sector markets. They are

important because the retirement security of our current young and future workers
depends on them. Personal accounts allow us to save now to help fund our
retirement incomes. In theory, that could be done with reforms that save tax
revenues in the Trust Fund. But such "saving" would almost certainly be undone by
political pressures to increase government spending and, hence, produce larger
deficits outside of the Social Security budget.
Social Security was designed in 1935 amid a very different economic environment.
There was a perception that there were too many workers. so the government
wanted to encourage retirement. There was concern that Americans were saving
too much money and not spending enough. Today we are a society with entirely
different needs. We need to continue to make use of the talents of our most
productive workers. We need to save more money and we have an abundance of
sensible investment opportunities. This is why we have proposed PSAs. This is the
only way to truly save for our retirement and give our children and grandchildren a
fair deal.

Pensions
Social Security and personal savings are just two legs of a three-legged stool that
supports retirees. The third leg of support is employer-sponsored pensions, both
defined contribution and defined benefit types. There are well-known problems in
these areas. Recent examples of corporate malfeasance by some executives have
served as a dramatic example of why we must have pension protection measures.
For some employees, a lifetime of savings was gone in an instant.
In response, the Administration proposed specific defined contribution protection

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113/2005

js-2066: Rem8rk~ of A51i:iitant Secretary for Economic Policy Mark 1. Warshawsky ...

Page 5 of7

measures. The following two have been signed into law: every worker gets 30 days
advance notice before any blackout period--the time when they cannot sell, buy or
borrow from their 401 (k)s; and corporate executives must follow the same rules that
every other employee follows during blackout periods.
We are addressing other reform principles as well. The President believes workers
should be able to sell their company stock after holding it for three years so that no
one's nest egg is tied up in the stock of a single company. Investors should have
access to better information, including quarterly--not just yearly--reports on how
their 401 (k)s are performing. And, workers should have more access to
professional investment advice so they can make more informed decisions about
their savings.
We felt it was important to make positive changes in the pension system without
burdening employees with Investment restrictions. For this reason, we did not
propose to place limits on the amount of an employee's account balance that can
be invested In company stock.
Let me next discuss some defined benefit pension Issues and provide reasons,
through an example of airline pensions, of why reform IS needed there. Before I do,
let me briefly give you an overview of how the U.S. defined benefit system works.
The ERISA of 1974 created the Pension Benefit Guaranty Corporation (PBGC).
This body was created to encourage the growth of defined benefit pension plans,
provide timely and uninterrupted payment of benefits, and keep pension insurance
premiums paid by plan sponsors at a minimum. The Secretaries of Labor,
Commerce and the Treasury sit on its board. The PBGC collects insurance
premiums from employers that sponsor defined benefit pension plans and it pays
monthly retirement benefits. Currently, PBGC Insures the pensions of 44 million
workers and retirees and pays benefits to about 930,000 people from failed plans.
Some basic facts about the defined benefit system and PBGC's financial health
suggest that we need to be concerned about the current set of minimum required
funding rules for plan sponsors and the long-term solvency of the system.
For example, PBGC's single employer plan program ended 2003 with a record
deficit of $11.2 billion. This deficit is the result of two consecutive years of
staggering net losses. The net loss for 2002 was $11.2 billion. The net loss for 2003
was $7.6 billion.
The PBGC deficit will be increasing significantly for this fiscal year as a result of
problems with airline company pensions. The PBGC does have sufficient resources
to pay benefits for a number of years. Nevertheless, the Administration knows we
must act now to ensure the longer-term solvency of the pension insurance program.
Indeed, problems exist on a more fundamental level that are symptomatic of a
broader and deeper set of problems. These Issues can be distilled into two central
themes--corporate responsibility and retirement security. Simply put, companies
should be held accountable to make good on the pension promises they have made
to their workers and retirees. The consequences of not honoring these
commitments are unacceptable--the retirement security of millions of current and
future retirees is put at risk.
When underfunded pension plans terminate, three groups can lose: workers face
the prospect of benefit reductions; other companies, including those that are
healthy and have well funded plans, may face higher PBGC premiums; and,
ultimately, taxpayers may be called upon by Congress to bailout the pension
insurance fund, just as was the case more than a decade ago with the savings and
loan bailout. This is the unfortunate result of a system that allows--and, one might
even argue, sometimes encourages--companies to avoid paying for the promises
they have made.
In July of 2003, we released the Administration's Proposal to Improve the Accuracy
and Transparency of Pension Information. We designed this proposal to correct
fundamental and structural flaws such as inadequate funding rules, a lack of
transparency of funding disclosure and the moral hazards that result from a lack of
checks and balances.
First, we proposed that pension liabilities must be accurately measured to ensure

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1/3/2005

js-2066: Remarks of Anigtorn Secretary for Economic Policy Mark 1. Warshawsky ...

Page 6 of 7

that pension plans are adequately funded to protect workers' and retirees' benefits
and to ensure that minimum funding rules do not impose unnecessary financial
burdens on plan sponsors. Liability estimates that are too low will lead to plan
underfunding, potentially undermining benefit security. Pension plan liability
estimates that are too high lead to higher than necessary minimum contributions,
reducing the likelihood that sponsors will continue to operate defined benefit plans.
We therefore proposed that a corporate bond yield curve be used to measure
pension liabilities that accurately reflects the demographic composition of the plan
participants.
Second, the transparency of information pertaining to pension plan funding needs
to be increased.
We proposed requiring that each year sponsors disclose to participants the value of
their defined benefit pension plan assets and liabilities measured on both a current
on-going liability and a termination liability basis.
Third, the Administration proposed to restrict benefit increases for certain
underfunded plans whose sponsors are financially troubled. When firms with below
investment grade credit ratings increase pension benefit promises, the costs of
these added benefits stand a good chance of being passed on to the pension
insurance system, frustrating the benefit expectations of workers and retirees and
penalizing employers who have adequately funded their plans.
When a plan sponsor files for bankruptcy the PBGC's guarantee limits would also
be frozen.
We felt this was a constructive, forward looking set of proposals that would help
ensure PBGC and plan solvency. Moreover, these proposals are consistent with the
President's views on an ownership society. We have made clear that employers are
responsible for ("they own") the pension promises that they make, and that, by
using benefit restrictions and enhancing disclosure, employees take more
ownership of their pensions, acting as watchdogs.
But clearly more is needed. At this point, I'd like to discuss some further
fundamental principles that the Bush Administration believes should be part of any
proposed, more comprehensive, future reforms.
First. we must protect the pensions of the 44 million workers and retirees covered
by the PBGC.
Second, American companies must responsibly fund the pension benefits promised
to workers.
Third, shifting the costs of pension obligations that companies have made to their
workers to taxpayers is not acceptable.
The Administralion, therefore, strongly believes that for any future reforms to be
comprehensive they must include the following tenets:
They must create greater opportunity and incentive for employers to fund up in
good times to ensure against economic shocks, and reduce the volatility of
minimum required sponsor contributions.
Reforms must improve the PBGC's ability to deal with firms that fail to make
contributions while in bankruptcy.
Finally, comprehensive reform must include a premium structure for the PBGC that
meets its long-term revenue needs and reflects the risks that it covers.
To briefly conclude. I hope I have given you a better idea of the health care and
retirement challenges faCing us and that I have imparted an appropriate
understanding of the President's vision of an "ownership society." Despite the
challenges we face. I believe the policies I have mentioned today show that the
Administration is committed to addressing these issues while preserving the very
liberties to which John Locke was so brilliantly dedicated.

http://wlVW.treas.gov/press/releas~(js2066.htm

113/2005

js-2067: Treaiury Deputy AS&lstant Secretary Iannicola Leads Adult Financial Literacy R...

Page 1 of 1

~~~~<
. .'-' ~.

•
J..
,;.

!-'HlSS HOOM

! I~

...,--

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

October 14, 2004
IS·2067

Treasury Deputy Assistant Secretary lannicola Leads Adult Financial Literacy
Roundtable in Portland, Maine
Treasury's Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.
today led an adult financial literacy roundtable hosted by the Institute for FinanCial
Literacy. lannicola discussed the special challenges in reaching adult populations
and how the federal government might help.
Roundtable participants shared information about their own efforts to target adults
with financial education. In response, lannicola praised their ongoing commitment
to help improve the financial knowledge of adults throughout Maine.
"You're never too old to benefit from financial education," said lannicola. "Adults
need financial knowledge to finance cars and homes, plan for retirement, care for
relatives and pay for education. The strong grassroots network of non-profits and
financial institutions here in Maine understand the need for adult financial education
and are making good progress toward meeting it."
lannicola also told the group about two new federal resources. The first is the
ww\'.' myrnoncy Web site and the 1-888-mymoney toll-free hotline which provide
access to federal financial education materials. The second resource is the
Technical Assistance Center provided by the Treasury's Office of Financial
Education, where organizations interested in financial education can receive input
on program design, explore partnerships with other organizations and learn about
best practices. Finally, lannicola discussed Treasury's recent request for input on
the development of a national strategy for financial education. The request for
comment was published in the Federal Register and can be viewed at:
ilttp/, a25 7 gakdlTl~lltccillH!\/7/2C) 7/2422/0bJun20(J4 180(]/cdocke\ cICC:CSS qiJo (jov2U04/pcl(;(),+
-10S:U }Jcl( . The deadline for submissions is October 31, 2004.
Founded in 2002, the Institute for Financial Literacy is a non-profit organization
focusing on helping improve people's understanding of their own personal
finances. The organization works in partnership with other non-profit organizations
across Maine to integrate financial literacy education Into their current delivery of
services.
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education in May of 2002. The Office
works to promote access to the financial education tools that can help all Americans
make wiser choices in all areas of personal financial management, with a special
emphasis on saving, credit management, home ownership and retirement
planning. The Office also coordinates the efforts of the Financial Literacy and
Education Commission, a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments, agencies and
commissions, which works to improve financial literacy and education for people
--. I
~~~~~~~~tvti~~ http://www.treas,gov/press/re1ease~js2068.htm nCla
-30-

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1/3/2005

js-2068: MEDTA ADVI~ORV: Secretary Snow to Visit Wilkes-Barre, PA on Thursday

Page 1 of 1

I-'HLSS H()()M

FROM THE OFFICE OF PUBLIC AFFAIRS
October 27,2004
js-2068
MEDIA ADVISORY: Secretary Snow to Visit Wilkes-Barre, PA on Thursday
Treasury Secretary John W. Snow will visit Wilkes-Barre, Pennsylvania on
Thursday, October 28 to meet with local business leaders to discuss the President's
efforts to strengthen the economy and create jobs.
"As a result of the President's economic leadership, we have overcome a recession
and seen 13 straight months of job creation, totaling more than 1.9 million new U.S.
jobs since August 2003," said Secretary Snow. "Pennsylvania has gained new Jobs
this year, and the President's tax reform policies have ensured that more than 4.6
million Pennsylvania taxpayers will have lower Income tax bills in 2004."
During this trip to Pennsylvania, Secretary Snow also will discuss the
Administration's efforts to control health care costs, reduce frivolous lawsuits and
ensure that America has reliable and affordable sources of energy. "While the
economy is on solid footing, we are not satisfied and there is still more work to be
done. We need to continue to push for pro-growth policies that will create jobs and
raise standards of living," Secretary Snow said.
Recent indicators show that President Bush's economic policies continue to move
the economy forward. According to the Labor Department, the national
unemployment rate was 5.4% in September - down 0.9 percentage point from a
peak of 6.3% in June 2003 and the lowest rate since October 2001. At 5.4%, the
unemployment rate is below the average of the 1970s, 1980s, and 1990s.
Employment over the last year was up in 47 of the 50 states and the unemployment
rate was down in all regions and in 46 of the 50 states.
The following events are open to the media, which must present media credentials
or photo ID:
Thursday, October 28
Remarks to Greater Wilkes-Barre Chamber of Business and Industry
11 :30 a.m. EDT
Westmoreland Club
59 South Franklin Street
Wilkes-Barre, PA
** Media should arrive by 11 :00 a.m.
** There will be a brief media availability immediately following the event
-30-

http://www.treas.gov/press/release!>js2068.htm

113/2005

js-2069; Secretary Snow's Retnarks to Business Roundtable in Cedar Rapids, IA

Page 1 of2

PHLSS H()OM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 27,2004
js-2069
Secretary Snow's Remarks to Business Roundtable in Cedar Rapids, IA
Thank you for having me here today; it's great to be in Cedar Rapids. I appreciate
the opportunity to talk with you about the economy both here, and all across this
great nation of ours.
As small-business owners, each one of you is the embodiment of America's
economic strength and dynamism, and you are also the embodiment of something
less tangible but even more important: the American Dream.
The work you do is critical to the health of your local and state economies. In part
thanks to that work, the Iowa economy has added 7,500 jobs to the payrolls so far
this year, and 1,300 were added just last month, in September. That's good news
for a lot of Iowa families ... but I know it could be even better.
There are still people here who are looking for work, and we can't be satisfied until
those folks have found Jobs.
I am often asked where the jobs of the future will come from - a month from now, a
decade from now. That's a pretty tough question to answer. No one can predict
what the next great technology or industry will be, but I know it's safe to say that
most of America's jobs will always come from people like you, from businesses like
this one, and that by pursuing good economic policies, keeping our system open,
flexible and dynamic, we will continue to create lots of good jobs in the future as our
economic history shows so well.
Your businesses may be small. They may never show up on the New York Stock
Exchange or the Fortune 500 Ilst. .. but they create jobs for the people of your
community, and that means everything. In fact, 2 out of 3 new Jobs come from small
businesses.
When our country goes through a rough patCh, economically, small business has
always been there to pull us out. You are part of the most powerful elements of our
economy, which I see as a combination of: small-business owners and
entrepreneurs, our outstanding workforce and the simple fact that we operate as a
free market, which allows our economy to continuously adjust to changing
circumstances. These elements add up to the most open, flexible, adaptive and
resilient economy in the world today.
The President understands how Important you are to our economy, and he's made
you a priority in his economic policies.
He understands that, as small-business owners and operators, fairness and
freedom are the two things that you really want from your government
You seek the freedom to start up a new business venture, to run it and grow it, oras the head of the National Federation of Independent Business told me recentlyto close the door and go fishing for the afternoon if that's what you want to dOl
You also want to be treated fairly, and you deserve nothing less.
In exchange for fairness and freedom, your unspoken promise to your country and
our economy is: job creation and the fuel our economic engine runs on.

http://www.treas.gov/press/release~is2069.htm

1/312005

js-2069: Secretary Snow's Remarks to Business Roundtable in Cedar Rapids, IA

Page 2 of2

This is why the President reduced your taxes and has called on Capitol Hill to give
you the option of Association Health Plans to reduce your health insurance costs.
That's why he wants to make the tax code simpler, fairer, and more pro-growth.
And it's why he wants to reduce that fear of baseless lawsuits that haunts you,
costs you money, and ultimately acts as a tax on economic growth in this country.
With small business in the lead, our economy has come a long way.
When he took office, PreSident Bush inherited an economy in steep decline. The
stock market bubble had been pierced. We were then shocked by terrorist attacks
and wounded by reprehensible behavior by corporate CEOs that hurt employees,
investors and investor confidence.
Those key elements that I mentioned earlier - small business, outstanding workers,
and a free-market system - proved to be the foundation, as they always have been,
for our impressive economic recovery following this series of economic blows.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged investment, which is cntical for
economic recovery and growth.
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation.
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, over 1.9 million jobs have been
created since last August - 13 straight months of job growth. More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are finding new jobs in industnes across the board. They
have more money in their pockets and can better afford things from cars to
appliances to shoes for their children.
The President's tax relief is still working for the people of Iowa, with more than one
million taxpayers saving money on their income tax bills in 2004 and more than
280,000 business taxpayers like you able to use your 2004 tax savings to invest in
business equipment and employee compensation.
Nationwide, in 2004, 25 million small business owners will receive tax relief totaling
about $75 billion.
At this point, it is critical to make that tax relief permanent, and to continue lifting the
barriers to growth in other areas as well - by making health care more affordable,
abusive lawsuits less common, and energy costs more reasonable.
Thank you so much for having me here today in this great American city, and thank
you for the work you do to keep our economy strong.

-30-

http://WWW.treas.gov/press/release~js2069.htm

113/2005

JS-2t170:

The Honorable Iollll W. Snow Prepared Remarks: Wilkes-Barre Chamber... Page 1 of 4

f-'HLSS H()()M

FROM THE OFFICE OF PUBLIC AFFAIRS
October 28, 2004
JS-2070
The Honorable John W. Snow
Prepared Remarks: Wilkes-Barre Chamber of Business and Industry
Wilkes-Barre, PA
October 28, 2004
Thank you for having me here today: I appreciate the opportunity to talk with you
about the economy both here, and all across this great nation of ours.
It's a pleasure to be visiting Wilkes-Barre and I'm delighted to be spending some
time with this Camber of Commerce, which is having such a positive influence in
your community.
As small-business owners, each one of you is the embodiment of America's
economic strength and dynamism, and you are also the embodiment of something
less tangible but even more important: the American Dream.
The work you do IS critical to the health of your local and state economies. In part
thanks to that work, the Pennsylvania economy has added 62,100 jobs to the
payrolls so far this year - 4,600 in September. That's good news for a lot of
Pennsylvania families ... but I know it could be even better.
There are still people here who are looking for work, and we can't be satisfied until
those folks have found jobs.
I am often asked where the jobs of the future will come from - a month from now, a
decade from now. That's a pretty tough question to answer. No one can predict
what the next great technology or industry will be, but I know it's safe to say that
most of America's jobs will always come from people like you and that by pursuing
good economic policies, keeping our system open, flexible and dynamic, we will
continue to create lots of good jobs in the future as our economic history shows so
well.
Your businesses may be small. They may never show up on the New York Stock
Exchange or the Fortune 500 list ... but they create jobs for the people of your
community, and that means everything. In fact, 2 out of 3 new jobs come from small
businesses.
When our country goes through a rough patch, economically, small business has
always been there to pull us out. You are part of the most powerful elements of our
economy, which I see as a combination of: small-business owners and
entrepreneurs, our outstanding workforce and the simple fact that we operate as a
free market, which allows our economy to continuously adjust to changing
circumstances. These elements add up to the most open, flexible, adaptive and
resilient economy in the world today.
The President understands how important you are to our economy, and he's made
you a priority in his economic policies.
He understands that, as small-business owners and operators, fairness and
freedom are the two things that you really want from your government.
You seek the freedom to start up a new business venture, to run It and grow It, or as the head of the National Federation of Independent Business told me recently to close the door and go fishing for the afternoon if that's what you want to dOl

http://www.treas.gov/press/release9i.is2070.htm

11312005

JS-2076;. The ~noI(rbre John W. Snow Prepared Remarks: Wilkes-Barre Chamber... Page 2 of 4
You also want to be treated fairly, and you deserve nothing less.
In exchange for fairness and freedom. your unspoken promise to your country and
our economy is: job creation and the fuel our economic engine runs on.
This is why the President reduced your taxes and has called on Capitol Hill to give
you the option of Association Health Plans to reduce your health Insurance costs.
That's why he wants to make the tax code simpler, fairer, and more pro-growth.
And it's why he wants to reduce that fear of baseless lawsuits that haunts you,
costs you money, and ultimately acts as a tax on economic growth in this country.
With small business in the lead, our economy has come a long way.
When he took office, President Bush inherited an economy in steep decline. The
stock market bubble had been pierced. We were then shocked by terrorist attacks
and wounded by reprehensible behavior by corporate CEOs that hurt employees,
investors and investor confidence.
Those key elements that I mentioned earlier - small business, outstanding workers,
and a free-market system - proved to be the foundation, as they always have been,
for our impressive economic recovery following this series of economic blows.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged investment, which is critical for
economic recovery and growth.
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and job creation.
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, over 1.9 million jobs have been
created since last August - 13 straight months of job growth. More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are finding new jobs in industries across the board. They
have more money in their pockets and can better afford things from cars to
appliances to shoes for their children.
The President's tax relief is still working for the people of Pennsylvania, with more
than 4.6 million taxpayers saving money on their income tax bills In 2004 and more
than 910,000 business taxpayers like you able to use your 2004 tax savings to
invest in business equipment and employee compensation.
Nationwide, in 2004, 25 million small business owners will receive tax relief totaling
about $75 billion.
At this point, it is critical to make that tax relief permanent, and to continue lifting the
barriers to growth in other areas as well - by making health care more affordable,
abUSive lawsuits less common, and energy costs more reasonable.
Thank you so much for having me here today in your beautiful state, and thank you
for the work you do to keep our economy strong.
Thank you for having me here today; I appreciate the opportunity to talk with you
about the economy both here, and all across this great nation of ours.
It's a pleasure to be visiting Wilkes-Barre and I'm delighted to be spending some
lime with this Camber of Commerce, which is having such a positive influence in
your community.
As small-business owners, each one of you is the embodiment of America's
economic strength and dynamism, and you are also the embodiment of something
less tangible but even more important: the American Dream.
The work you do is critical to the health of your local and state economies. In part
thanks to that work, the Pennsylvania economy has added 62,100 jobs to the

http://WlVW.treas.gov/press/releas~js2Q70.htm

113/2005

JS-20iQ: The ~ John ·W. Snow Prepared Remarks: Wilkes-Barre Chamber... Page 3 of 4
payrolls so far this year - 4,600 in September. That's good news for a lot of
Pennsylvania families ... but I know it could be even better.
There are still people here who are looking for work, and we can't be salisfied until
those folks have found jobs.
I am often asked where the jobs of the future will come from - a month from now, a
decade from now. That's a pretty tough question to answer. No one can predict
what the next great technology or Industry will be, but I know it's safe to say that
most of America's jobs will always come from people like you and that by pursuing
good economic policies. keeping our system open, flexible and dynamic, we will
continue to create lots of good jobs in the future as our economic history shows so
well.
Your businesses may be small. They may never show up on the New York Stock
Exchange or the Fortune 500 list. .. but they create jobs for the people of your
community, and that means everything. In fact, 2 out of 3 new Jobs come from small
businesses.
When our country goes through a rough patch, economically, small business has
always been there to pull us out. You are part of the most powerful elements of our
economy, which I see as a combination of: small-business owners and
entrepreneurs, our outstanding workforce and the simple fact that we operate as a
free market, which allows our economy to continuously adjust to changing
circumstances. These elements add up to the most open, flexible, adaptive and
resilient economy in the world today.
The President understands how important you are to our economy, and he's made
you a priority in his economic policies.
He understands that, as small-business owners and operators, fairness and
freedom are the two things that you really want from your government.
You seek the freedom to start up a new business venture, to run it and grow It, oras the head of the National Federation of Independent Business told me recently to close the door and go fishing for the afternoon if that's what you want to dOl
You also want to be treated fairly, and you deserve nothing less.
In exchange for fairness and freedom, your unspoken promise to your country and
our economy is: job creation and the fuel our economic engine runs on.
This is why the President reduced your taxes and has called on Capitol Hill to give
you the option of Association Health Plans to reduce your health insurance costs.
That's why he wants to make the tax code simpler, fairer, and more pro-growth.
And it's why he wants to reduce that fear of baseless lawsuits that haunts you,
costs you money, and ultimately acts as a tax on economic growth in this country.
With small business in the lead, our economy has come a long way.
When he took office, President Bush inherited an economy in steep decline. The
stock market bubble had been pierced. We were then shocked by terrorist attacks
and wounded by reprehensible behavior by corporate CEOs that hurt employees,
investors and investor confidence.
Those key elements that I mentioned earlier - small business, outstanding workers,
and a free-market system - proved to be the foundation, as they always have been,
for our impressive economic recovery following this series of economic blows.
Sound monetary policy from the Federal Reserve Board helped to stimulate our
recovery as well. Lower interest rates encouraged Investment, which IS Critical for
economic recovery and growth.
Finally, President Bush's tax cuts gave our economy the oxygen it needed to right
itself, and continue on a path of growth and Job creation.

http://www.treas.gov/press/releas~/js2070.htm

113/2005

JS-2mQ; The. Hon orab18 ~ W. Snow Prepared Remarks: Wilkes-Barre Chamber... Page 4 of 4
Letting people keep more of their own money, and spend it how they see fit, has
helped put our nation on the right track. Nationwide, over 1.9 million jobs have been
created since last August - 13 straight months of job growth. More people than ever
before own their own homes, and new homes are being purchased every day at
near record rates. People are finding new jobs in industries across the board. They
have more money in their pockets and can better afford things from cars to
appliances to shoes for tileir children.
The President's tax relief is still working for the people of Pennsylvania, With more
than 4.6 million taxpayers saving money on their income tax bills in 2004 and more
than 910,000 business taxpayers like you able to use your 2004 tax savings to
invest in business equipment and employee compensation.
Nationwide. in 2004, 25 million small business owners will receive tax relief totaling
about $75 billion.
At this point, it is critical to make that tax relief permanent, and to continue lifting the
barriers to growth in other areas as well - by making health care more affordable,
abusive lawsuits less common, and energy costs more reasonable.
Thank you so much for having me here today in your beautiful state, and thank you
for the work you do to keep our economy strong.

http://www.treas.gov/press/releas~/js2070.htm

1/3/2005

js-20Th Treagmy AftftettYtees Market Financing Estimates

~'HLSS

Page 1 of 1

H()OM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

November 1, 2004
js-2071

Treasury Announces Market Financing Estimates
The Treasury Department announced today that it expects net borrowing of
marketable debt to total $100 billion in the October - December 2004 quarter. The
estimated cash balance on December 31 is $25 billion. In the last quarterly
announcement on August 2, 2004, Treasury announced that it expected net
borrowing to total $122 billion with an estimated end-of-quarter cash balance of $35
billion. Lower borrowing estimates are primarily due to lower outlays and a change
in cash balance assumptions.
Treasury also announced that It expects net borrowing of marketable debt to total
$147 billion In the January - March 2005 quarter. The estimated cash balance on
March 31 is $10 billion.
During the July - September 2004 quarter, Treasury's net marketable borrowing
totaled $89 billion and the cash balance on September 30 was $36 billion. On
August 2, Treasury announced that it expected net marketable borrowing to total
$89 billion with an estimated end-of-quarter cash balance of $35 billion.
Additional financing details relating to Treasury's Quarterly Refunding will be
released at 9:00 A.M. on Wednesday, November 3.

REPORTS
•

~>1ill kr~1 FlflClI1CI11U Esllilldtes

http://www.treas.gov/press/releas~/js2071.htm

113/2005

FINAL
TREASURY ANNOUNCES MARKET FINANCING ESTIMATES

Today, the Treasury Department announced net borrowing of marketable
debt for the October - December 2004 and January - March 2005 quarters.

Quarter
Oct-Dec 2004
Jan-Mar 2005

Estimated
End-of-Quarter
Cash Balance
J$ billion)
$25
$10

Estimated
Borrowing
($ billion)
$100
$147

Since 1997, the average absolute forecast error in net market borrowing for
the current quarter is $9 billion, of which $1 billion is attributable to
differences in the end-of-quarter cash balance. Similarly, the average
absolute forecast error for the following quarter is $44 billion, of which $10
billion is attributable to differences in the end-of-quarter cash balance.
The following tables reconcile the variation between forecasted and actual
net marketable borrowing in the July - September 2004 quarter.

Quarter
Jul-Sep 2004

Estimated
Borrowing
($ billions)
$89

Estimated
End-of-Quarter
Cash Balance
($ billions)
$35

Actual
Borrowing
($ billions)
$89

Cate20ries
Receipts
Outlays
Non-Marketable Activity
Chan2e in Cash Balance

Actual
End-of-Quarter
Cash Balance
($ billions)
$36

Chg from
Aug Estimate
+$2
+1
JI)_

(I)

Additional financing details relating to Treasury's Quarterly Refunding will
be released at 9:00 A.M. on Wednesday, November 3.

js-20n: Report Tn The Sect:8tary Of The Treasury From The Treasury Borrowing Adviso ... Page 1 of3

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FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

November 3, 2004
js-2072

Report To The Secretary Of The Treasury From The Treasury Borrowing
Advisory Committee Of The Bond Market Association

Dear Mr. Secretary:
Since the Committee's last meeting in August, GOP accelerated to a 3.7% pace in
the third quarter and second quarter GOP growth has been revised higher to 3.3%
from the originally reported 2.8%. Further, the latest economic readings point to a
continuation of above trend growth during the fourth quarter. The ISM
manufacturing report has moderated to 58.5 in September from the 20-year high
reached in January, but it is still consistent with solid growth. The latest data also
indicate that home sales remain near record high levels and will continue to do so
given mortgage applications for purchasing new homes. Consumer spending grew
just below 5% during the third quarter, despite declines in consumer confidence due
to the uncertainty surrounding the outcome of the presidential election. The trend in
payroll employment has moderated from this spring, with job gains averaging
112,000 per month in the third quarter. While this is weaker than payroll growth in
the first two quarters of the year, it is stronger than a year ago when the US
economy was still losing jobs. In addition, state level data indicates that job growth
may have been temporarily suppressed in the third quarter by hurricanes and
stands to rebound during the fourth quarter. The argument for a rebound is
supported by jobless claims that have begun to decline again after increasing in
July through September largely due to hurricanes. Oil prices rose significantly over
the inter-meeting period. This has led to the potential for moderating growth.
Core inflation moderated in the third quarter after a significant acceleration during
the second quarter. The core CPI rose an annualized 1.5% during the third quarter,
following a 3.0% annualized increase in the second quarter. However, used cars,
clothing, and lodging away from home accounted for the bulk of the second quarter
acceleration. The core PCE deflator increased at only a 0.7% annual rate in 03,
bringing the year-aver-year change in September to 1.5%, while the year-over-year
change rose to 2.0% for the core CPI. Nonetheless, anecdotal information, the
latest monthly data and the decline in the dollar imply significant increases in core
inflation ahead. The persistence of higher energy and other raw material prices
appear to have numerous industries in a position to try to pass through these higher
costs in order to support earnings. Also, the dollar has declined against the euro,
which has led a trade weighted dollar to depreciate over 3% from a year ago,
suggesting a pick-up in import prices excluding food and energy.
After rising before the first FOMC tightening In June, long-term Treasury yields have
declined over 50 basis pOints since the tightening cycle began. As the FOMC
increased its short-term target by 75 basis points, a substantial flattening of the
yield curve has ensued, even compared to previous tightening cycles of 1994 and
1999. However, the absolute spread between long- and short-term interest rates
remains at historically high levels. Over the third quarter, 10-year yields fell by
almost 50 basis points and the 2s/10s curve has flattened almost 50 basis pOints.
Yields are currently 40 basis points higher than the lows observed in mid-March
and the yield curve is 30 basis points flatter than its steepest levels of the quarter.
The market is currently pricing in over a 90% probability that the Fed will raise rates
by 25bp at the November FOMC meeting and is pricing in a funds rate of 2.00% by
year end and roughly 2.50% by mid-2005.

http://www.treas.gov/press/re1eas~/js2072.htm

1/3/2005

js-2072: Report To Tlw geefetm.-y Of The Treasury From The Treasury Borrowing Adviso ... Page 2 of3
Third quarter reported operating earnings appear to be showing signs of
moderation after a strong acceleration over the past six quarters. Operating
earnings have averaged approximately 6% growth on a quarter-to-quarter basis
ending in the second quarter. Similarly, earnings have grown more than 20% on a
year-to-year basis during this Six-quarter period. Third quarter operating earnings
likely fell slightly more than 2% from the second quarter, but are approximately 15%
higher than the same quarter last year. As of Friday, October 29, 2004, 80% of the
S&P 500 has reported earnings; approximately 77% have met or beaten
expectations while 23% have failed to meet expectations. Slower earnings in
financials, specifically insurance and brokerages and a temporary moderation of
earnings in the consumer discretionary sector (especially automotive
manufacturers) are largely behind the slowdown in earnings growth. Although a
pick-up in economic activity supports stronger than expected earnings in the fourth
quarter, the height of earnings acceleration appears to be behind us. Equity
markets have been mixed year-to-date, although the most recent three months
have experienced positive returns: the S&P 500 Index has risen approximately
1.6% year-to-date (+2.7% 3-months) and the NASDAQ composite has fallen
approximately 1.4% year-to-date (+5.0% 3-months).
Against this economic and financial backdrop, the members of the Committee
began consideration of debt management questions included in the Quarterly
Charge. Following their standard format, Treasury presented a chart package that
will be released as part of the Treasury refunding announcement.
The charge to the Committee was composed of two questions. In the first question,
the Committee was presented with charts illustrating four overarching themes.
They were: current financing needs, a description of the debt portfolio, the
uncertainty of issuance and borrowing costs, and Treasury's position in the global
and domestic capital markets. Members were asked to comment on these themes
and indicate if they thought they accurately illustrate the major issues the Treasury
faces.
The first section the Committee considered was Treasury's current financing.
Treasury presented slides showing financing requirements, cash balances and
quarterly net market borrowing from both marketable and non-marketable
securities. They showed a slide illustrating the drivers of financing needs as well as
slides which showed projected net marketable borrowing composition between
coupon and bill issuance. These slides comprehensively portray all the salient
issues to be considered and the Committee did not recommend further additions or
changes.
The second section contained the description of the debt portfolio. Treasury
presented slides which effectively depict debt maturity measures and the
percentage of nominal debt maturing over the next three years. They also
presented a chart of projected net market borrowing. Financing needs appear to be
manageable. The distribution of marketable debt outstanding IS balanced, and the
percentage of debt maturing over the next 12-36 months is well within ranges
Observed over the past 20 years. The Committee did not suggest any further
additions to this section.
The third section of the slide presentation, demonstrated the inherent uncertainty
that Treasury faces in their issuance needs and borrowing costs. The Committee
concurred that there is significant potential for forecast error in their projections.
The group recommended that they continue to research ways to improve the large
average forecast error. Despite the high possibility of variance as a result from
forecast, the Committee was comfortable that the current issuance profile could
easily facilitate higher or lower defiCits.
The fourth and final section considered Treasury's sizeable role in both global and
domestic debt markets. One slide presented showed foreign holdings as a
percentage of total privately held debt and its current historically high level. Another
Showed the past and current dealer positions in treasuries. Interestingly, this slide
showed both the growing acceptance by the investor base for TIPS as well as the
lack of distinction of liquidity between TIPS and nominal securities by the primary
dealer community. The willingness to sell short TIPS reflects increased end user
demand and greater dealer confidence in acceSSing liquidity.
Many members commented on the improved quality of Treasury's portrayal of the
thematic issues it faces. The Committee felt that Treasury has substantially

http://w?.W.treas.gov/press/release~j52072.htm

1/3/2005

Js-20T~

Report 1:0 The Sect:etary Of The Treasury From The Treasury Borrowing Adviso... Page 3 of 3
improved its ability to communicate with investors through the slide presentations it
has implemented in recent years. Members offered suggestions which they felt
would further enhance Treasury's communication aims. A member urged Treasury
to include disclaimers regarding forecasts and projections in their chart packets.
Members felt that Treasury should include descriptive narrative to accompany some
of the slides, thereby enhancing their view. It was also suggested by yet another
member that Treasury should include a slide showing the duration of its debt which
would compliment the slide which showed the maturity of its debt.
The second question of the charge related to financing recommendations for the
quarter. The Committee addressed the question of the composition of Treasury
notes to refund approximately $48 billion of privately held notes and bonds maturing
on November 15 th , 2004 (including $3.1 billion of the 10-3/8% 11115/04-09 that was
called on 7/15/04). The Committee further considered the composition of Treasury
marketable financing for the remainder of the October-December quarter, including
cash management bills if necessary. Finally, the Committee considered
composition of marketable financing for the January-March quarter to refund $48
billion of privately held notes and bonds maturing on November 15th , 200. The
Committee recommended a $22 billion 3-year note due 11/15/07, a $15 billion 5year not due 11/15/09, and a $14 billion 1O-year note due 11/15/14. For the
remainder of the quarter, the Committee recommended a $24 billion 2-year note
issued in November and a $24 billion 2-year note issued in December, a $15 billion
5-year note issued in December and a $9 billion re-opening of the 10-year note in
December. The Committee also recommended a $25 billion 12-day cash
management bill issued 12/3/04 and maturing on 12/15/04. For the January-March
quarter, the Committee recommended financing as contained in the attached
tables. Relevant features include three $24 billion 2-year notes, a $22 billion 3-year
note, three $15 billion 5-year notes, a $13 billion 1O-year note in February followed
by a $8 billion re-opening of that 10-year note in March. The Committee further
recommended a $10-billion 10-year TIPS for issuance in January as well as a $6
billion re-opening of the 1/31/25 20-year TIPS in January.
Respectfully submitted,
Mark B. Werner
Chairman
Ian Banwell
Vice Chairman
Attachments (2)
REPORTS
•
•

01 Tabl8s
04 TalJlf;s

http://w?.W.treas.gov/press/release~js2072.htm

1/3/2005

US TREASURY FINANCING SCHEDULE FOR 1st QUARTER 2005
BILLIONS OF DOLLARS

ISSUE

ANNOUNCEMENT
DATE

AUCTION SETTLEMENT
DATE
DATE
4-WK

4-WEEKAND
3&6 MONTH BILLS

12/30
1/6
1/13
1/20
1/27
2/3
2/10
2/17
2/24
3/3
3/10
3/17
3/24

CASH MANAGEMENT BILLS
1/3
10-Day Bill
Matures 1/15
11-Day Bill
3/2
Matures 3/15
COUPONS

OFFERED
AMOUNT
3-MO

MATURING
AMOUNT

NEW
MONEY

52.00
51 .00
52 .00
51 .00
52.00
49 .00
47 .00
49 .00
52 .00
55 .00
53 .00
52 .00
57.00
672 .00

0.00
-1.00
-4.00
0.00
3.00
10.00
12.00
10.00
11 .00
8.00
8.00
7.00
-1 .00
63.00

6-MO

113
1/10
1/18
1/24
1/31
2/7
2/14
2/22
2/28
3/7
3/14
3/21
3/28

1/6
1/13
1/20
1/27
2/3
2/10
2/17
2/24
3/3
3/10
3/17
3/24
3/31

1/4

1/5

15.00

0.00

3/3

3/4

20 .00

0.00

15.00
12.00
10.00
12.00
16.00
19.00
19.00
19.00
23.00
23.00
21 .00
21.00
18.00

20.00
20 .00
20 .00
20.00
20.00
20 .00
20 .00
20 .00
20.00
20 .00
20.00
20.00
20 .00
735.00

17.00
18.00
18.00
19.00
19.00
20 .00
20 .00
20.00
20.00
20.00
20 .00
18.00
18.00

CHANGE
IN SIZE

15.00
10.00

1/6
1/6

1/12
1/13

1/18
1/18

15.00
10.00

20-Year TIPS (R)
2-Year Note

1120
1/24

1/25
1/26

1/31
1/31

6.00
24.00

3-Year Note
5-Year Note
10-Year Note

2/2
2/2
2/2

2/8
2/9
2/10

2/15
2/15
2/15

22 .00
15.00
13.00

2-Year Note

2/18

2/23

2/28

24 .00

5-Year Note
10-Year Note (R)

3/3
3/3

3/9
3/10

3/15
3/15

15.00
8.00

2-Year Note

3/28

3/30

3/31

24 .00

27 .00

-3 .00

176.00

91 .51

84.49

5-Year Note
10-Year TIPS

R :: Reopen ing
A :: Announced

Treasury announced a Q1
borrowing need of $147
billion on Nov 1st

1.00
-5.00

-1.00

25.94

6.00
-1 .94

11.59

22.00
15.00
1.41

26 .99

-2.99
15.00
8.00

-1.00

NET CASH RAISED THIS QUARTER:

147.49

US TREASURY FINANCING SCHEDULE FOR 4th QUARTER 2004
BILLIONS OF DOLLARS

ISSUE

ANNOUNCEMENT
DATE

AUCTION SETTLEMENT
DATE
DATE
4-WK

4·WEEKAND
3&6 MONTH BILLS

9/30
10/7
10/14
10/21
10/28
11/4
11/12
11/18
11/26
12/2
12/9
12/16
12/23

CASH MANAGEMENT BILLS
14-Day Bill
9/28
Matures 10/15
2-Day Bill
1017
Matures 10/15
12-Day Bill
12/1
Matures 12/15
COUPONS

OFFERED
AMOUNT
3-MO

MATURING
AMOUNT

NEW
MONEY

53.51
42.77
42.38
50.92
47.91
49.00
44.00
54.00
54.00
49.00
52.00
54.00
53.00
646.50

-2.51
8.23
5.62
9.08
12.09
4.00
12.00
4.00
1.00
4.00
-2.00
-5.00
-6.00
44.50

6-MO

10/4
10/12
10/18
10/25
11/1
11/8
11/15
11/22
11/29
12/6
12/13
12/20
12/27

1017
10/14
10/21
10/28
11/4
11/12
11/18
11/26
12/2
12/9
12/16
12/23
12/30

9/29

10/1

14.00

0.00

10/12

10/13

8.00

0.00

12/2

12/3

25.00

0.00

15.00
15.00
10.00
20.00
20.00
15.00
19.00
21.00
19.00
17.00
16.00
16.00
14.00

19.00
19.00
20.00
21.00
21.00
20.00
20.00
20.00
19.00
19.00
18.00
17.00
17.00
691.00

17.00
17.00
18.00
19.00
19.00
18.00
17.00
17.00
17.00
17.00
16.00
16.00
16.00

CHANGE
IN SIZE

10/4
10/4

10/6
10/7

10/15
10/15

15.00
9.00

5-Year TIPS
2-Year Note

10/21
10/25

10/26
10/27

10/29
11/1

12.00
24.00

3-Year Note
5-Year Note
10-Year Note

11/3
11/3
11/3

11/8
11/9
11/10

11/15
11/15
11/15

2-Year Note

11/18

11/23

5-Year Note
10-Year Note (R)

12/2
12/2

2-Year Note

12/27

5-Year Note
10-Year TIPS (R)

R
A

=Reopening
=Announced

15.00
9.00

-1.00

26.88

12.00
-2.88

22.00
15.00
14.00

27.77
20.24

22.00
-12.77
-6.24

11/30

24.00

26.99

-2.99

12/8
12/9

12/15
12/15

15.00
9.00

12/29

12/31

24.00

26.10

-2.10

183.00

127.98

55.02

Treasury announced a 04
borrowing need of $100
billion on Nov 1st

12.00

15.00
9.00

NET CASH RAISED THIS QUARTER:

99.51

JS-20Th Acti"@ Ai:~is*Q"t Seefctary for Financial Markets Timothy S. Bitsberger Novem...

Page 1 of 2

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

November 3, 2004
JS-2073
Acting Assistant Secretary for Financial Markets Timothy S. Bitsberger
November 2004 Quarterly Refunding Statement
We are offering $51.0 billion of notes to refund approximately $48.0 billion of
privately held securities and Government account holdings maturing or called on
November 15, raising approximately $3.0 billion. The securities are:
•
•
•

A new 3-year note in the amount of $22 billion, maturing November 15,
2007;
A new 5-year note in the amount of $15 billion, maturing November 15,
2009;
A new 1O-year note in the amount of $14 billion, maturing November 15,
2014.

These securities will be auctioned on a yield basis at 1:00 PM Eastern time on
Monday, November 8, Tuesday, November 9, and Wednesday, November 10,
respectively. All of these auctions will settle on Monday, November 15. The balance
of our financing requirements will be met with weekly bills, monthly 2-year and 5year notes, the December 1O-year note reopening, and the January 1O-year and
20-year TIPS. Treasury is also likely to issue cash management bills in early
December and January.
Debt Limit
Due to debt limit constraints, we currently do not have the capacity to settle our 4week bill auction scheduled to settle on November 18. Treasury market participants
should be prepared for a delay in the formal auction announcement for the 4-week
bill and in the auction itself if Congress does not enact legislation to raise the debt
limit. All auctions settling before November 18 will be settled as scheduled.
Early Release of CUSIPS
Beginning on December 17, 2004 Treasury will release the CUSIPS for all
securities scheduled for the following week. The early release of CUSIPS will
improve efficiency of Treasury market transactions at the time of auction
announcements. CUSIPS for scheduled auctions will be announced every Friday at
10:30 a.m. and posted on the Bureau of Public Debt's website at the following URL:
wwws publiccJebt trcas.gov/AI/OFAnllcc.

Other Policy Issues
Data Review
Treasury is assessing the data we currently publish on Treasury auctions and
holdings. We seek suggestions on what additional data we should make public and
what data that we currently publish is not useful. A list of the data under review can
be found in the primary dealer meeting agenda released on October 22, at the
following link: www t rCelS .Cjoviofflccs/cioilies t1(;- filiOi lice/debt -I lid Il;l(J~~ I111;11t idlcc1ler··
agenda/2004-q4 pcif
TIPS STRIPS proposal
Treasury has considered views on the proposal to make the STRIPS prinCipal of
TIPS further strippable into a nominal zero bond and a pure inflation security. We
accept the view expressed by some market participants that further stripping of

http://www.treas.gov/press/release~is2073.htm

11312005

JS-2073' Acting Assiitant

~tary

for Financial Markets Timothy S. Bitsberger Novem...

Page 2 of 2

TIPS, while helpful to the development of inflation derivative markets, may reduce
liquidity in the TIPS market. Given this concern, we are setting aside this proposal.
The next quarterly refunding announcement will take place on Wednesday,
February 2,2005. Please send comments and suggestions on these subjects or
others relating to debt management to (h,111 11I,lIl;ICJ(:lIIf:III(u1rj(I.lr,:.J:, (j()V.

http://www.treas.gov/press/release~is2073.htm

113/2005

JS-2074' Minutes afTha ~ng Of The Treasury Borrowing Advisory Committee OfT ... Page 1 of 3

f-'HLSS HI)ClM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 3, 2004
JS-2074

Minutes Of The Meeting Of The Treasury Borrowing AdviSOry Committee Of
The Bond Market Association November 2, 2004
The Committee convened in closed session at the Hay-Adams Hotel at 11 :54 a.m.
All members of the Committee were present. Acting Assistant Secretary for
Financial Markets Timothy Bitsberger welcomed the Committee and gave them the
charge.
The Committee first addressed the question in the Committee charge (attached)
concerning the revised version of the chart package that Treasury releases on
Monday during the week of the refunding. The members were asked for their views
on the proposed changes and suggestions for further improvements. The
Committee was specifically asked by Mr. Bitsberger to comment on the suitability of
the charts for preparing the Committee for meetings as opposed to implications that
could be derived from the charts. As a preface to the Committee discussion on this
issue, Mr. Bitsberger presented the revised package. The charts were divided into
four sections.
The first section of the chart package included eight charts and highlighted current
financing, with a discussion of short-term and medium-term borrowing
requirements, cash balance estimates, and the issuance schedule. The charts
indicated that expected net-marketable borrowing will be $1 OOB this quarter and
$147B next quarter, and current coupons are adequate to meet expected borrowing
assuming a 5% projected GOP growth rate, revenues rising to historical averages,
and expenditures falling below historical averages.
Committee members suggested that the daily cash balance should include
averages and volatility measures and that the cnteria for changes in issuance sizes
should be spelled out In the hypothetical issuance charts.
The second section of seven charts dealt with the Treasury debt portfolio,
highlighting the maturity, issuance, and debt outstanding profile. The charts in this
section showed that average maturity of issuance stabilizes, averaging 2.8 years
and the maturity of outstanding issues drops from 4.6 years to 4 years over the next
5 years, while the composition of nominal issuance remains within historical
ranges. In addition, the charts indicated that the current Issuance patterns would
lead to a growing proportion of 5-year notes and TIPS in the portfolio. Finally, the
percent of debt that matures within 3 years is rOjected to remain stable over the
next 4 years, at roughly 60%.
Committee members had several comments on the second section. One
Committee member thought that it would be very helpful to add an effective
duration chart to the maturity section. This would help to capture the effects of
TIPS and callable securities on the maturity profile. Several members thought that
Treasury should include more forceful disclaimers on several of the charts in this
section, particularly ones that contained portfolio projections. There was a concern
that the projected data presented in these charts might be viewed by some
observers as targets, when in reality the projections are designed to illustrate
various outcomes if certain financing patterns are employed by the Treasury over
several years.
Another committee member asked if the "Treasury Annual Net Market Borrowing"
chart could break out the maturities of securities in finer tranches, for example
showing both 5 year and 10 year securities separately, as opposed to aggregating
the securities in broad maturity buckets. Another Committee member questioned
the usefulness of "The Distribution of Marketable Debt Outstanding" bar chart,

http://w?.W.treas.gov/press/release~js2074.htm

113/2005

J8-2014\ MinJ\re~ OfTl:u~ Meeting Of The Treasury Borrowing Advisory Committee OfT. .. Page 2 of 3
suggesting that it showed rollover risk which was already presented earlier in a line
chart with the same title.
The third section of contained two charts and highlighted the uncertainty Treasury
faces in its financing operations; it included a discussion of stresses to Issuance
and borrowing costs. This section indicated that deficit forecast errors for FY 2004
were comparable to previous forecast errors and that the current issuance pattern
has Treasury equally well positioned for higher or lower deficits.
One committee member suggested that the "Average Absolute Federal Budget
Forecast Error" chart may raise questions by the public unless the variance around
the error was included. Other committee members agreed that adding variance to
the chart would be helpful
The fourth section contained a series of six charts on capital markets, highlighting
Treasury's share of global and domestic markets and Treasury's liquidity. The
capital markets section Indicated that foreign holdings of Treasury debt are at
historical highs. Also, Treasuries represent a small proportion of the domestic debt
stock. And finally that debt outstanding as a percent of GOP compares favorably to
that of many other large economies.
The Committee felt that better labeling was needed on the "U.S. Debt compared to
G-7" chart to indicate that the average is unweighted. A small discussion ensued
with Committee members spilt on whether a weighted average should be included
as well. Some members argued that a weighted average would skew the data
dramatically.
On the chart titled "Treasury Bills as a Percentage of the Money Market", the
Committee felt that short coupons should be included in the denominator of the
calculations underlying the chart.
The Committee's then provided some broader comments on the package. They
indicated that over the last several years there has been dramatic improvement in
the data and the charts that Treasury provides. One member suggested that some
narrative should be included; that the chart package should be put into a
presentation that "told a story" because there were some pOints in the package
where first time users of the charts might miss particular pOints. Others felt that the
bullet charts in this modified package provide highlights and were sufficient.
Another member suggested that perhaps more descriptive titles on some of the
charts - with conclusions -- were all that was needed. One member cautioned
about being too narrative.
In other broad comments, a member suggested that charts dealing with 10.lger-term
financing issues should be included. A discussion followed about the usefulness of
long-term numbers, given the accuracy of projections beyond 2 or 3 years. Others
suggested that more charts illustrating the "demand side" be included, such as
primary dealer awards, auction histories and tails.
The Committee then discussed its final borrowing recommendations for the
November refunding and the remaining financing for this quarter as well as the
January-March quarter. Those charts are attached.
The meeting adjourned at 1:00 p.m.
The Committee reconvened at the Hay-Adams Hotel at 2:45 p.m. All members of
the Committee, were present. The Chairman presented the Committee report to
Acting Assistant Secretary for Financial Markets, Tim Bitsberger. A brief discussion
followed the Chairman's presentation but did not raise significant questions
regarding the report's content.
The meeting adjourned at 3:00 p.m.

Jeff Huther
Director
Office of Debt Management

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Mi.nut=s or The Meeting Of The Treasury Borrowing Advisory Committee OfT ...

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November 2,2004
Certified by:

Mark B. Werner, Chairman
Treasury Borrowing Advisory Committee
of The Bond Market Association
November 2,2004

Treasury Borrowing Advisory Committee Quarterly Meeting Committee
Charge - November 2, 2004
Quarterly Refunding Chart Package
We will show you a revised version of the chart package we release on Monday of
the week of the refunding. We would like the Committee's view on the proposed
changes and suggestions for further improvements.
Financing this Quarter
We would like the Committee's advice on the following:
• The composition of Treasury notes to refund apfJroximately $48 billion of
privately held notes and bonds maturing on November 15 (this includes $3.1
billion of the 103/8% 11/15/04-09 that was called on 7/15/04).
• The composition of Treasury marketable financing for the remainder of the
October-December quarter, including cash management bills if necessary.
• The composition of Treasury marketable financing for the January-March
quarter.

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FROM THE OFFICE OF PUBLIC AFFAIRS

October 29, 2004
JS-2076
Statement of Treasury Secretary John W. Snow
Third Quarter GDP

We are encouraged by the ongoing strong performance of the American economy,
with a non-inflationary growth rate that is above the average for the past ten years.
GOP continues to grow above the average of the 1970s, 80s and 90s, while the
unemployment rate remains below the average for those decades.
Our economy grows when it is given the right stimulus - in this case, tax relief and
good monetary policy. That stimulus, combined with the strength of our smallbusiness sector and outstanding workforce, has led to a growing economy that is
producing jobs in all sectors across the board.
There is still more that can be done to encourage growth and create jobs, and we
must continue to implement President Bush'S pro-growth policy agenda to achieve
those goals.

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js-2077~

0-7 Statement 9R Reftewal of the Action Plan for Agenda for Growth

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,,'HLSS HL>ClM

FROM THE OFFICE OF PUBLIC AFFAIRS
October 1, 2004
js-2077
G-7 Statement on Renewal of the Action Plan for Agenda for Growth
One year ago, at the September 2003 Dubai G-7 meeting, we adopted the Agenda
for Growth initiative to help promote structural reforms needed to increase
flexibility, raise productivity and bolster job creation. This initiative has proven
fruitful and become a regular and established part of our surveillance discussions,
along with our focus on monetary and fiscal policies. In view of the successful
experience over the past year, we agreed to make the Agenda for Growth a regular
feature of our work.
What Has Been Achieved in the First Year?
At the Dubai G-7 meeting, we underscored the importance of focusing on the
implementation of structural reforms to strengthen potential growth in the future. To
this end, we agreed on the Agenda for Growth initiative and to pursue additional
pro-growth policies. We note the following progress has been made in our
discussions since Dubai:
•

•

•
•

•

Most significantly, since the Dubai meeting, the global expansion has been
sustained, and our countries have taken specific actions to move the longterm growth process along, for instance through tax reforms, labor market
reforms, reduced regulatory burdens, reforms to ensure the long-run viability
of health and pension systems and improving financial sectors.
In Boca Raton in February 2004, each of our countries discussed its
approach to structural reform, and we issued a progress report on
accomplishments since the Dubai meeting and upcoming reform plans.
In April 2004, we centered our discussion on tax and labor market
reforms.
In May 2004 at the pre-Summit meeting of Finance Ministers, we discussed
the sustainability of health care spending in the major countries and ideas
and policies for reform of such spending.
Today, we discussed the next steps to be taken in the Agenda for Growth
and exchanged views about how to raise productivity.

Next Steps
The G-7 Agenda for Growth has become a valuable part of our economic work and
discussions. It has highlighted that each one of our countries has accomplished
much. But there is still much work to be done. Thus, it is important to build on the
progress made and embed the Agenda for Growth on a permanent basis into our
work.
Against this background:
•

•
•

•

We will focus on a few specific structural reform topics at each Ministerial
meeting, and we will prepare an Agenda for Growth progress report once a
year.
We ask our Deputies to prepare for these discussions in much the same
way that they prepare for our fiscal and monetary surveillance.
We call on the OEeD's Working Party 3 to continue to deepen its work on
the cross border and current account impacts of changes in structural
policy.
We ask our Deputies to review the more technical aspects of each topic to
lay the groundwork for Ministerial discussion.

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Launching the Agenda for Growth Initiative
September 2003, Dubai
We, the G7 Finance Ministers and Central Bank Governors, have today agreed on
an Agenda for Growth. This Agenda follows the successful cooperative approach of
our two recent G7 Action Plans - the October 2001 Action Plan on Terrorist
Financing and the April 2002 Action Plan on Emerging Markets - in which we
defined objectives and then reported on progress toward those objectives at
subsequent meetings.
Higher growth is essential to raise incomes and create more jobs. Without higher
growth we will not have the resources to deal with an aging society, provide
adequate national security, or, more generally, provide the means for people to
pursue a more enjoyable life for themselves and their children. Moreover, higher
economic growth in the G7 is one of the most effective ways we can reduce poverty
around the world. Higher economic growth throughout the G7 will redress global
imbalances that arise inter alia from uneven growth within the G7. Economic growth
has been too low for too long in the G7, and while there are notable recent policy
changes, it is time to bolster our efforts.

Key objectives
The reasons for low growth differ from country to country. But as shorter-term
demand-side problems are addressed and the global recovery proceeds, longerterm supply-side impediments to higher productivity growth and employment are
being revealed in many countries. Our key objectives, therefore, are on the supplyside - structural policies that increase flexibility and raise productivity growth and
employment.

What have we done recently?
Progress achieved so far provides a good foundation to build on. Examples, one for
each country, include: reductions in marginal tax rates on dividends and capital
gains in the United States; improved incentives to work in the United Kingdom;
sustainability of the public pension system along with higher limits on savings in
private retirement plans in Canada; pension reform in France; tax reform in
Germany; flexibility in labor contracts in Italy; and new R&D tax credit in Japan.

What more will we do?
Each of our governments intends to pursue additional pro-growth policies.
Examples include: tort reform in the United States; a reform agenda 2010 for labor
market and the pension system in Germany; public sector reform and further steps
in health care reform in France; pension reform in Italy; Basic Policy for Economic
and Fiscal Management and Structural Reform 2003 in Japan; measures to
improve skills and labor force productivity in the United Kingdom; and full
implementation of the five year tax reduction plan announced in 2000 in Canada. In
the European Union, investment needs to be revitalized, with a particular emphasis
on infrastructure and research and development.

Why do this as a Group?
These are primarily national responsibilities, but there are spillovers. Higher growth
in the United States benefits the other G7 countries; but higher growth in the other
G7 countries benefits the United States too. Moreover, many pro-growth polices,
such as trade liberalization, involve all of us. Working as a group we intend to do
regular supply-side surveillance, benchmarking proposals and reviewing results.
This will complement our ongoing demand-side surveillance and mutually
encourage progress toward pro-growth policies.

First Agenda for Growth Progress Report
February 2004, Boca Raton
In September 2003, we adopted the Agenda for Growth initiative to focus our efforts
on the need to undertake supply-side and structural policy changes to increase
flexibility, raise productivity growth and employment, and achieve higher, sustained
growth in our countries. Such reforms sometimes may entail short-term costs, but

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have proven critical to advancing long-term growth. We also committed to
experience-sharing, to reviewing our results together, and to reporting on our
progress. Our focus is on cooperation. Today, in Boca Raton, we reviewed our
accomplishments thus far and outlined our future priorities In this Progress Report,
we list selected accomplishments since September 2003 -- one for each country -and review upcoming reform plans.

Accomplishments since September. Germany enacted key elements of the
reform Agenda 2010, including labor market measures that improve work incentives
and further tax reduction. Canada completed the full implementation of its five-year,
$100 billion tax reduction plan. Japan formulated a pension reform plan in
December 2003 with a view to securing long-term sustainability of the pension
system, and is preparing for legislation to implement the reform. France is
implementing key provisions of its pension reform law that significantly improves the
sustainability of its public finances. The United Kingdom announced new measures
to help small business raise finance and to help promote a culture of enterprise,
and to improve access to its R&D tax credit. Tax rate cuts in the United States
worked their way through the economy to promote record growth. Italy's recent
labor market reforms entered fully into force in October, contributing to the further
reduction in the unemployment rate.
Upcoming Reform Plans. Our governments remain committed to pursuing
additional pro-growth policies. The United States plans to spur saving by creating
lifetime and retirement savings accounts and reducing the structural budget deficit,
and to support job creation by making health care more affordable and pressing for
tort reform. In an effort to raise productivity, the United Kingdom is targeting
reductions in enterprise regulatory requirements including a collaborative initiative
on regulatory reform across the EU over the next two years, establishing a longterm strategy for funding innovation and scientific research, and extended skills
training programs. While continuing its steady reduction in the debt-to-GDP ratio,
Canada will provide municipalities with the resources they need for infrastructure
investment by exempting them from the Goods and Services Tax they now pay
(worth $7 billion over the next decade) and examining other fiscal mechanisms to
provide further predictable funding. Italy expects to push forward with its pension
and corporate tax reform, including tax exemptions on dividends and capital gains,
in 2004. France plans to advance health care reforms this year, while continuing to
press for fewer labor market constraints. Japan will work on further fiscal
expenditure and revenue reforms, including in social security, and will continue to
address financial sector reforms. Pension and tax code reform remain key priorities
in Germany, combined with further improvements in the framework for innovation.

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FROM THE OFFICE OF PUBLIC AFFAIRS
May 13, 2004
JS-2079

Testimony of
Randal K. Quarles, Assistant Secretary for International Affairs
U.S. Department of the Treasury
Before the House Financial Services Committee
Introduction
Thank you, Mr. Chairman. It is a great pleasure to testify on the U.S.-EU Financial
Market Dialogue. Indeed, the Treasury Department thanks the Committee for its
continued attention to transatlantic financial market and regulatory relations and its
support for the Dialogue. This backing has been integral to the progress made.
To be sure, there have been longstanding financial market discussions between the
United States and Europe. But the US-EU Financial Market Dialogue, for all intents
and purposes. began in March 2002. Since then, technical meetings of the
Dialogue, which is led jointly by the Treasury Department and the European
Commission Internal Market Directorate and includes the active participation of U.S.
regulators, have taken place on more or less a quarterly basis. In addition, the
Dialogue is supplemented by substantial interaction of senior policy officials.
Both the United States and the EU have increasingly viewed the Dialogue with
satisfaction. At the last two US-EU Summits both sides provided favorable press
statements about the Dialogue. For the upcoming Summit in Dublin, Ireland on
June 27, we anticipate that Dialogue participants will provide a short joint report to
Leaders. In my remarks, I will outline some key factors underpinning the Dialogue,
recent achievements, and issues in which the Dialogue will likely playa role going
forward.

The Dialogue's Objectives
The Dialogue from the start has been a two-way street reflecting mutual selfinterest. A central aim of U.S. foreign economic policy is to promote a strong global
economy. The United States is doing its part, but in Europe growth has lagged and
needs to become more broad-based. Last September, G-7 Finance Ministers
committed to an Agenda for Growth. This Agenda focuses on structural measures
that countries can take to boost productivity and raise economic potential.
U.S. history shows that a strong, efficient capital market is a critical pillar for robust
growth. Several studies have concluded that the creation of a truly liberal and
integrated European capital market through Europe's Financial Services Action
Program (FSAP) could raise EU growth by more than one percent per annum in a
decade's time. Building on the successful introduction of the euro, progress on
both the Agenda for Growth and the development of an integrated European
financial market could be a lasting benefit not only for Europe, but also for the
United States, emerging markets and developing countries throughout the world.
Our economies are part of a globalized economic and financial system. Hence, in
observing the building of the European capital market. the United States has an
interest in an FSAP that successfully anchors the European financial system in an
integrated, state-of-the-art. open and soundly supervised global financial
marketplace.

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Also, U.S. financial institutions have long been global leaders and they are a vital
part of the European financial landscape. We are clearly interested in seeing that
our firms are able to compete globally on fair terms, which reward their
competitiveness and demonstrated capacity to innovate. Indeed, we believe that
US firms can help contribute to the European economy and financial system. For
example, US firms have been leaders in the development of mutual fund products,
which are critical for pension plans. Many analysts believe that greater use in
Europe of such products under defined contribution plans is essential for
addressing Europe's demographic challenges.
Just as the United States is interested in the evolution of the European capital
market, so is Europe interested in the evolution of the US capital market. As the
Chairman knows from the promulgation of the law informally bearing his name, US
financial market legislation can have implications for market participants outside the
United States. European firms are understandably interested in access to US
capital markets.
Both parties to the Dialogue share an interest in promoting the common objective of
strong capital markets that are soundly regulated. But in achieving these
objectives, we both recognize that the United States and Europe have different
financial, legal, historical and cultural traditions. Because of these differences,
actions by one of us may have unintended spillover effects into the other's
jurisdiction.
Before us are the paths of cooperation or confrontation. Together, we have
decided that our challenge is to see through these different traditions, to work to
achieve our common objectives in substance and to manage these spillovers. That
is why the United States and Europe have a mutual self-interest in closely
cooperating on financial markets through the Dialogue. That is why we meet often
to promote understanding between us, to discuss emerging issues and the
implications of these issues for each other, and to anticipate problems and work
them out if possible. Managing the Dialogue successfully, we believe, will produce
a win-win outcome for the US, Europe and the world.

The Agenda
The United States strongly supports the Financial Services Action Plan and we
commend Europe for its ambitious goal of unifying its capital markets and for the
progress made to date. At the present juncture, the European Parliament has
approved all but three of the 42 FSAP measures, which are now in varying stages
of implementation. Because thorny issues lay buried in the details of these
measures, it was important for the U.S. to actively engage with the EU on their
ramifications for U.S. interests.
It is perhaps axiomatic that financial markets will always be a step ahead of the
regulators and that regulation should ensure soundness while not stifling
dynamism. Thus, effective rule-making requires close cooperation with market
participants. We have been particularly pleased by the more transparent processes
in Europe for financial rule-making that have emerged over the last two years and
the increased consultations with market participants, including US financial
institutions operating in Europe. We are also pleased that Brussels and the
European Parliament appreciate that working with market participants can improve
European rule-making, create a greater consensus and buy-in for proposed
regulations, and strengthen European financial markets.
Some of the key issues we have been discussing with Brussels are the following.
•

Financial Conglomerates Directive. We have been discussing the
Financial Conglomerates Directive for two years. It requires a foreign
supervisory regime to be deemed "equivalent" by the EU for firms based in
that country to operate within the single EU market without costly legal and
financial changes that could prove harmful to the European market. Our
supervisory regime is top flight and world class. But to help Europe reach a
finding of equivalence, all U.S. regulators (FRB, SEC, OTS, NAIC) have

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cooperated closely with Brussels and with member state regulators In
explaining their approaches to consolidated supervision. We are confident
that this process, albeit slow, will be brought to a successful conclusion.
•
Prospectus and Transparency Directives. These directives initially
suggested that US firms listing new securities in Europe should prepare
financial statements on the basis of International Accounting Standards by
2005, rather than US GAAP, or cease issuing in Europe. Further, the draft
directives made no provision for grandfathering previously listed issues. We
have discussed these matters with Brussels for the last year, and final texts
provide for grandfathering of existing issues. Also, to enable continued new
listings by US firms in Europe using financial statements prepared under US
GAAP, criteria are being crafted to allow European countries to make an
affirmative determination later this year that US GAAP is "equivalent" to lAS.
•
Investment Services Directive. This directive sets conditions for
European share trading and raised the question of whether firms needed to
put all trades through stock exchanges or could match orders internally,
which is a common market practice in the UK. In the end, Brussels
softened features of the draft bill so as to permit internal order matching and
price improvement for transactions greater than "retail" size.
•
Takeover Directive. When drafted, this directive sought to build an
integrated European market for M&A activity to help attract capital and
rationalize inefficient firms. In the end, it allows member states to maintain
national protections for some firms against takeovers. Brussels has
assured the United States that any discrimination against third country firms
would be inconsistent with Europe's international obligations.
Thus far, Europe is making progress under the FSAP in building an integrated
capital market. Compromises reflecting different European country practices are an
inevitable part of the FSAP process. But Brussels, the Parliament and the member
states are working to Instill as liberal a Vision as possible for the European capital
market. While this vision may not be identical to the perspectives of the New York
or London markets, its implementation is a work in progress, it represents an
important step forward and the extension of this vision to the EU internal market will
contribute to the growth of global capital markets.
For its part, the EU cares deeply about financial market developments in the United
States. Though the start of the Dialogue predated corporate malfeasance
disclosures with respect to Enron and WorldCom, rapid enactment of the SarbanesOxley Act in mid-2002 gave Europe more reason to accelerate talks with us on
corporate governance issues. As many of these issues are in the domain of my
colleague from the Securities and Exchange Commission, I will not comment on
them other than to note that both the letter and spirit of Sarbanes-Oxley were fully
observed, and EU concerns were substantially accommodated.
In terms of the near-term agenda, both sides have also discussed a range of other
issues, including the Basel II Accord, foreign trading screens and the Capital
Equivalency Deposit Requirement (CEO).

Looking Ahead
The quest to build a European capital market will not end with the 42 measures.
Following the selection of a new Commission and European Parliament, the EU
and the United States will need to tackle new challenges together in promoting a
stronger and more vibrant transatlantic capital market.
Among these challenges are the promotion of convergent accounting standards on
both sides of the Atlantic, improving corporate governance and strengthening
investor protections and confidence, and reducing costs of investment in Europe by
creating a European-wide system of clearance and settlements. The effort to
promote convergent standards -- consistently applied, implemented and enforced -is particularly critical. By effectively tackling these challenges, a truly vibrant and
integrated transatlantic capital market may come into being.

Conclusion

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In conclusion, Mr. Chairman, the Dialogue has been making good progress. But
many challenges remain. Already, the Dialogue has increased the transparency of
rule-making and imparted momentum to financial market reform in Europe.
Furthermore, the Dialogue is rightly credited as having helped defuse transatlantic
tensions in an important area vital to the functioning of the world economy. The
goals of the Dialogue support the Agenda for Growth, which is a key theme for this
year's G-7 process. Finally, there is the expectation on both sides of the Atlantic
that if the US and EU can agree on financial regulatory standards, then others
around the world will follow. As you can see, the potential benefits are enormous,
and not Just for the US. ar-i EU. It is Important that the Dialogue succeeds, and I
believe it will.

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FROM THE OFFICE OF PUBLIC AFFAIRS
October 2, 2004
JS-2080
U.S Treasury Secretary John W. Snow
Plenary Statement
2004 Annual Meeting of the IMF and World Bank
Washington, D.C.
October 2, 2004
Good morning. and welcome to Washington. Thank you Chairman, Mr.
Wolfensohn, Mr. Rato.
Each year, we gather to review the state of the world economy and discuss how to
carry forward our shared mission of promoting growth and stability, advancing
development, and improving the lives of all our peoples. Today, we meet at a time
when global growth is stronger than it has been in three decades -- a time that
gives us the opportunity and the obligation - to build on what has been
accomplished. We cannot be complacent - too many people depend on us. We
must do all we can to ensure that all people can enjoy the benefits that come from
sound economic policy.
The U.S. economy has been an strong engine of growth in the global economy, so I
am pleased to report that the U.S. economy is on a very positive path. Although
growth slowed slightly in the second quarter this year, real GOP was up more than
4 % percent over the past year. Capital spending has risen at a double digit pace
over the least year. Manufacturing output is strong. And the economy has now
added more than 1.7 million jobs over the last year. This recovery didn't occur by
accident. It occurred because the U.S. economy is open, dynamic and flexible, and
because of the implementation of sound fiscal and monetary policy -- including
implementation of President Bush's Jobs and Growth Plan.
U.S. economic fundamentals are sound: productivity growth continues; inflation
remains modest; Interest rates remain low; and job creation is continuing. And at a
little over 3 % percent of GOP in the current fiscal year, the federal deficit remains
low compared to the levels in the 1980s and 1990s. But deficits are always too
high and so we expect to reach the President's goal of cutting the deficit in half over
the next five years.
In the global economy, we still want to see growth be more broad-based. The G-7
countries are working to increase economic potential through their commitment to
structural policy reforms under the Agenda for Growth. We are already seeing
results from this effort. For our part, President Bush has introduced a plan to make
tax cuts permanent, make health care costs more affordable and predictable,
reduce the lawsuit burden on the economy, ensure an affordable and reliable
energy supply, and streamline regulations and reporting requirements. Other G7
countries are implementing reforms appropriate to their own economic conditions.
The international financial institutions are vital agents in delivering the resources
and advice necessary to achieve broad-based growth and raising living standards.
It is a key priority of President Bush that the Institutions are focused and prepared
to achieve these goals. President Bush's delivered this message, and innovative
proposals, when addressed the
World Bank in the summer of 2001. I am proud to have worked with our fellow
shareholders and the leaders of the IMF and World Bank to achieve an important
policy shift in the institutions - bringing tighter focus, more predictability and
transparency, and greater emphasis on delivering measurable results.

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Specific changes - including greater use of grants instead of loans to the poorest
countries, the introduction of limits for exceptional access to the IMF's financial
resources, and the advent of collective action clauses as the market standard in
sovereign external bond issues - are already making a tremendous difference In
individual countries and the system as a whole.
The successes we have had together thus far should Inspire and embolden us to
extend our drive for reform. We all know that we must continually strive for
excellence at the IMF and World Bank so that they can work more effectively in the
modern global economy. I hope we can work together to make It happen.
In my view. there are several particularly key areas for reform.
In addition to strengthening the analysis and advice provided all members, I support
introduction of a new tool facilitating the active policy engagement of the IMF with
countries that seek such a relationship but do not need financial support Such a
poliCY monitoring arrangement should serve to increase the emphasis on countries'
own policy programs and maintain a high standard for reforms.
The World Bank must maintain its focus on areas Critical to economic growth and
poverty reduction. Greater priority on the private sector, particularly small and
medium-sized enterprises is important. Good progress has been made in
introducing results-based programs: these tools need to be more fully integrated
within the World Bank and other development banks to help us measure and learn
from successes.
Finally, President Bush and the G-8 Leaders in Sea Island reiterated a strong
commitment to the HIPC initiative and to helping the heavily indebted poor
countries achieve sustainability. We must do more to prevent the build-up of
unsustainable debts in poor countries. Increased reliance on grants is an important
first step. But we need to do more to put these countries on a path to the future.
Employing both grants and debt relief together would give the poorest countries a
chance to reach their international development goals of the Millennium Declaration
without adding to debt burdens. I am working with my colleagues in the G7 and
other donors. with the institutions, and with recipient countries to achieve a
consensus on the best way to solve the debt sustainability problem and ensure that
our reforms only result in greater, not fewer, resources to poor countries.
I hope that we can all work together - shareholders, donors, and institutions -- to
succeed in achieving these goals.
Thank you.

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HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 1, 2004
JS-2082

Assistant Secretary of the Office of Economic Policy
Mark J. Warshawsky
Statement for the Treasury Borrowing Advisory Committee
November 1, 2004
Economic activity accelerated in the third quarter after what turned out to be a slight
and temporary slowing in the second quarter. The labor market also continued to
improve. Nonfarm payroll employment rose by 309,000 during the quarter,
resulting in 13 straight months of job increases for a total of 1.9 million new jobs
created (adjusted to incorporate the BLS estimated benchmark revision to March
2004 employment). The unemployment rate held steady at 5.4 percent in
September. its lowest rate since October 2001 and below the average of each of
the past three decades. These are very positive developments that have helped lift
compensation in the third quarter at a 3.3 percent annual rate in real terms, the
largest advance this year
Last week the Commerce Department reported that real GOP, which had increased
at a respectable 3.3 percent annual rate in the second quarter, followed up with a
3.7 percent gain in the third quarter. The composition of growth in the third quarter
was favorable, With real final sales up at a 4.2 percent rate - the strongest increase
in a year. The pickup chiefly reflected renewed growth of personal consumption
expenditures. These expenditures rose at just a 1.6 percent annual rate in the
second quarter but that was followed by a 4.6 percent surge in the third quarter as
consumer outlays for a variety of goods strengthened, especially for motor
vehicles. Consumer expenditures for motor vehicles and parts had declined in
each of the previous three quarters, but rebounded at more than a 27 percent
seasonally adjusted pace In the third quarter. Part of that turnaround reflected the
response to more generous motor vehicle incentives.
BUSiness investment continues to be another key dnver of economic growth. After
riSing at an average annual pace near 12 percent over the last year and a half, real
investment in equipment and software extended that string mto the third quarter,
increasing at a 14.9 percent annual rate. Investment in structures has also
improved during the last year and a half and continued to grow in the third quarter.
Gains in corporate profits, favorable tax incentives and confidence in the economic
expansion have supported the rise in investment. Based on the latest available
data through the second quarter, the GOP measure of corporate profits (with
inventories and depreciation adjusted to reflect replacement cost) has risen 19
percent over the past year, chiefly from domestic nonfinancial corporations. Profit
margins (as a share of gross domestic income) are high, contributing to strong cash
flow -- the internal funds available for investment. Steady growth in profits and cash
flow should continue to spur investment growth going forward.
Real residential investment grew at a moderate 3.1 percent rate in the third
quarter. Despite quarterly fluctuations, the housing sector remains very strong.
Through the first three quarters of the year, the rates of new and existing home
sales are both above the record-setting annual levels of last year. Mortgage rates
remain low and have come down from Just over 6 percent a few months ago to 5.7
percent in October. Housing starts rose at more than a 10 percent rate in the third
quarter, indicating renewed growth ahead for home construction after unusually
stormy weather in the third quarter may have affected construction activity.
Inventory investment was a moderate negative factor in the third quarter. A
widening trade deficit was also a drag on growth as it was in the previous three
quarters, but the 0.6 percentage point subtraction was much less than the 1.1 point

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1/312005

JS-2082:

Assistant Secretary of the Office of Economic Policy Mark 1. Warshawsk...

Page 2 of 2

negative contribution in the second quarter. Exports rose at a 5.1 percent rate In
the third quarter and have been growing robustly for five straight quarters, but they
continue to be more than offset by a larger volume of Imports. Although there are
signs of firming in demand for US. exports, slower economic expansion among
many of our major trading partners than in the United States continues to be a
factor in the faster growth of U.S. imports than exports.
Budget results for fiscal year 2004 came in better than expected. The July MidSession Review had projected a budget deficit of about $445 billion, but growth in
the economy and jobs yielded a deficit of only $413 billion, equivalent to about
3-1/2 percent of GDP. This IS ouch lower than deficits in the 4-1/2 to 6 percent of
GDP range at various times In the 1980s and 1990s. With continued economic
growth and Job creation, along with spending restraint, the Administration's policy is
to cut the deficit in half over the next five years to less than 2 percent of GDP.
Consumer price inflation remained contained in the third quarter, riSing at a
1.9 percent annual rate, although there was some eVidence of rising producer price
pressures at earlier stages of processing. The broadest measure of inflation, the
GDP price index, rose at only a 1.3 percent pace in the third quarter.
Developments in Oil markets continue to be a concern. The oil intensity of U.S.
GDP has fallen by nearly half since the first oil shock in the early 1970s, but the
price of oil remains a key variable in the macro outlook. To deal with the temporary
reduction in oil production from the Gulf of Mexico resulting from the recent run of
hUrricanes, the Administration authorized the release of oil from the Strategic
Petroleum Reserve. This has helped contain prices and illustrated the long-held
Administration stance that the SPR should be used only in the case of a true supply
disruption.
At the same time, the still-high price of oil also illustrates the importance for our
economic security of following through on the Administration's proposals to
enhance domestic energy supplies and to adopt technologies to use energy more
effiCiently.
In sum, despite the concerns raised by high and volatile oil prices, recent
macroeconomic data suggest the economy is already strong and continues to
improve. Real growth continues to be above trend, the unemployment rate is low
and moving down, inflation is low, and the budget situation is improving faster than
expected.

http://ww".treas.gov/press/releases/js2082.htm

11312005

RESS ROO M

FROM THE OFFICE OF PUBLIC AFFAIRS
November 2, 2004
2004-11-2-14-5-28-28740

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 $84,687 million as of the end of that week, compared to $84,067 million as of the end of the prior week.

I. Official U.S. Reserve Assets (in US millions)
October 22, 2004

October 29, 2004

84,067

84,687

TOTAL
1. Foreign Currency Reserves

a. Securities

Euro

Yen

TOTAL

Euro

Yen

TOTAL

11,465

14,643

26,108

11,565

14,834

26,399
0

Of which, issuer headquartered in the US.
b. Total deposits with:
11,284

b.i. Other central banks and BIS

14,227

2,943

11,386

2,981

14,367

b.ii. Banks headquartered in the US.

b.ii. Of which, banks located abroad

b.iii. Banks headquartered outside the US.

b.iii. Of which, banks located in the U.S.

19,723

19,837

12,966

13,041

11,043

2. IMF Reserve Position

3. Special Drawing Rights (SDRs)
4. Gold Stock

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
October 29, 2004

October 22,2004
Euro
1. Foreign currency loans and securities

Yen

TOTAL

Euro

Yen

TOTAL

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:

2.a. Short positions

2.b. Long positions

o
o

3. Other

III. Contingent Short-Term Net Drains on Foreign Currency Assets
October 22, 2004
Euro

1. Contingent liabilities in foreign currency

Yen

October 29, 2004

TOTAL

Euro

Yen

TOTAL

o
o

1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
3. Undrawn. unconditional credit lines
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U.S

3. c. With banks and other financial institutions
Headquartered outside the U. S.

4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
4.a. Short positions
4.a.1. Bought puts
4.a.2. Written calls
4. b. Long positions

4.b.1. Bought calls
4.b.2. Written puts

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 IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.

lureau of the Public Debt: Public Debt Announces Activity for Securities In The STRIPS Program For .,. Page 1 of

United States Deportment of the Treasury

lublic Debt Announces Activity for Securities In the STRIPS Progranl for
Ictober 2004
:)R RELEASE AT 3:00 PM
)vember 4, 2004

Ie Bureau of the Public Debt announced activity for the month of October 2004, of securities within the Separate Trading of Registered
terest and Principal of Securities program (STRIPS).
In Thousands

rincipal Outstanding (Eligible Securities)

$2,836,138,405

eld in Unstripped Form

$2,660,332,331

eld in Stripped Form

$175,806,074

econstituted in October

$13,288,169

e accompanying table, gives a breakdown of STRIPS activity by individual loan description. The balances in this table are subject to
dit and subsequent revision. These monthly figures are included in Table V of the Monthly Statement of the Public Debt, entitled
oldings of Treasury Securities in Stripped Form."
e STRIPS table, along with the new Monthly Statement of the Public Debt, is available on Public Debt's Internet site at:
Iw.publicdebt.treas.gov. A wide range of information about the public debt and Treasury securities is also available at the site.

Intellectljai Property

I Privacy

& Security Notices

I Terms

& Conditions

I Accessibility I Data

Quality

U.S. Department of the Treasury, Bureau of the Public Debt
Last Updated January 7, 2005

/lwww.pubhcdebttreas.gov/comlcomlI~4s.htm

7/1/2005

JS-2084: The lLS. Current ~t: Recent Trends and Policies lohn B. Taylor ...

Page 1 of 5

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 4,2004
JS-2084
The U.S. Current Account: Recent Trends and Policies
John B. Taylor
Under Secretary of the Treasury for International Affairs
Keynote Address
American Enterprise Institute Conference on
Policy Challenges of Global Payment Imbalances
Washington, D.C.
November 4, 2004
It is a pleasure to participate in this conference on the adjustment of global
payments imbalances and I thank Desmond Lachman for the invitation.

Balance of payments adjustment has long been a concern for international
economists and policy makers. Indeed, 40 years ago, concerns that the balance of
payments adjustment process was not working smoothly led to the creation of a
special working party of international officials--called Working Party 3 of the OECD-to address these concerns. Working Party 3 (WP3) still exists today, and, as its
current Chairman, I can tell you that global payments adjustment is still a major
topic for discussion among international policy makers.
In the 1960s, the current account deficit of the United States was a major focus.
The same is true today. But the nature of the policy discussion has changed
dramatically. The Bretton Woods system of fixed exchange rates is gone, replaced
by a smooth-working system of market-based flexible exchange rates among the
major currencies, though fixed exchange rates are still being used in some large
economies. The policy analysis has also changed. For example, thinking of
payments imbalances as a gap between saving and investment was unheard of in
the WP3 discussions in the 1960s. In contrast, as I will emphasize in these
remarks, the saving-investment gap is now the essence of both the explanations of
the payments imbalances and the policy challenges today.
Today's Current Account Deficit
The U.S. current account deficit measured as a percentage of GOP has risen from
about 1 percent in 1990 to about 4 percent in 2000 to about 5 in the first half of this
year.
What explains this development? In my view the best way to think about the
current account is as the gap between investment and saving. When investment in
the United States is higher than domestic saving, foreigners make up the
difference, and the United States has a current account deficit. In contrast, if saving
exceeds investment in a country, then that country has a current account surplus as
its people invest abroad.
Consider the first half of this year for example. The U.S. current account deficit was
$594 billion (at a seasonally adjusted annual rate and on a national income account
basis). This $594 billion deficit equaled the gap between $2,246 billion in
investment and $1,652 billion in saving[1]. That is, U.S. domestic investment was
$594 billion more than domestic saving with net foreign investment making up the
difference.
Viewed in these terms, the $112 billion increase in the U.S. current account deficit
in the four quarters ending in the second quarter of this year (measured on a
national income account basis), corresponded to a $335 billion increase in
investment outstripping a $224 billion increase in saving. This increase in

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investment was a key factor in U.S. economic growth during this period. Over a
longer period the increase in investment will expand the capital stock, which will
raise potential output and increase wages. New technological processes are
embedded in enhanced investment levels and will further raise productivity.
As this example indicates, the increase of the U.S. current account deficit over
more than a decade has been linked to domestic U.S. capital formation increasing
more than U.S. saving. Perceived high rates of return on U.S. assets, based on
strong productivity growth relative to the rest of the world, combined with an
efficient and secure U.S. capital market attracts foreign IIlvestment. Thus, sound,
growth enhancing, economic pOlicies are continuing to make the U.S. an attractive
place to invest. There are parts of the world that currently have large savings rates
and limited domestic opportunities. We would certainly not object - in fact, we'd be
very pleased - if other countries strengthened their investment environment, their
level of investment, and their economic growth performance
A U.S. current account deficit implies that foreigners are acquiring more assets in
the United States than Americans are acquiring abroad, and already foreigners own
more assets in the United States than Americans own abroad. So far, Americans
are still receiving more income from abroad than they are paying abroad, but at
some time in the future Americans will need to pay a net return to foreigners. The
larger capital stock at their disposal producing more income than would otherwise
have been the case will enable these payments.
[1] Including the relatively small statistical discrepancy.

Economic Policy and the Current Account
In addition to helping to explain the trends, this view of the current account also tells
us the kind of economic poliCies that will reduce the current deficit and at the same
keep the United States and the world economy strong. So let me now describe
three types of economic policies that the Bush Administration is pursuing and will
continue to pursue which relate directly to the current account.
Saving in the United States

Let me first turn to policies aimed at increasing saving of the public sector and the
private sector. To be sure there is no one-to-one correspondence between the
fiscal deficit in the United States and the current account deficit. For example, the
decline in the current account deficit as a percentage of GOP increased by more in
the late 1990s when there was a fiscal surplus than it has since the start of the
economic downturn in 2000 - when the deficit increased in part as a consequence
of well-timed tax-cut policies to help mitigate and end the recession. Nonetheless, a
reduction in the U.S. fiscal deficit now as the economy expands will reduce the
current account deficit if private saving and investment do not change in a way to
offset this reduction.
An important element of the Administration's fiscal policy is that as the economy
continues to expand and the growth of government spending is contained, the fiscal
deficit will decline substantially. Indeed one can already see evidence of this in the
fiscal year that just closed. Because of the strong economic expansion, the federal
budget deficit for fiscal year 2004 turned out to be less than either CBO or the
Administration forecast at the start of the year. The deficit is $108 billion less than
the Administration's forecast. Next year the budget defiCit is projected to be less
than 3 percent of GOP, and continue to contract through the rest of the decade.
Likewise, increased private saving can play an important role in reducing the
current account and also supporting long-term growth in the U.S. economy. The
adoption of education savings plans and health savings plans are two steps the
Administration has already taken to promote private savings. Increasing saving for
retirement is more and more important as the population ages. The Administration
has made efforts to encourage and safeguard retirement savings in the workplace.
But more can and should be done. The tax reform and social security reforms
called for by President Bush--including the introduction of personal savings
accounts--are an opportunity to further reduce the disincentives to save and provide
long-term benefits to the U.S. economy.

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JS-2084. The U£

ClJrrent~nt:

Recent Trends and Policies lohn B. Taylor ...

Page 3 of 5

Policies to Boost Global Growth
A second group of economic policies are those that will raise global growth. These
will ameliorate the deficit by raiSing U.S. exports and increasing investment
opportunities around the globe. And of course strong global growth has other
benefits as well. Indeed, the effects of recent policy efforts are already visible in
increased economic growth and greater economic stability around the world.
Global economic growth is as high as it has been for 30 years and there are no
major recessions or financial crises.
Several international economic policy initiatives have been undertaken in recent
years to promote growth. Last year the G-7, under U.S. leadership, adopted the
Agenda for Growth, which has emphasized structural, supply-side policies,
especially in Europe and Japan, to increase flexibility and boost productivity growth
and employment. In 2001, the U.S.-Japan Partnership for Growth established by
President Bush and Prime Minister Koizumi led to candid discussions on how to
promote sustainable growth in Japan. Early in the Bush Administration, President
Bush and President Fox of Mexico created the Partnership for Prosperity, a privatepublic alliance to promote investment in parts of Mexico where growth has lagged.
More recently President Bush and President Lula created a U.S.-Brazil Group for
Growth to review and assess strategies to raise productivity and employment in
Brazil. All of these initiatives aim to promote long-term investment opportunities in
these countries and U.S. export opportunities.
The reduction of trade barriers through the Doha Development Round is vitally
important for increasing economic growth but also for opening markets for exports
from the United States and other countries. And with the right policies there could
be much more foreign private investment in the low-income countries. Programs
such as the recently created Millennium Challenge Corporation (MCC) and the
World Bank's Doing Business initiative are keys to supporting low-income countries
that are undertaking economic reforms to promote economic growth.
Market-Based Flexible Exchange Rates
A third area of policy relates to exchange rate flexibility. For small open economies,
a currency board, dollarization or being part of a currency union can contribute
greatly to stable prices and sound macroeconomic management. But exchange
rate flexibility among currencies of major economies provides important paths of
global adjustment to economic shocks. We have discussed these issues
extensively in meetings with G-7 finance ministers and central bank governors and
In other international fora. At the recent G-7 meetings in Dubai, Boca Raton and
Washington, we achieved strong consensus in support of flexible exchange rates.
The Boca Raton G7 communique, repeated in the Washington G7 communique,
emphasized that" ... more flexibility in exchange rates is desirable for major
countries or economic areas that lack such flexibility to promote smooth and
widespread adjustments in the international financial system, based on market
mechanisms."
China is a large and growing economy. In 2003 it had a GDP of $1.4 trillion or $6.4
trillion adjusting for purchasing power parity. China is continuing to grow strongly
and has become an important source of global growth. It has become a regional
processing hub, finishing imported products from other Asian countries for final
export. Other Asian emerging market economies follow China's economic strides
and exchange rate policy closely. A flexible exchange rate is appropriate for China,
not only in light of its growing international role but also in order to better manage
domestic macroeconomic, particularly monetary pressures. Regionally, the
Renminbi is an anchor currency and any movement toward flexibility should spread
to other currencies.
The Bush Administration has had an unprecedented level of engagement with the
Chinese government on its exchange rate policy including a technical cooperation
program. We have broadened our diplomatic strategy to include China's major
trading partners through the G-7. In early October, G-7 Finance Ministers and
Central Bank Governors met for the first time as a group with their Chinese
counterparts and discussed these issues.
The People's Bank of China's recent moves to increase its one-year lending and
deposit rates are the latest examples of China's more systematically management
of monetary policy. Such actions represent significant steps in support of China's

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JS-2084:

the ill Curr.eat Aeeetlnt: Recent Trends and Policies lohn B. Taylor ...

Page 4 of 5

move to a flexible and market based exchange rate.

Current Account Adjustment and Financing
In the last three plus years, I have traveled throughout the United States and other
countries meeting with a wide variety of international experts from the private and
public sector to discuss the Bush Administration's economic policies. Questions
about the adjustment or the financing of the current account often surface in these
discussions, and, as I mentioned, I am currently chairing an international group
whose main purpose is to examine questions about the adjustment and financing of
the current account. I readily highlight the positive actions taken by the U.S.
government, which will promote more growth throughout Lne world and reduce
external imbalances. And I recommend strongly against actions that would be
detrimental to the United States economy or the world economy even if one could
argue that they would reduce the current account deficit. The beneficial impact of
these positive measures may take time to materialize, but there is no reason to
expect that financing and adjusting will not be adequate and smooth.
First, it is important to put the current account in the perspective of the total amount
of financial flows crossing US. borders in large, open and flexible markets. The
scale and scope of these capital flows represent a critical link for understanding the
resources to fund the current account deficit.
Let me use an example from the most recent balance of payments statistics in the
first two quarters of this year. From the first to the second quarter, the current
account deficit increased from $147 billion in the first quarter to $166 billion in the
second quarter, an increase of $19 billion. How was this increase financed? Net
purchases of U.S. assets by the official sector actually fell by $54 billion; recall that
intervention in exchange markets by Japan came to a halt on March 16. What
about private purchases of U.S. assets? They declined too, by $126 billion from
$317 billion to $191 billion. So where did the increased financing come from? The
answer is a reduction in the purchase of foreign assets by U.S. residents, investors,
and corporations. The net purchase of foreign assets fell by $188 billion. Note that
in this example it was simply the reduction in the amount of purchases by
Americans of foreign securities that did the financing. The stock of U.S. owned
assets abroad continued to increase. Although data are difficult to obtain, our
estimates indicate that the U.S. investment position represents a stock of capital of
about $8 trillion.
This example also illustrates why certain ratios, such as "official sources of finance
as a percentage of the current account," can be misleading. In the first quarter of
this year that ratio was 92 percent. In the second quarter it fell to 50 percent. Yet
the financing of the current account proceeded smoothly. Volatility in the markets
remained low and long-term interest rates actually fell during the year.
Some ask about the econometric models that are used to estimate the size of a
currency adjustment that would be associated with a given current account
adjustment. These models sometimes find large currency changes, but they
sometimes also tend to look mechanically at the effect of an isolated exchange rate
change. In reality many factors change Simultaneously because the dollar and
other major currencies are determined in markets. Further, it is important to keep in
mind that, embedded within such model simulations, is an assumed U.S. current
account at a certain given level.
Another question relates to a long-standing empirical observation that the U.S.
income elastiCity of demand for imports substantially exceeds trading partner
income elasticity of demand for exports. This gives rise to pessimism that equally
rapid growth at home and abroad would lead to an increase in the deficit. More
recent research shows a significantly reduced asymmetry, however, particularly
when data for the period since the 1990s are considered. As the world evolves,
elasticity asymmetries, which may have been prominent in the 1960s and 1970s,
are less present in more recent times. This more recent finding should not be
surprising. As foreign countries grow and undertake structural reform, their income
elasticity of demand for imports may rise. For example, Japan's import elasticity
rose during the 1990s, confirming that the Japanese economy was moving to a
more import-dependent structure than in the past. This is a manifestation of a shift
in the industry mix of the Japanese economy, from the "full-set" structure of the past
to a structure based on division of labor with East Asia. Structural reforms clearly
had a role and will continue to have a role.

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Page 5 of 5

Conclusion
In sum, in these remarks I have tried to review the reasons for the recent current
account trends in the United States, some of the related policies that the U.S
government is pursuing and will pursue in the future and some of the questions that
people raise about financing and adjustment. I think the policies are the correct
ones both for increasing growth and reducing the current account deficit. As we
think about the future, there is great promise that the current global expansion will
be a long lasting one, and this alone is good for the world economy as well as for
the current account statistics.

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JS-2085~

Statement of S'9FefftpY John Snow on October Employment Report

Page 1 of 1

I-'HLS S HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 5,2004
JS-2085
Statement of Secretary John Snow on October Employment Report
The growing strength of the U.S. economy is further evident in today's employment
report. For the fourteenth consecutive month, Jobs were added in America. With the
addition of 337,000 jobs in October and upward revisions to August and
September, roughly 2.4 million jobs have been created since August of 2003, with 2
million so far in 2004. The unemployment rate remains below the average of the
1970s, 1980s and 1990s.
There can be no doubt that President Bush's tax relief, combined with good
monetary policy, the strength of our small-business sector, and our outstanding
workforce, has led to a growing economy that is producing good jobs for American
families. With the pro-growth economic policies put forward by President Bush, and
the unwavering strength of the American people, the U.S. economy will continue on
its upward path of progress bringing rising prosperity to families across the nation.

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)s-2086: &ecretm Snow Namei Daniel Glaser Deputy Assistant Secretary of Terroris... Page I of 2

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 5, 2004
js-2086

Secretary Snow Names Daniel Glaser
Deputy Assistant Secretary of Terrorist Financing and
Financial Crimes
U.S. Treasury Secretary John W. Snow announced today that Daniel Glaser has
been named Deputy Assistant Secretary for the Office of Terrorist Financing and
Financial Crimes (TF/FC)
"Danny has been a critical player in establishing important anti-money laundering
and counter-terrorist financing policies over the past several years. He has wellrepresented the United States Government in helping safeguard the financial sector
both at home and abroad," said Treasury Secretary John Snow. "The extensive
knowledge and expertise he brings to his new position will further enhance
initiatives to protect the financial system from corruption."
Mr. Glaser functions as the primary Treasury official for the development and
coordination of international anti-money laundering and counter-terrorist financing
policy. He is a key official in developing and implementing strategies to disrupt and
dismantle money laundering and terrorist financing networks worldwide, and has
led the Treasury effort to identify and secure the U.S. financial system from foreign
money laundering and terrorist financing threats.
Mr. Glaser already plays a leading role in the international fight against money
laundering and terrorist financing. He serves as the head of the U.S. delegation to
the Financial Action Task Force (FATF) - the premier international body In the fight
against money laundering. In that role, he is Co-Chairman of the FATF Working
Group on Terrorist Financing, which is responsible for setting international
standards in the area of counter-terrorist financing.
Mr. Glaser also has extensive experience addressing terrorist financing issues with
an array of other International bodies including the G-7, the International Monetary
Fund, and World Bank, and has served as the lead Treasury negotiator of the
money laundering provisions in the U.N. Transnational Organized Crime
Convention. Mr. Glaser has additionally represented the Treasury Department on
numerous important bilateral terrorist financing related missions to Europe and the
Middle East.
TF/FC resides within the Treasury's Office of Terrorism and Financial Intelligence
(TFI), which was created by the Department earlier this year to bolster efforts in the
financial war on terror. Mr. Glaser was named to this position as a part of the new,
elevated leadership at the Treasury committed to combating terrorist financing,
protecting the integrity of the financial system, fighting financial crime, enforcing
economic sanctions against rogue nations and assisting in the ongoing hunt for
Iraqi assets.
Mr. Glaser previously served as the first Director of the Treasury Department's
Executive Office of Terrorist Financing and Financial Crimes, which was
established in March 2003, and prior to that as Director of the Money Laundering
and Financial Crimes Section of the Treasury. Mr. Glaser has also served as
Senior Counsel for Financial Crimes in the Treasury Department's Office of the
General Counsel, and prior to that as an attorney in the U.S. Secret Service Office
of the Chief Counsel.
Mr. Glaser is a graduate of the University of Michigan and Columbia University
School of Law, and began his career as an associate in the law firm of Coudert

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Brothers.
- 30 -

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J8-2087; Treasury O~ i9 Participate in Inaugural Montana Financial Education Conf...

Page 1 of 1

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 5, 2004
JS-2087
Treasury Official to Participate in Inaugural Montana Financial Education
Conference
Treasury's Deputy ASSistant Secretary for Financial Education, Dan lannicola, Jr.
will deliver the keynote address at the Montana Financial Education Coalition's
inaugural conference, Financial Education ... An Opportunity for Change, next week.
lannicola will speak about the importance of financial literacy and how these
organizations can help improve and expand financial education in Montana.
Established in 2003, the Montana Financial Education Coalition seeks to improve
the personal financial knowledge and decision-making ability of Montana citizens by
promoting public awareness of the need for personal financial education. The
conference will be attended by representatives of academic institutions,
government agencies, and the financial services organizations from across
Montana.
The following event is open to the press:

WHO: Deputy Assistant Secretary for Financial Education Dan lannicola, Jr.
WHAT: Montana Financial Education Coalition's Inaugural Conference
WHEN: Tuesday, November 9, 2004
11:45 a.m. (MST)
WHERE: Best Western Helena Great Northern Hotel
835 Great Northern Blvd.
Helena, MT

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FROM THE OFFICE OF PUBLIC AFFAIRS
November 8, 2004
2004-11-8-15-51-35-24936
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated In this table, US. reserve assets
totaled $85,029 million as of the end of that week, compared to $84,687 million as of the end of the prior week.
\. Official U.S. Reserve Assets (in US mil/ions)
October 29, 2004

November 5, 2004

84,687

85,029

TOTAL
1. Foreign Currency Reserves

a. Securities

Euro

Yen

TOTAL

Euro

Yen

TOTAL

11,565

14,834

26,399

11,739

14,972

26,711
0

Of which, issuer headquartered in the U. S.
b. Total deposits with
11,386

b.i. Other central banks and BIS

2,981

14,367

11,562

3,009

14,571

b.iI. Banks headquartered in the U.S.

b.ii. Of which, banks located abroad

b.iii. Banks headquartered outside the U. S.

b.iii. Of which, banks located in the U.S.

19,837

19,609

13,041

13,095

11.043

11,043

2. IMF Reserve Position

3. Special Drawing Rights (SDRs)
4. Gold Stock

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
November 5, 2004

October 29, 2004
Euro
1. Foreign currency loans and securities

Yen

TOTAL

Euro

Yen

TOTAL

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the US. dollar:
2.a. Short positions
2.b. Long positions

3. Other

o
o

o
o
o

III. Contingent Short-Term Net Drains on Foreign Currency Assets
October 29, 2004
Euro

1. Contingent liabilities In foreign currency

Yen

November 5, 2004

TOTAL

Euro

Yen

TOTAL

o
o

1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
3. Undrawn, unconditional credit lines
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U. S.
3.c. With banks and other financial instttutions
Headquartered outside the U. S

4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
4.a. Short positions

4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions

4.b.1. Bought calls
4.b.2. Written puts

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 SDRldoliar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.

JS-2088.; RemarJei of~.h Warshawsky Assistant Secretary for Economic Policy<", Page 1 of 4

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FROM THE OFFICE OF PUBLIC AFFAIRS

October 29, 2004
JS-2088
Remarks of Mark J, Warshawsky
Assistant Secretary for Economic Policy
The Role of Tax and Regulatory Policies in Improving Good Corporate
Governance
Detroit Economic Club

It is a pleasure to speak to you this morning about the role of tax and regulatory
policies in improving corporate governance and in particular the linkage between
effective policies and strengthening confidence in our market institutions.
The revelations of corporate scandals in 2001 and 2002 negatively affected market
and investor confidence, creating a "confidence deficit" one might say. Fortunately,
positive and complementary developments occurred in the areas of financial
regulatory policy and tax policy that offset these negative factors and have
contributed, I believe, to a sense of confidence and stability. The 2003 tax law
enhanced corporate governance by creating incentives to payout a higher fraction
of the "free" cash flows in excess of profitable investment opportunities to
shareholders, reducing the extent of management's discretionary control over
financial resources. This should have a salutary effect on confidence by bringing
manager and shareholder interests into better alignment. Sarbanes-Oxley improved
the quality of financial reporting and changed investor expectations of auditor and
corporate behavior, further reducing the confidence deficit.
Before I delve Into this, let me briefly talk about the macroeconomic context in
which these policies were implemented. When President Bush took office in
January 2001, he inherited an economy that had already weakened significantly. In
spring of 2000, equity values dropped sharply, by mid-year industrial production
had begun to decline and business fixed investment had stalled, contributing to
negative GOP growth in the third quarter of that year. In March 2001, the economy
sank into recession. The business cycle that began when the economy officially
reached a peak that month has been unique for many reasons. Not only was it
exacerbated most notably by the terrorist attacks of September 11, but the
economic and financial recovery was delayed as the full dimension of corporate
scandals dating back to the 1990s became apparent in 2001 and 2002. For
example, in fourth quarter 2001, just at the November trough of the business cycle,
real GOP grew at a 1.6 percent seasonally adjusted annual rate; a year later, real
GOP grew at a mere 0.7 percent annual rate. The confidence deficit was also
reflected in the stock market - one of the important leading variables for an
economic recovery. Early signs of modest recovery in the stock market just prior to
the official November 2001 recession trough quickly dissipated. In the year
following the trough of the cycle, the S&P 500 index declined by 17 percent. This is
especially striking when we consider that, in the third quarter of 2002, operating
earnings for the S&P 500 were nearly 27 percent higher than they had been a year
earlier; plainly, a lack of confidence kept the stock market from responding to
improved economic performance.
The Jobs and Growth Tax Relief and Reconciliation Act (JGTRRA) of 2003 was a
turning point. Along with an expansionary monetary policy, the passage of JGTRRA
played a significant role in getting the economy onto a better and quicker growth
path. As you know, the President proposed his tax cut plan in January of 2003; it
was passed in May and made retroactive to the beginning of the year. The
economy responded almost immediately. Job growth resumed in September 2003
and over the 13 months through September of this year American businesses
added 1.9 million workers to their payrolls. The unemployment rate has receded
from a peak of 6.3 percent in June 2003 to 5.4 percent in September of this year,
lower than averaged in each of the past three decades

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Thanks to the President's various tax relief measures, American families have more
money to spend. Real after-tax income has risen by 10 percent since December
2000, exceeding the performance recorded after the last recession and helping
support personal consumption expenditures.
The current low-inflation, low-interest rate environment has also been very
supportive, with the latter playing a pivotal role in the exceptional performance of
the housing market. The homeownership rate is at a record 69 percent so far this
year, and housing starts and home sales are on track to top last year's remarkable
performance The residential sector dampened the impact of the recession and has
been a key factor in fueling the recovery.
These are but a few examples of the positive outcomes generated by recent fiscal
and monetary stimulus. The bottom line is that U.S economy is strong and getting
stronger. Real GDP rose at a solid 3.3 percent annual rate in the second quarter
following an impreSSive 5 percent gain over the prior four quarters - the largest
such increase in nearly twenty years. The Commerce Department announced this
morning that real growth increased to a 3.7 percent annual rate In the third quarter.
What you might not recognize, however - and which is of particular importance for
my remarks today - IS that the Jobs and Growth Act led to a significant increase in
regular dividend payouts. the number of companies initiating dividends, and a
decreasing reliance on debt financing. All of these things are positive from the point
of view of good corporate financial health, corporate governance and confidence in
market mechanisms. These effects perhaps are not as obvious as changes in the
more familiar macroeconomic indicators, but they are quite important. Let me
discuss this in more detail.
Among its provisions, the Jobs and Growth Act reduced dividend tax rates to 15
percent in most tax brackets; and dividend and capital gains tax rates were brought
into equality at 15 percent. Taxpayers in the lowest two brackets now pay 5 percent
on dividend income.
The reduction of the double taxation of dividends contained in JGTRRA directly
addresses a critical corporate governance issue, called the agency problem.
"Agency problem" means that corporate managers make decisions in their own
interests rather than interests of shareholders. The problem is facilitated when a
cohesive group of managers knows more about the operations of the company than
a widely dispersed set of shareholders. Without a low-cost institutionalized structure
to channel critical information to shareholders, it is difficult to achieve a concerted
and informed exercise of shareholder rights over managerial decision making. The
tax reduction lowered the cost to shareholders of implementing strategies that
reduce agency problems by increasing the after-tax share of each dollar of dividend
income. Because dividends were previously taxed at a higher rate than capital
gains, corporations were encouraged to retain, rather than distribute, earnings.
Investments made with retained earnings are usually subject to less scrutiny than
those financed with outside equity or debt, reducing the pressure on corporate
managers to undertake the most productive investments. Thus, dividends increase
corporate accountability vis-a-vis investors. And critically, when managers are
required to go to the capital markets to finance investments or acquisitions they
become subject to the objective discipline of the markets' assessment.
In a seminal paper, Michael Jensen described how agency problems can be
particularly Significant for certain types of companies, with deleterious
consequences. For example, if a relatively stable company has substantial cash
flow but few profitable investment opportunities, managers may have incentives to
encourage unjustified growth as a means to achieve higher compensation or
promotional opportunities. In these circumstances we would expect to see capital
expenditures made in low-return projects, or diversification outside the core
business expertise. Research indeed indicates that poor corporate governance
provisions that entrench management interests and weaken shareholder rights is
associated with suboptimal stock returns, lower profits and sales growth.
So, dividend policy is an effective mechanism to control unproductive managerial
discretion. And while dividend payments technically are subject to more flexible
adjustment than interest payments on debt, the fact is that It is rare for dividend
increases to be reversed except for compelling reasons.
A financial policy that commits the firm to both fixed interest and dividend payments

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JS-2088: Remarb of Maph J. Warshawsky Assistant Secretary for Economic Policy<... Page 3 of 4
places strong limits on management discretion. It also sends an important signal to
investors about the quality of the firm's operations and business strategy. that is,
the company's ability to generate cash flow.
We also have evidence that the new tax law indeed had a significant effect on
dividend policy. A compelling study appearing in an NBER working paper quantifies
ttle linkage between significant increases in dividend payouts to the tax law
changes. It is striking that statistically significant Changes in behavior are detected
both for companies initiating new dividends and for companies raiSing dividend
amounts that were already in place.
The NBER study covers the period first-quarter 1980 to first-quarter 2004, and
includes approximately 3,800 companies trading on the NYSE, AMEX and
NASDAQ Since the distribution of aggregate dividend amounts is highly
concentrated, and affected by a few major entities, the authors focused on the
number of firms initiating new dividends, and found that the trend in new dividend
payments turned positive In 2003, after falling for more than two decades. The
study also found a significant Increase in the probability that a company already
paying dividends would raise its regular quarterly payment by more than 20
percent; this finding was broad, across companies of all types, after controlling for
company profitability and other characteristics. There was also a significant
Increase in special one-time dividends. Thus, the evidence strongly supports the
view that higher dividend payouts were in response to the tax law changes; this
should rein in managerial discretion and reduce agency problems.
A review by our office of annual S&P 500 company data from 1988 to 2003
corroborates the detailed NBER findings, with increases in both the number of new
initiations and number of higher regular dividend payments, as compared to recent
history. There are a number of other studies that reach the same conclusions.
I would next like to briefly review the second important contributor to building
investor confidence, corporate accountability legislation. The Sarbanes-Oxley Act in
essence declared that the quality of financial reporting should be raised, by making
it more transparent, consistent and accountable. By doing so, market confidence
would be bolstered because expectations of auditor and corporate behavior were
changed.
We do not have time to review all ten titles of the legislation, but among the Act's
key provisions was the creation of the Public Company Accounting Oversight Board
(PCAOB). Indeed. last year, the PCAOB completed interim inspections of the "Big
4" accounting firms. Title II addresses concerns that auditor independence may be
compromised by large fees for non-audit services by prohibiting an accounting firm
from providing certain non-audit services contemporaneously with the audit. And
under Title IV, both management and the accounting firm are responsible for
assessing the effectiveness of a company's internal controls in deterring fraud, with
severe penalties for noncompliance.
Confidence in markets should be enhanced because the law increased the quality
of financial reporting and changed expectations about the behavior of both auditors
and their clients. Have expectations been realized? One source of evidence on
auditor behavior is the frequency of earnings restatement announcements; if the
auditor has been doing its job properly we would expect to see the frequency
decline. Unfortunately. this is a much widely used and abused metric: restatement
announcements generally refer to financial statements that are a few years old, so
we must wait at least another year or so before the restatement data truly reflects
any impact of the law.
Another measure of auditor behavior is the propensity to issue adverse opinions
when circumstances warrant - in other words. is the auditor giving its client a free
pass or not? We have taken an initial look at the tendency of auditors to Issue
"going concern modified opinion reports" to financially weak companies before and
after the law changed. We found that there was an increased likelihood that an
adverse opinion would be Issued after the law was passed, controlling for company
financial characteristiCS These results are consistent with previously published
research that examined the effects of earlier changes in the legal environment on
auditor behavior. I must stress that these are preliminary findings; there may be
other as yet unidentified factors contributing to this "shift effect" and we have to see
if the results generalize to samples of financially healthier companies. So far,
though, the initial results are consistent with our expectations.

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JS-2088: RemwafMaIkl U4ashawsky Assistant Secretary for Economic Policy<... Page 4 of 4
Turning to some direct. but admittedly soft, evidence on the impact on corporate
behavior, I would like to review some highlights from a worldwide survey of over
300 executives conducted last year by the Economist Intelligence Unit that elicited
views on corporate governance. The Economist Intelligence Unit is part of the same
organizational structure that houses The Economist magazine: it provides business
information and analysis of political and economic environments to multinational
companies.
It is notewortllY that over 40 percent of the survey respondents feel that vested
management interest is the single most important barrier to good corporate
governance: this is precisely the source of agency problems that is addressed by
the tax law changes encouraging dividend payouts.

It is both interesting and extremely encouraging that 70 percent of these
international executives thought that the U.S. had done most to improve corporate
governance. The results are especially impressive when compared to some of our
friends overseas. For example, 16 percent thought the UK had made the greatest
strides. while just 3 percent thought so for France.
Companies have taken a number of steps to change their governance practices:
For example, 55 percent of the firms in the survey have strengthened the int~rnal
audit function, while almost half (49 percent) have improved risk management.
Positive results are flowing from these changes, including a better grasp of
business issues at the senior management level. From the perspective of mitigating
agency problems created by vested management interests, it is most significant
that 75 percent of the executives in the survey observe an increased activism
among shareholders and an insistent demand for relevant information.
In summary, the U.S. economic system incurred a confidence deficit as a result of:
recession, terrorism and corporate scandals. We have come back. The President's
tax package helps re-direct cash flow to shareholders through increased dividends,
thereby reducing agency problems and wasteful managerial decisions. SarbanesOxley increased the quality of financial reporting, and changed expectations of
auditor and corporate behavior. Tax and regUlatory policy have Joined together to
promote corporate governance and efficient use of resources, significantly reducing
the confidence deficit.
What can we expect from this point forward? These benefits should continue,
assuming that the tax law changes remain intact. Hopeful indications are to be
found in Jensen's theory of agency problems and economic research that links
corporate governance to performance. The tax law changes have sharpened and
clarified the differences between two paradigms: companies that Signal they are
addressing agency problems through their financial policies and governance
procedures, and those that do not. I think we can be reasonably confident that
market valuations will inevitably reflect these relative differences, helping to loosen
even the most entrenched management enclaves.
-30-

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JS-2089: Remarb ofMBfI{ 1. Warshawsky Assistant Secretary for Economic Policy...

Page 1 of7

f-'HLSS HOC)M

FROM THE OFFICE OF PUBLIC AFFAIRS
October 15, 2004
JS-2089

Remarks of Mark J. Warshawsky
Assistant Secretary for Economic Policy
Current Macroeconomic Activity and Conditions in the
Crude Oil Market
Charlotte Economics Club
Charlotte, North Carolina
Good afternoon. I'm delighted to be here today to talk to you about the U.S
economy. I began my tenure at the Department of the Treasury as Deputy
Assistant Secretary for Microeconomic Analysis, specializing in issues related to
terror risk insurance, penSions and Social Security. After taking over the
responsibilities of Assistant Secretary for Economic Policy a year and a half ago, I
have had the opportunity to become more deeply Involved in investigating the
forces that shape the performance of the macro-economy I would like to begin
today by discussing my view of current economic conditions and then focus on one
of the major issues influencing the outlook - oil prices and their potential impact on
the economy.

Current Economic Conditions
I think that it is fair to say that the last three and a half years have been unique in
our economic history. The bursting of the NASDAQ bubble and the substantial
decline In stock market values in 2000, along with the resulting pullback in
investment, caused an actual decline in economic activity in the third quarter of that
year. By 2001, we had entered recession and its effects were compounded by the
terrorist attacks of September 11. We appeared well on our way to recovery in
early 2002, when growing evidence of widespread corporate malfeasance dating
back to the late 1990s once again undermined business activity. Slow growth
abroad provided an additional headwind. The war with Iraq further raised
uncertainty in the early part of 2003.
Given this long succession of negative events, the performance of the economy has
been quite remarkable. Rapid monetary policy accommodation and perhaps the
most well-timed fiscal policy response in our history resulted in the smallest GOP
loss of any recession in the post-World War" era. Three tax cuts in three years
boosted household incomes to support consumption, offered tax relief on dividends
and capital gains for stockholders, and provided large and small businesses with
incentives to undertake investments in equipment. The recently enacted Working
Families Tax Relief Act of 2004 will assure that families and businesses will
continue to benefit from tax relief.
By summer of last year, the economy was growing strongly again and in the first
quarter of this year, real GOP was 5 percent above its year-earlier level, the largest
4-quarter increase in 20 years. While North Carolina has been hard hit, we are
seeing progress here. State payrolls are up nearly 63,000 so far this year and, at 5
percent, the unemployment rate is below the national average. More than 2.9
million North Carolina taxpayers and 665,000 North CarOlina businesses will pay
less in taxes this year because of the President's efforts.
Nationally, economic activity slowed somewhat in the second quarter of this year,
although the final estimate of real GOP showed growth at a still-respectable 3.3
percent annual rate. Gross domestic purchases - the demand of U.S. households,
businesses, and government - increased by an even stronger 4.2 percent, mainly
reflecting strength in business and residential investment. The difference between
the purchases and product figures is represented by the trade deficit, which
widened further in the second quarter, exerting a drag on GOP Although there are

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Remarks of MaN J Warshawsky Assistant Secretary for Economic Policy... Page 2 of7
signs of firming in demand for U.S. exports, slower expansion among many of our
major trading partners than in the United States continues to be a factor in the
faster growth of U.S. imports than exports.
The composition of economic growth has transitioned much as we had hoped. The
consumer supported the economy throughout the recession. More recently,
business investment has been the key driver. Real investment in equipment and
software has been increasing at a double-digit pace over the last five quarters and
appears on track for another strong gain in the third quarter. Investment in
structures is also making a comeback, rising in three of the last five quarters. Gains
in corporate profits, declining risk spreads, favorable tax incentives and greater
business optimism regarding the durability of the economic expansion have
supported the rise in investment. Economic profits (based on current production)
have risen 19 percent over the past year. Strength has been centered in domestic
nonfinancial corporations, and in the second quarter, the largest increase in
economic profits was recorded by the information industry - up $23.1 billion - a sign
that the tech sector is coming back.
Along with investment in capital goods, residenlial investment also continues to be
remarkably strong. Except for a small decline in the fourth quarter of 2001, real
residential investment has increased in every quarter since the end of 2000. A year
ago, few expected further near-term growth. But demand has held up very well, as
30-year mortgage interest rates have remained below 6 percent, generating recordhigh home sales so far this year. In the latest quarter, real residential investment
rose at a 16.5 percent annual rate, the second largest quarterly increase in eight
years.
In the second quarter personal consumption spending slowed to only a 1.6 percent
increase at an annual rate. Explanations included the fading of the boost from
refinancings, the extra demand on family budgets of higher gasoline prices, and the
impact of a cooler- and wetter-than-normal spring on seasonal purchases. While all
of these explanations may have played a role, it now appears that the second
quarter represented only a temporary pause in consumption growth. With July and
August data already on the books for the third quarter and today September
spending showing an impressive increase, personal spending is on track for an
increase of up to 4.5 percent annual rate. A jump in unit auto sales in September
appears to confirm strength in consumption through the end of the quarter.
I think it is reasonable to be optimistic about the outlook for consumption. The
wages and salaries generated by new jobs are becoming the driver for personal
income. Since the President's Jobs and Growth Plan went into effect In the third
quarter of 2003, payroll employment growth has been revitalized. Jobs have
increased for 13 straight months by a total of 1.9 million. The unemployment rate
has fallen to 5.4 percent - lower than the average of each of the past three
decades.
Another positive factor is that the pickup in inflation we observed early in the year
appears to be subsiding. In fact, the personal consumption deflator was unchanged
in the past two months. Low inflation is consistent with the phenomenal growth of
productivity that we have witnessed throughout the current business cycle. Since
the end of 2000 - a period that includes both recession and recovery - nonfarm
productivity has risen at a 4 percent annual rate, the best performance for a threeand-a-half year period since the early 1960s.
The policies of the past three and a half years have been appropriate for the
unusual circumstances we faced and have put the economy on the path to renewed
expansion. But, in addition, they have helped assure strong growth in the future.
Lower marginal tax rates have improved the after-tax rewards to work. They also
increase the returns to innovation and risk taking, because most entrepreneurs pay
individual income taxes. The cost of equity capital has been reduced through lower
taxes on dividends and capital gains, thus promoting investment. A tax system that
supports greater risk-taking, investment, and Innovation means greater productivity
and capital accumulation and ultimately a higher standard of living.
The Mid-Session Review in July projected a budget deficit for Fiscal 2004 of about
$445 billion, but growth in the economy and Jobs has already contributed to an
improvement, with the defiCit coming in at $413 billion, equivalent to about 3.5
percent of GOP. This is much below deficits in the 4.5 to 6 percent of GOP range at
various times in the 1980s and 1990s. Though unwelcome, the federal budget

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deficit is manageable and understandable, given the extraordinary circumstances of
recent history. With continued economic growth and job creation. along with
spending restraint, the President has a plan to cut the deficit in half over the next
five years to less than 2 percent of GOP
The Administration is currently beginning the fall economic forecasting exercise that
will underpin the fiscal year 2006 budget. As we undertake the forecasting exercise
this year, we will devote particular attention to the situation in petroleum markets.

Oil Markets
The stubbornly high price of crude oil has been one of the dominant economic
stones this year. Even though the oil intensity of U.S GOP has fallen by nearly 50
percent since the first oil shock in the early 1970s. the price of oil remains a key
variable in the macro outlook.
The U.S. consumes about 20 million barrels of petroleum products per day, a
quarter of world oil production. But we only produce about 40 percent of the oil we
consume, so we're importing about 12 mbd each day. Two-thirds of our petroleum
consumption goes to transportation, and another quarter is taken up by industrial
uses - with much going as raw matenals for the chemicals and plastics industries.
Demand for oil rises with overall economic activity - a 1 percent increase in real
GOP is usually associated with about a 0.5 percent increase in oil demand. But it
does not appear that U.S. demand for oil in the short run is sensitive to the price.
One recent estimate suggests that the price elasticity of demand for oil in the U.S.
is -0.02 in the short run and rises to about
-0.6 in the long run (which takes about 10 years). In these estimates, the short run
is surprisingly long: at least a year. The implication is that, for periods of up to a
year, a rise in the price of oil increases outlays on oil almost proportionately.
From these basic facts emerge the estimates of the first round impacts from an
increase in oil prices. Each $10 per barrel rise in prices increases the annual oil
import bill- the "oil tax" - by about $44 billion (12 mbd times 365 days times $10),
or about 0.4 percent of GOP. So what does the price experience of the last two
years suggest? The price of West Texas crude averaged about $26 per barrel in
2002, about $31 in 2003, and so far this year have averaged a little more than $39.
So the oil tax amounted to about $22 billion in 2003, and could rise to about $58
billion in 2004.
But of course the first round impacts don't capture all the effects or possibilities. A
more thorough estimate of the real impact would include the potential crowding out
of other imports in favor of oil and the differences in the propensities to spend
between domestic oil consumers and producers. We also need to consider shortterm multiplier effects, potential inflation effects, and financial market feedbacks.
To capture these, we use estimates from simulations of macro models to assess
the real effects of an oil price increase. Our work suggests that had oil prices
remained at about their 2002Q2 levels (slightly more than $26 per barrel). real GOP
would be about 0.5 percent higher now (about $54 billion in chained 2000 dollars)
and the Consumer Price Index would be about 0.6 percent lower. While these
effects are noticeable - the real GOP effect implies that growth was shaved by
about 0.25 percentage point on average for the last two years - they are not overly
large.
We need to point out, however, that simulation work did not capture the effects of
rising oil prices on consumer and business confidence, the general level of
economic uncertainty, or financial market responses. Further, the results did not
account for the effects of foreign economies slowing in response to higher oil
prices.
So far, we've re-established some pretty well-known Ideas: (1) oil prices are
important for the economy, (2) the recent oil price increases have slowed economic
activity from what it otherwise would have been, and (3) oil demand is not very
sensitive to price changes in the short run. The main questions are, of course, why
are prices high now, and what will happen to prices in the future?

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J~-208t}.

Remarks QfMark 1

W~shawsky Assistant

Secretary tor EconomIc Policy... Page 4 of7

As yet, we've found neither the smoking gun that tells us why oil prices are high
now, nor developed the crystal ball that will tell us what prices will do in the future.
But I'd like to share some observations with you about 011 markets and then raise
the question of whether the price increases we've seen recently are fully Justified by
fundamentals.
We believe that oil market fundamentals are certainly tighter right now than they
have been for many years. Spare production capacity, refining capacity, and
shipping capacity are all very tight. And this is coming at a time when rapid
economic growth in most parts of the world is Increasing the need for oil every day.
The important question that we need to ask ourselves is - is this a temporary
phenomenon, common to vigorous economic expansions where bottlenecks occur
in individual sectors until enough investors recognize the need and provide the new
capacity, or is this a more serious long-term phenomenon?
First, there is considerable uncertainty about even the most basic demand and
supply trends. The last two years have seen an extraordinary surge in the world
demand for oil even in spite of slow growth In Europe and Japan. The main story IS
the emergence of China as a major oil consumer. In 2002, China eclipsed Japan
as the second largest 011 consumer behind the U.S. Over the past 10 years,
Chinese 011 consumption has posted annual growth of about 7.5 percent. And this
year the International Energy Agency (lEA) is putting growth in Chinese oil
consumption at nearly double that rate. India, consuming less than half as much oil
as China, also represents a growing force in oil markets. In 1993, these two
countries accounted for just over 6 percent of global oil demand. Ten years later in
2003, that figure was nearly 11 percent.
Looking at the situation today, it is easy to see why analysts are concerned about
high prices resulting from strong demand; there is considerable upside potential for
consumption. The average person in the U.S. last year consumed about 25 barrels
of oil. In China, that figure was about 1-1/2 barrels and India consumed less than a
barrel per person. While nobody thinks that either China or India will rapidly
approach U.S. per-capita consumption levels In the near future, it's worth noting
that each barrel per year increase in per-capita oil demand raises the daily oil
demand figure for China by about 3 million barrels - about a 3.5 percent increase
over current world levels.
Government stockpiling in these countries could also add to demand. Both
countries have expressed the intention to develop government-controlled stockpiles
of oil much like the strategic petroleum reserve (SPR) in the U.S. The market does
not know how big these reserves will be or how quickly - or even if - they will be
filled. But the uncertainty surrounding their implementation probably has effect, at
least temporarily, on world oil demand now and sometime through the near
future.
In developed countries, the concern is not so much that oil demand will be rising
per unit of GOP, but rather that a sustained expansion - rising GOP - in the U.S.,
Europe, and Japan together will put additional demand pressure on prices. Japan's
economic troubles have crimped its oil consumption growth. The country has
actually seen its oil demand shrink in three out of the past four years. Oil
consumption in the European Union grew by just 0.5 percent in 2003. In the U.S.,
oil demand grew by 1.5 percent last year. Now the potential in oil markets is that
Japan, Europe, and the U.S. will simultaneously accelerate, which, in the context of
rising demand in China Will cause a sharp jump in world demand. (Each 1
percentage point increase in growth for these countries will tend to raise world oil
demand by 200,000 barrels per day.)
Along with uncertainty about demand, there are also significant uncertainties about
supply. Now, geopolitical uncertainty about supply has increased since September
11. The probability of a terrorist-induced supply disruption appears higher now
than, say, four years ago, when analysts may have not have been paying as much
attention to the possibilities as they are now.
But even beyond the probabilities of disruption, there is considerable uncertainty
about the longer-term outlook for oil supply. There is, for example, apparently
serious debate about when global oil production might reach a peak, and, by
implication, when production will decline. The topic was important enough that, in
2003, the editor of the Oil and Gas Journal dedicated a series of six articles to the

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topic, and these sparked so many comments that he published another series of
articles in the spring and summer of this year.
This debate began in the mid-1950s, when geophysicist M. King Hubbert made his
prediction that U.S. oil production would peak around 1970. He turned out to be
about right. Some have used his techniques to argue that we may have already
passed the world oil production peak (we're just temporarily pumping faster than
could have been predicted).
Forecasts of this type are typically grounded in geology, using variables such as the
amount of ultimately recoverable oil reserves globally and oil field depletion rates.
Economists see another side to this debate, which is really about physical versus
economic scarcity. In general, economists feel that even if the Hubbert-type
analyses are correct, market forces and technological progress can compensate,
albeit probably at an initially higher price, by making new energy sources such as
unconventional oil - such as extra-heavy crude and bitumen and alternative energy
sources and conservation economically viable. The issues are when will these
transitions occur and how much more expensive might energy and energy related
products become.
By training, of course, I tend to take the economist's perspective. But the fact that a
group of knowledgeable observers are concerned about long-term supply, coming
in the context of potential large demand increases, has apparently given oil markets
an upward shove.
Evidence from the futures markets suggests private analysts have this picture of
uncertainty in oil demand and supply - with the greatest risks on the upside for
demand and the downside for supply - firmly in mind. To review, the typical oil
futures curve is "backwardated," where the longer dated futures price is almost
always lower than the spot or shorter-dated futures price. If there is a shock - like a
hurricane - that temporarily disrupts oil supply, we would normally expect the
futures curve to steepen further. That is, we would expect the short-dated futures
price to rise due to the shock, but the longer-dated prices to remain about where
they were before the shock.
But that isn't what is going on in futures markets. In fact, the futures prices are
higher across all futures dates. For example, at the beginning of this week, the sixmonth futures price was trading at a discount of just over 5 percent to the nearmonth contract. Prices across average futures curves in October 2000 and October
2002 were obviously lower, but the curves themselves were slightly steeper. The
upward shift in prices along the whole futures curve suggests private analysts
believe that much of each day's rise in oil prices is permanent.
Now, economists are trained to be skeptics, and all of the discussion about
permanent increases in oil prices, oil suppliers running dry, and continued
extraordinary increases in demand have reminded me of the discussion about
another market, which, not too long ago, also seemed to promise continued price
increases as far as the eye could see (even as high as 36,000 1). In the event, the
inevitable demand increases turned south, the market sagged, and we were left
with an "excess" supply. Could the same thing happen (and be happening) in oil
markets?
There's at least some evidence to suggest that it could. We recently looked
through the economics literature to find empirical work that would help us estimate
the "fundamental" price of oil, that is, the oil price that might be observed if there
were no "geopolitical risk" premiums and, over the longer term, if investment and
new supply respond to market incentives. One equation we found related OECD
inventory levels to the price of West Texas Intermediate. Our re-estimate of that
equation suggested that, based on the actual inventory levels through the early part
of 2004, the underlying price of WTI had a two standard error range of up to $38
per barrel. Inventories have tightened somewhat since early 2004, but still leaves a
premium at current prices. Some analysts gauge the "fundamental" level of crude
oil prices by comparing them with the price of other fuels, such as natural gas. One
rule of thumb commonly cited is that the price of West Texas Intermediate (WTI) oil,
in dollars per barrel, should be about eight times the Henry Hub natural gas spot
price in dollars per million Btu. Using that rule, natural gas spot prices in early
October implied a crude oil price of about $47 per barrel - about $6 per barrel
below the then current levels.

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Some of my feeling about at least part of the recent oil price run-up being overdone
comes from watching the market media and trading reactions to the weekly oil
inventory statistics released by the DOE's Energy Information Administration. Over
the past several weeks, each weekly inventory report was followed by an increase
in oil prices in world markets both in the spot and short-dated end of the futures
market and the long-dated end of the futures market. Now the U.S. inventory
situation is important but U.S. inventories represent about 40 percent of total OECD
inventories, and about 20 days of daily world produclion. I've been surprised that
the response to U.S. inventories has been so strong, given that demand and supply
conditions in other parts of the world might be exerting an even stronger pressure
(either up or down) on prices. The price increase following Hurricane Ivan which
seriously affected U.S. production in the Gulf of Mexico is a case in point. While
Ivan's effect was real, it was exaggerated because markets focus on the U.S
market where statistics are much better and much timelier than statistics in other
industrialized countries. Furthermore, there may be a "push me - pull you"
ratcheting effect going on here - as prices increase, inventory holders economize in
the belief that there will be a fall, while market participants observe the stinginess in
inventories and bid up prices, and so on.
The simple reason U.S. inventory data has this effect is, of course, because the
U.S. produces good data quickly, and the markets are using the U.S. data in the
place of full information about other developments. That's alright if U.S. inventories
are a good indicator of world market tightness, but if there are conditions that are
special to the U.S. - like hurricanes or a shift in the demand and supplies of crudes
that the U.S. uses mostly - then U.S. conditions may be giving the wrong signal to
market participants. The markets may then be bidding up the longer end of the
futures curve for world oil prices on the basis of limited information.
There's some reason to believe that is happening. Despite our focus on "the" price
of oil. there are, in reality, many types of oil. It is possible that shortages of one
type of desired oil (light, sweet is especially good for auto and jet fuels, which is
most used in the U.S.) are driving up benchmark crudes relative to others. So the
relative changes in the demand among types of oil may be getting confused with a
general increase in the demand for oil. The price spread between West Texas
Intermediate light sweet crude and Saudi Arabian heavy sour was more than $13 at
the beginning of October, a record high, and roughly twice the average price spread
seen last year. So while the nominal prices for both grades of crude were at record
highs, the record high for the U.S. benchmark WTI was much higher relative to less
desirable crudes. And the wide price spread suggests that it may be inappropriate
to characterize the "world" oil price on the basis of our old standby, West Texas
Intermediate.
So, if I had to summarize my story about oil markets, I would say that current high
prices appear to be the result of temporary tightness in oil markets and fears about
supplies becoming even tighter. Other, more mundane concerns that the market
would ordinarily shrug off - unexpected increases in oil demand, concerns about
long-term oil supply, transitory, but serious weather-related events - are affecting
the market over and above the underlying terrorist concerns, and so have a
multiplied effect on prices. So far we've seen the upside potential for price
movements. But there's no reason to believe that the multiplier effect works only on
the upside, and we have some reason to believe that WTI prices are high relative to
some measures of the fundamentals. If and when the oil price re-establishes the
"normal" levels, and there is relief from the series of shocks, we could, just as we
did in equity markets, observe a sharp, sudden, and large decline in oil prices.
Such a decline would be welcome, and produce a noticeable gain in GOP and jobs.
In the short run, our policy tool is the Strategic Petroleum Reserve, and our policy
with respect to the release of the SPR is clear: it is not going to be used as a
general price stabilizer, and will only be used in a substantial way in the interests of
national security. (Our recent SPR releases were very small, and intended to offset
the very specific dislocations associated with the hurricanes).
In the intermediate run, it would be very useful to have a better data collection and
reporting framework for this key sector. If indeed part of the oil price surge is
related to a simple lack of data concerning the current state of demand and supply,
then it seems that we could improve market efficiency by improving market
information - probably a big payoff for a relatively small investment in data
collection. This would help ameliorate the complication from an over-reliance by
market participants on U.S. inventory statistics. In fact, the recent Group of Seven
(G-7) Communique strongly supports work by the lEA to work on oil data

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transparency.
In the longer run, first and foremost, Congress needs to pass the President's
energy plan, which would encourage domestic energy production and
conservation. On a fundamental level, the key to maintaining a sustainable longrun trajectory for oil prices is to expand domestic supply. This is one of the goals of
the President's energy initiatives and the Administration is committed to actions like
increasing the use of domestically produced ethanol and biodiesel, increasing fossil
fuel production, and supporting advanced technology research and development in
alternative fuels like hydrogen and nuclear fusion.
In conclusion, the macroeconomy is doing well by any standard, but remarkably
well considering the headwinds it has faced in the last three years. While there is
more to do, we're encouraged that our tax cuts have helped keep the economy
afloat through the recession, stimulated the economy to rapid growth in the last four
quarters, and have set the stage for future growth.
Despite good economic performance, high oil prices are slowing our progress. As
I've discussed, our strategy of improving domestic supplies and reducing the
uncertainty premium by winning the war on terror will ultimately pay dividends.

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I-'HLSS HlX)M

FROM THE OFFICE OF PUBLIC AFFAIRS
October 21,2004
JS-2090

Remarks of Mark J. Warshawsky
Assistant Secretary for Economic Policy
Social Security & Medicare
Dartmouth College
Hanover, New Hampshire
Thank you for the kind introduction. It is both an honor and a pleasure to be invited
to give a talk at this great college. Today I will cover two very important topics,
Social Security and Medicare, that either directly or indirectly affects everyone in
this room. Although some of you may already be participating or may be pondering
participation in these program as beneficiaries in the not-too-distant future, I
suspect that most of you are (or should be) interested in Social Security and
Medicare as major public policy issues and as programs that could have a
significant effect on your long-range financial planning and your tax bills.

SOCIAL SECURITY
Evolution and Size
The Social Security system began in the aftermath of the Great Depression with the
passage of the 1935 Social Security Act that established the "Old-Age" portion of
the program. Initially, the program was intended to provide cash benefits to persons
age 65 and over who had made payroll contributions to the system with benefits
based on the value of those contributions. Contributions would begin in 1937 and
benefit payments would start about five years later. An accumulating trust fund
would help pay benefits as the number of beneficiaries increased. Even before the
first benefit was paid, however, benefit provisions were expanded in 1939 to include
spouses and survivors insurance (thus, the OASI system), the benefit formula was
made more generous, and scheduled tax increases were delayed. Before 1972,
benefit increases were made on an ad hoc basis and four double-digit increases
occurred between 1968 and 1972 (20 percent in 1972). Though an accumulating
trust fund was envisioned, the system has operated primarily on a pay-as-you-go
basis with a modest trust fund having developed in recent years. Therefore, tax
increases have been implemented to ensure the continuation of annual benefit
payments. But. as we discuss below, the increases fell well short of what would be
needed to pay lifetime benefits to a growing and longer-living beneficiary
population.
Disability benefits were added in 1956, giving us the present-day OASDI system. At
the end of 2003, the Social Security program (OASDI) paid about $470 billion in
benefits to about 47 million beneficiaries, making it the largest federal transfer
program in the United States.

Demographic Developments
In 1950, there were 16 workers to support everyone beneficiary of Social Security.
Today, there are only 3.3 workers supporting every Social Security beneficiary. By
the time our youngest workers - like the students in this audience - and others now
entering the workforce - turn 65, there will only be 2 workers supporting each
beneficiary.
Moreover, in 1950, men and women age 65 could expect to live, on average, 12.8
and 15.1 more years, respectively. In the year 2000, life expectancy at age 65 had
increased to 15.7 for men and to 19.0 for women. By 2030, these conditional life
expectancies are projected to increase to 17.7 for men and 20.6 for women. Longer

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lives are clearly a good thing but they also mean a longer period over which Social
Security. and Medicare. benefits must be paid.
Financing Problems
As a result of these demographic changes the current system will not be able to
afford to pay the benefits scheduled for our children and grandchildren without
enormous payroll tax increases. The Social Security payroll tax, which was 3
percent in 1950, is now 12.4 percent. The Social Security actuaries calculate that, if
the system were to continue to operate on a pay-as-you-go basis and pay currentlyscheduled benefits, the payroll tax would have to rise gradually, but steadily, to
more than 19 percent before the end of the next 75 years.
But financial pressure on the federal budget (hence on taxpayers) begins much
earlier. Tax revenue (payroll taxes plus benefit taxes) is expected to fall short of
benefit payments less than 15 years from now, in 2018. Under the current Social
Security financing structure, this growing annual revenue gap will be made up from
federal general revenues for another 24 years. After 2042 the authorization to fill
the gap from general revenues ends, the trust fund is exhausted, and, in the
absence of legislation, full benefit payments cannot be made after that point.
The important point is that the Social Security system is significantly under funded future scheduled revenue will be inadequate to fully pay scheduled benefits. The
2004 Report of the Social Security Trustees estimates that, over the next 75 years,
the present value of Social Security's deficit, the unfunded obligation, is about $3.7
trillion. For perspective, this deficit could be eliminated if payroll taxes were raised
immediately by 1.9 percentage pOints to 14.3 percent (and a large Trust Fund
would be accumulated) or if all current and future benefits were reduced by 13
percent.
Yet, 75 years, though a seemingly long time, does not capture fully the financial
status of the Social Security program. In fact, no fixed finite period will completely
embody the financial status of the program because people pay into the system
when they are young and receive benefits when they are older and an arbitrary
cutoff will miss some taxes and, especially, benefits to be paid. So estimates even
over the long period of 75 years include a lot of payroll revenue from future workers
who will not begin to receive benefits until after the 75-year horizon. In order to get
a complete picture of Social Security's permanent financial problem, the time
horizon for calculating income and outgo must be extended to the indefinite future.
Such a calculation is provided in the 2004 Trustees Report which estimates that, for
the entire past and future of the program, the present value of scheduled benefits
exceeds the present value of scheduled tax income by $10.4 trillion. This is the
financing gap that program reforms must ultimately close. To put this in perspective,
eliminating the permanent deficit would require an immediate and permanent
increase in the payroll tax rate of 3.5 percentage points to 15.9 percent (and the
accumulation of a massive Trust Fund). Alternatively, all current and future benefits
would have to be reduced immediately by 22 percent.
Intergenerational Equity - Which Cohorts Pay?
These results make clear that the Social Security system is not financially viable
over the long term - it must be fixed, so doing nothing is not an option. How to
close the permanent financing gap raises difficult questions over how the burden
should be shared across generations. In this context, it is important to recognize
that the large unfunded obligations in the system ($10.4 trillion) are in large part the
consequence of the past system generosity. From the beginning, the Social
Security program made benefit promises to generations that far exceeded the taxes
they would pay over their lifetimes. Of course, past generations are past - they
cannot contribute to reducing the unfunded obligations. As a consequence, closing
the financing gap falls to future generations and this leads to the obvious but very
important point that the longer reform is delayed the greater the number of future
generations that also become past generations that cannot contribute - that is,
delay means a greater burden on the youth of today. Sharing the responsibility fairly
of closing the permanent financial gap across generations is one important reason
that reform should not be delayed.
Fixing the System - Goals for Reform

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Fortunately. this untenable situation is fixable. President Bush has said that "Social
security is one of the greatest achievements of the American government. and one
of the deepest commitments to the American people." The President supports
social security reform that increases the power of the individual, does not increase
the tax burden, and provides economic opportunity for more Americans. The
President has issued guiding principles for reforming Social Security.
One very important principle is that seniors at or near retirement should be
protected from benefit cuts, and that payroll taxes should not be increased.
Another principle is that personal retirement accounts (PRAs) should be made
available for younger workers to build a nest egg for retirement that they own and
control, and which they can pass on to their children and grandchildren.
Additionally, we must pursue the goal of a permanently sustainable system,
eschewing reforms that treat only symptoms and halfway measures.
Personal Retirement Accounts
I would like to focus on the advantages of PRAs. PRAs provide individual control,
ownership, and are an important vehicle for pre-funding more of our Social Security
benefits without encouraging more government spending. PRAs also offer
individuals the opportunity to receive the benefits of investing in the markets.
Individual control and ownership means that people would be free to pass the value
of accounts to their heirs.
PRAs would also provide many individuals access to capital markets. Particularly
people with low income or very little to spare typically have not participated as
investors in the securities markets. With PRAs, all workers would have this chance
with taxes that currently are sent to government accounts. At the same time, a PRA
system should be easy to understand and easy to participate in - without
complicated buying and selling features.
The appeal that PRAs have for individuals also serves as an impetus for Social
Security reform. Because most people like the idea of ownership and control over
their savings accounts, as voters they are more likely to support a reform of this
type.
Perhaps most importantly, the retirement security of our current young and future
workers depends on PRAs. They allow individuals to save now to help fund their
retirement incomes. In principle, that could be done with reforms that save tax
revenues in the Social Security Trust Fund. But such "saving" would almost
certainly be undone by political pressures to increase government spending and
hence produce larger deficits outside of Social Security. The only way to truly save
for our retirement and give our children and grandchildren a fair deal is with
personal accounts.
PRAs form the basis of a retirement system that gives workers more responsibility
for their own retirement saving and affords participants an opportunity to pass
wealth to family members in the event of premature death. PRAs also:
Benefit divorced persons who currently do not receive Social Security
spousal benefits unless they remain married ten years;
• Enable workers to choose how to allocate their retirement saving and
diversify their investments over a range of secure bonds and stocks;
• Do not require frequent adjustments to the larger Social Security system to
remain financially sound. As life expectancy increases, adjusting the current
system to achieve actuarially fair outcomes is subject to difficult political
debate; personal accounts avoid contentious debate and rely on individuals
themselves to adjust to the lengthening of life; and
• Provide incentives to work that are larger and more transparent than in the
current system - in a personal account, every dollar contributed can go
toward earning a retirement benefit, whereas in the current system, no
contributions toward earning retirement benefits are counted until the
individual has worked 10 years.
•

Establishing Personal Retirement Accounts

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Setting up a new system of personal retirement accounts will require careful
planning: the policy options that are chosen could have a significant affect on
administrative costs. Questions that a new system will need to address include:
•
•

How would a PRA system be governed?
To avoid political pressures, an independent board modeled after Federal
Reserve Board or the federal employee Thrift Saving Program (TSP) are
possibilities.
• To what degree should recordkeeping be centralized?
• The TSP model would have a central administrator that could be a quasigovernment agency or a company.
• How should PRA contributions be channeled to investment managers?
• To what extent should IIlvestment options be limited?
• Particularly at beginning, choices could be limited to "safe" IIldex or mutual
funds.
The issues Will need to be worked through very carefully as such costs are very
Important to net returns to PRAs.
The U.S. Social Security system needs to be modernized. Social Security was
designed in 1935 amid a very different economic enVIronment. There was a
perception then that there were too many workers, so the government wanted to
encourage retirement. There was concern then that Americans were saving too
much money and not spending enough. Today we are a society with entirely
different needs and concerns. We need to continue to make use of the talents of
our most productive workers. We need to save more money and we have an
abundance of sensible investment opportunities. This is why we have proposed
personal retirement accounts. This is the only way to truly save for our retirement
and give our children and grandchildren a fair deal.
MEDICARE

The Medicare program began under President Johnson in 1966. The program has
grown remarkably since the beginning. In 1967, total expenditures fell just short of
$5 billion: today, the federal government spends around $300 billion for Medicare.
However, the basic structure of the program and its financing have changed little
over the time period.
Structure and Financing

Medicare provides almost universal health insurance coverage to senior citizens
and certain disabled people under 65. The program has two separate trust funds:
the Hospital Insurance (HI, Medicare Part A) and Supplementary Medical Insurance
(SMI, Medicare Parts Band 0) Trust Funds. HI pays for inpatient acute hospital
services and major alternatives to hospitals (skilled nurSing services, for example).
SMI pays for hospital outpatient services, physician services, and assorted other
services and products through the Part B account and, beginning in 2006, will pay
for prescription drugs through the Part D account. Though the events that trigger
benefit payments are quite similar, HI and SMI have very different earmarked
financing structures. Like OASDI, HI is financed primarily by payroll contributions.
Employers and employees each pay 145 percent of earnings, while self-employed
workers pay 2.9 percent of their net income. Other income to the HI fund includes a
smail amount of premium income from voluntary enrollees, a portion of the federal
income taxes that beneficiaries pay on Social Security benefits, and interest
credited on the U. S. Treasury securities held in a relatively small HI Trust Fund.
For SMI, transfers from the general fund of the Treasury represent the largest
source of income, covering about 75 percent of program costs for Part B (and Part
o beginning in 2006). Beneficiaries pay monthly premiums that finance about 25
percent of costs.
Financial Outlook

In addition to the financial burdens imposed by an aging society described above,
the Medicare program also faces the prospect of continued fast growth of health
care costs. The combined forces of high health care cost growth and changing
demographics makes the Medicare program in much worse shape financially than
Social Security. For the HI program, expenditures are expected to exceed

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non interest income this year. That is, the HI Trust Fund is paying out more than it is
taking in and is expected to be exhausted by 2019. The 75-year actuarial balance
for HI is -3.12 percent of taxable payroll, indicating that the program could be
brought into balance for 75 years if payroll taxes were increased by 3.12
percentage pOints.
There is no comparable actuarial exercise done for the SMI trust fund, but the
Medicare actuaries do calculate various estimates of the financial burden created
by the entire program. The 2004 Medicare Trustees Report calculates the total
unfunded obligations for the Medicare program --that is, the projected expenditures
that do not have a dedicated source of revenue--over the infinite horizon to be
$61.6 trillion. Put another way, we would have to devote an additional 6.8 percent of
GOP every year, forever, to the program to payoff these obligations. Each year we
postpone action, though, the problem gets worse.
Unlike with Social Security, the Medicare program does not promise a fixed dollar
amount in benefits; rather, it promises comprehensive health insurance for care that
essentially meets the standard of those who are privately insured. Thus, the growth
rate of health care costs, which is highly volatile, is a major factor in determining the
obligations of the Medicare program. The Congressional Budget Office, for one, has
projected federal government costs for Medicare under various health care cost
growth rate assumptions. Currently, Medicare amounts to about 2.5 percent of
GOP. If the per enrollee costs grow at the rate of GOP plus one percentage point,
Medicare will, by 2050, comprise 8.3 percent of GOP. On the other hand, if it grows
exactly at the rate of the economy, it will only amount to only 4.9 percent of GOP by
2050. Thus, a change in the rate of growth of this program by one percentage point
can determine whether the entire economy must devote over 3 percentage pOints
more of its resources to financing the federal government's portion of the program
46 years from now.

Defining Magnitude of Waste in Health Care
Under current reasonable assumptions of projected program cost increases, as in
Social Security, these trends are not sustainable. Given the fact that Medicare costs
reflect society-wide health care costs, the best approaches to slow the rate of
growth of Medicare expenditures are by trying to control the rate of growth of overall
health care costs, as well as by specific Medicare program changes.
Some of the most influential research on identifying ways to help us slow the rate of
growth of the program is taking place right here at Dartmouth, led by faculty
members John Wennberg, Elliott Fisher, and Jonathan Skinner and others. They
have done some fascinating research on how expenditures, health care utilization,
and outcomes differ for Medicare beneficiaries in different geographic regions of the
United States. What they have found is that there are very large differences in
regional health expenditures that cannot be explained by differences in illness.
Furthermore, Medicare beneficiaries in higher spending areas do not experience
better outcomes or satisfaction across a wide range of illnesses than those in lower
spending areas. Nor can the differences be explained by area cost-of-living
variations. So, how do they explain differences across areas? What they find is that
there are huge differences in what they call "supply-sensitive" care, or more
frequent use of resources that are not inherently correlated with better outcomes.
These include things like more frequent use of the hospital as a site of care, more
frequent physician visits, more frequent use of medical subspecialists, and more
frequent diagnostic testing and minor procedures.
So, what is the magnitude of these spending differences that seem to have no
impact on quality, satisfaction, or outcomes? The researchers estimate that if
expenditure levels in all areas of the country were brought down to the lowest decile
of Medicare spending, total spending on the Medicare program would fall by 29
percent. In 2004, that amounts to a savings of $85 billion. Now the lowest decile
may be too far to go as the standard, because it includes rural areas where we do
see access problems, but their results are certainly robust to this refinement.
A few years ago, RAND researchers catalogued studies of waste in the overall
health care sector -- many of the studies were smaller in scale than the Dartmouth
study -- but reached a similar conclusion. Taking a simple average of those studies,
the RAND researchers found that approximately 30 percent of acute care is
contraindicated, that is, care that is not recommended. This number, you'll note, is
remarkably similar to the 29 percent of wasted medical expenditures that the

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Dartmouth researchers arrived at. The studies that the RAND researchers
examined found high rates of inappropriate hysterectomies, high rates of
inappropriate antibiotic prescribing, and inappropriate prescribing of tranquilizers for
patients with depression. Furthermore, the authors note that oftentimes patients fail
to get recommended care, which could increase expenditures as a result of
complications In the future
All of this suggests that waste and poor quality is not a Medicare-specific problem,
but a problem in the health care sector more generally. The question then is, why
does the health care system allow so many people to get Inappropriate or
unnecessary care, and can public policy address this problem, redUCing
unnecessary or harmful care without reducing proper and due care? There would
be many benefits stemming from such an achievement, one of which is the impact
on the federal budget. Reducing Medicare expenditures by 30 percent would go a
long way towards shoring up the solvency of the Medicare program.
Reasons for WastelPoor Quality and Policy Solutions
Poor Information. One reason why there is such poor quality in health care is that
there is a true lack of understanding of what quality is, and how to get it. From the
patient perspective, patients have very little information on how to judge doctors,
hospitals, and different medical treatments. People have far more objective
evidence to help them choose a digital camera than they do to help them choose a
doctor or hospital.
But patients aren't the only ones lacking the Information necessary to make wise
health care deCisions. Providers, too, often lack information on the relative merits of
competing treatments. For instance, how do they decide whether to prescribe
Lipitor or Zocor to a patient with high cholesterol? There is very little research done
comparing the relative effectiveness of treatments. Once a drug or device is
approved, doctors are left with little besides personal experience about how to
incorporate the new treatment into their medical practice. Researchers find very
different rates around the country for a variety of treatments. For instance, there is a
SIX fold variation in the incidence of back surgery in different parts of the country.
Also, there are huge variations in bypass surgery rates. This suggests that the
culture of medicine varies widely in different parts of the country, even though,
ideally, we'd like to see proper care delivered based on objective evidence
considering each patient's situation. Such decision-making should lead to more
uniform rates of treatment around the country, but more importantly, more
appropriate treatment and less wasteful care.
The Medicare Modernization Act of 2003, best known for the prescription drug
benefit, has a couple of provisions designed to help patients and providers better
understand their health care options. For doctors, the law called for the Agency for
Health Care Research and Quality to devote $50 million in 2004 to sponsor
research that addresses the information gaps on the clinical effectiveness and
appropriateness of specified health services and treatments. There is also a
provision that will require hospitals, if they want to receive their full payment for
furnishing Medicare services, to submit 10 hospital quality measures. These
measures, once collected, will be made public, thus granting consumers objective
quality information, which they can use to make informed decisions about where to
seek care.
Lack of payment incentives to reward quality. It's reasonable to ask why we face
such a lack of Information about quality and efficiency, and thus the spread of poor
quality and inefficient care, when health care is both so important and so expensive.
Well, the fact is, quality and efficiency are poorly rewarded in the health care
system. There are two main reasons for this: the first is moral hazard among
consumers, and the second is an unusual reimbursement system for providers.
Moral hazard. A potentially serious problem in the health insurance market is the
effect insurance can have on behavior, a problem referred to as moral hazard. By
lowering the net out-of-pocket price (but not the total price), health insurance
induces people to use medical care beyond the point at which the marginal benefit
of additional care to them is equal to its true marginal cost. While health Insurance
coverage is extremely important. and everyone should be protected from
catastrophic expenditures, health insurance has taken on an additional function
prepaying for routine expenses. A quick look at data over the last 40 years or so
reveals a major shift in how health care is financed. The out-of-pocket share of

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personal health care expenditures in this country was 55 percent in 1960. By 2002,
that had fallen to below 16 percent. Government and private insurers make up the
rest of the expenditures. Accordingly, on average, consumers have to pay only 16
cents for every dollar of care they receive. This fosters substantial moral hazard,
and health care providers are happy to oblige the consumers. Thus, we see large
numbers of diagnostic tests performed on people, even with a tiny expectation of
finding anything amiss, and drugs being prescribed that are unlikely to effectively
treat an individual's illness.
HSAs reduce moral hazard. The Medicare Modernization Act, enacted last year,
included a provision designed to weaken the incentives for moral hazard by
creating Health Savings Accounts (HSAs). These accounts allow individuals under
the age of 65 who purchase or have a high-deductible health insurance policy to
deposit money in an HSA tax-free. They can withdraw money from this account,
tax-free, to pay for a wide range of qualified health expenses. Employers can also
contribute to this account. Funds can be rolled over year after year and accumulate
interest tax free, to be used when the individual encounters health expenses. The
result is that, for people with high-deductible health plans and HSAs, there is no
longer a tax preference for consuming care covered by insurance versus care paid
for out-of-pocket. This reduces the moral hazard problem and makes consumers
more demanding in terms of efficient care. And while HSAs are not part of the
Medicare program, it is reasonable to believe that changes in care prompted by
HSAs will permeate the entire health care system. Thus, when patients start to
challenge doctors who prescribe an antibiotic for a viral infection, that doctor will
likely change his practice for all patients.
Indeed, the intuition behind the policy motivation for HSAs is supported by rigorous
academic work. The Rand Corporation conducted a "Health Insurance Experiment"
from 1974 through 1982. The experiment measured both use and health outcomes
in populations carefully selected to be representative of those under the age of 65.
Participants were enrolled in a range of insurance plans requiring different levels of
co-payment for medical care, from 0 to 95 percent (with maximum dollar out-ofpocket expenditures set at $1,000). The researchers found that those who paid
nothing used 40 percent more services than those required to pay a high
deductible, but the effect on the health status of the average person was negligible.
In addition, participants who were assigned at random to a well-established HMO
had 39 percent fewer hospital admissions and 28 percent lower estimated
expenditures than those in the fee-for-service system, again with no measurable
effect on the health of the average person. The increase in inappropriate care from
the zero deductible plans actually had negative health consequences to
participants.
But in order for patients to be able to make informed decisions about their care,
they have to be more knowledgeable about the choices they face. That's why it is
important that quality information collection and dissemination be pursued. And as
more individuals realize these choices are not trivial, they will begin to demand
information about their choices, and we should see these efforts accelerate.
Utilization is basis of payment, not quality or efficiency. We also see that, at the
provider level, incentives to provide high quality and efficient care could be made
much stronger. Oddly enough, in health care, outcomes are almost never rewarded.
So, a doctor will be paid for treating a diabetic who hasn't regulated his blood sugar
and shows up in the hospital in a diabetic coma, but he will be paid much less for
making sure that the diabetic keeps his blood sugar under control. In health care,
utilization is the basis for payment. And while it would be incorrect to say that
doctors keep patients sick to increase their incomes, it is difficult to expect doctors
to act repeatedly against their own economic interest. But in this age of high rates
of chronic disease, such as diabetes and high blood pressure, it is especially
important that people get the right preventive care to keep them from having costly
acute episodes. The Medicare program has traditionally not done a good job of
creating incentives to make sure that people receive proper care. In Medicare, 88
percent of enrollees are in the government indemnity plan. While those people have
a nearly unlimited choice of provider, it also means that no one is internalizing the
cost of their care and there is very little coordination of providers, two potentially
dangerous traits for a chronically ill patient.
The Medicare Modernization Act strengthens the managed care program in
Medicare to improve providers' incentives to provide appropriate care. Basically, if
an individual enrolls in a managed care plan that costs less than it would have cost
the government to care for him, the savings is shared between the individual and

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the government. So. a managed care plan, to be competitive, will want to make
sure their contracted doctors and hospitals are providing the appropriate care,
encouraging them to reduce care. Also, because the managed care plan must bear
the risk, it will want to ensure that its chronically ill enrollees are receiving proper
preventive care. What's more, because the government payments to plans are riskadjusted, incentives by the plan to shun chronically ill will be substantially
weakened, because they will be paid more for taking on predictably higher-cost
cases. And as always, if an individual is unhappy with the care he is receiving in the
plan, he will always have the option of returning to the traditional government plan.
Policies like these will help to reduce waste in the health care sector. Finally, the
MMA establishes a six-year comparative cost adjustment demonstration program
beginning in 2010 in which the concept of premium support would be applied in a
limited number of areas. Enrollees in plans with premiums below the average would
receive premium reductions and those in plans costing more than the average
would pay the difference.
But the issue of quality in particular deserves mention. There are very few rewards
for providing excellent care. Medicare has a demonstration program with Premier
hospitals, a network of not-for-profit hospitals, to move us towards a system where
quality is explicitly recognized. The Medicare program is collecting information on
various measures of quality from each of the 278 hospitals in the study. Those who
score among the highest in the group will receive a small increase in
reimbursement. Eventually, those who score among the lowest will actually receive
a small penalty in reimbursement. The difficulties in moving to a system like this
include finding good measures of quality and the ability of providers to actually
collect such information. But those barriers are being reduced, as we see hospitals
collecting solid quality information as part of the Medicare Modernization Act. The
more quality information we have, the more we will be able to hold providers
accountable for the care they provide.
Conclusion
I hope I have succeeded today in impressing upon you the urgency of fixing the
Social Security and Medicare programs. Even though most of you are decades
away from receiving the benefits of the two programs, each year that passes
without reform increases your burden in having to fix the financing gap. But by
making the right decisions now, we can secure the long-term strength of these vital
programs.

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J<:)-2091: Statement of TreasnDl ~Il;cretary John W. Snow on the <DPlJeparture or Unaer ...

t'age

l-'f,LSS H()()M

FROM THE OFFICE OF PUBLIC AFFAIRS
November 8, 2004
JS-2091
Statement of Treasury Secretary John W. Snow on the
Departure of Under Secretary for Domestic Finance Brian C. Roseboro
"Brian Roseboro has shown outstanding leadership within Treasury and the
Administration for over three years. He served the President with distinction both as
the Assistant Secretary of the Treasury for Financial Markets and, most recently, as
Under Secretary of the Treasury for Domestic Finance.
"In his role, Mr. Roseboro advised me on all aspects of domestic finance and his
counsel was always valued. His experience and insight will be missed, and I wish
him the best in his future endeavors. I deeply appreciate the wisdom and dedication
that he brought to his work here; his country was fortunate to benefit from his efforts
as a public servant."

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Page 1 of 1

PHLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 8, 2004
js-2092

Statement by Deputy Secretary Bodman on the Treasury's Iftaar
"Assalamualaikum and warm Ramadan greetings. I was honored tonight to have
welcomed a group of Ambassadors and distinguished guests to the Treasury
Department during the holy month of Ramadan.
"According to Muslim teachings, the Holy Quran "was sent down from heaven, a
guidance unto men, a declaration of direction, and a means of Salvation" during the
month of Ramadan. This is a time of worship, contemplation, prayer and fasting.
And, in celebrating tonight's Iftaar, I want to remind the Muslim community that
America stands with you - both here in the United States and around the world.
"We gathered this evening in the spirit of peace, cooperation and charity. In this
holy month of Ramadan, we are reminded of the generosity of Muslims of good
faith. Faithful Muslims, inspired to lead lives of honesty, integrity and compassion,
have enriched the lives of countless people around the globe through their charity.
So tonight, we honored the many good deeds and generosity of the Muslim people.
"The ethos and sanctity of charity is fundamental to Islam, as it is to all great
religions. And so during Ramadan and always, let us come together, regardless of
faith, and work side-by-side to brighten the future and better our world.
"I want to thank our guests for having taken the time tonight during this sacred
month to celebrate with us at the Treasury Department. Ramadan Mubarak," said
Deputy Secretary Bodman.
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7/1/2005

J.:)-2093: ~ico1i Keynotes Inaugural Montana Financial EducatIOn Conference

......................................

yage

~-~--

~.ti;~~

I-'HLSS H()(lM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 9, 2004
JS-2093

lannicola Keynotes Inaugural Montana Financial Education Conference
Treasury's Deputy Assistant Secretary for Financial Education Dan lannicola, Jr.
today participated in the Montana Financial Education Coalition's inaugural
conference, Financial Education ... An Opportunity for Change, in Helena, Montana.
lannicola commended the Montana Financial Education Coalition for Its efforts to
expand and enhance financial education throughout Montana.
"Recognition of a need is the first step toward meeting it. President Bush
recognized the national need for financial education when he set up the Treasury's
Office of Financial Education in 2002. Shortly thereafter, leaders In the Montana
financial and non-profit communities saw the same need and formed the Montana
Financial Education Coalition," lannicola said. "Through this statewide coalition,
Montana's adults and kids are becoming empowered with the financial skills and
knowledge to improve their lives and secure their futures."
The conference was attended by representatives from the Montana State University
Extension Service, AARP, Jump$tart Coalition for Personal Financial Literacy,
Federal Reserve Bank of Minneapolis, Montana Credit Unions for Community
Development, and Consumer Credit Counseling Service of Montana, among
others. While in Helena, lannicola also taught a personal finance class to fifth
graders at Hawthorne Elementary.
Established in 2003, the Montana Financial Education Coalition seeks to improve
the personal financial knowledge and decision-making ability of Montana citizens by
promoting public awareness of the need for personal financial education.
The Department of the Treasury is a leader in promoting financial education.
Treasury established the Office of Financial Education in May of 2002. The Office
works to promote access to the financial education tools that can help all Amerrcans
make wiser choices in all areas of personal financial management, With a special
emphasis on saving, credit management, home ownership and retirement
planning. The Office also coordinates the efforts of the Financial Literacy and
Education Commission, a group chaired by the Secretary of Treasury and
composed of representatives from 20 federal departments, agencies and
commissions, which works to improve financial literacy and education for people
throughout the United States. For more information about the Office of Financial
Education visit: www treas Clov/firlilI1Clalec1llcCltIOIl.
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J;:')-2094: 'freaswy and JRS Tuue Proposed Regulations on Phased Ketlrement

page

I--'HLSS HOOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

November 10, 2004
JS-2094

Treasury and IRS Issue Proposed Regulations on Phased Retirement
The Treasury Department and IRS issued proposed regulations permitting private
pension plans to begin pension payments to employees as part of a phased
retirement program. The regulations would allow employees who are age 59 % to
receive a pro rata portion of their pension annuity to the extent they choose to
reduce their work as part of a bona fide phased retirement program.
"These regulations are an important step to removing an unnecessary barrier to the
implementation of programs that allow employers to retain the services of older
workers who want to phase down their work in preparation for full retirement," said
Greg Jenner, Treasury's Acting Assistant Secretary for Tax Policy. "Phased
retirement permits an employer to retain the services of an experienced employee,
while also providing the employee with the opportunity to continue active
employment at a level that also allows greater flexibility and time away from work.
People are living longer, healthier lives, so that we need to encourage programs
which not only reduce the risk that individuals may outlive their retirement savings,
but also retain this valuable and productive part of our workforce."
IRS Chief Counsel Don Korb also stated "I support this project both because it
reflects forward-looking thinking about how our income tax rules can affect the
workforce generally and also because it is sensitive to the public recommendations
we received since we asked for comments in 2002 about specific phased retirement
issues in Notice 2002-43."
The regulations would not go into effect until issued as final regulations.

A copy of the proposed regulations is attached.
- 30 -

REPORTS
•

Proposed RegulCltlollS

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[4830-0 1-p]
DEPARTMENT OF TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-114726-04]
RIN 1545-BD23
Distributions from a Pension Plan under a Phased Retirement Program
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY:

This notice of proposed rulemaking contains proposed amendments to the

Income Tax Regulations under section 401 (a) of the Internal Revenue Code. These
proposed regulations provide rules permitting distributions to be made from a pension plan
under a phased retirement program and set forth requirements for a bona fide phased
retirement program. The proposed regulations will provide the public with guidance
regarding distributions from qualified pension plans and will affect administrators of, and
participants in, such plans.

DATES: Written or electronic comments and requests for a public hearing must be
received by February 8, 2005.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-114726-04), room 5203,
Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044.
Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m.
and 4 p.m. to CC:PA:LPD:PR (REG-114726-04), Courier's Desk, Internal Revenue

Service, 1111 Constitution Avenue, NW., Washington, DC, or sent electronically, via the
IRS Internet site at wVII_~jr.sAo_\dr~:;g~ or via the Federal eRulemaking Portal at
~_~\v~,lJegulaJiQn_s_99_v

(indicate IRS and REG-114726-04).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Cathy A.
Vohs, 202-622-6090; concerning submissions and requests for a public hearing, contact
Sonya Cruse, 202-622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:
Background
As people are living longer, healthier lives, there is a greater risk that individuals
may outlive their retirement savings. In addition, employers have expressed interest in
encouraging older, more experienced workers to stay in the workforce. One approach that
some employers have implemented is to offer employees the opportunity for Aphased
retirement. "
While there is no single approach to phased retirement, these arrangements
generally provide employees who are at or near eligibility for retirement with the opportunity
for a reduced schedule or workload, thereby providing a smoother transition from full-time
employment to retirement. These arrangements permit the employer to retain the services
of an experienced employee and provide the employee with the opportunity to continue
active employment at a level that also allows greater flexibility and time away from work.
During such a transition arrangement, employees may wish to supplement their
part-time income with a portion of their retirement savings. However, phased retirement

can also increase the risk of outliving retirement savings for employees who begin drawing
upon their retirement savings before normal retirement age. Even though the annuity
distribution options offered by defined benefit plans preclude outliving benefits, early
distribution of a portion of the employee's benefit will reduce the benefits available after full
retirement. On the other hand, phased retirement also can provide employees additional
time to save for retirement because employees continue working while they are able to do
so, and can accrue additional benefits and reduce or forgo early spending of their
retirement savings.
In light of this background, Treasury and the IRS issued Notice 2002-43 in the
Cumulative Bulletin (2002-27 C.B. 38 (July 8,2002)), in which comments were requested
regarding phased retirement. Notice 2002-43 specifically requested comments on a wide
variety of issues, including the following:
Under what circumstances, if any, would permitting distributions from a defined
benefit plan before an employee attains normal retirement age be consistent with the
requirement that a defined benefit plan be established and maintained primarily for
purposes of providing benefits after retirement, such as the extent to which an
employee has actually reduced his or her workload?
If there are such circumstances, how should any early retirement subsidy be treated?
Comments Received
Sixteen written comments were formally submitted in response to Notice 2002-43.
These comments are in addition to the substantial number of articles and other published

materials addressing phased retirement. 1
While some of the comments expressed concerns over the potential for both
dissipation of retirement funds and violation of age discrimination laws, commentators
generally responded favorably to the proposal to provide guidance on facilitating phased
retirement arrangements. These commentators noted that permitting pension distributions
during phased retirement would be attractive to both employers and employees.
Commentators also indicated that any guidance issued should provide that establishment of
phased retirement arrangements be optional on the part of the employer and that
participation in any such arrangement be voluntary on the part of the employee.

Most of

the comments recommended that eligibility to participate in a phased retirement program be
limited to employees who are eligible for immediately commencing retirement benefits under
the plan (including those eligible for early retirement benefits). Other comments
recommended that retirement benefits be permitted to start at a specific age or combination
of age and service; however, they noted that current legislative constraints, notably the
section 72(t) 10 percent additional income tax on early distributions, may limit the desirability
of this option.
Some commentators advocated that any phased retirement arrangement should be

1 See, for example, Pension & Welfare Benefits Administration, U.S. Department of Labor, "Report on Working Group
on Phased Retirement to the Advisory Council on Employee Welfare & Pension Benefit Plans," 2000; Forman,
Jonathan Barry, "How Federal Pension Laws Influence Individual Work and Retirement Decisions," 54 Tax Law. 143
(2000); Littler Mendelson, "Employers Consider 'Phased Retirement' to Retain Employees," Maryland Employment
Law Letter, Vol 10, Issue 6 (April, 2000); Geisel, Jerry, "Rethinking Phased Retirement; IRS Call for Comment May
Signal Pension Law Changes," Business Insurance (June 24, 2002); Flahaven, Brian, "Please Don't Go! Why
Phased Retirement May Make Sense For Your Government," 18 Gov't Finance Review 24 (Oct. 1,2002); NPR,
Morning Edition, "Older Workers Turn to 'Phased' Retirement, " (May 18, 2004) at
www npr orq/features/feature php?wfld= 1900465

cost neutral and not create additional funding obligations for employers. Others
recommended that any early retirement subsidy available to an employee upon full retirement
continue to be available if the employee participates in phased retirement. For example,
one such commentator recommended not only that any early retirement subsidy be available
upon phased retirement, but also that the subsidy so paid not be permitted to be applied to
reduce the remainder of the benefit that is earned by the employee, particularly if the
employee continues working past normal retirement age.
The comments were divided over what constituted phased retirement. Several
recommended that phased retirement benefits be limited to cases in which there is a
reduction in hours worked. Others recommended that a reduction in hours not be required
and that a transition to a less stressful job also be considered phased retirement or that the
full retirement benefit be payable after the attainment of a specified age or years of service
without regard to any change in work.
The commentators who recommended that phased retirement benefits be limited to
cases in which there is a reduction in hours worked generally recommended that the phased
retirement benefits payable be proportionate to the reduction in work, based on a "dual
status" approach. Under this dual status approach, an employee who reduces his or her
work schedule to, for example, 80 percent of full-time would be considered to be 20 percent
retired and thus entitled to 20 percent of his or her retirement benefit. The employee would
continue to accrue additional benefits based on the actual hours he or she continues to work.

Several of the commentators discussed the implications of phased retirement
benefits for purposes of the nondiscrimination rules of section 401 (a)( 4) and the anti-cutback
rules of section 411 (d)(6). Many of the comments said that phased retirement arrangements
must be flexible and that it would be important for employers to be able to adopt a phased
retirement arrangement on a temporary (even experimental) basis.
Many commentators expressed concern over the effect that a reduction in hours and
the corresponding reduction in compensation would have on the final average pay of an
individual for purposes of the benefit calculation when the employee fully retires. These
comments generally requested guidance on this issue, including clarification as to whether
an employee's final average pay is permitted to decline as a result of the employee's
reduction in hours pursuant to partiCipation in a phased retirement arrangement.

Explanation of Provisions
Overview
The proposed regulations would amend §1.401 (a)-1 (b) and add §1.401 (a)-3 in order
to permit a pro rata share of an employee's accrued benefit to be paid under a bona fide
phased retirement program. The pro rata share is based on the extent to which the
employee has reduced hours under the program. Under this pro rata approach, an
employee maintains a dual status (i.e., partially retired and partially in service) during the
phased retirement period. This pro rata or dual status approach to phased retirement was
one of the approaches recommended by commentators.
While all approaches suggested by commentators were considered, the pro rata

approach is the most consistent with the requirement that benefits be maintained primarily
for retirement. Other approaches, such as permitting benefits to be fully available if an
employee works reduced hours as part of phased retirement or permitting distributions of the
entire accrued benefit to be paid as of a specified age prior to normal retirement age, are
fundamentally inconsistent with the §1.401 (a)-1 (b) principle that benefits be paid only after
retirement. In addition, although a number of commentators suggested that guidance
address the practice of terminating an employee with a prearranged rehiring of the
employee (or similar sham transactions), the proposed regulations do not address this topic
because it involves additional issues outside the scope of this project.
Rules Relating to Phased Retirement
Under the proposed regulations, a plan would be permitted to pay a pro rata portion
of the employee's benefits under a bona fide phased retirement program before attainment
of normal retirement age. The proposed regulations define a bona fide phased retirement
program as a written, employer-adopted program pursuant to which employees may reduce
the number of hours they customarily work beginning on or after a retirement date specified
under the program and receive phased retirement benefits. Payment of phased retirement
benefits is permitted only if the program meets certain conditions, including that employee
participation is voluntary and the employee and employer expect the employee to reduce, by
20 percent or more, the number of hours the employee works during the phased retirement
period.

Consistent with the pro rata approach discussed above, the maximum amount that is
permitted to be paid is limited to the portion of the employee's accrued benefit equal to the
product of the employee's total accrued benefit on the date the employee commences
phased retirement (or any earlier date selected by the plan for administrative ease) and the
employee's reduction in work. The reduction in work is based on the employee's work
schedule fraction, which is the ratio of the hours that the employee is reasonably expected to
work during the phased retirement period to the hours that would be worked if the employee
were full-time. Based in part on commentators' concerns regarding early retirement
subsidies, the proposed regulations generally require that all early retirement benefits,
retirement-type subsidies, and optional forms of benefit that would be available upon full
retirement be available with respect to the phased retirement accrued benefit. However, the
proposed regulations would not permit payment to be made in the form of a single-sum
distribution (or other eligible rollover distribution) in order to prevent the premature
distribution of retirement benefits. The phased retirement benefit is an optional form of
benefit protected by section 411 (d)(6) and the election of a phased retirement benefit is
subject to the provisions of section 417, including the required explanation of the qualified
joint and survivor annuity.
Some comments suggested that phased retirement be limited to employees who
have attained an age or service (or combination thereof) that is customary for retirement,
e.g., where the employer has reasonably determined in good faith that participants who
cease employment with the employer after that age or service combination are typically not

expected to continue to perform further services of a generally comparable nature elsewhere
in the workforce. Such a retirement age might be considerably lower than age 65 in certain
occupations (such as police or firefighters). As discussed further below (under the heading
Application to Plans Other Than Qualified Pension Plans), the Treasury and IRS have
concluded that they do not have the authority to permit payments to begin from a section
401 (k) plan under a bona fide phased retirement program before the employee attains age
59 Y2 or has a severance from employmenF Further, section 72(t)(3)(8) provides an
additional income tax on early distributions if annuity distributions are made before the
earlier of age 59 Y2 or separation from service. Accordingly, in lieu of a customary retirement
age, the proposed regulations adopt a rule that is consistent with section 401 (k) and section
72(t)(3)(8), under which phased retirement benefits may not be paid before an employee
attains age 59 Y2.
Additional Accruals During Phased Retirement
The regulations provide that, during the phased retirement period, in addition to being
entitled to the phased retirement benefit, the employee must be entitled to participate in the
plan in the same manner as if the employee were still maintaining a full-time work schedule
(including calculation of average earnings) and must be entitled to the same benefits
(including early retirement benefits, retirement-type subsidies, and optional forms of benefits)
upon full retirement as a similarly situated employee who has not elected phased retirement,
except that the years of service credited under the plan for any plan year during the phased

2 Cf., Edwards v. Commissioner, T.C. Memo. 1989-409, aff'd, 906 F.2d 114 (4th Cir. 1990).

retirement period is multiplied by the ratio of the employee's actual hours of service during
the year to the employee's full-time work schedule, or by the ratio of the employee's
compensation to the compensation that would be paid for full-time work. Thus, for example,
under a plan with a 1,000 hours of service requirement to accrue a benefit, an employee
participating in a phased retirement program will accrue proportionate additional benefits,
even if the employee works fewer than 1,000 hours of service.
The requirement that full-time compensation be imputed, with a proportionate
reduction based on an employee's actual service, is intended to ensure that a participant is
not disadvantaged by reason of choosing phased retirement. This rule precludes the need
for extensive disclosure requirements, e.g., disclosure to alert participants to rights that may
be lost as a result of participating in a phased retirement program. To be consistent with the
requirement to use full-time compensation, the proposed regulations require an employee
who was a highly compensated employee before commencing phased retirement to be
treated as a highly compensated employee during phased retirement. See also §1.414(q)1T, A-4 & A-5.
Under the proposed regulations, the employee's final retirement benefit is comprised
of the phased retirement benefit and the balance of the employee's accrued benefit under
the plan (Le., the excess of the total plan formula benefit over the portion of the accrued
benefit paid as a phased retirement benefit). Upon full retirement, the phased retirement
benefit can continue unchanged or the plan is permitted to offer a new election with respect
to that benefit.

This bifurcation is consistent with commentators' recommendation that an employee
who is in a phased retirement program has a dual status, under which the employee is
treated as retired to the extent of the reduction in hours and is treated as working to the
extent of the employee's continued work with the employer. This approach also ensures that
a phased retirement program offers an early retirement subsidy to the extent the employee
has reduced his or her hours, and that the remainder of the employee's benefit rights is not
adversely affected by participation in the phased retirement program.
Testing and Adjustment of Payments
Subject to certain exceptions, the proposed regulations require periodic testing to
ensure that employees in phased retirement are in fact working at the reduced schedule, as
expected. Thus, unless an exception applies, a plan must provide for an annual comparison
between the number of hours actually worked by an employee during a testing period and the
number of hours the employee was reasonably expected to work. If the actual hours worked
during the testing period are materially greater than the expected number of hours, then the
employee's phased retirement benefit must be reduced prospectively. For this purpose, the
employee's hours worked are materially greater than the employee's work schedule if they
exceed either 133-1/3 percent of the work schedule or 90 percent of the hours that the
employee would work under a full-time schedule.
This annual comparison is not required after the employee is within 3 months of
attaining normal retirement age or if the amount of compensation paid to the employee by
the employer during the phased retirement testing period does not exceed the compensation

that would be paid to the employee if he or she had worked full time multiplied by the
employee's work schedule fraction. Further, no comparison is required during the first year
of an employee's phased retirement or if the employee has entered into an agreement with
the employer that the employee will retire within 2 years.
In the event that the employer and employee agree to increase prospectively the
hours that the employee will work, then the employee's phased retirement benefit must be
adjusted based on a new work schedule. The date of the agreement to increase the
employee's hours is treated as a comparison date for testing purposes.
In calculating the employee's benefit at full retirement, if an employee's phased
retirement benefits have been reduced during phased retirement, the employee's accrued
benefit under the plan is offset by an amount that is actuarially equivalent to the additional
payments made before the reduction. The potential for this offset, like other material
features of the phased retirement optional form of benefit, must be disclosed as part of the
QJSA explanation as required under §1.401 (a)-20, Q&A-36, and § 1.417(a)(3)-1 (c)(1 )(v) and
(d)(1 ).
If the employee's phased retirement benefit is less than the maximum amount
permitted or the employee's work schedule is further reduced at a later date, the proposed
regulations allow a plan to provide one or more additional phased retirement benefits to the
employee. The additional phased retirement benefit, commencing a later annuity starting
date, provides flexibility to reflect future reductions in the employee's work hours.
Provisions Relating to Payment After Normal Retirement Age

The proposed regulations clarify that a pension plan (Le., a defined benefit plan or
money purchase pension plan) is permitted to pay benefits upon an employee's attainment
of normal retirement age. However, normal retirement age cannot be set so low as to be a
subterfuge to avoid the requirements of section 401 (a), and, accordingly, normal retirement
age cannot be earlier than the earliest age that is reasonably representative of a typical
retirement age for the covered workforce. 3
Application to Plans Other Than Qualified Pension Plans
The regulations that limit distributions that are modified by these proposed
regulations only apply to pension plans (Le., defined benefit or money purchase pension
plans). Other types of plans may be subject to less restrictive rules regarding in-service
distributions, including amounts held in or attributable to: (1) qualified profit sharing and
stock bonus plans to the extent not attributable to elective deferrals under section 401 (k); (2)
insurance annuities under section 403(b)(1), and retirement income accounts under section
403(b)(9), to the extent not attributable to elective deferrals; (3) custodial accounts under
section 403(b)(7) to the extent not attributable to elective deferrals; and (4) elective deferrals
under section 401 (k) or 403(b). In general, these types of plans are permitted to provide for
distributions after attainment of age 59 ~, without regard to whether the employee has
retired or had a severance from employment. Accordingly, they may either provide for the
same phased retirement rules that are proposed in these regulations or may provide for
other partial or full in-service distributions to be available after attainment of age 59 ~.

3 While a low normal retirement age may have a significant cost effect on a traditional defined benefit plan, this effect

However, eligible governmental plans under section 457(b) are not generally permitted to
provide for payments to be made before the earlier of severance from employment or
attainment of age 70

Yz. See generally §1.457-6.

Other Issues
The proposed regulations also authorize the Commissioner to issue additional rules
in guidance of general applicability regarding the coordination of partial retirement under a
phased retirement program and the plan qualification rules under section 401 (a).
These proposed regulations do not address all of the issues that commentators
raised in response to Notice 2002-43. Thus, as noted above, the proposed regulations do
not address when a full retirement occurs and specifically do not endorse a prearranged
termination and rehire as constituting a full retirement. Further, the proposed regulations only
address certain tax issues. For example, although commentators pointed out that the
continued availability of heath coverage would be an important feature for employees in
deciding whether to participate in phased retirement, the proposed regulations do not
include any rules relating to heath coverage. Similarly, the proposed regulations do not
address any potential age discrimination issues, other than through the requirement that
participation in a bona fide phased retirement program be voluntary.

Proposed Effective Date
The rules in these regulations are proposed to apply to plan years beginning on or
after the date of publication of the Treasury decision adopting these rules as final regulations

is not as significant for defined contribution plans or for hybrid defined benefit plans.

in the Federal Register. These proposed regulations cannot be relied on before they are
adopted 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 is not required. It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these proposed
regulations, and, because these 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 business.

Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations, consideration
will be given to any written comments (a signed original and eight (8) copies) or electronic
comments that are submitted timely to the IRS. All comments will be available for public
inspection and copying.
Comments are specifically requested on the following issues:
•

Should eligibility to participate in a phased retirement program be extended to
employees that reduce their workload using a standard, other than counting hours,

to identify the reduction, and, if so, are there administrable methods for measuring
the reduction?
•

The proposed regulations require periodic testing of the hours an employee actually
works during phased retirement, and if the hours are materially greater than the
employee's phased retirement work schedule, the phased retirement benefit must
be adjusted. As discussed above (under the heading Testing), there are a number
of exceptions to this requirement. Are there other, less complex alternatives that
also would ensure that phased retirement benefits correspond to the employee's
reduction in hours?

•

The proposed regulations require an offset for the actuarial value of additional
payments made before a reduction in phased retirement benefits. Should the
regulations permit this offset to be calculated without regard to any early retirement
subsidy and, if so, how should a subsidy be quantified?

•

The proposed regulations clarify that the right to receive a phased retirement benefit
as a partial payment is a separate optional form of benefit for purposes of section
411 (d)(6) and, thus, is a benefit, right, or feature for purposes of the special
nondiscrimination rules at §1.401 (a)(4 )-4. Comments are requested on whether
there are facts and circumstances under which the age and service conditions for a
particular employer's phased retirement program should be disregarded in applying
§1.401 (a)(4)-4 (even if the program may only be in place for a temporary period), or

under which the rules at §1.401 (a)(4)-4 should otherwise be modified with respect
to phased retirement.
•

Should any special rules be adopted to coordinate the rules regarding distributions
and continued accruals during phased retirement with a plan's provisions regarding
employment after normal retirement age, such as suspension of benefits?

A public hearing may be scheduled if requested in writing by a person that timely
submits written comments. If a public hearing is scheduled, notice of the date, time and
place for the hearing will be published in the Federal Register.

Drafting Information
The principal author of these proposed regulations is Cathy A. Vohs of the Office of
the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities).
However, other personnel from the IRS and Treasury participated in their development.

List of Subjects 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 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.401 (a)-1 also issued under 26 U.S.C. 401.
Section 1.401 (a)-3 also issued under 26 U.S.C. 401.
17

Par. 2. In §1.401 (a)-1, paragraph (b)(1 )(i) is amended by adding text before the
period at the end of the current sentence and a new second sentence, and paragraph
(b)(1 )(iv) to read as follows:
'1.401 (a)-1 Post-ERISA qualified plans and qualified trusts; in general.
* ** * *

(b) * * *
(1)***
(i) * * * or attainment of normal retirement age. However, normal retirement age
cannot be set so low as to be a subterfuge to avoid the requirements of section 401 (a),
and, accordingly, normal retirement age cannot be earlier than the earliest age that is
reasonably representative of a typical retirement age for the covered workforce.
*****
(iv) Benefits may not be distributed prior to normal retirement age solely due to a
reduction in hours. However, notwithstanding anything provided elsewhere in paragraph
(b) of this section (including the pre-ERISA rules under' 1.401-1), an employee may be
treated as partially retired for purposes of paragraph (b)(1 )(i) of this section to the extent
provided under' 1.401 (a)-3 relating to a bona fide phased retirement program.
*****
Par. 3. Section 1.401 (a)-3 is added to read as follows:
'1.401 (a)-3 Benefits during phased retirement.

(a) Introduction--(1) General rule. Under section 401 (a), a qualified pension plan
may provide for the distribution of phased retirement benefits in accordance with the
limitations of this paragraph (a) to the extent that an employee is partially retired under a
bona fide phased retirement program, as defined in paragraph (c) of this section, provided
the requirements setforth in paragraphs (d) and (e) of this section are satisfied.
(2) Limitation on benefits paid during phased retirement period--(i) Benefits limited
to pro rata retirement benefit. The phased retirement benefits paid during the phased
retirement period cannot exceed the phased retirement accrued benefit payable in the
optional form of benefit applicable at the annuity starting date for the employee's phased
retirement benefit.
(ii) Availability of early retirement subsidies, etc. Except as provided in paragraph
(a)(2)(iii) of this section, all early retirement benefits, retirement-type subsidies, and
optional forms of benefit available upon full retirement must be available with respect to the
portion of an employee's phased retirement accrued benefit that is payable as a phased
retirement benefit.
(iii) Limitation on optional forms of payment. Phased retirement benefits may not
be paid in the form of a single sum or other form that constitutes an eligible rollover
distribution under section 402(c)(4).
(3) Limited to full-time employees who are otherwise eligible to commence
benefits. Phased retirement benefits are only permitted to be made available to an
employee who, prior to the phased retirement period, normally maintains a full-time work
19

schedule and who would otherwise be eligible to commence retirement benefits
immediately if he or she were to fully retire.
(4) Authority of Commissioner to adopt other rules. The Commissioner, in revenue
rulings, notices, or other guidance published in the Internal Revenue Bulletin (see
§601.601 (d)(2)(ii)(Q) of this chapter), may adopt additional rules regarding the coordination
of partial retirement under a phased retirement program and the qualification rules of
section 401 (a).
(b) Definitions--(1) In general. The definitions set forth in this paragraph (b) apply
for purposes of this section.
(2) Phased retirement program. The term phased retirement program means a
written, employer-adopted program pursuant to which employees may reduce the number
of hours they customarily work beginning on or after a date specified under the program
and commence phased retirement benefits during the phased retirement period, as
provided under the plan.
(3) Phased retirement period. The term phased retirement period means the
period of time that the employee and employer reasonably expect the employee to work
reduced hours under the phased retirement program.
(4) Phased retirement accrued benefit. The term phased retirement accrued benefit
means the portion of the employee's accrued benefit equal to the product of the
employee's total accrued benefit on the annuity starting date for the employee's phased
retirement benefit, and one minus the employee's work schedule fraction.

(5) Phased retirement benefit. The term phased retirement benefit means the
benefit paid to an employee upon the employee's partial retirement under a phased
retirement program, based on some or all of the employee's phased retirement accrued
benefit, and payable in the optional form of benefit applicable at the annuity starting date.
(6) Work schedule. With respect to an employee, the term work schedule means
the number of hours the employee is reasonably expected to work annually during the
phased retirement period (determined in accordance with paragraph (c)( 4) of this section).
(7) Full-time work schedule. With respect to an employee, the term full-time work
schedule means the number of hours the employee would normally work during a year if the
employee were to work on a full-time basis, determined in a reasonable and consistent
manner.
(8) Work schedule fraction. With respect to an employee, the term work schedule
fraction means a fraction, the numerator of which is the employee's work schedule and the
denominator of which is the employee's full-time work schedule.
(c) Bona fide phased retirement program--(1) Definition generally. The term bona
fide phased retirement program means a phased retirement program that satisfies
paragraphs (c)(2) through (5) of this section.
(2) Limitation to individuals who have attained age 59 Y2. A bona fide phased
retirement program must be limited to employees who have attained age 59 Y2. A plan is
permitted to impose additional requirements for eligibility to participate in a bona fide
phased retirement program, such as limiting eligibility to either employees who have
21

satisfied additional age or service conditions (or combination thereof) specified in the
program or employees whose benefit may not be distributed without consent under section
411(a)(11).
(3) Participation must be voluntary. An employee's participation in a bona fide
phased retirement program must be voluntary.
(4) Reduction in hours requirement. An employee who participates in a
bona fide phased retirement program must reasonably be expected (by both the employer
and employee) to reduce, by 20 percent or more, the number of hours the employee
customarily works. This requirement is satisfied if the employer and employee enter into
an agreement, in good faith, under which they agree that the employee will reduce, by 20
percent or more, the number of hours the employee works during the phased retirement
period.
(5) Limited to employees who are not key-employee owners. Phased retirement
benefits are not permitted to be made available to a key employee who is described in
section 416(i)(1 )(A)(ii) or (iii).
(d) Conditions for commencement of phased retirement benefit--(1) Imputed
accruals based on full-time schedule--(i) General rule. During the phased retirement
period, in addition to being entitled to payment of the phased retirement benefit, the
employee must be entitled to participate in the plan in the same manner as if the employee
still maintained a full-time work schedule (including calculation of average earnings,
imputation of compensation in accordance with '1.414( s )-1 (f), and imputation of service in

accordance with the service-crediting rules under '1.401 (a)(4 )-11 (d)), and must be entitled
to the same benefits (including early retirement benefits, retirement-type subsidies, and
optional forms of benefits) upon full retirement as a similarly situated employee who has not
elected phased retirement, except that the years of service credited under the plan for any
plan year during the phased retirement period is determined under paragraph (d)(1 )(ii) or
(iii) of this section, whichever is applicable.
(ii) Method for crediting years of service for full plan years. The years of service
credited under the plan for any full plan year during the phased retirement period is
multiplied by an adjustment ratio that is equal to the ratio of the employee's actual hours
worked during that year to the number of hours that would be worked by the employee
during that year under a full-time work schedule. Alternatively, on a reasonable and
consistent basis, the adjustment ratio may be based on the ratio of an employee's actual
compensation during the year to the compensation that would be paid to the employee
during the year if he or she had maintained a full-time work schedule.
(iii) Method for crediting years of service for partial plan years. In the case of a plan
year only a portion of whi ch is during a phased retirement period for an employee, the
method described in paragraphs (d)(1)(i) and (ii) of this section is applied with respect to
that portion of the plan year. Thus, for example, if an employee works full time until October
1 of a calendar plan year and works one-third time from October 1 through December 31 of
the year, then the employee is credited with 10 months for that year (9 months plus 1/3 of 3
months).
23

(2) Ancillary benefits during phased retirement period--(i) Death benefits. If an
employee dies while receiving phased retirement benefits, death benefits are allocated
between the phased retirement benefit and the benefit that would be payable upon
subsequent full retirement. See also '1.401 (a)-20, A-g. Thus, if an employee dies after
the annuity starting date for the phased retirement benefit, death benefits are paid with
respect to the phased retirement benefit in accordance with the optional form elected for
that benefit, and death benefits are paid with respect to the remainder of the employee's
benefit in accordance with the plan's provisions regarding death during employment.
(ii) Other ancillary benefits. To the extent provided under the terms of the plan,
ancillary benefits, other than death benefits described in paragraph (d)(2)(i) of this section,
are permitted to be provided during the phased retirement period.
(3) Calculation of benefit at full retirement--(i) In general. Upon full retirement
following partial retirement under a phased retirement program, the employee's total
accrued benefit under the plan (including the employee's accruals during the phased
retirement period, determined in accordance with paragraph (d)(1) of this section) is offset
by the portion of the employee's phased retirement accrued benefit that is being
distributed as a phased retirement benefit at the time of full retirement.
(ii) Adjustment for prior payments. If, before full retirement, the employee's phased
retirement benefit has been reduced under paragraph (d)(4) of this section, then the
employee's accrued benefit under the plan is also offset upon full retirement by an amount
that is actuarially equivalent to the phased retirement benefit payments that have been
24

made during the phased retirement period that were not made with respect to the portion
of the phased retirement accrued benefit that is applied as an offset under paragraph
(d)(3)(i) of this section at the time offull retirement.
(iii) Election of optional form with respect to net benefit Upon full retirement, an
employee is entitled to elect, in accordance with section 417, an optional form of benefit
with respect to the net accrued benefit determined under paragraph (d)(3)(i) and (ii) of this
section.
(iv) New election permitted for phased retirement benefit. A plan is permitted to
provide that, upon full retirement, an employee may elect, in accordance with section 417
and without regard to paragraph (a)(2)(iii) of this section, a new optional form of benefit
with respect to the portion of the phased retirement accrued benefit that is being
distributed as a phased retirement benefit. Any such new optional form of benefit is
calculated at the time of full retirement as the actuarial equivalent of the future phased
retirement benefits (without offset for the phased retirement benefits previously paid).
(4) Prospective reduction in phased retirement benefit if hours are materially
greater than expected--(i) General rule. Except as otherwise provided in this paragraph
(d)(4), a plan must compare annually the number of hours actually worked by an employee
during the phased retirement testing period and the number of hours the employee was
reasonably expected to work during the testing period for purposes of calculating the work
schedule fraction. For this purpose, the phased retirement testing period is the 12 months
preceding the comparison date (or such longer period permitted under paragraph(d)(4)(iv)

of this section, or any shorter period that applies if there is a comparison date as a result of
an agreed increase under paragraph (d)(4 )(vi) of this section). In the event that the actual
hours worked (determined on an annual basis) during the phased retirement testing period
exceeds the work schedule, then, except as provided in paragraph (d)(4)(ii) or (v) of this
section, the employee's phased retirement benefit must be reduced in accordance with the
method provided in paragraph (d)(4)(iii) of this section, effective as of an adjustment date
specified in the plan that is not more than 3 months later than the comparison date.
(ii) Permitted variance in hours. A plan is not required to reduce the phased
retirement benefit unless the hours worked during the phased retirement testing period are
materially greater than the hours that would be expected to be worked under the work
schedule. For this purpose, the employee's hours worked (determined on annual basis)
are materially greater than the employee's work schedule if either-(A) The employee's hours worked (determined on an annual basis) are more than
133-1/3 percent of the employee's work schedule; or
(8) The employee's hours worked (determined on an annual basis) exceed 90
percent of the full-time work schedule.
(iii) Adjustment method. If a phased retirement benefit must be reduced under
paragraph (d)(4) of this section, a new (i.e., reduced) phased retirement benefit must be
calculated as provided in this paragraph (d)(4)(iii). First, an adjusted work schedule is
determined. The adjusted work schedule is an annual schedule based on the number of
hours the employee actually worked during the phased retirement testing period. The
26

adjusted work schedule is applied to the employee's accrued benefit that was used to
calculate the prior phased retirement benefit. This results in a new phased retirement
accrued benefit for purposes of paragraph (b )(4) of this section. Second, a new phased
retirement benefit is determined, based on the new phased retirement accrued benefit and
payable in the same optional form of benefit (i.e., using the same annuity starting date and
the same early retirement factor and other actuarial adjustments) as the prior phased
retirement benefit. If an employee is receiving more than one phased retirement benefit
(as permitted under paragraph (e)(2) of this section) and a reduction is required under
paragraph (d)(4) of this section, then the reduction is applied first to the most recently
commencing phased retirement benefit (and then, if necessary, to the next most recent
phased retirement benefit, etc.).
(iv) Comparison date for phased retirement testing period. The comparison date is
any date chosen by the employer on a reasonable and consistent basis and speCified in
the plan, such as the last day of the plan year, December 31 , or the anniversary of the
annuity starting date for the employee's phased retirement benefit. As an alternative to
testing the hours worked during the 12 months preceding the comparison date, the plan
may, on a reasonable and consistent basis, provide that the comparison of actual hours
worked to the work schedule be based on a cumulative period that exceeds 12 months
beginning with either the annuity starting date for the employee's phased retirement benefit
or any later date specified in the plan.

(v) Exceptions to comparison requirement--(A) In general. The comparison of
hours described in paragraph (d)(4) of this section is not required in the situations set forth
in this paragraph (d)(4 )(v).
(8) Employees recently commencing phased retirement. No comparison is
required for an employee who commenced phased retirement benefits within the 12-month
period preceding the comparison date.
(C) Employees with short phased retirement periods. No comparison is required
during the first 2 years of an employee's phased retirement period if--

ill

The employee has entered into an agreement with the employer under which the

employee's phased retirement period will not exceed 2 years and the employee will fully
retire at the end of such period; and
~

The employee fully retires after a phased retirement period not in excess of 2

years.
(0) Employees with proportional pay reduction. No comparison is required for any
phased retirement testing period if the amount of compensation paid to the employee
during that period does not exceed the compensation that would be paid to the employee if
he or she had maintained a full-time work schedule multiplied by the work schedule
fraction.
(E) Employees at or after normal retirement age. No comparison is required for
any phased retirement testing period ending within 3 months before the employee's normal
retirement age or any time thereafter.

(vi) Agreement to increase hours--(A) General rule. In the event that the employer
and the employee agree to increase prospectively the hours under the employee's work
schedule prior to normal retirement age, then, notwithstanding the exceptions provided in
paragraphs (d)(4 )(v)(8) through (D) of this section, the plan must treat the effective date of
the agreement to increase the employee's hours as a comparison date for purposes of
paragraph (d)(4 )(iv) of this section. For purposes of this paragraph (d)(4 )(vi), with respect
to an employee, the term new work schedule means the greater of the actual number of
hours the employee worked (determined on an annual basis) during the prior phased
retirement testing period or the annual number of hours the employee reasonably expects
to work under the new agreement.
(8) Required adjustments. Ifthe employee's hours under the new work schedule
are materially greater (within the meaning of paragraph (d)(4)(ii) of this section) than the
hours the employee would be expected to work (based on the employee's prior work
schedule), the employer is required to reduce the employee's phased retirement benefit,
effective as of the date of the increase, based on the new work schedule. In this case, the
employee's new work schedule is used for future comparisons under paragraph (d)(4) of
this section.
(C) Permitted adjustments. If the employee's hours under the new work schedule
are not materially greater (within the meaning of paragraph (d)(4 )(ii) of this section) than the
hours the employee would be expected to work (based on the employee's prior work
schedule), the employer is permitted, but not required, to reduce the employee's phased

retirement benefit, effective as of the date of the increase, based on the new work
schedule. If the benefit is so reduced, the employee's new work schedule is used for future
comparisons under paragraph (d)(4) of this section. If the employee's phased retirement
benefit is not so reduced, future comparisons are determined using the employee's prior
work schedule.
(e) Other rules--( 1) Highly compensated employees. An employee who partially
retires under a phased retirement program and who was a highly compensated employee,
as defined in section 414(q), immediately before the partial retirement is considered to be
a highly compensated employee during the phased retirement period, without regard to the
compensation actually paid to the employee during the phased retirement period.
(2) Multiple phased retirement benefits permitted--(i) In general. A plan is
permitted to provide one or more additional phased retirement benefits prospectively to an
employee who is receiving a phased retirement benefit if the conditions set forth in
paragraph (e)(2)(ii) of this section are satisfied. At the later annuity starting date for the
additional phased retirement benefit, the additional phased retirement benefits may not
exceed the amount permitted to be paid based on the excess of-(A) The employee's phased retirement accrued benefit at the later annuity starting
date, over
(8) The portion of the employee's phased retirement accrued benefit at the earlier
annuity starting date that is being distributed as a phased retirement benefit.
(ii) Conditions. The additional phased retirement benefit described in paragraph

(e)(2)(i) of this section may be provided only if-(A) The prior phased retirement benefit was not based on the employee's entire
phased retirement accrued benefit at the annuity starting date for the prior phased
retirement benefit, or
(8) The employee's work schedule at the later annuity starting date is less than the
employee's work schedule that was used to calculate the prior phased retirement benefit.
(3) Application of section 411(d)(6). In accordance with §1.411 (d)-4, A-1 (b)(1), the
right to receive a partial distribution of an employee's accrued benefit as a phased
retirement benefit is treated as an optional form of payment that is separate from the right
to receive a full distribution of the accrued benefit upon full retirement.
(4) Application of nondiscrimination rules. The right to receive a phased retirement
benefit is a benefit, right, or feature that is subject to §1.401 (a)(4)-4.
(f) Examples. The following examples illustrate the application of this section:
Example 1. (i) Employer's Plans. Plan X (as in effect prior to amendment to reflect
the phased retirement program described below) is a defined benefit plan maintained by
Employer M. Plan X provides an accrued benefit of 1.5 % of the average of an employee's
highest three years of pay (based on the highest 36 consecutive months of pay), times
years of service (with 1,000 hours of service required for a year of service), payable as a
life annuity beginning at age 65. Plan X permits employees to elect to commence
actuarially reduced distributions at any time after the later of termination of employment or
attainment of age 50, except that if an employee retires after age 55 and completion of 20
years of service, the applicable reduction is only 3 % per year for the years between ages
65 and 62 and 6 % per year for the years between ages 62 to 55. Plan X permits
employees to select, with spousal consent, a single life annuity, a joint and contingent
annuity with the employee having the right to select any beneficiary and a continuation
percentage of 50 %, 75 %, or 100 %, or a 1O-year certain and life annuity.
(ii) Phased Retirement Program. Employer M adopts a voluntary phased retirement
program that will only be available for employees who retire during the two-year period

from February 1,2006 to January 31,2008. The program will not be available to
employees who are not entitled to an immediate pension or who are 1 percent owners.
Employer M has determined that employees typically begin to retire after attainment of age
55 with at least 15 years of service. Accordingly, to increase retention of certain
employees, the program will provide that employees in certain specified work positions
who have reached age 59 }2 and completed 15 years of service may elect phased
retirement. The program permits phased retirement to be implemented through a
reduction of 25 %,50 %, or 75 % in the number of hours expected to be worked for up to 5
years following phased retirement (other reduced schedules may be elected with the
approval of M), with the employee's compensation during the phased retirement period to
be based on what a similar full-time employee would be paid, reduced by the applicable
percentage reduction in hours expected to be worked. In order to participate in the
program, the employee and the employer must enter into an agreement under which the
employee will reduce his or her hours accordingly. The agreement also provides that the
employee's compensation during phased retirement will be reduced by that same
percentage. The program is announced to employees in the fall of 2005.
(iii) Plan Provisions Regarding Phased Retirement Benefit. (A) Plan X is
amended, prior to February 1,2006, to provide that an employee who elects phased
retirement under M's phased retirement program is permitted to commence benefits with
respect to a portion of his or her accrued retirement benefit (the employee's phased
retirement accrued benefit), based on the applicable percentage reduction in hours
expected to be worked. For example, for a 25 % reduction in hours, the employee is
entitled to commence benefits with respect to 25 % of his or her accrued benefit. Plan X
permits an employee who commences phased retirement to elect, with spousal consent,
from any of the optional forms provided under the plan.
(B) During the phased retirement period, the employee will continue to accrue
benefits (without regard to the plan's 1,000 hour requirement), with his or her pay for
purposes of calculating benefits under Plan X increased by the ratio of 100 percent to the
percentage of full-time pay that will be paid during phased retirement and with the
employee's service credit to be equal to the product of the same percentage times the
service credit that would apply if the employee were working full time. Upon the
employee's subsequent full retirement, his or her total accrued benefit will be based on the
resulting highest three years of pay and total years of service, offset by the phased
retirement accrued benefit. The retirement benefit payable upon subsequent full retirement
is in addition to the phased retirement benefit. Plan X does not provide for a new election
with respect to the phased retirement benefit.
(C) In the case of death during the phased retirement period, the employee will be
treated as a former employee to the extent of his or her phased retirement benefit and as
an active employee to the extent of the retirement benefit that would be due upon full
32

retirement.
(D) Because the terms of the phased retirement program provide that the
employee's compensation during phased retirement will be reduced by that same
percentage as applies to calculate phased retirement benefits, Plan X does not have
provisions requiring annual testing of hours actually worked.
(iv) Application to a Specific Employee--(A) Phased retirement benefit. Employee
E is age 59 'Y2 with 20 years of credited service. Employee E's compensation is $90,000,
and E's highest three years of pay is $85,000. Employee E elects phased retirement on
April 1, 2006 and elects to reduce hours by 50 % beginning on July 1, 2006. Thus, E's
annuity starting date for the phased retirement benefit is July 1, 2006. Employee E's total
accrued benefit as of July 1, 2006 as a single life annuity payable at normal retirement age
is equal to $25,500 per year (1.5 % times $85,000 times 20 years of service). Thus,
Employee E's phased retirement accrued benefit as of July 1, 2006 as a single life annuity
payable at normal retirement age is equal to $12,750 per year ($25,500 times 1 minus E's
work schedule fraction of 50 %). Accordingly, Employee E's phased retirement benefit
payable as a straight life annuity commencing on July 1, 2006 is equal to $9,690 per year
($12,750 per year times 76 % (100 % minus the applicable reduction for early retirement
equal to 3 % for 3 years and 6 % for an additional 2 Y2 years)). Employee E elects a joint
and 50 % survivor annuity, with E's spouse as the contingent annuitant. Under Plan X, the
actuarial factor for this form of benefit is 90 %, so E's benefit is $8,721 per year.
(B) Death during phased retirement. If Employee E were to die on or after July 1,
2006 and before subsequent full retirement, E's spouse would be entitled to a 50 %
survivor annuity based on the joint and 50 % survivor annuity being paid to E, plus a
qualified preretirement survivor annuity that complies with section 417 with respect to the
additional amount that would be paid to E if he or she had fully retired on the date of E's
death.
(C) Subsequent full retirement benefit. Three years later, Employee E fully retires
from Employer M. Throughout this period, E's compensation has been 50 % of the
compensation that would have been paid to E if he or she were working full time.
Consequently, no adjustment in E's phased retirement benefit is required. E's highest
consecutive 36 months of compensation would be $95,000 if E had not elected phased
retirement and E has been credited with 1 'Y2 years of service credit for the 3 years of
phased retirement (.50 times 3 years). Accordingly, prior to offset for E's phased
retirement accrued benefit, E's total accrued benefit as of July 1, 2009 as a single life
annuity commencing at normal retirement age is equal to $30,637.50 per year ($95,000
times 1.5 % times 21.5 years of service) and, after the offset for E's phased retirement
accrued benefit, E's retirement benefit as a single life annuity commencing at normal
retirement age is equal to $17,887.50 ($30,637.50 minus $12,750). Thus, the amount of

E's additional early retirement benefit payable as a straight life annuity at age 62 Y'2 is
equal to $16,545.94 per year ($17,887.50 per year times 92.5 % (100 % minus 3 % for 2
Y'2 years)). Employee E elects, with spousal consent, a 1O-year certain and life annuity that
applies to the remainder of E's accrued benefit. This annuity is in addition to the previously
elected joint and 50 % survivor annuity payable as E's phased retirement benefit.
Example 2. (i) Same Plan and Phased Retirement Program, Except Annual Testing
Required. The facts with respect to the Plan X and M's phased retirement program are the
same as in Example 1 , except that the program does not provide that the employee's
compensation during phased retirement will be reduced by that same percentage as is
applied to calculate phased retirement benefits, but instead the compensation depends on
the number of hours worked by the employee. Plan X provides for annual testing on a
calendar year basis and for an employee's phased retirement benefit to be reduced
proportionately if the hours worked exceed a threshold, under provisions which reflect the
variance permitted paragraph (d)(4)(ii) of this section.
(ii) Employee Has Small Increase in Hours. The facts with respect to Employee E
are the same as in Example 1 , except that E's full time work schedule would result in 2,000
hours worked annually, E's work schedule fraction is 50 %, and E works 500 hours from
July 1 , 2006 through December 31, 2006, 1,000 hours in 2007, 1,200 hours in 2008, and
600 hours from January 1, 2009 through E's full retirement on June 30, 2009.
(iii) Application of Testing Rules. No comparison of hours is required for the partial
testing period that occurs in 2006. For 2007, no reduction is required in E's phased
retirement benefit as a result of the hours worked by E during 2007 because the hours did
not exceed E's work schedule (50 % of 2,000). For 2008, although the hours worked by E
exceeded E's work schedule, no reduction is required because the hours worked in 2008
were not materially greater than E's work schedule (1,200 is not more than the variance
permitted under paragraph (d)(4)(ii) of this section, which is 133-1/3 % of 1,000). E's total
accrued benefit upon E's retirement on July 1,2009 would be based on 21.65 years of
service to reflect the actual hours worked from July 1, 2006 through June 30, 2009.
Example 3. (i) Same Plan and Phased Retirement Program, Except Material
Increase in Hours. The facts with respect to the Plan X and M's phased retirement
program are the same as in Example 2, except E works 1,400 hours in 2008 and 700
hours in the first half of 2009.
(ii) Application of Testing Rules. No comparison of hours is required for the partial
testing period that occurs in 2006. For 2007, no reduction is required in E's phased
retirement benefit as a result of the hours worked by E during 2007 because the hours did
not exceed 50 % of 2,000. However, the hours worked by E during 2008 exceed 133-1/3
% of E's work schedule (50 % of 2,000), so that the phased retirement benefit paid to E

during 2009 must be reduced. The reduction is effective March 1,2009. The new phased
retirement benefit of $5,232.60 is based on 30 % of the participant's accrued benefit as of
July 1, 2006, payable as a joint and 50 % survivor annuity commencing on that date (30 %
times $25,500 times the early retirement factor of 76 % times the joint and 50 % factor of
90 %). This is equivalent to reducing the previously elected joint and 50 % survivor annuity
payable with respect to E by 40 % (400 "excess" hours divided by the 1,000 hour expected
reduction). When E retires fully on July 1, 2009, E's total accrued benefit as of July 1, 2009
as a single life annuity commencing at normal retirement age is $31,065 per year ($95,000
times 1.5 % times 21.8 years of service). This accrued benefit is offset by (A) E's phased
retirement accrued benefit (which is $7,650 (600 divided by 2,000 times $25,500)) plus (B)
the actuarial equivalent of 40 % of the payments that were made to E from January 1, 2008
through February 28, 2009.
Example 4. (i) Same Plan and Phased Retirement Program, Except Employer and
Employee Agree to Decrease Hours. The facts with respect to the Plan X and M's phased
retirement program are the same as in Example 2, except before 2008, E enters into an
agreement with M to decrease E's number of hours worked from 50 % of full time to 25 %
of full time. E works 500 hours in 2008 and 250 hours in 2009.
(ii) Application of Multiple Benefit Rule. Under paragraph (e)(2) of this section, Plan
M may provide for an additional phased retirement benefit to be offered to E for 2008. The
maximum increase would be for the phased retirement benefit paid to E during 2009 to be
increased based on a phased retirement accrued benefit equal to 75 % of E's accrued
benefit (1 ,500 divided by 2,000). Thus, the amount being paid to E would be increased,
effective January 1, 2008, based on the excess of 75 % of E's total accrued benefit on
December 31,2007, over E's original phased retirement accrued benefit of $12,750.
Employee E would have the right to elect, with spousal consent, any annuity form offered
under Plan X (with the actuarial adjustment for time of commencement and form of
payment to be based on the age of E and any contingent beneficiary (and E's service, if
applicable) on June 1,2008), which would be in addition to the previously elected joint and
50 % survivor annuity payable as E's original phased retirement benefit. When E retires
fully on July 1, 2009, Employee E's total accrued benefit as of July 1, 2009 would be offset
by (A) E's original phased retirement

accrued benefit plus (8) the phased retirement accrued benefit for which additional phased
retirement benefits were payable beginning in 2008.
(g) Effective date. The rules of this section apply to plan years beginning on or after
the date of publication of the Treasury decision adopting these rules as final regulations in
the Federal Register.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.

JS-2095: Treasury Designates Peruvian Airline

Page 1 of 1

PRESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 10, 2004
JS-2095
Treasury Designates Peruvian Airline
The U,S Department of the Treasury's Office of Foreign Assets Control (OFAC)
today formally added Aero Continente, a passenger and cargo airline based in
Lima, Peru, to Its list of entities designated pursuant to the Foreign Narcotics
Kingpin Designation Act (Kingpin Act), In addition, the Treasury also designated
Nuevo Continente as an A.K,A, of Aero Continente
"The drug trade is driven, first and foremost, by financial greed and the desire for
profit. Aero Continente is a financial fayade controlled by the notorious Peruvian
drug kingpin, Fernando Zevallos Gonzales," said OFAC Director Robert Werner,
"The Bush Administration continues to unravel drug trafficking operations and their
illicit financial infrastructures by taking actions like today's, which deprive narcotics
traffickers of illegal profits funneled through companies such as Aero Continente,"
The airline has been blocked by the Treasury pending further investigation since
June 1, 2004 following President Bush's decision to identify Fernando Zevallos
Gonzales, the airline's founder, as a Significant Foreign Narcotics Trafficker under
the Kingpin Act, Fernando Zevallos Gonzales has been a major figure in Peruvian
narcotics trafficking for more than two decades, Today's action reaffirms that U,S,
entitles and persons are prohibited from conducting business with Aero Continente,
and continues the blocking of assets of Aero Continente in U ,S jurisdiction,
After OFAC's June 1 blocking action, the airline underwent various alleged changes
in ownership and changed its name to Nuevo Continente, Despite the ostensible
ownership change, the airline was unable to demonstrate to the satisfaction of the
Treasury Department that all ties with the airline's former owners had been
severed,
This action IS part of the ongoing interagency effort of the Treasury, Justice, State,
Defense, and Homeland Security Departments, the Central Intelligence Agency, the
Federal Bureau of Investigation, and the Drug Enforcement Administration to carry
out the Foreign Narcotics Kingpin DeSignatIOn Act, which was signed into law on
December 3, 1999, and which applies economic sanctions against narcotics
traffickers on a worldwide basis, The Kingpin Act was modeled after Executive
Order 12978, which applies economic sanctions against narcotics traffickers
centered in Colombia and which is also administered by OFAC,
The U,S, President has named a total of 48 Kingpins since 2000, Fernando
Zevallos Gonzales was one of ten Kingpins named by President Bush this year,
and is the first Kingpin from Peru,

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http://www.treas.gov/preSS/releaseslis2095.htm

113/2005

JS-2096: MEDIA ADVISQRY Seeretary Snow To Visit Europe Next Week for Eeon ... Page 1 of2

PRESS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
November 12, 2004
JS-2096
MEDIA ADVISORY
Secretary Snow To Visit Europe Next Week for Economic and G-20 Meetings
US Treasury Secretary John W. Snow will travel to four European countries next
week to discuss the state of the global economy and efforts to continue strong
global economic growth. Secretary Snow will visit Ireland, the United Kingdom and
Poland, as well as participate in the Group of 20 Finance Ministers and Central
Bank Governors' meeting in Germany.
Snow will be in Dublin Nov. 14-15 to meet with economic leaders to review the
policies that have resulted in strong economic growth in Ireland in recent years. He
also will meet with Dublin City UniverSity officials, students and alumni to discuss
the role education has played in Ireland's economic growth story. The United States
is one of Ireland's largest trading partners and the country has benefited from
investments by U.S. companies.
The Secretary will be in London Nov. 16-17 to discuss ongoing efforts to encourage
growth and entrepreneurship in the U.K. On Nov. 16, he will deliver at speech at
Chatham House that will address the relationship of the U.S. economy to the global
economy.
The Secretary's visit to Warsaw on Nov. 18 will be highlighted by a roundtable
meeting with the finance ministers of Poland, Hungary, Slovakia and the Czech
Republic. The four nations are new members of the European Union.
Secretary Snow then will proceed to Berlin, Germany for the G-20 meetings Nov.
20-22. In addition to the official G-20 meetings, he will host a series of bi-Iateral
meetings with other attending finance ministers.
The following events are open to the media, which must present media credentials
or photo 10:
Monday, Nov. 15
Tour and Remarks at Dublin City University
Dublin City University
Dublin, Ireland
11:30 am local time
... Media must RSVP to Michael Murphy +353-1-700-5467
•• Media must arrive by 11 :00 am local time
•• A press availability will be held immediately following the event
Wednesday, Nov. 17
Remarks to Chatham House
Chatham House
10 St. James Square
London, England
8:30 am local time
** Media must arrive by 8:00 am local time
Thursday, Nov. 18
Press Availability Following Roundtable with
Finance Ministers of Poland, Hungary. Slovakia and the Czech Republic

http://www.treas.gov/press/releases/js2096.htm

11312005

JS-2096: MEDIA ADYlSORY Secretary Snow To Visit Europe Next Week for Econ... Page 2 of2
Ministry of Foreign Affairs Palace
ul. Foksal 6
Warsaw. Poland
1 :30 pm local time
** Media must arrive by 1 :00 pm local time
Saturday, Nov. 20
G-20 Group Photo
InterContinental Hotel, Willtergarten Room
Budapester Strasse 2
Berlin. Germany
1 :15 pm local time
** Media must arrive by 12:30 pm local time
Sunday, Nov. 21
Secretary Snow's G-20 Press Conference
12:00 pm local time
InterContinental Hotel, Room Chur I + II
Budapester Strasse 2
Berlin, Germany
1 :15 pm local time
** Media equipment must be in place by 11 :00 am for security sweeps

http://www.treas.gov/press/releases/is2096.htm

11312005

JS-2097: United Stat.e~ Secures Pathbreaking Agreement to Open Bidding for Untied... Page 1 of 1

PRESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 12.2004
JS-2097
United States Secures Pathbreaking Agreement
to Open Bidding for Untied Aid Credits
Twenty-five members of the Organization for Economic Cooperation and
Development (OECD) that are Participants to the Export Credit Arrangement have
agreed to a U.S proposal to open the bidding process for projects In developing
countries that are financed with untied aid credits. Untied aid credits are bilateral
aid loans whose proceeds are supposed to be available to finance procurement
from all countries. The U.S. government and American exporters have been
concerned that this aid has primarily financed exports from donor country firms.
With the support of Congress. the Bush Administration has sought OECD rules
governing these aid loan programs over the last two years.
Secretary John W. Snow and Under Secretary for International Affairs John B.
Taylor spearheaded this multilateral initiative to open developing country markets.
By opening these markets to effective international competition, this agreement will
expand export opportunities under untied aid credit programs. It will increase the
benefits of these aid programs to developing countries by ensuring that these
countries have the widest chOice of goods. services and technologies at the lowest
prices.
The two-year pilot agreement will commence on January 1, 2005. For the first time,
the agreement will set multilateral requirements for OECD governments to report
publicly on the details of their untied aid-financed projects 30 days before the
bidding begins. The agreement also provides for minimum bidding periods of 45
days (90 days for projects of $70 million or more). These requirements will help
U.S. exporters and other non-donor country exporters to identify and bid for these
foreign contracts. To ensure that the bid awards for these untied aid projects are
administered fairly. the agreement also includes a requirement for governments to
report the outcome of each bid competition. The value of untied aid credits covered
by this agreement has averaged over $7 billion annually since 1995, and were as
high as $14 billion in 1996.

http://www.treas.gov/preSS/releases!\... 2097.htm

113/2005

js-2098: i~easury Delays Announcement of 4-Week Bill

Page 1 of 1

PRESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
November 15,2004
js-209B

Treasury Delays Announcement of 4-Week Bill
The Treasury Department is postponing announcement of the 4-week bill auction,
scheduled to be announced November 15, 2004, until further notice. This
postponement is due to the statutory debt limit.

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http://wwVJ..treas.gov/preSS/releases/js2098.htm

113/2005

js-2099: 'Freasury and IRS PropO~& Retirement Annuity Regulations

Page 1 of 1

PRESS ROOM

FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

Novembel 15. 2004
IS-2099
Treasury and IRS Propose Retirement Annuity Regulations

The Treasury Department and IRS issued proposed regulations today relating to
retirement annuity contracts under sectron 403(b). which are generally avarlable to
employees of public schools and organizations exempt from tax under section 501
(c)(3). along with related temporary regulations clarifYing the application of
employment taxes to section 403(b) contracts.
"These regulations provide the first comprehensive guidance on section 403(b)
arrangements in over 40 years," said Gregory Jenner, Treasury's Acting Assistant
Secretary for Tax PoliCY. "These regulations would substantially revise the eXisting
regulations to provide guidance on the various statutory changes that have been
made for sectron 403(b) contracts dUring those 40 years, answer many outstanding
Issues that were not previously addressed in formal guidance, and demonstrate the
increasing similarity among section 403(b) arrangements and the other types of
retirement plans that provide for salary deferrals (section 401 (k) and governmental
section 457(b) plans). These regulations take into account the many comments
and discussions we have received with insurance carriers, practitioners and others
over the years about the Issues that need to be resolved regarding sectron 403(b)."
The proposed regulations would not go into effect until years beginning after 2005.
A copy of the proposed regulations and the temporary regulations IS attached.

-30REPORTS

•
•

Proposed Regulations
Temporary Regulations

http://wwv:.treas.gov/press/releasesJ}S2099.htm

113/2005

[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 31
[REG-155608-02]
RIN 1545-BB64
Revised Regulations Concerning Section 403(b) Tax-Sheltered Annuity Contracts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking, notice of proposed rulemaking by crossreference to temporary regulations, and notice of public hearing.
SUMMARY: This document contains proposed regulations under section 403(b) of the
Internal Revenue Code and under related provisions of sections 402(b), 402(g), 414( c),
and 3121(a)(5)(D). The proposed regulations would provide updated guidance on
section 403(b) contracts of public schools and tax-exempt organizations described in
section 501 (c)(3). These regulations would provide the public with guidance necessary
to comply with the law and will affect sponsors of section 403(b) contracts,
administrators, participants and beneficiaries. In the Rules and Regulations section of
this issue of the Federal Register, the Treasury Department and IRS are issuing
temporary regulations providing employment tax guidance to employers and employees
on salary reduction agreements. This document also provides notice of a public hearing
on these proposed regulations.

[4830-0 I-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TO 9159]
RIN 1545-8050
Payments Made by Reason ofa Salary Reduction Agreement
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulation.
SUMMAR Y: This document contains a temporary regulation that defines the term
"salary reduction agreement" for purposes of section 3121 (a)(5)(0) of the Internal
Revenue Code (Code). The temporary regulation provides guidance to employers (public
educational institution; and section 50 1(c )(3) organizations) purchasing annuity contracts
described in section 403(b) on behalf of their employees. The text of the temporary
regulation also serves as the text of the proposed regulation set forth in the notice of
proposed ruleImking on this subject in the Proposed Rules section in this issue of the

Federal Register.
OA TES: Effective Date: This regulation is effective on November 16, 2004.
Applicability Date: For dates of applicability, see §31.3121(a)(5)-2T(b).
FOR FURTHER INFORMATION CONTACT: NeilD. Shepherd, (202) 622-6040 (not
a toll- free number).
SUPPLEMENTARY INFORMATION:

Background

This temporary regulation (REG-155608-02) amends the Employment Tax
Regulations (26 CFR part 31) by providing guidance relating to section 3121 (a)(5)(0).
The Federal Insurance Contributions Act (FICA) imposes taxes on employees and
employers equal to a percentage of the wages received with respect to employment.
Code section3121(a) defines wages for FICA tax purposes as all remuneration for
employment unless otherwise excepted. Code section 3121 (a)(5)(0), added by the Social
Security Amendments of 1983 (Public Law 98-21 (97 Stat. 65)), generally excepts from
wages payments made by an employer for the purchase of an annuity contract described
in section 403(b). In a codification of long-standing administrative practice, however,
section 3121 (a)(5)(0) expressly excludes from the exception payments made by reason
of a salary reduction agreement (whether evidenced by a written instrument or
otherwise.) See Rev. Rul. 65-208, 1965-2 c.B. 383, and S. Rep. No. 98-23, at 41,
98 th Cong., 151 Sess. (1983). This temporary regulation defines the term "salary reduction
agreement" for purposes of section 3121 (a)( 5)(0).

Explanation of Provisions
The FICA taxation of payments made by an employer for the purchase of annuity
contracts described in section 403(b) has been shaped by a congressional concern for the
social security revenue base and for employees' social security benefits. In the context of
contributions for the purchase of such annuity contracts, Congress has interpreted the
term "wages" for FICA tax purposes more broadly than the term "gross income" for
income tax purposes. See S. Rep. No. 98-23, at 39, 98

Cong., 1 Sess. (1983) relating

to the Social Security Amendments of 1983 (Pub lic Law 98-21 (97 Stat. 65)).
An amount is generally includible in wages for FICA tax purposes at the time it is

- 2-

actually or constructively paid by the employer and received by the employee.
Additionally, wages generally include an amount that an employer contributes to a plan
only if the employee agrees to reduce his or her compensation For income tax purposes,
however, section 403(b) provides an exclusion from gross income for contributions made
by an employer, including contributions made pursuant to a cash or deferred election or
other salary reduction agreement. See section 1450(a) of the Small Business Job
Protection Act ofl996 (Pub lic Law 104-188 (110 Stat. 1755». Conversely, for FICA tax
purposes, wages include contributions made by an employer to a section 403(b) contract
pursuant to a cash or deferred election or other salary reduction agreement. See S. Rep.
No. 98-23, at 40-41, 98th Cong., 1st Sess. (1983). Thus, while section 403(b) excludes
from gross income contributions made pursuant to certain cash or deferred electiorn, such
contributions are made by reason of a salary reduction agreement under
section 3121 (a)(5)(0) and are included in wages for FICA tax purposes. Consequently,
this temporary regulation explicitly provides that the term "salary reduction agreement"
includes a plan or arrangement whereby a payment will be made if the employee elects to
reduce his or her compensation pursuant to a cash or deferred election as defined at
§ 1.40 I (k)-I (a)(3) of the Income Tax Regulations.

Pursuant to regulation § 1.40 I (k)-I (a)(3)(iv) of this chapter, a cash or deferred
election does not include a one-time irrevocable election made upon an employee's
commencement of employment with the employer. Similarly, pursuant to
section402(g)(3), while the term "elective deferrals" generally includes any employer
contribution to purchase an annuity contract under section 403(b) under a salary
reduction agreement (within the meaning of section 3121 (a)(5)(0», an employer

-3-

contribution made pursuant to a one-time irrevocable election is not treated as an elective
deferral. See H.R. Rep. No. 100-795, at 145, 100th Cong., 2d Sess. (1988) and
S. Rep. No. 100-445, at 151, 100th Cong., 2d Sess. (1988) relating to the amendment of
section 402(g)(3) by the Technical and Miscellaneous Revenue Act ofl988
(Public Law 100-647 (102 Stat. 3342». Notwithstanding that section403(b)
contributions made pursuant to a one-time irrevocable election are excluded from cash or
deferred elections under section 40 I (k) and from elective deferrals under
section402(g)(3), such contributions are made pursuant to a salary reduction agreement.
If the employee had not made a one-time irrevocable election, the employer's cash
payment to the employee would be includible in the employee's gross income and in
wages for FICA tax purposes. Consequently, this temporary regulation explicitly
provides that the term "salary reduction agreement" includes a plan or arrangement
whereby a payment will be made if the employee elects to reduce his or her
compensation pursuant to a one-time irrevocable election made at or before the time of
initial eligibility to participate in such plan or arrangement (or pursuant to a similar
arrangement involving a one-time irrevocable election).
A contribution that is made as a condition of employment and that reduces an
employee's compensation generally constitutes an employee contribution includible in
wages for FICA tax purposes. See section 10 IS of the Employee Retirement Income
Security Act of 1974 (Pub lic Law 93-406 (88 Stat. 829» relating to amounts designated
as employee contributions under section 414(h) of the Code; see also H.R. Rep.
No. 93-807, at 145, 93 d Cong., 2d Sess. (1974) wherein Congress stated that 'lu]nder
present law, contributions which are designated as employee contributions are generally

-4-

treated as employee contributions for purposes of the Federal tax law." Code
section414(h)(l) merely codified the existing administrative and judicial treatment of
amounts designated as employee contributions. See, for example,
Howell v. United States, 775 F.2d 887

(7th

Cir. 1985) holding that mandatory

contributions to a state retirement plan of amounts designated as employee contributions
and withheld from the employee's salary are employee contributions includible in the
employee's gross income. Thus, as with employer contributiolli made pursuant to cash or
deferred electiolli and one-time irrevocable election;, employer contributiolli that are
made as a condition of employment and in lieu of mandatory employee contributiolli and
that reduce an employee's compensation are amounts otherwise includible in wages for
FICA tax purposes.
Whether a contribution that reduces an employee's compensation is required by
statute, contract, or otherwise, an employee implicitly agrees to the contribution as a
condition of employment. The acceptance of employment and the subsequent
performance of services manifests the employee's agreement to the contribution
See H.R. Conf. Rep. No. 98-861, at 1415, 98 th Cong., 2d Sess. (1984) relating to the
amendment of section 3121 (v)( I )(B), wherein Congress stated that "[t] he conferees
intend that the term salary reduction agreement also includes any salary reduction
arrangement, regardless 0 f whether there is approval or choice of participation by
individual employees or whether such approval or choice is mandated by State statute."

In Public Employees' Retirement Board v. Shalala, 153 F.3 rd 1160, at 1166
(lOlh Cir. 1998), the court noted that "an employee's decision to go to work or continue to
work ... constitutes conduct manifesting assent to a salary reduction" Accordingly, the

-5-

cOUl1 held that a designated employee contribution picked up by an employer with a
corresponding reduction in the employee's gross salary constitutes a contribution made
pursuant to a salary reduction agreement. Similarly, this temporary regulation explicitly
provides that the term "salary reduction agreement" includes a plan or arrangement
whereby a payment will be made if the employee agrees as a condition of employment
(whether such condition is set by statute, contract, or otherwise) to make a cont ribution
that reduces the employee's compensation.

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) and (d) of the Administrative
Procedure Act (5 U.S.c. chapter 5) do not apply to this regulation. For the applicability
of the Regulatory Flexibility Act (5 U.S.c. chapter 6), refer to the Special Analyses
section in the preamble to the notice of proposed rule making published in the Proposed
Rules section in this issue of the Federal Register. Pursuant to section 7805(f) of the
Code, this temporary regulation 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 this regulation is Neil D. Shepherd, Office of Division
Counsel! Associate Chief Counsel (Tax Exempt and Government Entities). However,
other personnel from the IRS and Treasury Department participated in its development.

List of Subjects in 26 CFR Part 31

-6-

Employment taxes, Income taxes, Penalties, Pensions, Railroad retirement,
Reporting and recordkeeping requirements, Social security, Unemployment
compensation.
Amendments to the Regulations
Accordingly, 26 CFR part 3 I is amended as follows:
PART 31--EMPLOYMENT TAXES
Paragraph I. The authority citation for part 31 continues to read in part as
follows:
Authority: 26 U.S.c. 7805

***

Par. 2. Section31.3121(a)(5)-2T is added to read as follows:
§ 31.3121(a)(5)-2T Payments under or to an annuity contract described in section403(b)
(temporary) .
(a) Salary reduction agreement defined. For purposes of section 3121(a)(5)(O),
the tenn salary reduction agreement means a plan or arrangement (whether evidenced by
a written instrument or otherwise) whereby payment will be made by an employer, on
behalf of an employee or his or her beneficiary, under or to an annuity contract described
in section 403(b )-(I) If the employee elects to reduce his or her compensation pursuant to a cash or
deferred election as defined at § 1.401 (k)-I (a)(3) of this chapter;
(2) If the employee elects to reduce his or her compensation pursuant to a
one-time irrevocable election made at or before the time of initial eligibility to participate
in such plan or arrangement (or pursuant to a similar arrangement involving a one-time
irrevocable election); or

-7-

(3) If the employee agrees as a condition of employment (whe ther such condition
is set by statute, contract, or otherwise) to make a contribution that reduces his or her
compensation
(b) Effective date. (I) This section is applicable on November 16,2004.
(2) The applicability of this section expires on or before November 16,2007.

/s/ Nancy Jardini

Acting Deputy Commissioner for Services and Enforcement.

Approved: November 1,2004

/s/ Gregory Jenner
Acting Assistant Secretary of the Treasury.

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FROM THE OFFICE OF PUBLIC AFFAIRS
November 15, 2004
IS-2100

Testimony of Juan Carlos Zarate, Assistant Secretary Terrorist Financing and
Financial Crimes U.S. Department of the Treasury Before the Senate
Permanent Subcommittee on Investigations of the Committee on
Governmental Affairs
Cilairman Coleman, Ranking Minority Member Levin, and distinguished Members
of the Permanent Subcommittee on Investigations, thank you for inviting me to
testify today about allegations of fraud pertaining to the United Nations Oil-For-Food
Program (OFF), and the US government's continuing efforts to Identify, freeze and
repatriate Iraqi assets around the world. In part, my testimony today bUilds upon
my March 18, 2004 testimony before the House Committee on Financial SerVices,
Subcomrnlttee on Oversight and Investigations I am attaching thiS prror testimony
to my statement today, and request that it be admitted into the record of this
hearing

Since Secretary Snow's call to engage in a worldwide hunt to find and repatriate
stolen Iraqi assets to the Iraqi people in March 2003, the Treasury Department and
the entire U.S government have worked intensely to do Just that. In the process of
facilitating the finding and freezing of nearly $6 billion in Iraqi assets outside of Iraq,
the return of over $2.7 billion of that, and the recovery of over $1 billion in cash
InSide Iraq, we have seen and uncovered the vast corruption of the sanctions
regime by Saddam Hussein. The scandal now surrounding the corruption of the
economic sanctions on Iraq and the Oll-For-Food Program was the direct result of
the treaChery and thievery of Saddam Hussein, his sons, and hiS regime. It was
Saddam Hussein who transformed the goodwill of the international community and
the international humanltarran effort represented in the OFF Program into a global
criminal enterprise. Although there may be many who engaged in sanctions
busting and OFF-related kickbacks and schemes, such enterprises were the
making of a malevolent Sad dam Hussein and hiS regime.

As Mr. Duelfer noted durrng his October 2004 testimony before the Senate Armed
Services Committee, "After the 1991 war, Saddam established as hiS prime
objective (after surVival) the termination of UN sanctions on Iraq, and he weighed all
poliCy actions and steps for their impact on this overarching objective" And, "the
steps the Regime took to erode sanctions are obvious in the analysis of how
revenues, particularly those derived from OFF, were used."
One of Mr. Ouelfer's main points in his reports was to say, "Although Saddam had
reluctantly accepted OFF by 1996, he soon recognized its economic value and
additional opportunities for further manipulation and influence of the UNSC Iraq 661
Sanctions Committee member states."
In essence then, the Hussein regime created an ongoing system to milk the
international sanctions regime of all of the potential value and profits, while his
people suffered the consequences. In thiS sense, as well, he used the Implements
of the State - the Central Bank, commercial enterprises, and his diplomatic and
Intelligence assets - to help skirt international restrrctions and bring profit to his
regime.
The challenge still before us is to help the Iraqi Interim Government and the Iraqi
people recover those assets that have yet to be returned to them Just as important
is the need for us to continue to search for assets that we have not yet identified or
frozen, since unattended assets could very well be used to fuel the insurgency or
terrorist attacks against our soldiers, our Coalition partners, and innocent CIVilians

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The testimony below provides an overview of our continuing international and
Interagency mission to recover and repatriate assets looted by the prior regime, In
addition to a sense of how the former regime's systematic pilfering of OFF may be
funding the Iraqi insurgency and may Ilave assisted Saddam Hussein's efforts to
acquire illiCit military equipment Finally, the testlnlOny lays out the continuing Iraqi
asset recovery mission, efforts to combat Insurgency financing, and how we can
I'educe the likelihood of another OFF-type scandal In the future
The Iraqi Asset Recovery Mission

Sillce March 2003, the US government has focused on the need to find, freeze,
and repatriate Iraqi assets from around the world - as well as to find cash and
assets wlthlll Iraq that were stolen and hidden by elements of the former Hussein
regime

The identification, freezing, and transfer of Iraqi assets remains a priority for this
Administration for several reasons It is critical that the Iraqi people have access to
funds that are rightfully theirs - so that they can rebUild a country burdened by a
dictator's decades of neglect ThiS IS also essential to prevent any such former
regime assets from being used to fund the Iraqi insurgency and to keep them out of
the hands of terrorists both within and outSide Iraq. The International community
cannot permit these assets to be used against our troops, coalition partners, and
Innocent civilians in Iraq, or potentially to support the nefarious activities of terrorists
around the world.
Moreover, the efforts of the international community to identify and repatriate assets
stolen by Saddam Hussein and his former regime serve as a strong warning to
other tyrants and kleptocrats, who might seek to loot their countries and hide the
stolen assets in the international financial system. Lessons learned by the U.S. and
the International community in the hunt for Iraqi assets will serve as a model, both
for the U.S. Government and for the International community, on how to respond
and Identify, trace, freeze, and repatriate national patrimony stolen by corrupt
despots In the future.
With the June 28, 2004 transfer of sovereignty to Iraq and the establishment of the
Iraqi Interim Government (IIG), our efforts to Identify and repatriate Hussein-related
assets underwent an important transformation. While our asset recovery efforts
continue, the primary lead for much of the Iraqi asset recovery has now passed to
the IIG, with U.S. and international assistance. U.S. government efforts are now
concentrated on supporting those efforts to identify, freeze, and repatriate looted
Iraqi assets that have been concealed in the international financial system behind a
maze of front companies and straw men. Our ability to view the success of our
International efforts to obtain asset transfers is somewhat limited post-transition
given control by the IIG of access to information related to the Development Fund
for Iraq.
U.S. Leadership in the Asset Hunt
From the beginning, under the PreSident's leadership, the US. took the world-Wide
lead In trying to locate and recover Iraqi assets for the reconstruction of Iraq and the
benefit of the Iraqi people. Our efforts to Identify and recover Iraqi assets targeted
three basic groups of assets:
•

•

Assets frozen in 1990 under UNSCR 661 that are subject to freeze and
transfer under UNSCR 1483, as well as additional Iraqi assets covered by
1483:
Assets that eXist in the countries that did business With Iraq either legally or
Illegally under the UN sanctions regime In place before March 2003 (called
"trading states") -- Jordan, Lebanon, Syria, and Turkey:
Assets looted and hidden outside Iraq by Sad dam Hussein and senior
members of his former regime, their immediate families, agents, and front
companies.

Identifying, tracing, and recovering these funds Involves numerous tools investigatory, diplomatiC, and intelligence. The variety of these tools, and the
respective expertise of the different departments and agencies in emplOying them,
has required close interagency collaboration. And indeed, our miSSion, though

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daunting and complicated. has achieved success. due III large part to the
unprecedented interagency cooperation and coordination of all components of tile
US Government. I am pleased to have tllis opportunity to share with you the
cooperation we have received from our colleagues In other agencies. and the
dedication and bravel'y of our financial Investigators and staff In Baghdad. who have
placed themselves In harm's way to accomplish tillS very complex mission
Saddam Hussein's Abuse and Avoidance of International Sanctions

Saddam Hussein's regime used a variety of ways to enrich itself With pleasure
palaces. expensive cars, and armaments at the expense of the Iraqi people. Our
Walk has helped crystallize how this was done and provided leads for possibly
finding and I'eturrllllg some of those funds to the Iraqi people.

Uncovering Hussein-Era Smuggling. Kickback, and Skimming Schemes
Treasury's financial investigation and analYSIS has helped us develop a better
understanding of some of the schemes that Saddam Hussein and hiS reglnle used
to raise and launder IlliCit assets, In Violation of the UN's Iraqi sanctions regime,

Although we do not know the full universe of Iraqi assets amassed by Saddam
Hussein and the former government of Iraq III violation of UN sanctions. our
finanCial investigation and analysis to date indicate that the former regime
generated significant revenues from a complex web of financial actiVities. These
activities Included kickbacks and skimming funds from the OFF program. as well as
oil smuggling outside the OFF program
A May 2002 GAO report "conservatively" estimates that from 1997 to 2001. the
Hussein regime obtained $6.6 billion from oil smuggling and kickbacks from UNsanctioned oil sales alone, As Mr. Duelfer noted in the Key Findings of his report.
the former Iraqi regime used "IlliCit revenue streams" to amass "more than $11
billion from the early 1990's.
"
The follOWing is a summary of the types of schemes the Hussein regime used to
avoid the IIlternational sanctions regime and to take advantage of the OFF
Program,
UnauthOrized Surcharge on OFF OJ! Sales
In response to Iraq's Invasion of Kuwait in August. 1990. the United Nations
Security Council imposed sanctions on Iraq that prohibited virtually all commercial
transactions with Iraq and required Member States to freeze Iraqi assets. In 1995.
bUilding upon previous humanitarian exceptions to the UN sanctions regime, the
Security Council further responded to the plight of the Iraqi people by creating the
OFF program. which authOrized Iraq to sell oil under UN superVision and use the
proceeds to purchase goods for the humanitarian needs of Iraqi Citizens,
The Hussein regime abused this program to generate illiCit revenues by instituting a
surcharge scheme on OFF 011 sales. beginning In the late 1990s. Pursuant to this
scheme. Iraq would charge an extra 10 to 35 cents per barrel "surctlarge" on Iraqi
oil sales transacted under the OFF program. The size of the "surcharge" varied
with the oil shipment's destillation. After this became known in late 2000, the U.S.
and UK thwarted further surcharges by requiring "retroactive priCing" of Iraqi oil.
ensuring that the actual price paid was close to market price. Before the
surcharges ended. however. money reportedly was accumulated at Iraqi embaSSies
or deposited IIltO bank accounts In various Jurisdictions. and later withdrawn in the
form of cash This cash was then transported back to Iraq and reportedly depOSited
into the Central Bank of Iraq,
Some of the cash generated by this kickback scheme was not repatriated to Iraq.
but instead was used to buy military equipment and other goods prohibited by
international sanctions. Without the knowledge of the UN.

After Sale Service Fee Scheme

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The "after sale service fee" scileme mvolved kickbacks generated from Iraqi
purchases of goods authonzed under the OFF program Under the OFF program,
proceeds from official OFF Iraqi oil sales were deposited In a designated UN
account, to be used for humanitarian purposes, such as purchaslllg food and
medical supplies for the Iraqi people. To circumvent the restrictions on purcilases
and generate addilional Illicit revenue, the Iraqi government ordered each of ItS
mlllistries to IIlstltute a 1o'Yo kickback scheme. Vendors selllllg goods to the Iraqi
government were reqUired to IIlfiate the contractual purcllase price typically by 10°;;)
and kick back tile excess charge to tile Iraqi government Thus, a vendor would
submit records to tile UN indicating tllat It was seiling $110 worth of goods to Iraq,
when In fact the vendor was seiling only $100 worth of goods, and was returning
the additional $10 to Iraq as a kickback. The IlliCit funds generated by thiS scheme
reportedly were halldled slmilal"ly to the 011 pnce surcharges, and were either
repatnated as cash to Iraq or used to buy goods In Violation of UN sanctions. After
Iraqi mlilistnes began cooperatlllg With the former CPA, a process was instituted to
renegotiate these contracts, with a view of ellmlnatmg kickbacks
Trade Protocol Funds
A third scheme Involved the sale of oil In violation of UN sanctions under "trade
protocols" With neighboring countnes. Beginning In the early 1990s, the former
Iraqi government entered into Signed offiCial agreements with Jordan, Turkey, and
Syria to sell Iraqi 011 to each of these countries outside the OFF Program and
precursor International sanctions. In each country, the proceeds of the 011 sales
were spilt between a trade account and a cash account Most of the funds (60%75%) were placed in the "trade account."
Under the trade protocols, the Iraqi government was reqUired to use the money In
the trade account to purchase goods from vendors and bUSinesses in the particular
protocol-partner country. The money from the cash account (25%-40% of oil sale
proceeds) in each of the protocol countnes was transferred to bank accounts in
Jordan and Lebanon -- usually through bank accounts set up In the names of front
companies or Individuals, to further disguise the scheme and the movement of the
funds. Eventually, the cash account funds generated under all of the protocols
were deposited In bank accounts controlled by the Central Bank of Iraq, Rasheed
Bank, or Rafidain Bank. After this, the money was withdrawn in the form of cash
and transported back to Iraq. When the money reached Baghdad, it was deposited
Into the vault at the Central Bank of Iraq.
We are uSing the information about the oil smuggling, kickback, and skimming
schemes developed by our investigation to better identify and trace Iraqi assets In
several Jurisdicllons For example, In one neighbouring country, we have examined
68 accounts of 16 front companies Involved in the trade protocol skimming scheme,
and are seeking to trace the flow of thiS money.
Understanding these enrichment schemes used by the Hussein regime to enrich
Itself prOVides not only leads, but also a clear case study as to how a notorious
regime will go about abUSing the goodWill of the international community to enrich
and embolden itself.
Front Compal1les
We know that the Hussein regime relied on front companies that It secretly owned
or controlled to engage in illegal commerce and to move funds outside of the gaze
of the Internallonal community. The assets of front companies are subject to
freezing and transfer to DFI under UNSCR 1483, Paragraph 23. Our investigation
has Identified front companies Involved In transactions under the trade protocols, as
well as other commercial activities. We have designated many such front
companies used by the regime to engage In commercial activity
OFF-Related Funds and Acquisition of Illicit Military Goods
ThiS Subcommittee has asked that I address the extent to which the OFF Program
was allegedly used by Saddam Hussein to obtain funds for prohibited transacllons
to purchase military equipment and other goods prohibited under UN sanctions.
Treasury and US. government investigations, including the Duelfer Report, have
concluded that Saddam Hussein and regime elements did, in fact, seek to abuse
OFF in order to obtain illicit military equipment.

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As noted In the Duelfer Report, "The steps the Regime took to erode sanctions are
obvIous In the analysis of how revenues. particularly those derived from the Oll-forFood program, were used Over time, sanctions had steadily weakened to the pomt
where Iraq, In 2000-2001 was confidently deSigning missiles around components
that could only be obtaliled outside sanctions."
Clearly, Saddam Hussein and hiS cronies endeavored to abuse the OFF program to
the best of their abilities. It IS nonetheless worthwhile to note ttle aggressive US
government reaction to stanch fUliher abuses by remamlng regime criminals
FollOWing are three examples of Treasury actions to deSignate, under EO 13315
and the UNSCR 1483, regime elements that Illegally abused OFF and engaged in
other Illegal activity to obtain illicit mllital-y materiel These deSignations occurred on
April 15,2004, and have been adopted by the UN
•

AL-WASEL AND BABEL GENERAL TRADING LLC

Information available to the US Indicates AI Wasel and Babel was controlled by,
and acted for or on behalf of, senior officials of the fonner Iraqi regime, Including
Iraqi Deputy Pnme Minister and Fillance Minister Hikmat Mizban Ibrahim alAzzawi AI-Azzawl has been named by the United Nations as a senior official of the
former Iraq regime on the list established pursuant to UNSCR 1483.
Much of this mformation was developed during an investigation by US. authonties
on AI Wasel and Babel's attempts to procure a sophisticated surface-to-air miSSile
system for Iraq Other Information developed by the US. Government Indicates AI
Wasel and Babel played a key role In the former Iraqi regime's schemes to obtam
tlllClt kickbacks on goods purchased through the U.N. Oil-for-Food (OFF) Program

• AL-ARABI TRADING COMPANY
AI-Arabi is the ultimate holding company for a variety of Iraqi front companies that
engaged In military procurement for the former regime. AI-Arabi owns 99 percent of
the UK-Incorporated company Technology and Development Group Limited (TDG),
which In turn owns TMG Engineering Limited. TDG and TMG were involved in
Iraq's arms procurement network during the late 1980s .
• AL-BASHAIR TRADING COMPANY
AI-Bashair, directed by Munlr AI-Qubaysl, reportedly acted as the largest of Iraq's
arms procurement front companies and was involved in a range of sanctions
busting and corruption schemes on behalf of the regime. AI-Bashair reported
directly to the Organization of Military Industrialization, which was responsible for
Iraq's military procurement programs and was headed by former Deputy Prime
Minister Abd-al- Tawab Mullah Huwaysh Huwaysh has been named by the U N as
a senior official of the former Iraq regime on the list established pursuant to UNSCR
1483.
Reporting based on documents removed from AI-Bashalr's headquarters describes
a variety of deals involving sham contracts, kickbacks, falSified export
documentation and money laundering designed to deceive U. N inspectors and
deliver, among other things, missile components, surveillance equipment and tank
barrels to the former Iraqi regime. The company also allegedly helped seniors
offiCials of the former regime launder and hide Iraqi government funds.
Unfortunately, it is not possible to know how much of the funds from IlliCit actiVities
can be recouped by further US government, Iraqi, and International efforts.
Nevertheless, the United States government, working with the IIG and its
successor, intends to continue its miSSion to identify and recoup hidden funds With
all the tools at our disposal -- which include freezing actions, designations, and
providing enhanced assistance to the Iraqis In their forensic accounting and asset
Investigatory efforts.

Important Progress to Date

We have achieved Important success in returning assets to the Iraqi people and in
unearthing the schemes and networks used by the regime to steal from Iraq.

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• Since March 20, 2003, with U.S. leadership, over $2 billion of Iraqi assets have
been newly Identified and frozen outside the US and Iraq.
• Since March 20, 2003, approximately $847 million have been transferred by other
countl'les to the Development Fund for Iraq (DFI). In total, the US, foreign
countries, and the Bank for International Settlements have transferred back to Iraq
over $2.7 billion in frozen Iraqi funds:
• Apploxlmately $1.3 billion in cash and valuables has been recovereclln Iraq
• We continue to identify key Individuals and entities who acted as operatives for
Saddam Hussein As of today, tile Department of the Treasury has designated 30
immediate family members of senior officials of the former Iraqi regime pursuant to
Executive Order 13315 Ttle U.S has submitted these individuals, as well as the
identities of 191 Iraqi parastatal (quasI-government) entitles, to the United Nations,
and requested that they be listed by the UN 1518 Committee Lirldel UNSCR 1483.
The 1518 Comrnlttee added these submissions to a list of senior Iraqi officials and
entities that we previously JOined wlIIl the UK and France In submitting to the UN for
listing under UNSCR 1483:
• In Iraq, our financial Investigators have conducted over 85 interviews of key
Individuals who have Information relating to Iraqi assets or pOSSible insurgency
financing, ranging from the top ministers of the State Oil Marketing Organization
(SOMO), to the laborers who buried Saddam's U.S currency. Our investigators
continue to seek out and Interrogate key financial facilitators like accountants and
bankers, who have knowledge about the movement of Iraqi assets within and
outside of Iraq Under IRS-CI questioning, these witnesses have identified assets
that can be recovered for the new Iraqi government We aggressively pursue any
leads In tandem With the IIG
• In Iraq, we are working closely with the Department of Defense, the Federal
Reserve Board, and the Bureau of Engraving and Printing to trace US currency
seized In Iraq, In order to determine the flow of funds that may support the
insurgency
• Our designation of Wasel and Babel as an Iraqi front company, and successful
submission of thiS name to the United Nations for listing under UNSCR 1483,
resulted In the UAE taking action against Wasel and Babel and freezing its assets.
• While searching for Iraqi assets abroad, IRS-CI agents determined that the former
Iraqi Ambassador to Russia had stolen $4 million in Iraqi assets that had been
entrusted to him. As a result, that amount has been frozen in Russia, and we are
working With the IraqiS and Russians to have It repatriated. On August 2,2004, we
deSignated thiS Ambassador under EO 13315, and submitted his name to the
United Nations 1518 Committee.
• While continuing to work closely With the governments of Liechtenstein,
SWitzerland, and Jordan, we have taken aggressive action to recover one of
Saddam's Falcon 50 corporate Jets and to uncover a financial network that had
been used by the Iraqis to move money and people in the heart of Europe As a
direct result of these efforts, this former symbol of the Hussein regime will be
returned to the Iraqi people. This past week, the Falcon 50 was released from
Jordan, and flown to Switzerland for refitting.
• The financial investigation teams also uncovered important leads for other IRS-CI
financial Investigations that have been pursued in jurisdictions outside Iraq We
identified bank accounts and other assets held in over twenty countries, including
Switzerland, France, Germany, Liechtenstein, Russia, Spain, Egypt, Thailand,
Indonesia, Lebanon, Belarus, Iran, South Korea, Malaysia, Japan, Morocco, Saudi
Arabia, UAE, British Virgin Islands, Jordan, Syria and Yemen. We will work with the
IIG to ensure that these assets are accounted for and returned to the Iraqi people.
• As I previously testified. as a result of Interagency cooperation and IIwestlgatlve
and other efforts in Baghdad and at Headquarters, the Departments of Treasury
and State have provided IdentifYing Information on over 570 Identified Iraqi bank
accounts in 41 countries for review and follow-up. Those accounts were identified
as belonging to the Central Bank of Iraq, Rafidain Bank. and Rasheed Bank. Again,
we are working with the IIG to pursue these accounts.
We continue to devote resources to this effort
Treasury Resources Dedicated to the Mission
• As of November 2004, an IRS attache has been stationed at the US embassy in
Baghdad. He is following up on designations of former regime indiViduals and
entities, coordrnatlng the US and Iraqi government efforts to identify and recover
assets both inside and outSide Iraq, uncover new front companies and pursue all
possible financial leads involving the ongOing insurgency In Iraq.
• IRS-CI Agents, embedded with the U.S. military In Baghdad, are working to
counter insurgency financing, as well as continue to seek out Information
concerning former regime assets. As the Department of Defense Identifies
financially related information, the IRS personnel are integrated into the process of
delivering relevant rnformatlon to competent authorities for appropriate handling. In
addition, the IRS Agents are helping to train their Iraqi counterparts - so that over
time, the Iraqis can carry out their own Independent financial Investigations.

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• In addition to the IRS attache, a Department of Treasury attache has also been
assigned to the US embassy In Bagtldad The TreasLll-y attache coordinates
activities, along With the IRS attache and their Ilaql counterparts, to fmd hidden
assets from the former Hussein leglme that may stili be In the country. They are
also helping the Iraqis craft a legal regime that can further catalyze the process of
cOllfiscatlllg assets from the former leglme
• TI-easulY personnel contillue to work closely wittl the military, espeCially where
bulk U S cUITency is identified The military passes relevant fmanCial mformatlon
back to the Federal Reserve Boal-d of Governors and the Bureau of Engraving and
Prillting, In order to trace the flow and source of speCific funds
• An Office of Forelgll Assets Control (OFAC) Analyst has been stationed at
CENTCOM In Tampa, Florida to work closely With military persollnel on insurgency
finallclllg matters.
Intematlonal Cooperation and Challenges
The United Nations Role in the Asset Recovery Process
The Uilited Nations has played an Important role m the Iraqi asset recovery
process UNSCRs 1483 and 1546 require all member countries to identify, freeze,
and promptly transfer to the Development Fund for Iraq (DFI) Iraqi assets in their
Jurisdictions, Includlllg assets held in the name of the Iraqi government, and assets
held by or on behalf of Saddam Hussein, his regime cronies and their immediate
family members, front companies, or agents. The United Nations' 1518 Committee
IS responsible for Irnplementlllg these UNSCRs and is responsible for mamtalnlng
the IIltematlollal list of mdivlduals and entitles whose assets are covered by the
freeze and transfer requirements of UNSCRs 1483 and 1546.
UN deSignations are an Important tool In the Iraqi asset investigation UN
designations faCilitate international cooperation with our own investigatory efforts to
Identify Iraqi assets located in other countries, and prod the Intematlonal community
to Identify, freeze, and transfer Iraqi assets in their JUrisdictions To date, the US
has submitted the names of 232 Iraqi-related entities and IndiViduals, comprised of
191 parastatals (quasi-govemment entities), 30 individuals, and 11 front
companies, to the United Nations, with the request that they be listed under
UNSCR 1483 by the 1518 Commlttee_ To date, the UN 1518 Committee has
adopted 228 of these submitted names, including 191 parastatals, 27 IndiViduals,
and 10 front companies.
The UN 1518 Committee has not yet designated the names of three mdivlduals and
a front company that the US , along with the U.K and the Interim Govemment of
Iraq, submitted to the 1518 Committee on August 2,2004. The names proposed
for deSignation on August 2 included two former Iraqi ambassadors, one of which is
the former Iraqi ambassador to Russia I referenced already, who used their senior
pOSitions to engage In a variety of IlliCit activities, ranging from financing foreign
anti-Coalition fighters during Operation Iraqi Freedom, to the embezzlement of
regmle funds.
The proposed designations also included a Bangkok-based company serving as a
front for the Iraqi Intelligence Service (liS) dUring the former regime, along with its
owner and director, a former liS officer suspected of plannmg attacks In January
2003, agalilst US citizens In Thalland_ The UN 1518 Committee has not yet
adopted these names because Russia has placed a hold on them and prevented
Committee action_ The Departments of State and of the Treasury have been
working diligently to convince Russia to 11ft its hold We hope that the UN
designations will spur other countries to undertake independent investigations,
publish similar Ilstmgs, and return Iraqi funds to the DFI, consistent with the
reqUIrements of UNSCRs 1483 and 1546.
Indeed, as a direct result of UN designations, Switzerland has frozen and IS In the
process of transferring $140 million in Iraqi assets held by designated front
companies and indiViduals, and the UAE has taken action against Wasel and
Babel, a deSignated front company.
European and other governments have stated that they have been hampered in
Implementing UNSCR 1483, which calls for the Identification of Iraqi-related
accounts and blocking and return of assets, because under their domestic laws,
nations cannot freeze assets In the absence of a specific listing of mdlvlduals and
entitles at the United Nations_ We therefore will continue to submit names to the
UN for listmg as a way of helpmg other countries fulfill their obligations to Identify,

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freeze, and transfer Iraqi assets. The listings to date are not Intended to be
exhaustive, and we will work With the IIG to identify additional individuals and
entities for US designation and UN listing
I would like to re-emphaslze, however, that the U.S strongly believes that, while
U.N listing IS helpful, UNSCRs 1483 and 1546 require member states to freeze and
transfer all covel'ed assets, Independent of whether they tlave been Identified by the
UN This IS an ongoing UN obligation, and one which the Iraqis themselves are
beglllnlllg to promote

The General International Effort

Although we have made great progress in Identifying, freezing, and transferring
lI'aql assets to the OFI, largely with the help of allies abroad, there is still much to
do. As Indicated above, since March 20, 2003, over $27 billion of Iraqi assets have
been Identified and frozen outside the U.S and Iraq. The US has led the effort to
prompt the Identification and return of frozen Iraqi funds around the world, resulting
In approximately $847 million dollars being transferred by other countries to the
OFI Ten foreign countries are confirmed to have transferred amounts into the OFI,
and more have pledged to do so. For example, as of the June 28 transition, Japan
had transferred $981 million, the United Kingdom had transferred $186.8 million;
Jordan had transferred $250 million; and Tunisia had transferred $8 million With
the help of other countries, and in tandem with the IIG, we hope to uncover
additional accounts and Identify numerous companies and individuals who were
part of the regime's financial web. Even willing countries, however, face challenges
to freezing and repatriating Iraqi assets
•

Sanctions Implementation The lack of a defined government agency in
most countries that administers sanctions in a focused, long term manner
has led to less organized efforts in these countries. In addition, a poor
accounting of what Iraqi assets eXisted in countries around the world and
the shifting nature of some of those accounts presented problems of
accounting at the outset of our global efforts. These factors, In combination
In certain instances with less developed financial systems, makes locating
and securing assets more problematiC than in the U.S
• Legal Difficulties. Countries have legal problems with taking title to property
and immediately repatriating it to Iraq. The mechanism and obligation
established In UNSCR 1483 to dealing with Iraqi assets represents a novel,
aggressive approach to immediate repatriation of assets under international
law. As a result, some countries are in the process of examining what legal
measures exist or need to be created within their domestic systems to
enable them to comply fully with the requirements of 1483. Other countries
are determining what processes need to be put in place to transfer Iraqi
assets. We are working with governments around the world and the Iraqis
to find legally viable ways to transfer funds to the OFI
• Claims. In some jurisdictions, the existence of extensive third party claims
on Iraqi money has complicated asset recovery Under UNSCR 1483,
countries are obligated to return the funds unless such funds are
themselves the subject of a lien or judgment that predated the Resolution
While this novel legal mechanism is intended to forestall adjudication of
un perfected legal claims until a later date, some countries have insisted on
addressing what we consider to be unperfected commercial and other
claims against Iraqi funds In their banking systems as a condition of
transferring assets to the OFt. We have been working With the Iraqis and
various countries to try to resolve these Issues and maximize the amount of
money transferred to the OFt.
As with all of these efforts, International outreach and diplomatiC troubieshootlllg
are ongoing throughout the world We are continuing to work with our partners
abroad to obtain the return of previously Identified Iraqi funds and to Identify
suspect Iraqi accounts.
Interagency Cooperation

The complex challenge of uncovering the trail of Iraqi assets demands that all
relevant government agencies work together in a comprehensive and coordinated
manner, and share and enhance information obtained from whatever source. That

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is precisely what we have been dOing, and will continue to do

In particular, we have established two Interagency mechanisms ttlat serve as a
model for Interagency coordination -- the Iraqi Asset Working Group and the DIAC
Fusion Center
Iraqi Asset Working Group

The Interagency Iraqi Asset Working Group (IAWG), which I chair, includes
Treasury components - my Office (Terrorist Financing and Intelligence (TFI)), IRSCI, OFAC, and FinCEN, the Departments of State, Including USUN; Justice,
including the FBI: Defense; Homeland Security; the intelligence community and the
NSC. The Iraqi Asset Working Group brings the unique expertise of each of these
agencies and departments to bear on the hunt for Iraqi assets, as well as on the
sources and movements of funds for the Iraqi insurgency. The group oversees and
coordinates the U.S. Government's international search for Iraqi assets, and also
helps coordinate insurgency funding efforts.
Among other things, we set priorities for the international forensIc investigations,
direct financial investigation teams to various Jurisdlcllons, set priorities for
diplomatic outreach, discuss and analyze possible UN and domestic designations
under EO 13315 and UNSCR 1483 of Iraq-related individuals and entitles, and help
coordinate activities among former CPA and Iraqi officials to facilitate action by the
Iraqis to transfer assets to the OF!. The IAWG has proven to be an efficient and
highly effective means for handling issues as they arise. It has allowed us to
closely monitor investigative and diplomatic developments, track our progress, and
determine our next steps by group consensus And of course, It provides an ideal
mechanism for efficiently sharing relevant information across the U.S. Government.

In addition to our regular weekly meetings, the inter-agency group communicates
extensively and Intensively. We draft and clear papers and cables together, target
assets and Jurisdictions for investigation, help investigation teams obtain required
military training and deployed, share Intelligence, diplomatic, and investigatory
information, and otherwise conduct the business of the group In a detailed and
collegial way
Financial Component at DIAC Fusion Center

In addition to the Iraqi Asset Working Group, Treasury and the Defense Department
have established a finanCial intelligence and investigation component at the Fusion
Center at the Defense Intelligence Analysis Center at Bolling Air Force Base. The
financial component is staffed primarily by IRS-CI agents, and operates under the
auspices of the Iraq Survey Group. The Fusion Center receives intelligence
Information and investigative leads obtained in Iraq and other foreign Jurisdictions
relatlllg to Iraqi assets and Iraqi Insurgency financing.

This information is centralized, analyzed, and shared with all relevant intelligence
and law enforcement entilles. Leads are then sent back to the field, to trace and
recover Iraqi assets worldwide, as well as secure information concerning
insurgency financing. Where appropriate, we provide leads to foreign governments
for follow-up and freezing of hidden Iraqi assets.

This approach is designed to produce new leads on an ongoing, interagency basIs,
and helped us pierce the complex layers of transactions involved in the international
flow of Iraqi assets. The synergy between the Intelligence functions, the
Department of Defense, and the Treasury components has led to concrete results
In the field.

The international and IIlteragency Issues I have Just covered offer only a snapshot
of the important US government and international work that has taken place and IS
still underway to find and return Iraqi funds to the Iraqi people, and to identify
insurgency financing. When we turn to consider the sophistication of Saddam
Hussein's tactics to exploit OFF, we can more fully appreciate the difficulty of our
work and the significance of our accomplishments.

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OFF (OFF) Program - Treasury's Role

It bears mentioning what Treasury's role Ilas been with respect to the OFF
Program. As noted above, the United States and the international community
acting through the United Nations. established the OFF Program and permitted
companies to do business with Iraq under that progl'am and appropriate licensing
A recountlllg of Treasury's Involvement with the OFF Program may be helpful In the
context of this hearing.
Following the Il'aql Invasion of Kuwait on August 2.1990, the President. under the
International Emergency EconomiC Powers Act (IEEPA), declared a national
emergency and Issued Executive Order 12722, blocking all Iraq and Kuwait
government-controlled assets with III the US and imposing an immediate and
comprehensive trade embargo. On August 6, 1990, the UN Security Council
adopted UNSCR 661, which imposed sweeping economic sanctions against Iraq
and occupied Kuwait. On August 9. 1990, the PreSident Issued Executive Order
12724. under the authority of both IEEPA and the UN Participation Act. broadenlllg
the U.S sanctions so that they would fully conform to UNSCR 661 Executive
Orders 12722 and 12724 essentially prohibited the exportation and Importation of
goods. services. and technology; dealing in property of Iraqi origin; transactions
related to travel and transportation: performance of contracts; and the commitment
or transfer of funds or economic resources to Iraq. OFAC had primary
responsibility within the executive branch for Implementation of Executive Orders
12722 and 12724.
OFAC administered the sanctions program against Iraq through the Iraqi Sanctions
Regulations that Implemented Executive Orders 12722 and 12724. 31 CFR §
575.205 prohibited the exportation of any goods, technology or services from the
US. to Iraq, except for donated articles intended to relieve human suffering that
were authOrized by OFAC on a case-by-case basis. Under 31 CFR §§ 575.520 and
575.521. U.S. persons could apply to OFAC for authorization to export donated
food and donated supplies intended strictly for medical purposes to Iraq. This was
the sanctions landscape prior to the Institution of OFF.
As this Committee well knows. in April 1996, the UN Security Council adopted
Resolution 986 (OFF), which permitted the former Government of Iraq (the "GOI")
to sell and export from Iraq two billion dollars worth of petroleum and petroleum
products every six months and to purchase and Import humanitarian materials and
supplies to meet the essential needs of the civilian population in Iraq. All such
activities were to be under UN supervision. In December 1996, the first oil sold
under OFF was loaded at the Mina-al-8aker termlllalill Iraq Via Federal register
publication of December 11. OFAC amended its Iraqi sanctions regulations to
provide statements of licensing policy with respect to OFF. 31 CFR §575.522, for
the first time, authorized US. persons to enter into executory contracts with the GOI
for the purchase of Iraqi-origin petroleum and petroleum products. and to trade in
Oilfield parts and equipment and civilian goods including medicines. health supplies
and foodstuffs.
U.S persons were also authOrized to enter into executory contracts With third
parties outside OFAC's Jurisdiction that were Incidental to permissible executory
contracts with the GOI. U.S. persons, however. were not authOrized to engage in
transactions related to travel to. or within. Iraq for the purpose of negotiating and
Slgnlllg executory contracts To mitigate this handicap. OFAC issued a December
12.2003 clarification, which stated that US persons were authorized to enlist and
pay the expenses of non-U.S. nationals to travel to Iraq on their behalf for the
purpose of negotiatlllg and signing executory contracts.
US. persons who had entered into executory contracts With the GOI for the sale of
civilian goods and Oilfield parts and equipment were required to submit an
application to OFAC for a case-by-case review and approval prior to performance of
each contract. As part of the review process. each application was referred to the
Department of State for policy guidance as to whether performance of the contract
should be authorized, and for forwarding a copy of the contract to the UN 661
Committee for approval of payment upon delivery of the goods to Iraq. OFAC
made a final determination with respect to licensing the applicant to perform the
terms of that particular contract only after receiving from State a copy of the 661
Committee approval of payment and a separate memorandum from State
recommending that a license be issued to the applicant.

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Under this OFF regime, OFAC issued approximately 1050 licenses to US persons
for various aspects of the OFF program, primarily under three prOVisions of ttle
Regulations Sales to the GOI of Oilfield parts and equipment and humanitarian aid
wel'e subject to licensing under, respeclively, 31 CFR§§ 575.524 and 575.525
Thlee US companies were authorized lIllder § 575.524 to sell Oilfield parts and
equipment directly to the GOI, and 23 US companies were authorized under §
575.525 to make direct sales to the GOI of humanitarian ald. A total of 48 licenses
were Issued to these 26 US companies, authorizing performance of sales
contracts entered IIltO with the GOI In addition, nille licenses were Issuecl to U S
companies, authollzlllg the performance of contracts previously-approved by the
UN 661 Committee for the purchase of Iraqi-origin petroleum or petroleum products
directly from the GOI
Many more U.S persons were authOrized to engage III trade transactions With third
country entities that were contractors or subcontractors With the GOI Under 31
CFR 575523, OFAC Issued 13 licenses to seven US persons for activities that
faCilitated the purchase of Iraqi 011 by tlwd parties. The remaliling approximately
1000 licenses authorized transactions by US persons with third parties related to
sales to the GOI, or authOrized non-U.S. persons to engage in transactions
InvolVing US-Orlglll goods or components being supplied to tile GOI.
31 CFR § 575526 prOVided a general license authorizing U.S. persons to Import
Iraqi-origin petroleum and petroleum products Into tile US. if the goods in question
had been approved for purcilase and export from Iraq by the United Nations 661
Committee In a January 1997 memorandum from OFAC to the US. Customs
Service (Customs), OFAC recommended that Customs require US. importers to
proVide a copy of the 661 Committee approval for willch the petroleum or petroleum
products In question comprised all or a part of the origillal purchase In addition,
OFAC suggested that Customs might request from the importer a brief statement
descrlblllg the type and amount of the imported products and affirming that, to the
best of tile Importer's knowledge and belief, tile imported petroleum or petroleum
products comprised all or a portion of the purchase covered In the accompanying
UN document In a memorandum to OFAC dated March 6, 1997, Customs
confirmed that It had Issued Instructions to Customs field offices pursuant to tile
gUidance contaliled In OFAC's memorandum.

Terrorist Financing Connections
ThiS Subcommittee has asked Important and pointed questions about the extent to
which monies pilfered by the Iraqi regime from OFF are being used to fund the Iraqi
Insurgency or terrorist groups Although I cannot discuss ongoing investigations, It
IS certainly possible that former Iraqi regime elements, Within and outSide of Iraq,
are uSing available assets to fund insurgency or terrorist aclivity. While we do not
know the extent to which the former Iraqi regime derived such funds from OFF, we
do know that Sad dam Husselll and hiS regime cronies used a variety of illiCit
schemes, Includlllg OFF surcharges and kickbacks, as well as the proceeds of illiCit
011 smuggllllg, to profit the regime It is likely that some of these funds ended up III
the coffers that are now available to fuel the Iraqi insurgency and terrorism inSide
and outSide of Iraq. It is thiS possibility that continues to motivate and drive our
analytiC, Investigatory, and diplomatic efforts to unearth and freeze these assets

Insurgency Finance Task Force in Iraq

Following the return of sovereignty to Iraq, insurgency financing has become of
paramount concern to the Treasury Department, and we are aggressively .
addresslllg It with our interagency and International partners. In addition to fieldlllg
our own forensic investigation teams dedicated to IdentifYlllg, traclllg, and
recovering Iraqi assets located outSide Iraq, as soon as It was formed, we sent an
IRS-CI Investigatory agent to participate wltil tile FBI and others In the Defense
JOlllt Interagency Task Force on the Iraqi Insurgency, operated by CJTF-7, the
Coalition Command AuthOrity In Iraq
The financial component of thiS Task Force ilas been tasked to Identify and recover
funds that could be used to fuel the Iraqi Insurgency and attack our troops, our
Coalition partners, Iraqi officials and police, and Innocent Iraqi CIVilians. More
recently, we have deployed teams of IRS-CI agents to the Insurgency Task Force
Sillce the June 2004 transfer of sovereignty to Iraq, all IRS Agents are working With
CJTF-7, and we will continue to rotate in teams of IRS agents to tile Insurgency

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Task Force The recently-appointed IRS Attacile is likeWise heavily engaged In
these efforts.
The participation of IRS forensic Investigators on the Insurgency Task Force
provides a valuable opportunity to coordinate our ongoing asset hunt - espeCially
for hidden assets held by or on behalf of Former Regime Elements - with the
overlapping insurgency finance Investigation FlIldlllg and recovering Iraqi assets,
both InSide and outside Iraq, IS instrumental In keeping thiS money from belllg used
for nefariOUS purposes, whether by II'aql Insurgents, terrorists, or other criminals.

Working with the Iraqi Interim Government to Focus on Asset Recovery
Sillce the June 28 handover of authority to the Iraqis, we have been working
intensively with the IIG to continue tile search for Iraqi assets and to aggressively
attack the fillancial underpinnings of the Insurgency and of terrorists that are
attacking US ciVilians and military personnel III Iraq. We have already shared
extensive IIlformatlon culled from our own Iraqi asset "trace and chase" effort, to
help tile IIG take over primary responsibility for recovering frozen assets and
addresslllg outstanding claims against those assets. We have met with senior Iraqi
officials - help them coordinate thell asset recovery efforts and to concentrate their
attention on high-value engagements. In this regard, we have Invited the IIG to
send a delegation of fillancial experts to the US to receive advanced forensic
Investigation training, with the aim of supporting the lIG's efforts to trace and
recover additional assets both InSide and outSide Iraq. Our IRS-CI investigators on
the ground In Iraq are working In tandem with Iraqi law enforcement colleagues to
target insurgency finanCiers and Identify and secure assets that are fundlllg the
Insurgency

We are also focused on setting Iraq on the right path to deal With the issues of
finanCial Integrity and oversight. Our experience around the world on issues related
to money laundering and terrollst fillancing teaches us that Iraq must develop the
strongest pOSSible financial infrastructure - both formal and Informal - as qUickly as
possible We know that this requires robust anti-money laundering and anti-terrorist
fillancing laws and regulations. All components of the Treasury Department are
working With the Departments of Justice and State, the Federal Reserve, the CPA
and Iraqi Governing CounCil and Ministries to put in place mechanisms to protect
the Iraqi financial system, including charities, money exchangers and hawaladars,
bulk cash couriers, money remitters, and the banking industry itself, from abuse by
finanCial crlmillais and terrorists. We are also working with the IIG to promote
transparency and to combat government corruption. so that the kinds of
debaucheries that undermined the OFF program will be less likely to occur

ThiS entire endeavor has taugllt us some Important lessons and IS sending a clear
message around the world. First, these efforts provide a model for U.S
Interagency cooperation The use of all of the expertise and tools available to the
US. government IS critical when dealing With complicated matters such as this.
Second, we have set a template for launching aggressive international efforts to
respond to requests by other countries, or by the international community as a
whole, to filld and repatriate assets stolen by foreign offiCials and placed in the
International financial system.
ThiS effort, In combination with other steps we have taken In thiS arena, such as the
conclUSion of the negotiations of the UN Anti-Corruption Convention, will strengthen
International mechanisms to locate, seize and return assets stolen by kleptocrats.
In addition, Treasury has issued a regulation Implementing Section 312 of the USA
PATRIOT Act, which reqUiles US fillancial IIlstltutions to guard agalilst accepting
the proceeds of foreign corruption from kleptocrats, their families, and other
assOCiated "politically exposed persons" In the fllst place.
We are not alone in pursulllg thiS type of regulatory requirement. In SWitzerland, for
example, recent amendments to SWISS anti-money laundering laws and regulations
are deSigned to enhance protections against accepting the proceeds of foreign
corruption from politically exposed persons. Additionally, the Financial Action Task
Force (FATF). as well as groups of private financial Institutions, has addressed the
need for fillancial institutions to guard agalilst accepting funds looted by other
countries' political figures

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The Department of the Treasury is In the process of uSing tlwse important
International steps and the model of tlw Iraqi ilsset hunt to broaden efforts to
recover funds looted by other despots - as in the case of Charles Taylor. The
lessolls we have learned, and will continue to learn as the hunt proceeds, are
valuable. And we are eager to continue to put them to good use.

All of this sends a clear message to tile tyrants of the world. We will find your
money and will return It to the people from WtlOfll you've stolen It
Conclusion

Every day, we are learning more about the maze of Hussein's money trails, and
every day, we take concerted effOl'ts to get other countl'ies to Identify Iraqi assets,
transfer the funds that they have already frozen, and keep funds out of the hands of
Ule Insurgency or terrorists. Theillvestigation, especially as it turns increasingly to
the hidden, unofficial assets, IS a tlille-consumlng, laborious, and potentially
dangerous task. This IS a process that, by ItS very nature, will take time. We owe a
debt of gratitude to the Civilians - especially the IRS-CI agents In Baghdad - and
our troops on the groulld in Baghdad who are engaged In these worthy and
Important efforts. We appreciate the support of Congress III these efforts and look
forward to working with you.

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f'RLSS HO(H.1

FROM THE OFFICE OF PUBLIC AFFAIRS
November 15, 2004
2004-11-15-15-30-13-18946

U.S. International Reserve Position
The Treasury Department today released US reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $85,088 million as of the end of that week, compared to $85,029 million as of the end of the prior week.

I. Official U.S. Reserve Assets (m US millions)

November 5, 2004

November 12, 2004

85,029

85.088

TOTAL
1. Foreign Currency Reserves

a. Securities

Euro

Yen

TOTAL

Euro

Yen

TOTAL

11,739

14,972

26,711

11,797

14,906

26,703

Of which. Issuer headquartered in the US

b. Total deposits with
b.i. Other central banks and BIS

11,562

,4,571

3,009

1,598

2,996

14,564

b.li. Banks headquartered in the US.

b.ii. Of which, banks located abroad

b.ill. Banks headquartered outside the US

b.iii. Of which, banks located in the US

19,609

19,636

13,095

13,112

11,043

2. IMF Reserve Position ~

3. Special Drawing Rights (SDRs)
4. Gold Stock

5. Other Reserve Assets

II. Predetermined Short-Term Drains on Foreign Currency Assets
November 12, 2004

November 5, 2004
Euro
1. Foreign currency loans and securities

Yen

TOTAL

Euro

Yen

TOTAL

2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the US dollar
2.a. Short positions
2.b Long posillons
3 Other

o
o
o

III. Contingent Short-Term Net Drains on Foreign Currency Assets
November 5, 2004
Euro
1 Contingent liabilities In foreign cUrI'ellcy

Yen

November 12, 2004

TOTAL

Euro

Yen

TOTAL

o
o

1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
3. Undrawn, unconditional credit lilles

3.a. Wilh other central banks
3.b. With banks and other financial InstitutIOns
Headquartered in the US

3.c. With banks and other final1C1alllJstltutlOns
Headquartered outSide the US

4. Aggregate short and long positions of options In
foreign
Currencies vis-a-VIs the US dollar
4.a. Short positions

4.a.1. Bought puts
4.a.2. Wrrtten calls
4.b. Long positions

4.b.1. Bought calls
4.b.2. Wrrtten puts

Notes:

11 Includes holdings of the Treasury's Exchange Stabilization FUlld (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Forelgll 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 fill a I
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, IIlcluding revaluation, by the U.S Treasury to IMF data for the prior month end.

31 Gold stock is valued monthly at $42.2222 per fille troy ounce.

Full text of Press Releases of the United States Department of the Treasury : Volume 419

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