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~9nt of the Treasury
Ubmry
JUL 2 C 2001
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Treas.
HJ
10
.A13
P4
v.436
Department of the Treasury
PRESS RELEASES
Page I of 3
December 4, 2006
HP-185
Remarks of Anna Escobedo Cabral
U.S. Treasurer
U.S, Department of the Treasury
Before the Southwest Regional Conference on Reaching Unbanked People at
the Border and Immigrant Communities
Edinburg, TX - Thank you, Dan, for that kind Intmductlon It's a pleasure to be here
In Edinbul'g, Texas I want to thank the University of Texas - Pan American for
pmvldlllg a wondeliul venue for this conference.
And of course, thanks so much to all of you for taking the time out of your
schedules to Join us to talk about a tOpIC that is critical to enhancing quality of life in
our communities. And that IS, how do we reach out to and improve financial service
options for communities that have been traditionally underserved? In essence, how
do we Improve finarlCldl education at a variety of levels, and in particular for those
who do not have an established relationship with a traditional financial Institution,
like a ballk or a credit union? As you know, thiS is what we all commonly refer to dS
"banklllg the unbanked.
Well, a key way to do this is by convening like this and forging - or in some
Instances solidifying - local partnerships. These partnerships are the only way we
can be successful III reaching out to people and helplllg them obtain the knowledge
and skills they need to save money, buy a home. plan for retirement and to take a
number of actions that will help create a better life.
ThiS conference presents an Ideal opportunity to tackle the reality that an estimated
10 million Indlvidudls in the United States do not maintain traditional bank
transaction, credit, savings or IIlvestment accounts. In fact. some experts In the
area of finanCial education research suggest that perhaps that number may be even
higher, I assume most of us In thiS mom agree that there IS a real urgency here to
address thiS problem, And that IS why I'm particularly pleased that we've brought
thiS conference to Texas today, Of course, I'm a native of California.
But the reason I thlilk It'S important that we're here In Texas IS because border
communities face particular challenges when it comes to helping their citizens take
advantage of the wonderful opportunities our strong economy has to offer,
For example. we know border communities generally have lower Incomes and
unemployment levels than OUI' nation as a whole. In fact. an estimated 23
percent of families living in rural U.S.-MeXICO border communities are unbanked.
~llgher
Tliat number IS more than tWice the national average And It represents a large
number of people who dOll't have the tools they need to stay ahead when It comes
to managlllg their personal finances,
All of you here know the pitfalls to not havlllg a relationship with a financial
institution. And while some may belong to a bank, we stili face the challenge of
helping them understand the multitude of services and resources available
The fact IS It costs more to be poor I can tell you I know that from personal
expenence - from gmwlng up In a family of very humble means. Whell you're In
that type of Situation, you really don't always know all of your options and
sometimes don't have a true sense of how to take that first step to excrGlse those
ttp:llwww.treas.gov/press/releases/hpI8S.htm
1/3/2007
Page 2 of 3
options. That IS why I am also so personally concerned that left and rigllt
individuals who operate outside the fincmcialmainstream face less secure, less
convenient, and more expensive methods of carrylllg out their everyday
transactions.
For example, 10w-incOine Imilligrants In thiS areCl may rely on wire transfer
companies and cUIl-ency exchanges to send money to their families In addition,
steps like secunng a loan and navigating the system overall can be very difficult
and very costly to low-income II1dlvicjuals.
All of these factors combined make it extremely difficult for those who al'e unbanked
to save and accumulate wealth. As a result. tlley end up stuck irl a standstill, unable
to move out of their situation and Into a world of more opportunities. ThiS IS really at
the heart of what we're trying to do by working together - create more opportunities
for people to save, Invest and grow their wealth Because if we can promote
economic development for families and individuals. we can essentially raise the
standard of liVing for the entire community.
Without question, reaching tllese communities to overcome these challenges IS no
Simple task. In fact. much work lies ahead for us. But I think thiS Issue IS a cntlcal
one, and one that we can and we must confront. Because what we're really talkrng
about wilen we talk about reaching the unbanked is creating opportunities. We're
talking about improving quality of life and enabling people to participate In our
mainstream economy. That, after all, IS what the American Dream is all about. At
the end of the day, we all strive to create a better life for ourselves and our children
so that generations that follow Will have even more opportunities.
So we really need to ask ourselves how can we do more to help these
communities, these families, and these Individuals open tile door to opportunities
and better choices? How can we work tOljether better to reaell tile people who
need thiS Information the most?
That, qUite frankly, IS what thiS conference is about, and it's why I'm so grateful IIlat
all of you are here. Fortunately, we know at least part of the answer rests in
pursuing those important partnership opportunities and expanding on eXisting
ones. Again, it's about bringing together organizations with the resources and
organizations with the distnbutions channels. It's also about draWing on personal
experiences and success stones to IIlspire people Into action.
The good news IS that we are IIldeed well on our way See when Congress
established the FinanCial Literacy and Education Commission under tile FACT Act
of 2003, 20 different federal agencies came together to collaborate on thiS very
Issue and to determine what more needs to be done to improve financial
education.
But we understand that the federal government can only do so much alone. We rely
on the close partnerships we build with the pnvate sector, With our state and local
partners, and with community-based organizations to help us accomplish our goals
We value your advice, we welcome your inSights, and we appreciate the expertise
that each of you brings to the table. It's only by working together and listening to
each other lIlat we can achieve positive results.
We've already seen some good progress In thiS area that has been the result of
working together. For example, Credit Unions have done a great Job In pal1nenng
with Federal agenCies to tailor resources to serve underserved areas In addition,
programs like the Department of Health and Human Services' Assets for
Independence Program, which provides grants to support more than 300 Individual
Development Accounts. These are savings accounts that offer matching funds to
enable low Income individuals and families to save enough to acquire buy a home,
Invest in a college education, or start a bUSiness. This IS a wonderful program that
helps low-income indiViduals take that first step.
But the success of this program IS largely a result of community-based
organizations or state and local governments partrlerrrlQ With prrvate banks or- credit
ttp:/lwww.treas.gov/press/releases/hpI85.htm
1/3/2007
Page 3 of3
unions. These are the types of partnerships that we aim to foster through this
conference.
Throughout the day you will hear from a variety of experts, and you'll have the
opportunity to share ideas and best practices. It is our hope that together we can
identify new and creative approaches based on these discussions that will have
positive implications on policy. I want to challenge you to think creatively on how
you can develop innovative partnerships that can help open doors for individuals
and enhance quality of life in our communities.
In addition, all of you here serve on the frontlines in your communities when it
comes to delivering this message. You know how best to meet the needs of your
communities. That's why we also hope this conference will provide a springboard to
specific partnerships between some of you so that you can take what we discuss
here and apply these ideas to your communities. That's how real change is
affected. First and foremost, it begins here with all of you.
Again, I thank you for coming here today. This is an issue that I know is truly
important to me and to Dan and his office at the Treasury Department as well as
the Treasury as a whole. It's a true pleasure to be here with my colleague, JoAnn
Johnson who will also share some insights with you.
I know you'll find the rest of today productive and valuable, and I look forward to our
continued work together.
Now, I'll turn this back to Dan. Thank you
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113/2007
Page I of2
December 4 2006
HP-186
Fifth Round of New Markets Tax Credit Competition Opens
For $3.9 Billion in Investment
Washington, DC- The US. Department of the Treasury announced today the
openlllg of the fifth round of competition for tax credits on S3 9 billion In IIlvestments
under the New Markets Tax Credit (NMTC) Program The NMTC Program attracts
private-sector capital Investment Into the nation's urban and rural low-mcome areas
to help finance community development proJects, stimulate economic growth and
create jobs.
Under this round of the NMTC Program S3 5 billion In allocations authority IS
available under the general round and an additional $400 million specifically for
recovery and redevelopment In the HUrricane Katrina Gulf Opportunity Zone.
The NMTC Program. established by Congress in December of 2000, permits
Individual and corporate taxpayers to receive a credit against federal Income taxes
for making qualified equity IIlvestments in investment vehicles known as
Community Development Entities (CDEs) The credit provided to the investor totals
39 percent of the cost of the Investment and is claimed over a seven-year period.
Substantially all of the taxpayer's Investment must in turn be used by the CDE to
make qualified investments In lOW-Income communities. Successful applicants are
selected only after a competitive application and rigorous review process that IS
admlilistered by Treasury's Commllility Development Financial Institutions (CDFI)
Fund
"I continue to be very Impressed With the performance of the organizations awarded
to date uSing the NMTC Program", said CDFI Fund Director Arthur A Garcia. "Not
just by the pace With which they are raising capital, but also because they are gOing
beyond the requirements of the program by making Investments In the most
distressed of low-illcome communities and dOing so With better market rates and
terms'" To date, 149 of the allocatees from the first three rounds have already
raised $5.1 billion in equity from Investors - credits on S8 billion of expected
Investments was awarded over these three rounds. Through the first four rounds of
the NMTC Program, the CDFI Fund Ilas made 233 awards totaling $121 billion In
tax credit allocation authority.
GUidance and application materials on the fifth round of the NMTC Program are
available on the CDFI Fund's webSite at wwwcdfifund.qov. The alloca\lol1
application deadline IS February 28,2007.
The CDFI Fund Will be conducting several Application Workshops on the NMTC
Program around the country In December. The purpose of these workshops IS to
describe how the NMTC Program works, including how to apply for certification as a
CDE and how to apply fOI an allocation of NMTCs In the upcommg round. To learn
more about this training or to register, please VISit the CDFI Fund's webSite at
www.cdfifund.gov.
p://www.treas.gov/press/releases/hp186.htm
\/3/2007
Page 1 01"2
December 4, 2006
2006-12-4-14-25-21-4517
U.S. International Reserve Position
The Treasury Department today released U S reserve assets data for the latest week. As Indicated III this table, U.S reserve assets
totaled $67,154 million as of tile end of that week. compared to $66,512 million as of tile end of the pnor week.
I. Officia U.S. Reserve Assets (in US millions)
I
November 24, 2006
December 1, 2006
66,512
67,154
TOTAL
11 Foreign Currency Reserves
Euro
1
II
12,394
I a Securities
I Of which, Issuer headquartered in the US
II
Yen
10,960
II
II
TOTAL
Euro
23,354
12,635
0
I
II
II
II
Yen
11,020
II
II
II
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TOTAL
23,655
0
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b. Total deposits With
Ib
I.
Other central banks and BIS
II
12,311
I
5,340
17,651
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12,540
I
5,368
17,908
0
0
b.11 Of WhiCh, banks located abroad
0
0
b.ili. Banks headquartered outside the US
0
0
1/)/1 Banks headquartered in the US
Ibiii Of which, banks located In the U.S.
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II
II
5,661
3 Special Drawlllg Rights (SDRs) 2
1
II
8,806
14 Gold Stock 3
II
11,041
0
II
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0
0
12 IMF Reserve Position 2
15 Olller Reserve Assets
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II
5,693
8,857
1/
1/
II
1/
II
II
11,041
0
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II. Predetermined Short-Term Drains on Foreign Currency Assets
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!
November 24, 2006
Yen
Euro
December 1, 2006
II
TOTAL
Euro
II
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I
0
II
I
II
Aggregate
short
and
long
positions
in
forwards
and
futures
In
foreign
currencies
Vis-a-VIS
the U.S dollar
2
1 Foreign currency loans and securities
2.a. Short pOSitions
0
12.b Long posdions
0
13 Other
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0
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0
II
I
II
II
I
I
TOTAL
Yen
II
II
II
0
I
0
I
0
I
III. Contingent Short-Term Net Drains on Foreign Currency Assets
November 24, 2006
I
Euro
I
I
ttp:/lwww.treas.gov/press/releases/20061241425214517.htm
Yen
II
I
TOTAL
December 1, 2006
II
II
II
Euro
II
II
Yen
II
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TOTAL
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1/3/2007
Page 2 of2
0
1. Contingent liabilities in foreign currency
0
1.a. Collateral guarantees on debt due within 1
year
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1.b. Other contingent liabilities
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2. Foreign currency securities with embedded
options
0
3. Undrawn, unconditional credit lines
0
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~ With other central banks
3.b. With banks and other financial institutions
11~~tred
in Ihe US.
banks and other financial institutions
0
0
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adquartered outside the U. S.
4. Aggregate short and long positions of options
in foreign
II Currencies vis-a-vis the U.S. dollar
0
0
4.a. Short positions
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
I
4.b.2. Written puts
I
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
21 The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official 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.
tp://www.treas.gov/press/relcases/20061241425214517.htm
11312007
Page 1 of I
10 view or pnnt ene /-'Ur content on tnlS page, Clown/oaCi ene free AClobe® Acrobae® HeaClet1aJ,
December 4, 2006
HP-187
OFAC and New York State Banking
Department to Exchange Information on Bank
Compliance
The US Department of the Treasury's Office of Foreign Assets Control (OFAC)
and the New York State Banking Department today announced the signing of a
Memorandum of Understanding (MOU) that outlines procedures for the exchange
of sanctions compliance and enforcement information between the two agencies.
The MOU is the first such agreement patterned on a template developed by OFAC
and the Conference of State Bank SupervIsors (CSBS). The procedures specified
in the MOU will facilitate the sharing of information on sanctions violations and other
deficiencies, whether those defiCiencies are found by OFAC or during examinations
conducted by state banking regulators.
"The signing of thiS MOU will enhance cooperation between our agencies as we
work togetller to safeguard the financial system from illiCit conduct and assure that
it IS not used to finance terrorism, narcotics trafficking, or to otherwise circumvent
U.S. sanctions," said OFAC Director Adam Szubill. "I look forward to building on the
important step we have taken with New York by executing similar agreements with
other states and territories'"
"The information-sharing procedures agreed upon in this MOU will enable more
efficient detection and prevention of crimes conducted through our finanCial
system," said Superintendent Diana Taylor. "It will enhance our work with OFAC to
ensure the safety and soundness of financial Institutions in New York State and
throughout the world."
In mid-October, CSBS President and CEO Neil Milner strongly urged all state
banking departments to adopt the model MOU. "Our goal is to obtain signatures
from all 50 states to cement this relationship with OFAC," he said.
OFAC IS the U.S. Government's primary administrator and enforcer of economic
and trade sanctions based on U.S foreign policy and national security goals
against terrorists, weapons proliferators. narco-traffickers. and rogue reoimes
The New York State Banking Department IS the regulator for all state-chartered
banking Institutions. virtually all of the United States offices of international banking
institutions. all of the State's mortgage brokers. mortgage bankers. check cashers.
Illoney transmitters and budget planners. The aggregate assets of the depository
institutions supervised by the Banking Depal1ment are Illore than $1.5 tl-illion
NYSBD press releases and other information are available at
www.banking.state.ny.us.
The MOU document is available on OFAC's Web site at
http://www.treas.gov/offices/enforcement/of<lc/civpen/OFACNYMOU.pdf, and on
the New York State Banking Department's Web site at
http://www.banking.state.ny.us/pr061204.pdf.
ttp:llwww.treas.gov/press/releases/hpI87.htm
113/2007
Page I of I
December 5. 2006
HP-188
Opening Statement of Anthony Ryan,
Nominee, Assistant Secretary for Financial Markets
Before the Senate Finance Committee
Chairman Grassley. Ranking Member Baucus, and members of the Finance
Committee. thank you for inviting me to appear before you today. I am honored
that President Bush has nomillated me to serve as the ASSistant Secretary of the
Treasury for Financial Markets, and I am especially grateful for Secretary Paulson's
trust and confidence I am also Indebted to my family - from my parents who
Instilled in me strong values, to my wife Ann. and to our four children who have all
supported my deCISion to serve.
If confirmed, I look forward to working with Secretary Paulson, Under Secretary
Steel and the rest of the Treasury team, along with others in the Administration and
Congress, on the myriad of issues impacting our financial markets.
Our financial markets playa seminal role In helping our economy achieve
sustainable growth We possess the largest, most liquid and most efficient financial
markets In the world. We must build on this foundation and continue to ensure our
financial markets not only remain strong. but gain in strength. If confirmed, I would
very mlJch look forward to contl'ibutlng to that effort.
US Treasury obligations are respected around the world as they reflect the safety
and soundness of our markets, as well as the quality of our economy. As stewards,
I believe we have an obligation to our citizens to manage the government's fiscal
matters most effectively. The collective results Impact every American - directly
and indirectly. If confirmed. I would work to fulfill that obligation by implementing
sound policy, addressing the strategic issues and responsibly managing the speCifiC
functions Within the office.
Over the past 20 years, I have had the opportunity to directly participate In the
financial markets, either Investing or adVISing many Institutional pension clients,
endowments. and mutual fund boards. HaVing managed multi-asset class
portfolios, traded in capital markets around the world, and worked With many global
Investors, I have developed a broad perspective and appreciation for the US
financial markets. the Institutions which regulate them and the aggregate role they
play in facilitating our economic growth and savings.
Successfully managing our financial matters requires a collaborative effort For that
to occur, we must recognize the crrticallmportance of communication. If confirmed,
I would seek to ensure a constructive dialogue With members of thiS Committee and
your staffs. as well as others - Including those In the global marketplace The
Treasury Department, under the leadership of Secretary Paulson, IS very committed
to fulfilling its miSSion, and If confirmed, I would welcome the opportunity to
contribute to the Treasury Department's longstanding tradition of excellence
I appreciate the time that members of this Committee have taken to consider my
nomination, and I would be happy to answer any questions.
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Page 1 of 1
December 5, 2006
HP-189
Opening Statement of Phillip L. Swagel,
Nominee, Assistant Secretary for Economic Policy
Before the Senate Finance Committee
Chairmarl Grassley, Ranking Member Baucus, and Members of the Committee.
thank you for the opportunity to appear before you today. I am honored to be
President Bush's nominee to be Assistant Secretary of the Treasury for Economic
Policy, and I thank the President and Secretary Paulson for their confidence in me.
I am especially grateful to my family for both their encouragement and their
forbearance In permitting me to seek to return to government service. I would also
like to thank my mother, Deallna Epstein, for a lifetime of support. and my
stepfather, DaVid Epstein, for hiS continued encouragement--and for hiS courage 25
years ago in marrying into a family With three teenage boys. I can only hope and
believe that my late father, Michael Swagel, would have been pleased and proud at
thiS day.
In my profeSSional career, I have had the good fortune to work with talented
colleagues and to learn from supportive mentors at the Federal Reserve, the
International Monetary Fund, and the Council of Economic Advisers. If confirmed, I
will be fortunate to work with the dedicated Treasury professionals led by Secretary
Paulson and Will contribute my profeSSional experience to the Administration's
efforts to tackle the economic cllallenges facing tillS country.
Much of my economic research has focused on the Impact of international
Influences and technological and demographic change on the US ecollomy I am
mindful of the effects that these changes can bring about and the economic
challenges faCing Amencans. If confirmed as ASSistant Secretary for Economic
Policy, I will be especially aware of the importance of ensunng that the prosperity of
our nation benefits all Americans.
Thank you again Mr. Chairman for the privilege of appearing before thiS
Committee. If confirmed, I can assure you I Will work closely and enthUSiastically
With the Members of thiS distingUished committee. I would be pleased to respond
to your questions.
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Page 1 of3
December 6. 2006
HP-190
Treasury Targets Hizballah Fundraising
Network in the Triple Frontier of Argentina,
Brazil, and Paraguay
The US Department of the Treasury today designated nine individuals and two
enlities that have provided finanCial and logistical support to the Hizballah terronst
organization. The designees are located In the Tri-Border Area (TBA) of Argentina,
Brazil. and Paraguay and have provided financial and other services for SpeCially
Designated Global Terronst (SDGT) Assad Ahmad Barakat, who was previously
designated In June 2004 for rllS support to Hlzballah leadership.
"Assad Ahmad Barakat's network in the Tri-Border Area is a major financial artery
to Hlzballall In Lebanol'," said Adam Szubln, Director of the Office of Forelgll
Assets Control (OFAC). "Today's action aims to disrupt this channel and to further
unravel Barakat's financial network."
This designation was taken pursuant to Executive Order 13224, which is aimed at
shutting down the financial flows supporiing terrorism. Designations prohibit
transactions or dealings between U.S. persons and the named individuals and
entitles and also freeze any assets they may have under U S Jurisdiction
Identifying Information
Muhammad Yusif Abdallah
Muhammad Yuslf Abdallah IS a senior Hlzballah leader In the TBA and an important
contributor of funds to Hizballail, notably hosting a fundraiser for the terrorist group
in the TBA in 2004. Abdallah has personally carned money for Hizballah, serving as
a courier of Hizballah funds from the TBA to Lebanon. He has traveled to Lebanon
to maintain connections to the Hizballah hierarchy and has met With members of
Hizballah's security diVision. Likewise, Abdallah has also received money from
Hizballah to support the Hlzballah network III the TBA.
Abdallah IS an owner and manager of the Galena Page building in Cludad del Este.
Paraguay, a shopping center with several businesses owned by Hizballah
members. He reportedly pays a percentage of his Income to Hizballah based on
profits he receives from Galena Page. In addition to his Hizballah-related actiVities,
Abdallah has also been involved In the import of contraband electronics, passport
falsification, credit card fraud, and trafficking counterfeit US dollars.
Hamzi Ahmad Barakat
Hamzl Ahmad Barakat IS a member of Hlzballah in the TBA suspected of trafficking
In narcotiCS, counterfeit U S dollars, arlllS, and explOSives He has owned and held
the position of general manager of Casa Hamze. a store III the Galerla Page
shopping center that has employed Hizballah members and has served as a source
of funding for Hlzballah. Hanw Ahmad Barakat and SDGT Assad Ahmad Barakat
are brothers and have been partners at Casa Hamze.
Hatim Ahmad Barakat
Information passed from the Barakat network to Hizballah in Lebanon goes mainly
ttp:llwww.treas.gov/press/releases/hp190.htm
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Page 2 of 3
through two individuals: SDGT Assad Ahmad Barakat al1d his brother Hatim Ahmad
Barakat. Hatim Ahmad Barakat has traveled to Chile to collect fLinds Intenned for
Hizballah, al1d 3S of early 2003, he was reported to be a significant shareholder In
at least two businesses in Iquique, Chile believed to generate funds In support of
Hizballah Hatim Ahmad Barakat traveled frequently to Iquique, Chrle al1d IS
possibly managing or assisting a group of suspected Hlzballah members. Hatlm
Ahmad Barakat reportedly oversees the sending of funds frolll Iqulque to Hlzballah
in Lebanon
Hatlm Ahmad Barakat has maintained business relationships with senior Hizballah
leaders in the TBA and is deeply Involved in Assad Ahmad Barakat's business
affairs, having co-owned several companies with him. Hatlm Ahmad Barakat coowned SDGT Casa Apollo with brothers Assad and Hamzl Ahmad Barakat.
Muhammad Fayez Barakat
Muhammad Fayez Barakat IS responsible for the Barakat network's finances in the
TBA. ami in tllis capacity he arranges the transfer of money from the TBA to the
Middle East As recently as July 2006, Muhammad Fayez Barakat collected money
on behalf of Hizballah In the TBA, hosting fundralsers for Hizballah in the region
and sending mOrley to the terrorrst group in Lebanon. Muhammad Fayez Barakat
has also prOVided financial assistance to hiS cousin, SDGT Assad Ahmad Barakat.
Muhammad Tarabain Cham as
Muhammad Tarabaln Cham as IS a member of Hlzballah in the TBA. speCifically
Hizballah's counterintelligence element In the TBA and provides Hizballah with
security information on residents there. Muhammad Tarabain Chamas is the private
secretary for senior TBA Hizballah leader Muhammad Yusif Abdallah and the
principal administrator of the Galeria Page burlding in Ciudad del Este, Paraguay. In
addition to maintaining close contacts with TBA Hizballah members, Muhammad
Tarabain Chamas maintains daily contact With Hizballah members In Lebanon and
Iran and has transpor-ted funds from Hizballah members In the TBA to Hizballah 1r1
Lebanon
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Kazan helped raise more that $500,000 for Hizballah from Lebanese businessmen
in the TBA. Since 2001, he traveled frequently to Lebanon to receive guidance ann
instructions from Hizballah leaders, Including a message from Hizballah Secretary
General Hassan Nasrallah. All Muhammad Kazan also maintained close
commercial ties to SDGT Assad Ahillad Barakat
Farouk Omairi
Farouk Omalri is a princlpalll1elTlber of tile HiLiJaliah COIllmunlty in the TBA and
served as a coordinator for Hlzballah members In the region. Farouk Omalrl has
been a key figure in the procurement of false Brazilian and Paraguayan
documentation and tlas assisted indiViduals In the TBA with obtailling Brazilian
citizenship illegally through the submlssloll of false documentation. Farouk Omaln
was also Involved In narco-trafflcklng operations between South Amenca, Europe,
and the Middle East.
Casa Hamze
Casa Hamze IS an electronics company located at the Galeria Page shopping
center In Cludad del Este, Paraguay. The store IS owned by Hlzballah member
Hamzi Ahmad Barakat and has employed Hlzballah members In the TBA. Money
was reportedly sent from Casa Hamze to Hizballah.
Galeria Page
Galeria Page, a shopping center in Ciudad del Este, Paraguay, serves as a source
of fundraising for Hizballah in the TBA and is locally considered the central
headquarters for Hlzballah memlJers ill the TBA. Galeria Page is managed alld
owned by TBA Hizballah members, including members of the Barakat network.
Local Hizballah members operate busillesses Within Galerla Page and funds
generated from these businesses support Hizballah. Muhammad Yusif Abdallah, a
manager of Galena Page, paid a regular quota to Hlzballah based on pl'oflts he
received from Galeria Page. Shops in the bUilding have also been involved in illicit
activity, including the sale of counterfeit US dollars.
For more Information on the designation of Assad Ahmad Barakat, please viSit
http://www.treasury.gov/press/releases/js1720.htm .
ttp:llwww.treas.gov/press/releases/hp190.htm
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December 7,2006
HP-191
Treasury Designations Target Terrorist Facilitators
The US Depal1ment of the Treasury loe1ay designated five IndiViduals for providing
financial support to al Qaida and other terrorist organizations, as well as facilitating
terrorist activity. The Ifldlviduals were designated pursuant to Executive Order
13224 and added to the Treasury's list of Specially Designated Global Telrol'lsts
"These indiViduals support every stage of the terrorist life-cycle, from financing
terrorist groups and activity, to facilitating deadly attacks, and IrlClting others to JOin
campaigns of violence and hate. The Civilized world must stand united In isolating
these terrorists," said Stuart Levey, Treasury's Under Secretary for Terrorism and
Financiallnteliigence.
This designation freezes any assets the designees may have under US JUrisdiction
and prohibits all financial and commercial transactions by any U S. person with the
designees. In addition, In accordance with U.N Security Council Resolution 1624,
the US. Government condemns those who Incite others to acts of terrorism and
violence
Identifying Information
Najmuddin Faraj Ahmad
Name: Najmuddin Faraj Ahmad
AKAs Mullah Krekar
Fateh Najm Eddine Farraj
Faraj Ahmad Najmuddin
DOB 7 JULY 1956
AIL DOB 17 JUNE 1963
POB Olaqloo Sharbajer Village AI-SIJlaymanlyah Governorate, Iraq
Citizenship Iraq
Address Heimdalsgate 36-V, 0578 Oslo, Norway
Krekar Provides Support to Ansar al-Sunnah
Najmuddin Faraj Ahmad, a.k.a Mullah Krekar (Krekar), founded in December 2001
the Kurdish terrorist group Ansar ai-Islam (AI), flOW known as Ansar al-Sunnah
(AS), and served as AI's first leader.
As of spring 2005, a 1101l-governmefltal organization founded by Krekar sent mOlley
to terrorist organizations and actively recruited European citizens into terrorist
organizations. Branches of the NGO were. as of spring 2005, overtly and covertly
gathering money and recruiting personnel for AS Krekar has viSited Germany
several times and dUring these trips conducted fundralsing for AS and performed
logistical actiVities. Information shows that In January 2006, Krekar may have
routed funds through associates in Bulgaria and Iraq to support AS in Iraq
As of fall 2005, AS reportedly had established at least two sniper teams In Iraq: the
founder of these teams claimed to be Krekar's representative in Iraq Krekar also
traveled regularly from Norway to the Iraqi Kurdish area. During one of his longer
stays in northern Iraq, Krekar appears to Ilave recruited and trained combatants.
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Other Information
Apart from the instances of direct facilitation of terrorist gmups which form nle bClsis
for his designation, Krekar has exhorted others to Violence and suppllcd religious
Justifications for murder. In a 2004 111tervlew, Krekal' supported 110ly war In Iraq and
identified legitimate targets, stating "Not Just the officers, but also the Civilians who
help the Americans If anyone so much as fetches them a glass of water, he can be
killed ,Everyone is a target. If an aid organization gives the Amerrcans as muctl
as a glass of water, they Will become a larget."
Hamid AI-Ali
Name Hamid AI-All
AKAs Dr. Hamed Abdullah AI-All
Hamed AI- All
Hamed bin Abdallah AI-Ali
Hamid bin Abdallah Ahmed AI-Ali
Hamid' Abdallah Ahmad AI- All
Abu Salim
Hamid 'Abdallah AI- All
DOB 20 JANUARY 1960
Citizenstlip: Kuwait
Hamid AI-All IS a Kuwait-based terronst faCilitator who has prOVided financial
support for al Oaida-afflliated groups seeking to commit acts of terrorism In Kuwait,
Iraq, and elsewhere,
At-Ali Provides Support for al Qaida in traq
Evidence shows that AI-Ali's efforts include pmviding support for terrorist
organizations, including those in Il'aq Along with Jaber AI-Jalamah and Mubarak
Musllakhas Sanad AI-Bathali, also deSignated today, AI-Ali recruits Jihadists In
Kuwait for termrrst activity including for al Oalda In Iraq AI-Ali has prOVided financial
support fOl' recruits, including paying for their travel expenses to Iraq,
AI-Ali Provides Funds for al Qaida-Associated Terrorist Cells in Kuwait
AI-All was a religiOUS leader and finanCier for a Kuwait-based terrOrist cell that
plotted to attack US, and Kuwaiti targets In early 2005. The al Oaida-assoclated
terrorist cell appears to have been under his superviSion, AI-All reportedly visited
the group's terrorist camps in Kuwait, providrng funds supporting acts of terrorism,
In addition to financial support and recrUiting services, AI-All also prOVided
opportunities for potential rccrults to obtain explosives training in 2004, He also
used hiS webSite to prOVide tectlnlcal adVice for making explOSives, chemical, al1d
biological weapons.
Other Information
Separate from the financial and other services in support of terrorist groups for
which AI-Ali is being deSignated, he has Issued fatwas legitimizing SUICide
operations, One such fa twa sanctions "the permissiveness, and sometimes
necessity, of suicide operations, on the condition of crushing the enemy" or
causing moral defeat to the enemy, to obtain victory," According to this fatwa, "in
modern time(s) this can be accomplished through the modern means of bombing,
or by bringing down an airplane on an important site that causes the enemy great
casualties,"
Jaber AI-Jalamah
Name Jaber AI-Jalamah
AKAs: Jabir 'Abdallah Jabir Ahmad AI-Jalamah
Jabir Abdallah Jabir Ahmad Jalahmah
Jaber AI-Jalahma
Abu Muhammad AI-Jalahmah
Abu Muhammad
Jabir AI-Jalhaml
Abdul-Ghani
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DOB: 24 SEPTEMBER 1959
Nationality: Kuwaiti
Passport #: 101423404
Jaber AI-Jalamah is a Kuwait-based terrorist facilitator who has provided financial
and logistical support to the al Oaida network In Afghanistan, Iraq and Kuwait. AIJalamah has also provided recruits for these efforts.
AI-Jalamah Recruits and Provides Financial Support for al Qaida in Iraq
As of 2006, AI-Jalamah supports activities and operations against coalition forces in
Iraq. As early as 2004, AI-Jalamah was coordinating a recruitment effort to send
fighters and funds to al Oaida in Iraq He facilitated travel for men he recruited and
for men recrUited by Kuwaiti imams. AI-Jalamah sent three kinds of people into Iraq:
sUIcide bombers, anti-coalition fighters, and couriers who go to Iraq to provide funds
for anti-coalition fighters.
AI-Jalamah has sent a significant number of men to Join al Oaida in Iraq. These
operatives carried funds collected by AI-Jalamah for provision to the terrorist group.
Trusted associates were sometimes given thousands of dollars to transport from
Kuwa it into Iraq.
AI-Jalamah Provides Support for al Qaida Associates in Kuwait, Afghanistan
and Pakistan
As of 2004, AI-Jalamah was considered the leader of a group of terrorists in Kuwait,
some of whom he recruited for activity in Afghanistan. AI-Jalamah collected and
funneled money to al Qaida-assoclated individuals in Kuwait, providing thousands
of Kuwaiti dinars to al Qaida-associated operatives on a regular basis, including to
Muhsin al-Fadhli. AI-Fadhli is listed at the UN 1267 Sanctions Committee
Soon after September 11, 2001, AI-Jalamah sent supplies to Afghanistan for use by
trainees. In mid-2001, AI-Jalamah sent a Kuwaiti individual to Afghanistan where he
attended the al Qaida-associated al-Faruq training camp. AI-Jalamah gave the
Kuwaiti money to transfer to al Oaida. AI-Jalamah also sent recruits and supplies to
al Qaida camps In Afghanistan. In the late 1990s/early 2000s, AI-Jalamah also
visited the al-Faruq training camp, supplYing global-positioning systems, laptop
computers, and a video camera.
AI-Jalamah's role with al Oaida includes deallllg personally with Usama bin Laden.
AI-Jalamah went to Afghanistan three times in the late 1990s/early 2000s to provide
bin Laden large sums of money. During a 2001 meeting, bin Laden agreed to set up
a training camp especially for Kuwaitis in Afghanistan. This plan was reportedly
never put into action.
AI-Jalamah Provided Support for an Attack against Americans
AI-Jalamah was involved in the planning of the January 21,2003, al Oalda-linked
terrorist attack on two U.S. civilian contractors in Kuwait. He provided support and
assistance to one of the perpetrators.
Mubarak Mushakhas Sanad AI-Bathali
Name: Mubarak Mushakhas Sanad AI-Bathali
AKAs: Mubarak AI-Bathali
Mubarak Mishkhis Sanad AI-Bathali
Mubarak Mishkhas Sanad AI-Bathali
Mubarak Mishkhis Sanad AI-Badhali
Mubarak Mishkhas Sanad AI-Bazali
Mobarak Meshkhas Sanad AI-Bthaly
DOB: 1 OCTOBER 1961
Passport: 101856740 Kuwait
Citizenship: Kuwait
Mubarak Mushakhas Sanad AI-Bathali is a Kuwait-based terrorist facilitator. He also
serves as a fundraiser and recruiter for the al Oaida network. AI-Bathali has spoken
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at several mosques in Kuwait to raise funds for provision to al Qaida operatives. As
of 2006, AI-Bathali continues to facilitate travel for extremists planning to fight in
Iraq and Afghanistan.
AI Bathali Provides Support to the al Qaida Network
AI-Bathali has raised funds in Kuwait for terrorist organizations for years. In 2004,
AI-Bathali gathered several hundred Kuwaiti dinars each week for terrorist
organizations, including al Qaida, Ansar ai-Islam and Lashkar E-Tayyiba. In 2003
and 2004, AI-Bathali provided funds to al Qaida in Iraq through intermediaries. In
2002-2003, AI-Bathali contributed $20,000 to Ansar ai-Islam through contacts in
Syria. In 2001, AI-Bathali sent a courier to carry approximately $20,000 to an al
Qaida finance manager in Pakistan. Prior to this, in 1999, AI-Bathali met with
several top al Qaida members and gave them roughly $100,000.
Other Information
In 2002, AI-Bathali traveled to Saudi Arabia to meet with several radical leaders
who were involved with al Qaida to discuss jihad and arrange for the transfer of
funds to him.
In 2003, AI-Bathali reiterated hiS objectives of recruiting Muslim youth in the Arabian
Gulf, especially in Saudi Arabia and Kuwait, to support the fighters in Iraqi
Kurdistan. This support was to include collecting donations for Muslim fighters and
distributing CDs about Ansar ai-Islam.
In January 2003, AI-Bathali and AI-Jalamah met with an individual who was
involved In the shooting of two U.S. contractors outside of Camp Doha, Kuwait, and
discussed financing his militant training operations.
Mohamed Moumou
Name: Mohamed Moumou
AKAs: Mohamed Mumu
Abu Shrayda
Abu Amina
Abu 'Abdallah
Abou Abderrahman
DOB: 30 JULY 1965
All. DOB: 30 SEPTEMBER 1965
POB: Fez, Morocco
Citizenship: Morocco
Citizenship: Sweden
Passport: 9817619, Expires 14 DECEMBER 2009 (Sweden)
Address: Storvretsvagen 92, 7 TR. CIO Drioua, 142 31 Skogas, Sweden
Address: Jungfruns Gata 413, Postal Address Box: 3027, 13603 Hanlnge, Sweden
Address: London, England
Address: Dobelnsgatan 97, 7 TR CIO Lamrabet, 11352 Stockholm, Sweden
Address: Trodheimsgatan 6, 16432 Kista, Sweden
Mohamed Moumou's extremist activities date back to the mid-1990's, when he
traveled to Afghanistan to participate in the al Qaida-run Khalden terrorist training
camp, A Moroccan national with Swedish citizenship, Moumou was the uncontested
leader of an extremist group centered around the Brandbergen Mosque in
Stockholm, Sweden. Moumou's leadership derives from connections to senior al
Qaida leaders, some of whom he had met in Afghanistan and Pakistan in the late1990s. Moumou reportedly served, at some time in the past, as Abu Mus'ab alZarqawi's representative in Europe for issues related to chemical and biological
weapons. Moreover, Moumou reportedly maintains ties to al-Zarqawi's inner circle
in Iraq.
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December 11, 2006
HP-192
Prepared Remarks of Stuart Levey
Under Secretary for Terrorism and Financial Intelligence
Before the US-MENA Private Sector Dialogue on
Combating
Money Laundering and Terrorist Financing
New York, NEW YORK- Thank you for inviting me to speak today. It is a true
honor to be here with the financial leaders of the Middle East, North Africa, and
United States, both public and private sector alike, and I want to thank everyone for
making the triP to attend this important conference. I also want to thank the Union
of Arab Banks and the other sponsors of the US-Middle East & North Africa
(MENA) Private Sector Dialogue for their vision in creating this critical and unique
opportunity, as well as the Federal Reserve Bank of New York for its leadership in
hosting and helping to organize this important event.
As I stand here today, the world remains a dangerous place, and while terrorism
continues to present an ongoing and very real and deadly threat, we are also faced
with other threats to our collective international security - including those from state
sponsors of terrorism such as Iran and SYria, as well as the threats posed by
proliferators of weapons of mass destruction, kleptocrats, narcotics traffickers, and
other Illicit actors. While we have made important progress since September 2001,
we still have a long way to go to ensure that we utilize all the elements of our
national and institutional power against them.
That is why this conference and others like it are so important. The threats we face
share two characteristics that make them vulnerable to the collective efforts of the
people in this room (1) each of them depends on an underlying financial network
that we can exploit, (2) each of them operates without regard to international
political boundaries in part by using a financial system that itself is truly global and
knows no boundaries. While these criminal and terrorist networks are susceptible
to our collective efforts, we will not defeat them unless we truly do act collectively:
both by deepening the partnerships among our governments and by strengthening
partnerships between governments and private sector leaders like those assembled
here. As we kick off this critical conference, I would like to touch on some of the
advances we have made and also explain how I believe we can improve our
collective efforts.
Within governments around the world, one of the most important advances we have
made is the new role being played by officials with responsibility for the global
financial system. Counterterrorism and security policy has traditionally been the
responsibility of foreign ministries, defense officials, law enforcement bureaus and
intelligence agencies, rather than finance ministers and central bankers. Yet today,
we are seeing finance offiCials working side-by-side with officials in security
ministries to meet the government's first responsibility: ensuring the safety of Its
citizens. More and more, officials in finance ministries and central banks around
the world recognize that it is not enough to stimulate investment, promote open
markets, and so forth. For our economic efforts to succeed, for us all to reap the
benefits of the global financial system, we must keep It secure from those who
threaten its integrity.
This trend is certainly apparent here in the United States. As our· government took
stock of its tools to combat terrorism after 9/11, it became clear that the Treasury
Department had distinctive authorities and capabilities to apply against these
international security threats. The Treasury quickly assumed a new role in U.S.
national security policy as we began to apply these unique authorities in creative
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ways. One result was tile creation of the office I oversee, the Office of Terrorism
and Financial Irlteiligence.
The intelligence component of our efforts is particularly impoliallt. For the first time
in U.S. history - and likely the first time worldwide - we set up an Office of
Intelligence and AnalysIs wlllllll ttH2 Treasury Department to bring tile knowledge of
the Illtelilgence community to bear on the evolving threat of illiCit finance. HaVing
such a capability within Hle Treasury IS a tremendous Innovation because we al'e
able to focus ollr atterltl011 011 tile finanCial networks that underlie terrorist and other
threatening organizations These money trails don't lie, making finanCial
Intelligence uniquely reliable as it allows us to map out these Ilctworks, uncover
preViously unknown connections, and, ultimately, apply pressure to these
networks,
Our use of financial enforcement authorities together with other governments
around the world has had a demonstrable Impact - with respect to both systemic
vulnerabilities and against specifiC targets of key concern. As we have seen In the
terrorism context, they give us a concrete way in which to target directly those
illdivlduals and entities we know are bad actors We have established International
standards and controls through the Financial Action Task Force, developed FATFStyle Regional Bodies, and partnered With the International FinanCial Institutions
On several occaSions, the United Nations has called upon us in Secunty Council
Resolutions to apply financial measures against threats such as al Qalda, the
former regime of Saddam Hussein in Iraq, other rogue regimes like that of Charles
Taylor, and proliferators of weapOllS of mass destruction such as North Korea,
But we can do better. For example, finance ministries and central banks must
develop and implement effective programs to combat these threats, Including
targeted finanCial sanctions regimes, We must monitor the finanCial actiVities of
known terrorists and proliferators and proilibit their access - and that of their
support networks - to the financial system We must also go beyond simply
deslgnatrng rndlvlduals and entities that have been named by UN and proactively
identify terrorist supporters that threaten our societies, 110Id them publicly
accountable, isolate them financially and commercially, and ensure that all of their
actiVities, whether seemingly legitimate or illiCit, are shut down.
Over the past two years, we have learned a number of lessons about how best to
use finanCial tools to apply finanCial pressure and Isolate terrorists, prollferators,
and others whose goal It IS to undermine our security. As a result, we are relying
more and more on what we call "targeted" measures, aimed at specifiC actors
engaged In IlliCit conduct. And, as I Will deSCribe, we are working In greater
partnership With the private sector Rather than fighting against their interests and
tendenCies, we have found a way to form somewhat of a natural alliance.
These kinds of measures have several advantages over broad-based sanctions
programs. First. because they single out those responSible for supporting terronsm,
proliferation, and other criminal activities, rather than an entire country, they arc
more apt to be accepted by a Wider number of international actors and
governments, We do not face political hurdles when we try to pel'suade others to
act against particular IndiViduals and entities based on their conduct as we do when
we seek action against a whole nation or regime.
Second, the deterrent and Indirect effects of these types of measures are
sometimes Just as Significant as their direct result. Take terrorist financing as an
example The terrorist operative who is willing to strap on a suiCide belt IS not
susceptible to deterrence, but the individual donor who wants to support violent
jihad may well be, Terrorist financiers typically live in polite society With all that
entails property, occupation, family, and social position Being publicly idelltlfied as
a financier of terror and being cut off from the world's finanCial system threatens an
end to that "normal" life. I firmly believe that one of Hle positive, If immeasurable,
effects of our terrorist fillancing efforts is that many would-be donors have been
dissuaded from funding terrorism.
The most Important lesson we have learned IS that we have a Ilatural aillallce With
those of you In the private sector - an alliance that we need to strengthen through
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conferences like this one. Indeed, when it comes to targeted measures aillled at
specific actors and entities that seek to exploit the financial system, we share
common interests and objectives with the private financial community You want to
identify and avoid dangerous or risky custoillers who could harm your reputations
and business, and we want to rnform of you of those risks wrth a view to ensurrng
that they are effectrvely addressed As governments we have a responsrbrllty to
promote these partner'shrps Wltll tile private sector and provide you with the
information you need to help pmtect the fillallcial systelll fmm abuse Such a
partnership allows banks to Illake informed deCISions about the business they
choose to do and the business they choose to avoid
We are working hard to develop and enhance ways to share this type of Inforillation
with the private sector so that financial institutions and others are able to apply their
resources and controls effectively We are also working to better assist the sector
in reporting the Critical information required to advance our international security
interests. As I have traveled and met with banking officials around tile world, I have
seen more and Illore financial irlstiiutlons w3ntillg to playa central role ill fighting
illicit finance, from partnering with their respective governments to share
Information, or complYing With OFAC's various sanctions programs though under no
legal obligation to do so, or Illaklng conSCIOllS cJeclslons to cut off business With
known terrorists and rogue regimes.
Why do they do that? There are two reasons The primary reason is that,
regardless of the underlying law in any particular country, most bankers truly want
to aVOid faCilitating proliferation, terrorism, or crime. These are responsible
corporate citizens and they frankly Just don't want to be part of any bad conduct
Second, avoiding these risks IS simply good bUSiness. Banks need to manage risk
in order to preserve their corporate reputations. Keeping a few customers that have
been identified as terrorists or proliferators is not worth the risk of facing public
scrutiny or a regulatory action that may impact on their ability to do business With
the United States or the responsible Internalional financial community More and
more, I believe that private financial institutions are realiZing that these efforts while they do impose some costs - are ultimately good for bUSiness. Banks that
meet and exceed International standards for anti-money laundering practices, are
known to reject illicit business, and firlllly root these issues of integrity in their
corporate cultures are increasingly attractive partners for international investors and
for clients exposed to multiple legal Jurisdictions.
All of these conSiderations are especially strong for those operating in the Middle
East and North Africa. You are at a cross-roads, and the bUSiness and policy
decisions made by government legulators and financial institutions in the region will
playa critical role in protecting the world's financial system from abuse. There has
already been significant progress in the region, as several countries have made
strides in developing and implementing anti-money laundering and terrorist
financing regimes. The creation of the MENA-FATF and the commitment of its
members to work towards compliance with the comprehensive set of international
standards is another important achievement. The work of that organization will
translate into stronger controls, greater transparency in the financial system, and, in
turn, a more attractive venue for business.
We need to build on these successes by ensuring that all MENA countries adopt
comprehenSive money laundering and terrorist financing legislation and regulation,
as well as the infrastructure and expertise to maintain and grow such systems. And
we need your leadership to Increase the vigilance of the private sector on all of
these issues.
Sadly, we still face grave threats from all corners of the globe, and each day I worry
about those who are intent on committing Violent terrorist acts or otherwise
threatening our way of life, Both governments and the private sector alike must do
everything in our power to combat these threats to our national and economic
security. Bankers and governments are natural allies in this effort. We all live and
work In an environment that knows no borders. It IS truly a global finanCial system
and we all have a responSibility to protect it. I look forward to working With you In
that partnership. both at this conference and in the future.
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Remarks of Treasury Secretary Henry M. Paulson
Before the Office of Thrift Supervision National Housing
Forum
Washington, DC ·Good morning. Thanks, John, for your introduction, and thanks to
you and your team for hosting today's forum. One of the things which I qUickly
learned after coming to Washington is that we really have a first-rate team in the
Department - throughout all our bureaus. And it is gratifying for me to see some of
the outstanding work being accomplished by the Treasury Department.
I have with me today two members of our Domestic Finance team. Some of you
may know them already. Bob Steel is the Undersecretary for Domestic Finance and
Emil Henry is Assistant Secretary for Financial Institutions. Bob and Emil have a
wealth of experience in the world of finance and they will be involved in some of the
key discussions relating to the housing industry.
At Treasury, we are charged with keeping America on the path of long-term
sustainable growth. And increasingly that task requires a global outlook. Tomorrow I
will head to China to participate in the first meeting of our Strategic Economic
Dialogue. Several Cabinet Secretaries and agency heads will be in the delegation.
And we'll be joined by Ben Bernanke of the Fed.
The Strategic Economic Dialogue is a forum for discussing China's successful
integration into the global economy and making sure that China stays on the path of
market-based reform. We'll be discussing the importance of a sustainable growth in
China which improves the balance of trade. We will discuss ways to continue
opening China's market to trade, competition, and investment. And we'll discuss our
common interest in increasing energy efficiency and strengthening environmental
stewardShip.
The benefit of the Strategic Economic Dialogue is that we can meet with senior
Chinese leaders who have responsibility for a range of subjects and consider these
questions comprehensively. Rather than going issue by issue, we can look at all the
items on the agenda and have conversations that really try to move the ball forward
in many different areas: Currency, rule of law, intellectual property - all the issues
that have become a familiar part of our relationship with China.
I'm looking forward to the trip. I think it will be a good discussion that lays the
groundwork for important progress down the line. Our outlook with China has to be
long-term. There is a tendency in Washington to want immediate answers, but a
relationship this important will have consequences for our economy and for our
nation over generations. The work we do this week and in future meetings should
all be with an eye toward building a cooperative relationship for many years.
More and more, the people of China are realizing the benefits of a market-based
economy. And as long-time practitioners of market economics, Americans have a
lot of expertise to offer. From the founding of our country, Americans have worked
to achieve big dreams, to improve their lives and the lives of their children. They've
looked to the market to find a good job, to finance their entrepreneurial ideas, and
of course to realize the epitome of the American Dream: homeownershlp.
Homeownership is a goal that unites Americans across racial, ethnic, and income
lines. President Bush is particularly pleased that minority homeownership rates
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Page 2 0[2
have increased in recent years, as overall homeownership levels have reached new
heights. And throughout the Administration, we continue to look for ways to
increase access to capital and financing, so that people who work hard and save
can one day walk across the threshold of their very own home.
The value of mortgage products in the United States has grown significantly. As of
September, outstanding mortgage debt totaled roughly $ 12.8 trillion - an increase
of more than $5 trillion since the beginning of the decade. And today's mortgagebacked securities marketplace features substantial liquidity. The daily trading
average of Agency Mortgage Backed Securities is nearly $244 billion, up from $38
billion a decade ago.
Fostering a robust mortgage lending industry and mortgage securities marketplace
is an essential mission of the Treasury Department.
The housing sector makes significant contributions to our economy. Residential
construction accounts for about five-and-a-half percent of GOP, or three-quarters of
a $1 trillion in spending. And it directly accounts for about 3 percent of total
employment in the U.S.
Activity in the housing sector helped to drive our recovery out of the recession of
2001. From 2003 to 2005, housing activity added about half a percentage point to
overall GOP growth each quarter.
This year, activity in the sector has slowed down. But the overall health of our
economy continues to be strong.
Our rate of growth for the last several years, particularly in the housing industry,
had not been sustainable. As you all know, we have had a correction in the housing
industry and we are in the process of transitioning to a more sustainable growth
rate. Fortunately we have a diverse economy and consumer spending, the service
sector, and corporate profits remain strong. And I believe that our economy remains
strong. Unemployment is low, jobs are being created - more than seven million new
jobs since August 2003 - and wages are rising, which means more Americans are
realizing the benefits of our strong economy.
Your discussions throughout the day will help us to formulate a forward-looking
strategy for a vital part of the American economy. From the Treasury perspective,
we want to make sure that we have the right guidance in place to help people
access home financing without taking unnecessary risks. Expanding opportunities
for more people to buy a home is a good thing. But we do not want Americans to
become over-extended and see their dream end in foreclosure.
These are important conversations that will have a real impact on people's lives.
appreCiate your work to help more Americans achieve the dream of
homeownership, and I look forward to learning about your views. Thanks again to
OTS for bringing this forum together. And thank you all very much.
tp:! Iwww.treas.gov/press/releases/hp193.htm
l/3/2007
Page 1 of2
December 11, 2006
2006-12-11-12-38-24-6343
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 $66,522 million as of the end of that week, compared to $67,154 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
I
December 1, 2006
TOTAL
December 8, 2006
I
67,154
1. Foreign Currency Reserves 1
'a. Securities
Euro
Yen
TOTAL
12,635
11,020
23,65~.
Of which, issuer headquartered in the U.S.
I
I
66,522
I
I
0
II
/I
17,908
/I
0
I
Euro
Yen
12,529
10,928
I
TOTAL
I)
23,457
I
0
I
II
I
17,780
I
I
I
b. Total deposits with:
b.i. Other central banks and BIS
Ilb.ii. Banks headquartered in the U.S.
I
12,540
II
5,368
b.ii. Of which, banks located abroad
b.iii. Banks headquartered outside the U. S.
I
I
2. IMF Reserve Position 2
3 . Special Drawing Rights (SDRs) 2
14 Gold Stock 3
15 Other Reserve Assets
I
II
5,327
!
0
b.iii. Of which, banks located in the U.S.
1
12,453
I
1/
I
I
I
/I
0
0
0
0
0
0
5,693
c:; "'.?R
o or...,
v ,v...,
I
8,918
11,041
I
11,041
0
I
I
0
II. Predetermined Short-Term Drains on Foreign Currency Assets
December 1, 2006
Euro
Yen
1. Foreign currency loans and securities
December 8, 2006
TOTAL
I
Euro
Yen
TOTAL
0
0
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
12.8. Short positions
0
2.b. Long positions
0
3. Other
0
I
I
I
II
I
°
°
I
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
December 1, 2006
I
I
I
I
Euro
tp://www.treas.gov/press/releases/200612111238246343.htm
Yen
December 8, 2006
TOTAL
Euro
I
Yen
I
TOTAL
I
I
1/3/2007
Page 2 of2
1. Contingent liabilities in foreign currency
0
1.a. Collateral guarantees on debt due within 1
year
1.b. Other contingent liabilities
II
I
2. Foreign currency securities with embedded
ioptions
I
I
II
I
3. Undrawn, unconditional credit lines
I
3.a. With other central banks
I
I
I
3.b. With banks and other financial institutions
dquartered in the US
II
I
I
I
0
I
0
0
I
I
II
II
I
II
II
I
I
I
I
I
Currencies vis-a-vis the U.S. dollar
Short posItions
0
I
Headquartered outside the US.
4. Aggregate short and long positions of options
in foreign
I
I
3.e. With banks and other financial institutions
14.a
0
II
a
II
I
II
I
I
II
II
II
II
I
0
I
4.a.1. Bought puts
4.a.2. Written calls
14.b. Long positions
14.b 1. Bought calls
14b.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, ane
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.
ttp:l/www.treas.goy/pressireleasesI200612111238246343.htm
1/312007
Page 1 of 1
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December 12. 2006
hp-194
Report on IMF Legislative Provisions
See Related Documents Below.
•
Report on IMF Legislative Provisions
tp:llwww.treas.gov/prcss/relcases/hp194.htm
3/912007
IMPLEMENTATION OF
LEGISLATIVE PROVISIONS
RELATING TO THE
INTERNATIONAL MONETARY FUND
A Report to Congress
in accordance with
Sections 1503 and 1705(a) of the
International Financial Institutions Act
and
Section 801(c)(l)(8) of the
Foreign Operations, Export Financing, and Related Programs
Appropriations Act, 2001
United States Department of the Treasury
November 2006
Table of Contents
Introduction .............................................................................................................................. .
International Financial Institutiolls Act. Section J503 Provisions, by Subsection
1. Exchange Rate Stability ................................................................................................. 1
2. Independent Monetary Authority, Internal Competition, Privatization,
Deregulation, Social Safety Nets, Trade Liberalization ................................................ 2
3. Strengthened Financial Systems .................................................................................... 5
4. Bankruptcy Laws & Regulations ................................................................................... 5
5. Private Sector Involvement.. .......................................................................................... 6
6. Good Governance .......................................................................................................... 8
7. Channeling Public Funds Toward Productive Purposes ................................................ 9
8. Individual Economic Prescriptions ............................................................................... 9
9. Core Labor Standards .................................................................................................... 9
10. Discouraging Ethnic and Social Strife ........................................................................... 9
11. Environmental Protection ............................................................................................ 10
12. Greater Transparency ................................................................................................... 10
13. Evaluation .................................................................................................................... 10
14. Microenterprise Lending .............................................................................................. 11
15. Anti-Money Laundering and Combating the Financing of Terrorism ......................... 11
Foreign Operatiolls, Export Financing, and Related Programs Appropriations Act, 200}, Section
801 (c)( })(B) Provisions, by Subsection
I.
II.
III.
IV.
V.
VI.
Suspension of Financing for Diversion of Funds ........................................................ 12
IMF Financing as Catalyst for Private Sector Financing ............................................. 12
Conditions for Disbursement ....................................................................................... 13
Trade Liberalization ..................................................................................................... 13
Focus on Short-Tern1 Balance of Payments Financing ................................................ 13
Progress toward Graduation from Concessionary Financing ...................................... 13
Annex 1: New IMF lending arrangements, per section 605(d) oflhe Foreign Operations, Export
Financing, alld Related Programs Appropriations Act, 1999
Introduction
This is the eighth report prepared in accordance with Sections 1503 and 1705(a) of the
International Financial Institutions Act (the IFI Act - codified at 22 United States Code sections
2620-2 and 262r-4(a)).' This rcport also covers policies set forth in Section ~OI(c)(l)(B) of the
Foreign Operations, Export Financing, and Related Programs Appropriations Act, 200 I, 2 as
required by Section 1705(a) of the IFI Act. The report reviews actions taken by the United
States to promote these legislative provisions in International Monetary Fund (,'IMF" or the
"Fund") country programs. Annex 1 covers new IMF lending arrangements per section 605(d)
of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1999.
Earlier reports under these provisions are available on the Department of the Treasury's website
( www.treas.gov/press/reports.html) .
Treasury and the Office of the United States Executive Director ("USED") at the IMF
consistently endeavor to build support in the IMF's Executive Board for the objectives set out in
this legislation. These efforts include meetings with IMF staff and other Board members on
country programs and IMF policies, formal statements by the USED in the IMF Board, and
Treasury's objective is to support strengthened
USED votes in the Executive Board.
commitments in IMF programs, policy actions by program countries, and policy decisions at the
IMF itself.
Assessments of the overall effecti veness of the Treasury and USED's office in promoting the
legislative provisions are published annually by the GAO and are available online. 3 The most
recent report states that the "Treasury continues to promote the [IMF] task force as a tool for
monitoring and promoting legislative mandates and other policy priorities." Treasury's IMF task
force is charged with increasing awareness among Treasury staff about legislative mandates and
identifying opportunities to influence IMF decisions in line with broader U.S. international
economic policy objectives.
Report 011 Specific Provisions
I.
Section 1503(a)
(1) Exchange Rate Stability
Article I of the IMF's Articles of Agreement states that one of the purposes of the IMF is "to
promote exchange stability, to maintain orderly exchange arrangements among members, and to
avoid competitive exchange depreciation." The IMF advises countries that exchange rate
stability can only be achieved through the adoption of sound macroeconomic policies. While the
Fund recognizes the right of each member country to choose its own exchange rate regime, it
I These provisions were enacted in Sections 610 and 613 of the Foreign Operations, Export Financing, and Related
Programs Appropriations Act, 1999 (Public Law 105-277, division A, ~ 101 (d), title VI, ~§ 610 & 613). Section
1705(a) was amended by Section 803 of the Foreign Operations, Export Financing, and Related Programs
Appropriations Act, 2001 (Public Law 106-429, title VIII, § 803).
2 Public Law 106-429, title VIII, § 801(c)(I)(B).
J Treasury Has Sustained Its Formal Process to Promote US Policies at the InternationallWone/my Fund,
Govemment Accountability Office (GAO), June 2006.
advises countries on macroeconomic and financial policies necessary to support the
sustainability of that regime and raises a note of caution where it views arrangements to be
inconsistent with broader macroeconomic policy choices. The U.S. Treasury has urged the Fund
to exercise firm surveillance over exchange rates.
•
In its statement on China's Article IV review in July 2006, the USED emphasized that the
strength of China's domestic economy makes it an opportune time to allow greater exchange
rate flexibility.
•
In its statement on the March 2006 Article IV review for Malaysia, the USED emphasized
the benefits of introducing a significantly greater degree of exchange rate flexibility and
encouraged IMF staff to consider more precisely the systemic effects of Malaysia's exchange
rate policies.
•
In a January 2006 statement on Nepal's Article IV review, the USED noted that the peg to the
Indian rupee provides an effective nominal anchor and enhances policy credibility due to
stable monetary conditions in India.
(2) Policies to increase the effectiveness of the IMF ill promoting market-oriented reform,
trade liberalization, economic growth, democratic governance, and social stability
through:
(A) Establishment of an independent mOlletary authority
With the support of the United States, the IMF has been a consistent advocate of greater
independence of monetary authorities across a range of countries. IMF conditionality frequently
includes measures to strengthen central bank autonomy and accountabil ity. The IMF also
provides technical assistance to help countries achieve these goals. In addition, the Fund
promotes these objectives through assessments of compliance with internationally-agreed upon
standards and codes, as well as rules for safeguarding the use of IMF resources. Examples of
United States activities in the last year with regard to these issues include the following:
•
In Vietnam's October 2005 Article IV discussion, the USED in its statement called for
strengthening the central bank's independence; Vietnam's central bank is currently part of
the ministry of finance.
•
In its statement on Argentina's July 2006 Article IV review, the USED noted that over thc
long term, Central Bank independence, along with sound fiscal policy, is the best guarantor
of maintaining a prudent monetary policy.
(B) Fair and open internal competition among domestic enterprises
With United States support, the IMF encourages member countries to pursue policies that
improve internal economic efficiency. These measures may include ending directed lcnding (or
other relationships between government and businesses based on favoritism), improving anti2
trust enforcement, and establishing a sound and transparent legal system. While the World Bank
has the lead mandate on these issues, the IMF has at times provided related policy advice
through surveillance or programs when it considered them critical to macroeconomic stability.
For example,
•
In a statement on Ecuador's January 2006 Article IV discussion, the USED called for further
improvement in Ecuador's domestic business climate, such as the reduction of legal
uncertainties and the pursuit of fair resolutions to outstanding arbitrations. The USED also
noted the need for the GOE to pursue further reforms in the oil sector and ensure that private
firms enjoy the same legal protections and treatment as public firms.
(C) Privatization
The IMF has made privatization a component of country programs where significant
distortions and government ownership of business enterprises have created substantial
inefficiencies in the allocation of resources and the production of goods. Collaborating with the
World Bank, the Fund has supported the use of competitive and transparent means of
privatization so that borrowing countries might achieve gains in economic efficiency and
improve their fiscal positions. Examples of IMF programs and surveillance discussions in which
the USED has advocated privatization include the following:
•
In a February 2006 Board statement on an Article IV review for the Philippines, the USED
urged the government to press forward in privatization of the energy sector to avoid future
budget shortfalls and to assure future energy supplies.
•
In the Board statement for the June 2006 Article IV discussion for Egypt, the USED
welcomed Egypt's success in carrying out major structural reforms, and encouraged
continued strong progress on privatization.
(D) Economic deregulatioll and strong leglll frameworks
Markets are distorted and entrepreneurship is stifled without strong property rights,
enforcement of contracts, and fair and open competition. While these issues are often addressed
as part of the World Bank's mandate, the IMF periodically includes policy advice in its programs
or surveillance on measures considered critical to the member country's macroeconomic
performance. Examples of United States' efforts to encourage these reforms include the
following:
•
In India's most recent Article IV discussions, the USED in its Board statement highlighted
the role that India's lack of binding international arbitration and a backlogged domestic couli
system play in deterring foreign investment and dampening economic growth.
(E) Social safety /lets
While growth is an essential ingredient for poverty reduction, investment in human
development and basic social services is also critical. Cost effective social safety nets can play
3
an important role in promoting building domestic support for economic reform, and in alleviating
the direct impact of poverty. Against this background, the United States has been a strong
advocate of strengthened IFI support for productivity-building investments in public education,
health and other social services. Importantly, the US has secured grants windows in the
International Development Association of the World Bank Group, the African Development
Fund, and the Asian Development Fund that will strengthen MOB assistance in these important
sectors.
The IMF does not lend directly for budget support to build social safety nets. However, the
Fund's policy advice and its focus on macroeconomic stability encourage domestic policy
makers to develop fiscal strategies that address the needs of the poor. IMF advice is developed
within a country-specific poverty reduction strategy (PRS) that encourages accountability
between donors and recipients.
•
In numerous low-income countries, the IMF helps authorities more effectively track public
spending aimed at poverty reduction and increase the share of the budget devoted to such
spending. For example, in Malawi the IMF is providing technical assistance to improve
budgetary tracking of pro-poor spending. In Burundi, the PRGF aims to support a shift away
from military spending and toward social spending. In Cameroon, the PRGF supports
channeling debt relief savings into an expansion of poverty-reducing spending.
•
During the sixth review of Guyana's Poverty Reduction and Growth Facility (PRGF) in
September 2006, the USED expressed disappointment that higher social sector spending had
not yet produced a significant impact on reducing poverty, and emphasized increased
monitoring and transparency to ensure effective allocation of resources.
•
In Panama's 2005 Article IV review, the USED in its Board statement highlighted that the
key challenge for the authorities is to reduce the level of public debt while increasing
expenditures on poverty reduction programs.
(F) Opelling of markets for agricultural goods through reductions ill trade barriers
The IMF encourages a multilateral, rules-based approach to trade liberalization across al\
sectors of the global economy, including, but not limited to, the agricultural sector. The IMF has
played a supportive role in promoting trade liberalization, particularly in the context of the WTO
trade negotiations under the Doha Development Agenda (DDA). In April 2004, the Fund
approved the Trade Integration Mechanism (TIM) to provide financial support to countries
facing balance of payments problems resulting from trade adjustment. The proposal represents a
concrete response to developing country concerns over the potential negative impacts from
multilateral trade liberalization. The IMF is prepared, along with the World Bank, to provide
transitional assistance to member countries experiencing payment imbalances arising from the
passage of trade reform.
•
In its statement on Japan's Article IV review, the USED commented on the importance of
reducing Japanese barriers to agricultural trade, noting that such reforms would benefit
Japanese consumers in addition to enhancing total productivity.
4
(3) Strengthened financial systems and adoption of sOUlld banking principles and practices
The joint IMF-World Bank Financial Sector Assessment Program ("FSAP") has emerged as
a critical instrument for financial sector surveillance and advice. As of June 2006, one hundred
four FSAP assessments had been completed with twenty-four additional reviews underway or
planned.
Results from the FSAP are used to generate assessments of compliance with key financial
sector standards such as the Basel Committee's Core Principles for Effective Banking
Supervision, the International Organization of Securities Commission's Objectives and
Principles of Securities Regulation, and the IMF's own Code of Good Practices on
Transparency in Monetary and Financial Policies.
The FSAP assessment results are
summarized in Financial System Stability Assessments ("FSSA") which are often provided to the
public. In the IMF Executive Board discussion on the January 2006 Independent Evaluation
Office's review of the FSAP, the USED underlined the importance of improving coordination
and follow-up of the FSAP process to ensure that lessons learned on how to strengthen financial
systems are embedded in surveillance and program work of the World Bank and IMF. Some key
examples of where the USED has supported the strengthening of financial systems are:
•
Pursuant to its Stand-by Arrangement which the United States supported, Turkey has made
strides in strengthening its financial sector, particularly the banking sector, by restructuring
the sector and improving supervision. These efforts proved effective in helping Turkey
weather recent market volatility.
•
In its statement in the 2006 Article IV discussion on China, the USED urged the Chinese to
undertake reforms to improve financial intermediation, strengthen regulation, modernize
capital markets, and reform and restructure domestic banks and securities firms.
•
In its statement on Japan's Article IV review in July 2006, the USED called for continued
efforts to reduce the legal uncertainty that regulated fim1s face in interpreting Japanese
financial laws. The USED emphasized that such efforts would help foster innovation and
increase the efficiency of financial intermediation.
(4) Internationally acceptable domestic bankruptcy laws and regulations
The IF Is have continued to build upon work started after the Asian financial crisis to promote
more effective insolvency and debtor-creditor regimes. While the World Bank normally leads
reviews of domestic insolvency laws, the IMF actively supports this agenda. Both the UN
Commission on International Trade Law (UNCITRAL) and the World Bank have worked to
compile recommendations in this area covering, respectively, insolvency law and sound
insolvency/creditor rights regimes. At the urging of the United States, staff from the World
Bank, IMF and UNCITRAL worked together to develop a standardized, unified assessment
methodology to assess implementation of those recommendations. The Financial Stability
Forum, also with strong U.S. support, has called on World Bank and UNCITRAL staff to
5
continue this cooperation and complete a concise, unified international standard for insolvency
and creditor rights.
The IFIs also provide technical assistance to help emerging market economies develop
efficient insolvency regimes. The IMF and the World Bank have supported adoption of the
Model Law on Cross-Border Insolvency developed by the UN (the UNCITRAL Model Law) to
facilitate the resolution of increasingly complex cases of insolvency where companies have
assets in several jurisdictions. With the support of the United States, the IMF has worked with
the World Bank to promote improved insolvency regimes in a number of countries. Specific
examples of U.S. efforts to encourage improvements in insolvency regimes include:
•
In Romania's Article IV review, the USED's statement took note of recent reform in that
country's bankruptcy procedures, welcoming the authorities' commitment to further improve
the investment climate.
•
During the 2006 discussion of Bahrain's Article IV review, the USED in its statement agreed
with IMF staff that development of contingency plans and a Prompt Corrective Action
framework aimed at early improvement or least-cost resolution of problem banks would be
beneficial.
•
The USED's statement in Brazil's 2006 IMF Article IV review noted that bankruptcy reform
and legalizing payroll deduction loans have had a positive effect on bank lending, and that
the volume of bank loans, though still low, is increasing.
(5) Private Sector Involvement
The United States continues to work to ensure that the private sector plays an appropriate
role in the resolution of financial crises. Over the past several years, the IMF, with the support
of the United States, has taken important steps towards strengthening crisis prevention and
resolution. The Fund has strengthened its surveillance of member countries and instilled more
discipline in the use of official sector financing, especially through the establishment of rules and
procedures governing exceptional access to Fund resources. Additionally, the use of collective
action clauses (see Section C, below), supported by the IMF, as an accepted contractual, marketbased approach to sovereign debt restructurings should help a sovereign restructure its debt when
under financial distress. The IMF recognizes the need to preserve the fundamental principles that
(a) creditors should bear the consequences of the risks they assume and (b) debtors should honor
their obligations.
In particular, the United States has advocated policies that include:
(A) Increased Crisis Prevention through Improved Surveillance and Debt and Reserve
Management
The United States has urged the IMF to strengthen further its surveillance function and crisis
prevention capabilities. In particular, the USED has supported the balance sheet approach to
6
measure vulnerabilities in emerging markets and has called for greater focus on debt
sustainability in both low-income and emerging market countries.
•
The USED, in its March 2006 Board Statement, warned of a looming financial crisis in
Eritrea driven by high inflation, unsustainable public debt, and a monetary policy
beholden to fiscal demands.
•
The USED strongly protested the proposed inclusion of a high ceiling of USD 700
million in non-concessional borrowing in Sudan's 2006 Staff-Monitored Program (SMP)
in light of Sudan's already unsustainable external debt burden. The USED stressed the
proposal was all the more troubling given the Sudanese authorities' previous decision to
disregard the 2005 SMP framework by borrowing $935 million at non-concessional rates.
The IMF continues to encourage, with strong United States support, member countries to
make their economic and financial conditions more transparent. Countries are urged to provide
additional infornlation to private market participants by publishing Article IV assessments and
program documentation as well as by regularly releasing data consistent with the IMF's Special
Data Dissemination Standard (SODS).
•
Fund members subscribing to either the General or Special Data Dissemination Standards
increased from 75% of all members in 2005 to 82% in 2006.
(B) Strengthening of Emerging Markets' Financial Systems
The IMF continues to work with other IF Is to promote stronger financial systems in
emerging market economies (see Section 3). It is also actively involved with thc World Bank in
monitoring the implementation of the Basel Core Principles for Effective Banking Supervision.
The IMF, with United States support, has increased its cooperation with the World Bank in this
area, through the joint FSAP and in assessing countries' observance of other standards and
codes.
(C) Strengthened Crisis Resolutioll Mechanisms
The United States, in cooperation with the IMF and the broader international financial
community, has promoted a strengthened framework for crisis resolution through use of
collective action clauses (CACs), application of the lending into arrears policy, and clear limits
on the use of official finance.
(i) Collective Action Clauses
Sovereign bonds governed by New York law conventionally had not included provisions
which would permit modification of key payment terms by less than unanimous consent. This
restriction made these bonds harder to restructure when a sovereign experienced financial
distress. The United States has worked actively with the IMF and the private sector to promote
the market's adoption of CACs in order to improve debt restructuring processes. CACs have
now become the market standard for sovereign bonds issued under New York law.
7
As of October 2006, CACs are included in 63 percent of the stock of external sovereign
bonds issued by emerging markets. The IMF, encouraged by the United States, has made CACs
an important element of its crisis resolution agenda. The IMF has indicated it will continue to
encourage future issuers to follow this trend.
(iO Lending into Arrears
The IMF lending into arrears policy permits the Fund to provide financial support for policy
adjustments, despite the presence of actual or impending arrears on a country's obligations to
private creditors, where: (i) prompt IMF support is considered essential for the successful
implementation of the member's adjustment program; and (ii) the member is pursuing
appropriate policies and is making a good faith effort to reach a collaborative agreement with
creditors. IMF efforts in recent years have focused on applying the "good faith" criterion to
specific cases, including Argentina, the Dominican Republic, Iraq, and Dominica.
(iii) Clear Limits on Official Finance
The United States continues to press the IMF to improve its lending selectivity. In 2002
explicit criteria were developed for extending loans to countries seeking to borrow beyond
normal limits ("exceptional access"). These include: (i) the member must be experiencing
"exceptional balance of payments pressures on the capital account" which cannot be addressed
with normal resources, (ii) an analysis of sustainable debt levels, (iii) reasonable prospects exist
that the member will regain access to private capital markets during the program term, and (iv)
the member's policy program can reasonably be expected to succeed. In addition, procedures
were introduced to require: (i) a "higher burden of proof in program documentation", (ii) early
consultation with the Board on sovereign creditor negotiations, (iii) the issuance of a staff note
specifically outlining all of the relevant considerations, and (iv) an ex-post evaluation of such a
program within twelve months of its completion.
(6) Good governance
The IMF's commitment to promoting good governance is outlined in its 1996 Declaration on
Partnership for Sustainable Global Growth and its 1997 Guidelines on Good Governance. The
IMF also supports good governance through its emphasis on transparency and its promotion of
market-based reforms. 4 Recently, the IMF has been particularly active in promoting good
governance through its efforts to protect against abuse of the financial system and to fight
corruption.
The Fund's involvement has focused on those governance aspects that are generally
considered part of the IMF's core expertise, such as improving public administration, increasing
government transparency, enhancing data dissemination, and implementing effective financial
sector supervision. The IMF promotes best practice principles through its codes and standards,
such as the Code of Good Practices on Fiscal Transparency, and is collaborating with the World
IMF financing is provided to central banks to address balance of payments difficulties. The IMF does not lend to
fund specific projects in member countries aimed at procurement and financial management controls.
8
4
Bank on strengthening the capacity of HIPe countries to track public sector spending. Examples
of U.S. efforts to encourage good governance include the following:
•
The USED called forcefully for improving governance and fighting corruption through the
passage and implementation of anti-corruption laws that meet international standards in its
July 2006 Board statement on Cambodia's Article IV review.
•
At the March 2006 Board Meeting, the USED recommended that the government of Ethiopia
improve its system of budget preparation, execution, and reporting in the interest of
heightening transparency and better prioritizing of expenditures.
(7) Channeling public funds away from unproductive purposes, including large "show case"
projects and excessive military spending, and toward investment in human and physical
capital to protect the neediest alld promote social equity
The Fund published a Code of Good Practices all Fiscal Tramparency in 1998 that aims to
enhance fiscal policy transparency, promote quality audit and accounting standards, and reduce
or eliminate off-budget transactions, which are often the source of unproductive government
spending. The IMF also encourages countries to conduct "public expenditure reviews" with the
World Bank.
•
In India's most recent Article IV discussions, the USED in its Board statement urged greater
public spending efficiency, including subsidy reform, pension reform, and reform of the
pricing mechanism of petroleum products.
(8) Ecollomic prescriptions appropriate to the economic circumstances of each country
The United States has supported flexibility in Fund programs while emphasizing the need to
focus conditionality on issues critical to growth and macroeconomic stability using measurable
results. Partly as a result of U.S. efforts, program conditions have focused increasingly on debt
and financial vulnerability in middle-income countries and macroeconomic management in lowincome countries. In low-income countries, the U.S. has supported the use of Poverty Reduction
Strategy Papers ("PRSP"), which are developed by local authorities and civil society and help
ensure that IMF programs meet specific needs of the country.
(9) Core Labor Standards (CLS)
Core labor standards provide a useful benchmark for assessing countries' treatment of
workers against internationally agreed-upon standards. The Treasury Department monitors labor
standards in all IFI borrower countries and is mandated to submit a separate report to Congress
assessing progress made with respect to internationally recognized worker rights.
(10) Discouraging practices that may promote ethnic or social strife
By helping to create the conditions for a sound economy, IMF assistance facilitates the
reduction of ethnic and social strife, to the extent such strife is driven in part by economic
9
deprivation. For example, with United States support, the IMF has increasingly encouraged the
strengthening of social safety nets. The 1M F also encourages consultation with various segments
of society in the development of programs so that these segments have an opportunity to
participate in the implementation of national priorities. IMF assistance has helped to free up
resources for more productive public investment by contributing to a reduction in country
military expenditures.
(11) Link between environmental and macroeconomic conditions and policies
With respect to its individual lending operations, the IMF does not itself evaluate positive or
negative linkages between conditions and environmental sustainability. Rather, the IMF
coordinates with the World Bank which, unlike the IMF, possesses the internal expertise to
address such linkages. The United States has encouraged the inclusion of conditions on
environmental issues in cases where such issues have significant macroeconomic consequences.
(12) Greater transparency
Over the last several years, the IMF has increased significantly the amount of infonnation on
its programs that it has made available to the public. The United States has stressed the need to
build on this progress and expand the number of publications and IMF practices open to public
scrutiny. As of July 2004, publication of all Article IV and Use of Fund Resources staff reports
is presumed unless a country objects. In addition, all exceptional access reports will generally be
published as a pre-condition for the Board's approval of such an arrangement. 5 The USED
consistently encourages countries to publish the full Article IV staff report on the IMF's public
website.
(13) Greater IMF accountability and enhanced self-evaluation
In April 2000, with the strong urging of the USED, the Executive Board agreed to establish
an Independent Evaluation Office ("lEO") to supplement existing internal and external
evaluation activities. The lEO provides objective and independent evaluation on issues related to
the IMF and operates independently of Fund management and at ann's length from the IMF
Board. Since its inception, the lEO has published ten comprehensive reviews, including
assessments of the IMF's engagement in Jordan, multilateral surveillance, and the IMF's
approach to capital account liberalization. Reports on other topics such as the I\t1F's advice on
exchange rate policies are forthcoming. All reports are publicly available from the lEO's website
at (http://www.imf.org/external!nplieo/index.htm).
In response to recommendations of a 2002 lEO study on prolonged use of IMF resources, the
IMF now requires "Ex Post Assessments" (EPAs) of IMF engagement in countries where the
IMF has had a program in place for at least 7 out of the past 10 years. The EP As are intended to
provide a long-tenu, anus-length perspective and are led by someone other than the country
mission chief, ideally someone outside of the area department. EPAs provide valuable insights
to guide future engagement with "prolonged use" countries.
5
"Exceptional access" refers to financing arrangements in amounts that exceed the Fund's nonnal limits.
10
(14) Structural reforms which facilitate the provision of credit to small businesses, including
microenterprise lending
The lack of financial services available to the poor is a significant obstacle to growth for
many developing countries. The Treasury Department engages with the IFIs to promote
structural reforms that encourage the provision of credit to small and micro enterprises. The
microfinance sector is frequently reviewed in the context of the Financial Sector Assessment
Program (FSAP) in developing countries.
•
In the May 2006 Board Statement regarding Sierra Leone's new PRGF, the USED
supported the recent adoption by that government of the Microfinance Investment and
Technical Assistance Facility and the establishment of new banks that will bring more
financial services to the rural population.
(15) Anti-Money Laundering and Combating the Financing of Terrorism (AMLICFT)
Comprehensive integration of the IMF and the other IFI efforts as part of the global war on
terrorism has been a consistent policy priority for the United States and its partners. We have
encouraged collaboration between the IFIs and the Financial Action Task Force (FA TF) to assess
global compliance with the anti-money laundering (AML) and counter-terrorist financing (CFT)
standards based on the FATF 40 Recommendations on Money Laundering and the 9 Special
Recommendations on Terrorist Financing.
In May 2006, largely as a result of US and G7 leadership, the Executive Board of the I,\1F
reiterated the importance of AMLlCFT standards to strengthening the integrity of financial
systems and deterring financial abuse, and affirmed the collaborative arrangements presently in
place with the FATF and FATF-style Regional bodies (FSRBs) for assessing AMLlCFT regimes
in the context of the IMF's financial sector work. The Board also endorsed the efforts underway
to strengthen the quality and consistency of assessments prepared by all assessor bodies, and
adopted measures for enhancing cooperation with the FA TF and the FSRBs.
Collaboration with the IMF, FATF and FSRBs, with the assessors using the same common
methodology, institutionalizes the global fight against terrorist financing and money laundering,
broadens the effort world-wide, and helps countries identify shortfalls in their AML and eFT
regimes and implement reforms. As of June 2006, the IMF and World Bank have conducted
over 60 assessments of country compliance with AMLlCFT.
The IMF is also a substantial source of funding for countries' efforts to strengthen their own
eFT regimes - an activity that Treasury has supported and has joined in to leverage Treasury's
own bilateral eFT assistance. The IMF and World Bank together have substantially increased
technical assistance (T A), delivering 250 missions and events from May 2005 to April 2006.
In the latest Communique of the International Monetary and Financial Committee of the
Board of Governors of the International Monetary Fund (IMFC) - the Secretary of the Treasury
is the Governor for the United States - the IMFC reiterated the importance of these issues and
II
called for closer cooperation between the IMF and FA TF in promoting stronger implementation
of AMLlCFT standards and encouraged publication of comprehensive country evaluations.
The USEDIIMF office played a crucial role in mobilizing the IMF Board support for this
initiative, as well as making sure note is taken of AMLlCFT issues in Article IV reviews and
reports, IMF programs, and other regular reviews of country progress. Examples include:
•
The July 2005 FA TF assessment noted that Irish guidelines are not legally enforceable, and
questioned whether financial system supervisors had sufficient sanction powers to address
AMLlCFT infractions in supervised institutions. The USED emphasized, in its Statement on
Ireland's Article IV review, the need for these issues to be addressed by the Irish authorities.
•
In its February 2006 statement on India's Al1icle IV review, the USED encouraged IMF staff
to pay closer attention to AMLlCFT issues during the next Article IV consultation and asked
that India address the deficiencies found by the Asia Pacific Group on Money Laundering,
such as in India's AML law, the regulation of alternative remittance systems, and the
operation ofIndia's Financial Intelligence Unit.
•
The USED July 2006 Board statement on Cape Verde's Article IV review called on the Cape
Verde Government to criminalize terrorist financing, citing its obligations under the UN's
International Convention for the Suppression of the Financing of Terrorism.
II. Section 801(c)(1)(B)
(/) Suspension of IMF financing if funds are being diverted for purposes other than the
purpose for which the financing was intellded
With strong United States support, the IMF has taken steps in the past several years to
ensure that IMF resources are used solely for the purposes for which they are intended. These
steps constitute a serious and far-reaching initiative to strengthen the system for safeguarding the
use of Fund resources and for deterring the misreporting of data to the IMF.
The IMF's safeguards framework requires countries receiving funds to submit to external
financial audits of their central bank's data. This process is designed to ensure that central banks
have adequate control, accounting, reporting and auditing systems in place to protect central
bank resources, including IMF disbursements. Any critical gaps identified during the assessment
process must be remedied before additional IMF resources can be disbursed.
(II) IMF financing as a catalyst for private sector financing
The IMF recognizes that if structured effectively, official financing can complement and
attract private sector flows. The Fund promotes policy refornls that catalyze private financing
and, in cases of financial crisis, allow countries to regain access to international private capital
markets as quickly as possible. (See Section 5 above for a more in-depth discussion of private
sector involvement.)
12
(III) Financing must be disbursed (i) Oil the basis of specific prior reforms; or (ii)
incrementally upon implemelltatioll of specific reforms after illitial disbursement
The United States has been an advocate of conditionality on IMF loans and has supported the
Fund's increased focus on results-oriented lending. IMF disbursements are tranched based on a
country's performance against specified policy actions, both prior to and during the program
("prior actions").
•
In Gabon's June 2006 Article IV review, the USED in its statement expressed willingness to
support a proposed precautionary Fund arrangement if Gabon and the Fund could agree to
appropriate conditionality to address fiscal slippages seen since the end of the previous
program.
(IV) Open markets and liberalizatioll of trade ill goods altd services
The IMF has been a consistent advocate of open markets and trade liberalization. The Fund
also recognizes that trade adjustments can cause temporary balance of payments problems and
has developed the Trade Integration Mechanism to provide transitional financial assistance to
countries.
•
The USED in its statement during the July 2006 Article IV review recognized that EI
Salvador's ratification of the CAFTA-DR Free Trade Agreement promises to bring about an
improvement to the country's business and investment climate. The U.S. also expressed the
need for continued trade-related reforms to further enhance investment prospects and
diversify the export base.
(V) IMF fill an cillg to concentrate chiefly on short-term balance ofpayments financing
In September 2000, with strong United States support, the IMF agreed to reorient IMF
lending to discourage continued or prolonged use, and provide incentives to repay as quickly as
possible. In particular, the IMF shortened the expected repayment periods for both Stand-By and
Extended Arrangements and established surcharges for higher levels of access.
In early 2006 the IMF activated an Exogenous Shocks Facility (ESF) for low-income
countries, which the U.S. supported because of the IMF's focus on addressing short-term balance
of payments needs. The U.S. also successfully pressed for the adoption of the non-borrowing
Policy Support Instrument (PSI), to provide a framework for IMF policy advice and donor
signaling without the need for IMF lending. The U.S. has discouraged low-income countries
from pursuing serial PRGF programs. The U.S. urges those countries without a clear balance of
payments financing need to opt for a PSI, in which case they would retain the option of seeking
ESF financing in the event of sudden adverse developments in the balance of payments.
(VI) Graduation from receiving fillallcing
011
concessionary terms
The United States supports comprehensive growth strategies to move countries from
concessional to market-based lending. The United States works closely with the IMF and World
13
Bank to promote a growth-oriented agenda in developing countries based on strong monetary
and fiscal policies, trade liberalization, and reduction of impediments to private sector job
creation. The IMF extends concessional credit through the PROF. Eligibility is based
principally on a country's per capita income and eligibility under the International Development
Association ("IDA"), the World Bank's concessional window (the current operational cutoff
point for IDA eligibility is a 2004 per capita ONI level of $965). Factors that would contribute
to reduced reliance on concessional resources include a country's growth performance and
prospects, capacity to borrow on non-concessional terms, vulnerability to adverse external
developments such as swings in commodity prices, and balance of payments dynamics.
14
ANNEX 1: Report to Congress on International Monetary Fund Lending
October 1, 2005 - September 30, 2006
Board
Approval Date
10119/05
Country
Haiti
Amount
SDR 10.23 million
($14.7 million)
U.S.
Position
Type
Emergency PostConflict Assistance
Support
10/24/05
Cameroon
SDR 18.57 million
($26.8 million)
PRGF
Support
11114/05
Niger
SDR 19.7 million
($21.8 million)
PRGF Augmentation
Support
12/23/05
Iraq
SDR 475.4 million
($685 million)
SBA
Support
01127/06
Albania
SDR 17.045 million
($24.7 million)
PRGF
Support
01/27/06
Central African
Republic
SDR 6.962 million
($10.2 million)
Emergency PostConflict Assistance
Support
4117/06
Grenada
PRGF
Support
SDR 10.530
($15.8 million)
5/5/2006
Republic of
Moldova
SDR 80.8 million
($121 million)
PRGF
Support
511012006
Sierra Leone
SDR 31.1 million
($46.6 million)
PRGF
Support
5/31/06
Paraguay
SDR 65.0 million
($97.5 million)
SBA
Support
6112/06
Rwanda
SDR 8.010
($12 million)
PRGF
Support
-
Reason for Position
Board
Approval Date
Country
Amount
Type
U.S.
Position
6/26/06
Afghanistan
SDR 81.0 million
($121 million)
PROF
Support
07/21106
Madagascar
SDR 55.0 million
PROF
Support
I
($80.8 million)
09/08/06
Burkina Faso
SDR 6.0 million
($8.9 million)
Reason for Position
PROF Augmentation
Support
I
Page 1 of 2
December 13, 2006
HP-195
Treasury Nominees Sworn In
Five Treasuly nominees were sworn In this week: Robert F Hoyt as General
Counsel, Phillip L Swagel as Assistant Secretary for Economic POliCY, Anthony W
Ryan as Assistant Secretary for FinanCial Markets, Eric Solomon as Assistant
Secretary for Tax POliCY, and Michele A. Davis as ASSistant Secretary for PubliC
Affairs
As General Counsel, Hoyt serves as the chief law officer of the Department of ttle
Treasury. In addition, he is responsible for the superviSion of Illore Ulan 1,400
lawyers within the Department's legal diviSion Prior to joining Treasury, Hoyt
served as Associate Counsel to the President at the White House and before that
he was a Partner at Wilmer, Cutler, Pickering, Hale and Dorr. Earlier In his career,
he served as a law clerk to the Honorable Herbert P Wilkins on the Massachusetts
Supreme Judicial Court.
As ASSistant Secretary, Swage I IS an advisor to the Treasury Secretary on all
aspects of economic policy. HIS office IS responsible for reporting on current and
prospective macroeconomic developments and assisting In the determination of
appropriate economic policies. HIS office is also responsible for the review and
analYSIS of domestic microeconomic Issues and developments In the financial
markets. Swagel has served as a Senior AdVisor to Secretary Paulson since
October. Prior to joining the Troasury Department, Swagel served as a Resident
Scholar at the American Enterprise Institute. Prior to this, he served as Chief of
Staff of the Council of Economic Advisers. Earlier in his career, he served as an
Economist at the International Monetary Fund and the Federal Reserve Board
As ASSistant Secretary for Fillancial Markets, Ryan will lead the efforts of the Office
of FinanCial Markets to formulate poliCY on federal debt management and financial
markets oversight He will advise the Under Secretary for Domestic Finance on
policy and legislation on federal finance market Issues and examine the impact of
such policies on industries and the markets. Ryan has served as a Senior AdVisor
to Secretary Paulson since July. Prior to Joining the Treasury Department, Ryan
spent 20 years in the finanCial services illdustry Most recently, he was a partner of
Grantham, Mayo, van Otterloo & Co. Prior to GMO, Ryan was a portfoliO manager
and business executive for global Institutional asset management firms includrng
State Street Corporation and The Boston Company. As ASSistant Secretary for Tax
Policy, Solomon has supervisory responsibility for prOViding the Secretary of the
Treasury with policy allalysls, advice and recommendations relating to all aspects
of domestic and international issues of federal taxation, including all legislative
proposals, regulatory guidance, and tax treaties HIS office IS also responsible for
providing the offiCial estimates of all government receipts for the PreSident's budget,
fiscal policy deciSions, and Treasury cash management decisions. Solomon joined
Treasury in October of 1999. Since 2001 he has served as the Deputy ASSistant
Secretary for Regulatory Affairs. He has also held the posillon of Acting Deputy
Assistant Secretary for Tax PoliCY since December 2004 Previously, Solomoll was
a partner at Ernst & Young. Before JOining Ernst & Young. Solomon served at the
Internal Revenue Service for five years as Assistanl Chief Counsel (Corporate)
heading the IRS legal diviSion With responsibility for all corporate tax Issues
As Assistant Secretary for Public Affairs, DaVIS IS ttle lead representative of the
Treasury Department and Secretary Paulson for media, bUSiness, profeSSional
trade organizations, consumer groups, and the publiC. III addition to serving as the
chief spokesman, Davis will also deSign and Irnplement policies and
COllllllunications strategies for the Department that will Increase the public's
p:llwww.treas.gov/press/releases/hpI95.htm
113/2007
Page2of2
knowledge and understanding of Treasury's activities and services. Davis has
served as a Senior Advisor to Secretary Paulson since October Before Joining the
Treasury Depaliment, Davis served as Deputy National Secunty Advisor 3rld
Deputy Assistant to the President for Communications for the National Security
Council
p:llwww.treas.gov/press/releases/hpI95.htm
113/2007
Page 1 of 1
December 13, 2006
HP-196
Introductory Remarks by
Secretary Henry M. Paulson
at the U.S.-China Strategic
Economic Dialogue
Beijing, China- Good morning It IS a great pleasure to be here for the lIlaugural
meeting of the U.S.-China Strategic Economic Dialogue My colleagues and I are
looking forward to productive discussions with Madame Wu and the dlstlngulstled
members of the Chinese delegation We thank President Hu. Premier Wen and
Vice Premier Wu for hosting the first Strategic Economic Dialogue in Beijing
The Strategic Economic Dialogue is an opportunity to address important long-term
issues that are central to our economic relationship with China while also providing
an opportunity to address the most pressing short-term Issues. China and the US
have a shared economic interest and we look forward to listening carefully to our
Chinese counterparts as well as putting forward our ideas and viewpoints. Our
discussions Will focus on China's successful Integration Into the global economy
and on ensuring that both nations benefit from our growlrlg trade relationship
Three broad goals will guide our discussions today and throughout the Dialogue.
First we will focus on the importance of maintaining sustainable growth without
large trade surpluses. We Will conSider ways to achieve balanced growth. and talk
about the importance of currency flexibility in the short-term and a path to freely
tradable currency in the medium-term.
Second, we Will emphasize the impoliance of continuing to open markets to trade,
competition. and Investment. Within that discussion, we will highlight the importance
of the rule of law, Including property rights - as well as the importance of
transparency in regulations and standards, which are crUCial to businesses both
domestic and foreign.
And the third main pillar of our discussions Will be energy and the environment. The
United States and China are the world's leading energy consumers. We are
committed to developing the use of cleaner, more abundant energy sources and we
will talk about the best ways to do that
Today with the first meeting of the Dialogue, we are initiating a long-term effort to
address strategic economic Issues. Our goal IS to make progress on pressing
needs, while advancing on a number of fronts by laying the foundation for long-term
cooperation.
My great thanks to Madame Wu and this group ot distinguished Chinese leaders for
hosting us in this grand venue. We are very much looking forward to today's
diSCUSSions.
Ilwww.treas.goY/press/releases/hp196.htm
113/2007
Page 1 of 2
December 13. 2006
HP-197
Opening Statement by Secretary
Henry M. Paulson
before the Opening Session of
the U.S.-China Strategic
Economic Dialogue
Beijing, China- Good morning It IS truly gratifYing to see so many senior leacJers
from two of ttle world's most Important economies gathered together, In the spirit of
cooperation. for this Inaugural Strategic Economic Dialogue Such an illustnous
gathering certainly demonstr-ates the shared commitment of President Bush and
President Hu to further economic cooperation and Integration between our two
countnes
ThiS is also an hlstonc opportunity, for our countnes and for the global economy. As
you know, In recent years the United States and China have accounted for almost
half of global growth The world looks to us together to proVide 11ft to the global
economy Therefore, we have a responSibility to do our utmost to create the nght
environment for sustainable and responSible economic growth. both at home and
abroad.
We have much to learn from each otiler The Dialogue should help us manage and
address the most IInportant long term issues facing our two nations while prOViding
a forum to address the most pressing short term issues. Over the next two days, we
will discuss a number of Issues surrounding China's economic development
strategy and the challenges that China faces in the future. It IS in everyone's
interest that Cilina's growth continues and in dOing so that it strengthens the world
economy. ThiS Dialogue can help us work together to do Just that while reducing
tensions along the way By continuing to pursue economic reform, opening its
markets further, and rebalancing ItS growth to allow for Increased domestic
consumption, China will be sustaining its own growth willie contrrbutlng even more
to the global economy
As China advances toward a "Harmonious Society," it will be important that growth
IS balanced so that the countrYSide IS not left behind I look forward to hearing your
plans for addressing the structural causes of the rural-urban divide and other
Imbalances that have Clrisen My colleagues and I also welcome the oppol1unity to
share lessons from our own experience With SOCial safety nets, labor mobility, and
transparent and fleXible fiscal spending to address Income inequality
To maintain domestic support for continued global economic integration, we both
must pursue macroeconomic poliCies that faCilitate balanced, sustainable growth
and raise living standards. In a market economy, governments have several
essential macroeconomic poliCy tools that can assure stable and balanced growth
In order to bnng about balanced growth In China's dynamiC and Increasingly
market-onented economy, It is important that the government have full use of all
these poliCY tools, including monetary POliCY, which would be more effective under- a
regime where currency values are determined In a competitive open marketplace
based upon economic furldarnerltals We believe that Chilla should move toward
such a system over the next several years And of course you understand our
strong view that In the meantime more currency fleXibility IS necessary. I look
forward to haVing a good diSCUSSion about 110W to bring about balanced growth In
China, a goal we both share.
Having spent most of my career working In financial markets around the world, It IS
p:llwww.treas.gov/press/reieases/hp197.htm
113/2007
Page 2 of 2
clear to me that those nations that are open to trade, competition, and investment
are the ones that succeed in today's global market. Just look at how much China
has benefited from joining the WTO ~ a doubling of the size of your economy in Just
a few short years. The best way governments can serve the economic interests of
their citizens is by welcoming healthy competition in all areas, including services. In
particular, increased openness in financial services can be a catalyst for investment
and growth in all sectors of an economy Economies innovate through competition
and openness to investment, and constant innovation fuels growth. I welcome the
chance to share views on how we can best promote mutually beneficial
liberalization and investment throughout our economies. And I look forward to
discussing the principles of transparency, rule of law, and property rights, which are
essential to expanding trade and investment flows.
Innovation and investment playa particularly Important role in ensuring efficiency in
energy use and the development of clean energy technologies. As the world's two
largest consumers of energy, we share a special responsibility to both allocate and
consume energy as efficiently and cleanly as possible. Open, transparent markets
for resources and technologies are the best means of doing so. It is only through
these means that we can achieve the economic growth and environmental
preservation needed to improve quality of life in our own countries and around the
world. The opportunity we have to advance this agenda is important to the entire
world.
China's integration into the world economy has the potential to greatly enhance
global prosperity. As you know, there is resistance in both our countries to greater
integration into the global economy. And there is also skepticism that this Dialogue
will accomplish anything of substance. Therefore, it is incumbent upon us, not only
to have frank and energetic discussions, but also to produce tangible results on the
most important issues facing our two nations. With the collection of talented people
in this room, I have no doubt we will be able to do so.
In closing, I thank Vice Premier Wu Yi who I know paid attention to every detail of
the preparations of this historic event. Under her leadership, the cooperation
between our two countries has been extraordinary. I also thank President Hu and
Premier Wen for hosting the first Strategic Economic Dialogue and providing thiS
grand venue. I look forward to a fruitful two days of open exchanges of ideas with
this illustrious group of Chinese leaders, which will lay the groundwork for a strong
and mutually beneficial economic relationship between our two countnes for many
years to come.
:IIwww.treas.gov/press/releases/hpI97.htm
1/3/2007
Page 1 of 1
10 view or print tne
jJU~
content on tnls page, Clown/oaCl tne tree Actober.v AcrobatlR) Kea(!e(\PJ
December 14, 2006
HP-198
Statement by Treasury Secretary Henry M. Paulson
on Resignation of Don Hammond
Washington, DC- Treasury Secretary Henry M. Paulson Issued the followlllg
statement on the resignation of Treasury Fiscal Assistant Secretary Don Hammond
"Don Hammond's 23-year career at the Treasury Department has been marked by
integrity, collegiality, and total dedication to the American people. Don IS a public
servant in the best sense of the term, always PlJtting the needs of the public first
His efforts have made the Department more responsive to public needs and more
efficient In meeting Its responsibilities.
"As Fiscal ASSistant Secretary for the past nille years, Don has been the key player
in managing the government's cash flow and overseeing financial management
activities And hiS role as liaison with the Federal Reserve has no doubt prepared
Don well for his next position
"Dan's deep knowledge of American financial operations and his cheerfulness in
carrying out his duties have made him a valued and much-admired colleague I
wish Don all the best as he starts the next chapter in hiS distinguished public
service career."
REPORTS
•
Resignation Letter
):llwww.treas.gov/press/releases/hp198.htrn
1/3/2007
OEPL\I~TMEN'r
OF ·r:-IE: rPEA'SUF1'(
'-'I" _,"
December 11, 2006
The Honorable Henry M. Paulson, k
Secretary of the Treasury
U S. Treasury Department
Washington, DC 20220
Dear Mr Secretary:
For more than 23 years and in particular the past 9 years as Fiscal Assistant
Secretary, I have had the honor and the privilege of serving the American public as a
professional at the Department of the Treasury. My service at Treasury has allowed me
to work with the most dedicated and impressive professionals and to be involved in a
wide range of important financial issues. After careful reflection and consideration, I
believe it is now time for me to start another chapter in my public service career.
Tluoughout my time at Treasury, I have always been in awe of the commitment,
energy, creativity and intelligence of everyone I have been fortunate to have worked with
in both political and career positions, One constant throughout my tenure has been a
clear organizational focus on doing things right For me, continuous improvement of the
effectiveness and efficiency of the govemment's financial operations has been a guiding
principle. I am very proud of the people and operations of the Fiscal Service and believe
that it is well positioned to continue in pursuit of this objective,
To begin the next stage of my career, I have accepted an offer from the Board of
Govemors of the Federal Reserve System to be Deputy Director of the Division of
Reserve Bank Operations and Payment Systems. This exciting opportunity will provide
me new challenges and perspectives in advancing the public interest.
Accordingly, I offer my resignation as Fiscal Assistant Secretary to be effective in
early February. I look forward to providing you with a smooth transition. My time at the
Treasury has been personally rewarding and I hope that I have given back some small
measure of what I have received.
Sincerely,
"'-;C; 'J
11-3
Donald V. Hammond
Fiscal Assistant Secretary
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 9 a.m. (EST), December 15,2006
CONTACT Brookly McLaughlin (202) 622-2920
TREASURY INTERNATIONAL CAPITAL DATA FOR OCTOBER
W ASHINGTOl\', D.C.- Treasury International Capital (TIC) data for October are released today and
posted on the U.S. Treasury web site ( ,
",). The next release, which will report on data
for November, is scheduled for January 17,2007.
Net foreign purchases oflong-term securities were $82.3 billion.
•
Net foreign purchases oflong-term U.S. securities were $102.0 billion. Of this, net purchases by
foreign official institutions were $25.3 billion, and net purchases by private foreign investors
were $76.7 billion.
•
U.S. residents purchased a net $19.7 billion in long-term foreign securities.
Net foreign acquisition of long-term securities is estimated to have been $73.5 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other
custody liabilities increased $3.1 billion. Forcign holdings of Treasury bills increased $4.2 billion.
Banks' own net dollar-denominated liabilities to foreign residents decreased $14.4 billion.
Monthly net TIC flows were $62.2 billion. Of this, net foreign private flows were positive $69.1 billion,
and net foreign official flows were negative $6.9 billion.
if f -/ qj'
TIC Monthly Reports on Cross-Border Financial Flows
(Billium of uolLll"s., nol ,c'lslllnlly 'Ilijusteci)
211U4
200S
12 Months
(lei-OS
15178.9
14262.4
916.5
17177.4
16166.R
1010.6
680.9
150.9
20S.7
2n.n
8
Private, net 12
Treasury Bonds & Notes, net
Gov't Agency Bonds. net
Corpormc Bonds, net
Equitlt'S, net
9
10
11
12
I)
Official, net 13
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, nel
235.6
2011
Thlllu~h
Oct-O(I
Jul-06
Aug-(J(,
Sep-Of>
(JcI-()6
171922
16178.2
1014.0
I RlRO.2
177209
1059.3
1448.3
1392.3
56.0
1634.5
1516.5
1632.6
1540.1
92.6
1754.4
1652.4
102.0
890.5
270.1
187.8
353.2
79.4
876.6
224.9
221.2
33.3
-() 2
6.7
88.4
279
21.7
34.7
4.2
75.8
-79
17.7
56.8
76.7
7R
9.9
37.5
83.6
884.1
146.5
188.4
435.0
1142
9.2
21 4
137.4
85.9
30.1
18.3
3.0
175.2
663
74.6
25.8
8.5
22.7
8.2
11.8
1.0
1.6
29.6
1(,9
16.7
22
120.1
68.5
31.6
19.0
10
25.3
18.5
53
2 (I
-0,4
3123.1
3276.0
-152.8
)700.0
3872.4
-172.4
3543.8
3710.6
-166_8
4996)
5195.7
-199_3
365A
1R7 (]
406,4
4104
-22.2
-4.0
-67.9
-45.1
-127.3
-51.4
-115.3
-100.1
-992
-189
-34
-9.9
58
-13.6
-85.0
-88
-7.8
-11.9
Foreigners' Acquisitions of Long-term Securities
1
2
}
4
5
6
7
14
15
16
17
18
Gross Purchases of Domestic U S. SeclIrities
Gross Sales of Domestic U S. Sccurities
Domestic Securities Purchased, net (line I iess llile 2) 11
Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Secuntles to US Resldenls
Foreign Securities Purchased. net (line 14 less Ime 15) 14
Foreign Bonds Purchased, net
Foreign Equities Purcha~ed, net
~6
2
20.8
I I)
346.9
18.0
RR
11~.O
9.8
2.7
n.2
77
79
I 8
-07
406.0
428.4
-22.4
483.6
503 3
-19_7
19
Nel Long-Term Securities Transaelions (line 3 plus line 16):
763.6
838.2
847,2
859.9
33.8
114.0
70.2
82.3
20
Otber Acquisitions of Lung-term Securities. net 15
-38,8
-140.0
-R4.5
-141.0
-14.5
-11.1
-11.9
-8.8
724.8
698.2
762.7
718,9
19,)
102,8
58.3
73.5
190,1
60.0
26.8
33.2
-47.2
-59.1
-64.7
-4.1
-60.6
102.3
4.5
1.9
-1.7
3.6
-11.5
-14.4
-3.9
3.1
4.2
5. I
-21 3
29_7
6.3
5.1
l.2
-10.6
-0.9
130.1
77.4
52.S
11.7
10.9
OR
5.6
23.4
-3.3
115.6
128.3
-12.7
25,4
-20
2.5
103
7.8
3.0
47
-1.7
-1.0
98
-10.8
63.9
16.4
68.6
22.0
7.0
-14.7
J 1.0
-14.4
978.9
667.4
772.2
843.3
56.0
92.6
57.8
62.2
637.2
341.6
580.4
86.9
675.4
730.2
113.0
28.7
273
81.1
II (,
45.9
119
69.1
-6.9
21
22
23
24
25
26
Nel Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
Increase in Foreign Holdings of !lollar-denominated Short-term
U,S. Securities and Other Custody Liabilities: 16
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
27
Private, net
2R
OtliClal, net
29
Change in Banks' Own !'iet Dollar-Denominated Liabilities
)0 Monthly Net TIC Flows (lines 21,22,29118
of which
31
Pnvatc, net
32
OffiCial, net
/1
/2
/3
/4
i5
16
i7
i8
-58.9
-15.6
-43.3
8.9
96.8
-13.3
80
Net foreign purchases of US. securities (+)
Includes international and reglOnal organizations
The reported dIVISion of net purchases of long-term seCUrities between net purchases by foreign official Institutions and net purchases
of other foreign investors is subject to a "transaction bias" deSCribed in frequently A,ked Questions 7 and 10.ao4 un Ihe TIC web sile.
Net tran~a<.:l!un:" in foreign stcuritie~ by U.S. n:~idents. Foreign purchases of foreign securities = U.S. sales of foreign secllritle~ to foreigners
Thus negative entries Indicate net U S purchases offorelgn securities, or In outtlov,' of caplt:J1 from the United States; posItive entries
mdicate net U S. sales of foreign s~cuntles.
Minus estimated unrecorded principal repayments to foreigners on domestIC (orporate Jnd agency asset-ba\.:kt:d :,ccurities +
estimated foreign acqUisitions of U.S eqult) Ihrough Siock swapsestimated US acquISitions of foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to OtliclallnstltutlOns and Other ReSidents of Foreign Countrics
These ale primarily data on monthly changes in banks' and broker/dealers' custody liabllilies. Dala 011 custody claims are collected
quarterly and published in the Treasury Bullelin and the TIC web site.
"Selected Other Liabilities" are primarily the foreign liabilities ofU S. customers that are managed by US banks Or broker/dealers.
TIC dato cover most components of mtemational finanCial flows, but do nol Include data on direct IIlvestment nows, which arc collected
and published by the Department of Commerce', Bureau of EconUIIlIC AnalySiS. In addition 10 the monthly data sUlilmariLed here. the
TIC collects quarterly dala on some hanking and nonhanklllg assets and liahilltles. Frequently Asked QuestIOn I on Ihe TIC "eo
site describes the scope of TIC data collection.
-30-
15-Feb-07
TIC monthly reports on Cross-Border Portfolio Financial Flows for November 2006
($ millions)
Rows in
monthly
press
release
table -->
2006-Dec
2006-Nov
2006-0ct
2006-Sep
2006-Aug
2006-Jul
2006-Jun
2006-May
2006-Apr
2006-Mar
2006-Feb
2006-Jan
2005-Dec
2005-Nov
2005-0ct
2005-Sep
2005-Aug
2005-Jul
2005-Jun
2005-May
Gross
Foreign
Purch.
of
Domes.
U.S.
L-T
Secur.
1850359
1928132
1875228
1750381
1750503
1575428
1794191
2064672
1481780
1823433
1620608
1586113
1223188
1461600
1482801
1669760
1430969
1286950
1523661
1494716
Gross
Foreign
Sales
of
Domes.
U.S.
L-T
Secur.
Domes.
L-T
Secur.,
Purch.,
net
Private
Treas
Bonds&
Notes,
net
Private,
net
Private
Gov't
Agency
Bonds,
net
Private
Corp
Bonds,
net
Private
Equity,
Net
Official
Treas
Bonds&
Notes,
net
Official,
net
Official
Gov't
Agency
Bonds,
net
Official
Corp
Bonds,
net
2
3
4
5
6
7
8
9
10
11
12
1787352
1805886
1766649
1649925
1625179
1509779
1703268
1953233
1415025
1726711
1515906
1499782
1148772
1354648
1375150
1561322
1350965
1192482
1431155
1451858
63007
122246
108579
100456
125324
65649
90923
111439
66755
96722
104702
86331
74416
106952
107651
108438
80004
94468
92506
42858
39044
115733
83257
83730
95706
42926
87663
113214
44850
95859
86881
67681
63226
96862
96643
104683
74386
83904
68710
29241
4489
33104
6227
-6051
27221
2917
33372
31731
-14919
16155
6445
-4664
11186
46867
24191
23315
21901
23607
2076
-6302
12531
11812
10850
17332
23700
7684
17797
28370
12295
11550
27849
20220
8414
7889
29596
17521
16187
30523
15591
17546
33125
61756
38781
57128
37013
19538
39315
40323
38552
47012
34087
27818
33306
36479
34701
41819
34737
21999
47886
17568
-11101
9061
27399
15321
7772
12787
-2821
12790
8922
21142
18500
24307
10320
5627
8155
22028
1561
7775
3157
429
23963
6513
25322
16726
29618
22723
3260
-1775
21905
863
17821
18650
11190
10090
11008
3755
5618
10564
23796
13617
6092
1016
18463
7706
16882
8239
-4702
-13969
11078
-7332
12679
6378
5838
4959
5973
-1116
3662
5064
17597
7925
15506
3955
5260
7872
9777
11853
5209
8521
5710
3959
2214
8934
2804
3217
3203
1676
-411
4165
3052
3898
2864
3640
2006
1830
2752
1007
1575
2503
1720
2608
3602
2416
2535
1818
1604
2190
2026
1392
2609
1842
2005-Apr
2005-Mar
2005-Feb
2005-Jan
2004-0ec
2004-Nov
2004-0ct
2004-Sep
2004-Aug
2004-Jul
2004-Jun
2004-May
2004-Apr
2004-Mar
2004-Feb
2004-Jan
2003-0ec
2003-Nov
2003-0ct
2003-Sep
2003-Aug
2003-Jul
2003-Jun
2003-May
2003-Apr
2003-Mar
2003-Feb
2003-Jan
2002-0ec
2002-Nov
2002-0ct
2002-Sep
2002-Aug
2002-Jul
2002-Jun
2002-May
2002-Apr
1407286
1524677
1364740
1287113
1308477
1405663
1193809
1250695
1207146
1202863
1233569
1312229
1375483
1393455
1157656
1137839
1018831
986343
1238429
1152366
1266789
1287886
1305375
1252333
938995
1196277
932477
949860
918565
1185340
1169945
1089966
1166769
1272460
1030579
1160672
1061066
1348646
1459445
1273353
1198125
1224629
1304212
1130025
1183518
1153806
1135014
1143270
1249365
1279556
1326107
1089305
1043621
942865
904199
1197265
1131733
1213052
1208420
1227542
1150826
885852
1124971
915596
903780
872921
1117214
1128270
1049828
1125904
1222711
979212
1105449
1019882
58640
65232
91387
88988
83848
101451
63784
67177
53340
67849
90299
62864
95927
67348
68351
94218
75966
82144
41164
20633
53737
79466
77833
101507
53143
71306
16881
46080
45644
68126
41675
40138
40865
49749
51367
55223
41184
47663
78514
73076
74219
73585
73496
48919
52636
34038
58476
74539
56089
69776
29391
45861
64057
62262
60474
14267
7587
56755
67390
60548
87296
52244
70019
7484
38652
35814
54632
40010
40445
35439
51516
45265
53465
41083
16535
48390
32326
25331
1378
12673
3554
6165
-2120
6716
29012
20776
27669
17648
8266
19202
19229
16584
-13091
-3913
21238
39123
23626
28363
9765
26967
-7531
-618
7227
8735
6004
25407
3712
29626
12162
10596
-7229
8506
6188
10584
19082
25582
24311
22866
5980
14923
16761
14748
21025
24337
-3410
16114
22414
10625
7372
8519
-2167
7868
12201
6963
25038
15902
13828
4531
19199
12291
17746
21164
17677
13210
8523
8411
16503
23372
17762
21240
28930
16654
39313
24298
18853
43824
23656
27686
26588
19963
18388
25235
19568
10664
19318
27597
19968
19767
16078
25593
20755
27191
22092
26444
12565
22942
13111
21635
9205
3665
13830
3780
20715
26531
16818
4860
2696
1236
13152
7312
12214
3646
-3333
-2421
7313
4191
-5675
-618
-10082
1913
11777
13090
8921
-1129
-6100
11571
-9527
9204
6704
4485
2780
-2081
-2871
3185
6516
3637
-6304
4687
9587
3977
-165
8122
10977
-13282
18311
14769
10263
27955
14865
14541
19302
9373
15760
6775
26151
37957
22490
30161
13704
21670
26897
13046
-3018
12076
17285
14211
899
1287
9397
7428
9830
13494
1665
-307
5426
-1767
6102
1758
101
13174
-14227
12219
7621
6976
21049
15649
10874
15515
5935
16335
7866
22691
33567
17892
26791
8660
18968
23593
10659
-4487
11573
15925
13422
-1100
-86
4321
2390
6252
12328
82
-3737
635
-5268
2161
-69
-1605
-1536
1316
3932
6313
1025
3487
-928
2446
2568
2511
-923
-1811
1760
2786
4227
3602
4442
1873
2803
2039
809
33
956
656
2059
881
4849
4521
3511
646
1031
3380
4204
3293
3653
1864
1051
64
-422
2106
1377
1635
1891
887
1234
1107
819
801
548
606
1274
193
469
699
968
723
437
486
479
311
187
-41
463
223
498
67
560
570
209
662
138
246
113
1033
2002-Mar
2002-Feb
2002-Jan
2001-0ec
2001-Nov
2001-0ct
2001-Sep
2001-Aug
2001-Jul
2001-Jun
2001-May
2001-Apr
2001-Mar
2001-Feb
2001-Jan
2000-Dec
2000-Nov
2000-0ct
2000-Sep
2000-Aug
2000-Jul
2000-Jun
2000-May
2000-Apr
2000-Mar
2000-Feb
2000-Jan
1999-Dec
1999-Nov
1999-0ct
1999-Sep
1999-Aug
1999-Jul
1999-Jun
1999-May
1999-Apr
1999-Mar
1097635
891796
978136
792782
1017349
935742
737737
831736
766449
809676
910836
833448
900653
815745
909599
741430
703501
795478
691864
655630
598022
699629
689038
733753
883228
806684
685836
558057
673059
605419
569974
641162
599397
626440
650081
640128
675551
1025339
866772
961862
748392
960959
871890
732393
794450
739065
770751
850057
803332
842081
760068
867465
711110
671191
750557
661953
593176
567940
667564
668195
698225
846328
744519
645507
529051
635114
581976
539410
591536
568869
599080
618513
603279
646200
72296
25024
16274
44390
56390
63852
5344
37286
27384
38925
60779
30116
58572
55677
42134
30320
32310
44921
29911
62454
30082
32065
20843
35528
36900
62165
40329
29006
37945
23443
30564
49626
30528
27360
31568
36849
29351
62672
26293
21616
40750
46340
58639
-118
37261
28948
42562
57951
33232
56745
54567
37312
28446
34549
46429
32313
57107
25259
30921
18024
24667
33607
57287
31485
20867
38522
21759
31338
47025
31428
26130
26567
40881
29642
14099
11025
-8592
7756
6096
13484
-3683
4493
-10753
-202
2163
-4656
4648
6547
-10853
-10857
-9139
4161
-2181
-562
-5422
-16520
-5613
8117
-16302
3786
2802
-320
-1290
-8485
1804
16724
-4463
-1006
2415
3425
6377
15816
5144
6738
6413
10725
25211
5651
13375
13530
17640
5500
9754
18357
9249
11165
9452
15745
13066
11977
11432
5205
3853
10026
5144
11101
11018
3914
2449
6722
6420
8056
5796
7228
3724
4406
8931
7684
25209
7183
15027
13201
16426
12875
9754
12451
14985
14848
33110
21663
26411
29334
13135
18778
18922
13076
13622
21796
10297
25773
7572
8263
14770
14924
14316
9866
14860
15970
16656
12363
20456
11632
11301
10896
13091
7548
2941
8443
13380
13093
7069
-11840
6942
11186
10276
17178
6471
7329
9437
23865
11073
9021
16126
8895
24441
15179
17815
6039
3143
24038
27559
10453
8872
18230
7854
4822
12142
8207
11780
8445
17629
2490
9624
-1269
-5342
3640
10050
5213
5462
25
-1564
-3637
2828
-3116
1827
1110
4822
1874
-2239
-1508
-2402
5347
4823
1144
2819
10861
3293
4878
8844
8139
-577
1684
-774
2601
-900
1230
5001
-4032
-291
5233
-2177
-6686
1061
6266
2239
2549
343
-741
-3243
913
-9055
249
667
2226
1068
-4967
-7150
-6626
449
-639
-1412
-1405
6403
-569
1777
6769
4962
-2325
-1248
-1714
2394
-1773
397
3223
-6696
-4845
3744
1204
969
2216
3348
2066
2177
-1339
-1054
-734
1450
5716
1187
278
2109
478
2598
5120
4420
4879
4973
2616
3845
3873
3643
2714
1750
2606
1274
2850
1836
-276
275
1304
2156
2332
4130
1323
455
225
459
357
716
428
260
-58
178
322
67
292
167
574
274
97
312
140
187
95
-38
105
424
25
201
197
489
286
166
641
463
486
-597
-450
369
-48
1999-Feb
1999-Jan
1998-Dec
1998-Nov
1998-0ct
1998-Sep
1998-Aug
1998-Jul
1998-Jun
1998-May
1998-Apr
1998-Mar
1998-Feb
1998-Jan
1997-Dec
1997-Nov
1997-0ct
1997-Sep
1997-Aug
1997-Jul
1997-Jun
1997-May
1997-Apr
1997-Mar
1997-Feb
1997-Jan
1996-Dec
1996-Nov
1996-0ct
1996-Sep
1996-Aug
1996-Jul
1996-Jun
1996-May
1996-Apr
1996-Mar
1996-Feb
640762
603459
488536
656452
785842
793073
690449
611186
665399
598800
586020
633419
550282
574039
476383
501631
686696
543496
611738
543841
588904
542873
516121
499035
542494
520060
473080
468833
490382
441266
339801
402362
298395
357245
292391
343178
408863
632265
588035
455630
602544
782063
800835
698145
597947
640622
556842
552798
604893
514164
549223
471201
476821
656019
510060
565588
513364
544837
519784
471699
468501
498175
489244
417538
436018
454143
414202
314087
350277
278689
330305
270731
322088
379885
8497
15424
32906
53908
3779
-7762
-7696
13239
24777
41958
33222
28526
36118
24816
5182
24810
30677
33436
46150
30477
44067
23089
44422
30534
44319
30816
55542
32815
36239
27064
25714
52085
19706
26940
21660
21090
28978
11830
12783
25725
43030
-4973
3199
7908
14017
28045
41087
31165
22030
33871
25719
5332
22597
42553
28699
36666
31252
32761
18720
37791
25021
35341
22966
41076
27163
30594
9205
22716
43460
25306
19698
12481
16282
19882
-10924
-4349
5275
13613
-11194
5034
1169
-2656
5043
20597
3699
-10585
8501
6420
-9031
14078
29724
12103
15941
5102
12571
3423
18700
12928
15091
9582
30369
14125
19356
-3664
7458
36163
15261
7620
3082
6847
9327
2811
7623
5625
9459
-5119
28
1520
2310
5202
3996
8090
9708
6942
2709
3030
-369
7392
650
7305
4602
1647
2334
6228
3536
5115
3854
2577
5228
3587
3598
4381
3728
3585
2994
605
458
3225
15213
6545
10225
11666
9040
8257
5073
10523
14586
8507
17007
9467
9006
8371
6302
3841
5697
7040
6244
10432
9829
6718
5910
5018
9221
6587
7644
6698
7532
9255
7814
6052
5265
7883
5032
8340
5907
4730
2964
4600
8292
2300
-10120
146
3840
3214
7987
2369
13440
9422
8219
5031
5047
-260
8906
7176
11116
8714
6245
6953
3539
5914
2943
486
1112
119
16
3063
-2483
1195
1201
3762
637
1423
-3333
2641
7181
10878
8752
-10961
-15604
-778
-3268
871
2057
6496
2247
-903
-150
2213
-11876
4737
9484
-775
11306
4369
6631
5513
8978
7850
14466
5652
5645
17859
2998
8625
-5600
7242
9179
4808
9096
-3699
1463
5274
11843
9001
-10304
-16920
469
-3486
898
1162
6133
1242
-1189
-367
1831
-12542
3397
8541
-2107
9926
3428
6955
7154
10178
7565
13903
3078
4765
17094
3518
9228
-6691
6479
8304
4794
8653
884
979
1894
196
-528
-136
2097
-55
1590
-862
-474
135
1194
1281
-193
-189
483
1122
378
1212
209
794
-41
191
205
358
487
1365
331
519
118
590
663
317
464
-184
454
74
-336
56
32
-177
-164
-575
131
-4
617
189
253
-254
98
-89
146
175
364
189
227
182
46
-70
209
137
3
-29
-50
-126
359
476
70
325
231
275
73
-53
1996-Jan
1995-0ec
1995-Nov
1995-0ct
1995-Sep
1995-Aug
1995-Jul
1995-Jun
1995-May
1995-Apr
1995-Mar
1995-Feb
1995-Jan
1994-0ec
1994-Nov
1994-0ct
1994-Sep
1994-Aug
1994-Jul
1994-Jun
1994-May
1994-Apr
1994-Mar
1994-Feb
1994-Jan
1993-0ec
1993-Nov
1993-0ct
1993-Sep
1993-Aug
1993-Jul
1993-Jun
1993-May
1993-Apr
1993-Mar
1993-Feb
1993-Jan
351811
265200
325796
323951
308182
340740
305737
368103
355200
229573
317252
317465
280442
233201
293199
257177
257119
325167
213424
280162
329893
250087
318299
324981
268363
217905
332164
277897
286518
312248
234345
282914
226645
236254
306301
289464
209888
329426
271534
296504
313378
308580
304067
262469
334142
331804
218253
302859
297126
264988
219102
272125
245698
244563
298806
208264
275650
305191
264466
313959
304637
258261
202465
306725
260463
287745
289790
234813
280503
223207
227011
295285
285516
207890
22385
-6334
29292
10573
-398
36673
43268
33961
23396
11320
14393
20339
15454
14099
21074
11479
12556
26361
5160
4512
24702
-14379
4340
20344
10102
15440
25439
17434
-1227
22458
-468
2411
3438
9243
11016
3948
1998
10217
-9427
30039
4427
3931
37142
26279
20893
23116
8072
9722
17558
13554
13306
17923
7845
8238
15611
-684
995
11942
-12435
9867
17110
5206
11435
19129
15392
-5355
21559
3818
2363
6072
5951
10721
7320
4812
490
-11995
16368
-1038
-6533
26446
15081
11760
16222
3242
5189
11993
7749
11144
10355
7380
7271
6275
-4054
-7407
8243
-12994
3786
9331
-2351
-3156
9000
2432
-14025
13256
2806
-4938
2265
1657
7194
2335
3420
2749
-2064
3724
1172
4824
4355
2549
1949
1339
1763
2016
1332
2035
1902
2549
81
-994
1516
1179
2306
1879
-592
823
1812
3142
5836
4860
3248
4713
2131
1579
3709
3124
1049
-977
1121
1013
4799
2538
6766
5561
5272
3708
6330
6552
4651
2233
5025
4444
4554
1923
3921
2238
3187
4893
2908
7793
478
2672
4659
2396
942
4297
2033
5217
3130
3663
-14
3212
368
3486
2264
2118
171
2179
2094
3181
-1268
368
2633
2319
632
904
834
-2508
-211
-784
-1663
1098
-1854
-1226
2927
-717
-1697
1342
-1521
599
3571
3473
4458
3236
4495
827
2509
-553
380
315
-241
2240
1746
208
12168
3093
-747
6146
-4329
-469
16989
13068
280
3248
4671
2781
1900
793
3151
3634
4318
10750
5844
3517
12760
-1944
-5527
3234
4896
4005
6310
2042
4128
899
-4286
48
-2634
3292
295
-3372
-2814
12682
2651
-909
5705
-4525
-364
16790
10871
-1707
3158
4022
2110
1829
608
2760
2847
4671
9756
5063
3362
11237
-1661
-4757
3547
4389
3687
6223
1619
3165
724
-4677
-760
-3424
2709
-616
-4364
-2980
-116
321
266
178
261
89
168
658
345
323
553
611
-38
138
437
743
196
1124
902
703
1486
171
-130
-186
493
200
340
390
800
316
229
139
316
627
503
-33
195
-29
108
145
363
71
-103
-85
-55
-136
-267
-92
68
202
17
9
231
-131
-17
-8
0
50
-161
-206
-25
223
103
-186
-29
118
-72
214
206
3
46
202
0
22
1992-Dec
1992-Nov
1992-0ct
1992-Sep
1992-Aug
1992-Jul
1992-Jun
1992-May
1992-Apr
1992-Mar
1992-Feb
1992-Jan
1991-Dec
1991-Nov
1991-0ct
1991-Sep
1991-Aug
1991-Jul
1991-Jun
1991-May
1991-Apr
1991-Mar
1991-Feb
1991-Jan
1990-Dec
1990-Nov
1990-0ct
1990-Sep
1990-Aug
1990-Jul
1990-Jun
1990-May
1990-Apr
1990-Mar
1990-Feb
1990-Jan
1989-Dec
178648
238758
227931
218900
239322
261786
218504
195269
206936
228895
210028
252849
185999
211526
209378
189966
224246
180790
156589
223771
201200
188345
226891
183417
159344
194680
179402
137334
225739
177180
164007
172377
159741
159412
187614
194344
157095
172639
218044
219668
225322
231511
262003
200762
198814
195812
236085
201896
242038
181243
202109
206217
192587
217059
175947
157740
202939
195104
197348
215162
180548
152651
186390
183305
139860
223810
167999
156940
176133
157050
171007
184950
192349
153295
6009
20714
8263
-6422
7811
-217
17742
-3545
11124
-7190
8132
10811
4756
9417
3161
-2621
7187
4843
-1151
20832
6096
-9003
11729
2869
6693
8290
-3902
-2527
1929
9181
7067
-3755
2691
-11595
2664
1995
3800
6917
20871
4436
-1565
6927
447
12138
-1506
8619
-4696
8365
2142
1930
880
2843
-3397
7322
5259
4755
18620
6690
3038
5443
882
-575
3673
-5192
-5944
-4988
8535
6068
-1502
-2467
-7621
4576
1821
2652
729
18251
595
-1539
5762
-1095
9036
-5241
4848
-6330
4824
2572
2154
-1724
102
-4891
1689
1862
112
13204
2054
-2749
5673
1188
-1482
874
-2473
-1880
-2198
4482
2471
-819
-1767
-5525
2520
456
-394
1539
1965
2604
233
493
-192
1912
1358
1711
1269
810
640
1091
1338
273
1389
1451
989
1098
618
-156
698
-612
765
608
1310
523
-719
-1024
1079
849
714
-437
196
1719
778
1564
2212
-683
822
2133
2027
1770
2163
2299
2392
1004
2566
1302
1233
673
2003
489
2521
1428
2280
1589
1658
3176
-6
-538
1383
1888
257
-1039
-389
1540
3049
703
728
60
625
1011
2741
2437
1338
415
-2392
-1355
-36
-973
78
-332
-639
165
-2372
-2548
593
465
-384
1661
980
1264
3209
3134
1913
388
-534
-1084
-398
-3499
-2307
-1376
1435
-301
-2100
-991
-2352
-289
-425
-1259
-908
-157
3827
-4857
884
-664
5604
-2039
2505
-2494
-233
8669
2826
8537
318
776
-135
-416
-5906
2212
-595
-12040
6285
1988
7269
4617
1290
3417
6917
646
999
-2254
5158
-3974
-1913
174
1148
-715
-620
2949
-4474
691
-766
5420
-2685
1711
-3136
-192
8693
2521
7190
512
830
-458
-716
-5832
2020
-373
-12738
5869
2364
7106
5087
1194
3856
6594
660
1028
-2220
5018
-3771
-1659
366
1112
-243
493
624
433
387
92
171
574
954
416
-112
160
518
778
-221
265
133
76
60
-60
-219
327
-278
-78
331
-22
399
-216
278
71
-6
301
53
62
-344
-238
71
137
26
20
-54
104
191
52
79
10
145
16
56
-35
163
58
41
57
112
6
122
-26
-46
-11
-30
5
-30
0
-17
-18
-54
0
-2
-39
-27
13
25
-14
1989-Nov
1989-0ct
1989-Sep
1989-Aug
1989-Jul
1989-Jun
1989-May
1989-Apr
1989-Mar
1989-Feb
1989-Jan
1988-Dec
1988-Nov
1988-0ct
1988-Sep
1988-Aug
1988-Jul
1988-Jun
1988-May
1988-Apr
1988-Mar
1988-Feb
1988-Jan
1987-Dec
1987-Nov
1987-0ct
1987-Sep
1987-Aug
1987-Jul
1987-Jun
1987-May
1987-Apr
1987-Mar
1987-Feb
1987-Jan
1986-Dec
1986-Nov
212094
238048
179931
257654
232384
256722
215543
167002
176120
180805
158299
114628
152656
154272
143937
161183
142109
208581
144549
133823
166665
180102
125436
104702
130531
167275
140740
144637
146116
175328
134946
145904
168434
129868
103668
109505
91662
200691
235424
171021
232919
229737
256717
207697
162746
163754
167063
154098
111585
141044
150916
144596
159128
137156
206659
130453
127814
154906
167954
120935
103975
130521
164175
133409
141897
140672
159300
129563
142426
152540
124216
100329
102539
90971
11403
2624
8910
24736
2647
5
7845
4256
12367
13742
4201
3043
11612
3356
-659
2055
4953
1922
14095
6009
11759
12148
4502
727
11
3100
7330
2740
5444
16028
5383
3479
15895
5652
3339
6966
691
9469
3151
7991
14250
-384
-1038
9676
4443
5115
8959
2193
520
9199
3315
531
3465
7581
3807
9007
2949
4182
5212
-402
-849
-1875
-354
5266
84
3878
12417
851
994
10280
5075
1736
6743
886
6469
-1528
3839
12110
-4219
-5765
8404
828
2096
4698
826
-1930
6452
1616
-454
1072
3277
-503
6000
361
1845
4945
-474
837
4527
-3699
-818
-1502
-1444
8562
-4730
-5684
1086
-685
-1928
638
-2595
1497
2625
1014
1302
481
749
163
1000
642
1630
1044
979
441
365
573
183
134
943
1360
147
599
-30
-263
844
216
144
260
-20
488
506
128
136
-325
937
164
610
1356
2808
766
266
-23
1865
1148
139
2556
2170
2884
172
2706
2297
2104
791
1539
3146
2596
2788
1018
1497
500
349
130
129
1229
2954
1355
2511
1714
1680
3253
4269
1548
1895
3936
2067
-1305
1288
2872
861
1490
2830
970
59
207
-253
150
-1235
10
-770
-379
671
1024
772
-1140
1422
241
-203
-15
-2660
-6746
1972
2869
251
2324
1634
3773
3289
5250
3275
1605
1559
59
1934
-527
919
10486
3031
1043
-1830
-187
7251
4783
2008
2523
2413
41
-1190
-1410
-2628
-1886
5088
3060
7577
6936
4904
1576
1886
3454
2064
2656
1567
3611
4532
2484
5614
577
1603
223
-196
1686
-979
778
9918
2907
461
-1069
-842
6549
4299
2019
2243
2196
577
-1481
-1450
-2362
-1658
5062
3075
8135
7169
5118
1670
1854
2466
1341
2612
2251
3719
4447
2489
5906
834
1477
309
173
271
227
129
204
-143
-188
-672
763
293
269
159
246
69
383
498
44
30
297
-82
-14
-1
-36
-125
224
-32
470
554
85
74
79
233
-56
-144
21
61
-81
-49
-210
142
-42
56
-26
-160
-179
89
224
13
-89
47
50
-68
4
5
-97
-85
45
33
110
-22
-130
26
16
30
-36
-18
-197
-184
-51
4
48
-88
5
-227
-207
1986-0ct
1986-Sep
1986-Aug
1986-Jul
1986-Jun
1986-May
1986-Apr
1986-Mar
1986-Feb
1986-Jan
1985-Dec
1985-Nov
1985-0ct
1985-Sep
1985-Aug
1985-Jul
1985-Jun
1985-May
1985-Apr
1985-Mar
1985-Feb
1985-Jan
1984-Dec
1984-Nov
1984-0ct
1984-Sep
1984-Aug
1984-Jul
1984-Jun
1984-May
1984-Apr
1984-Mar
1984-Feb
1984-Jan
1983-Dec
1983-Nov
1983-0ct
108441
110566
111909
108016
107528
106198
156587
139012
112355
93635
85686
74376
51095
55428
52241
65952
48714
58476
49474
32780
44744
48204
42223
40751
43543
20369
36267
29212
22647
23353
18267
16051
20684
22102
14922
18079
23216
103637
100673
106243
103900
101064
99352
138507
120955
106877
92136
71516
63748
46189
44934
53159
56248
41186
52033
43626
34697
37846
43705
31765
36127
37401
23729
29068
27571
23127
22295
15795
15853
19651
21670
15078
18688
20665
4804
9893
5666
4116
6464
6845
18080
18057
5478
1500
14169
10627
4907
10494
-918
9704
7528
6443
5847
-1917
6899
4498
10459
4624
6141
-3360
7199
1641
-480
1058
2473
197
1033
431
-157
-609
2551
1493
8070
5492
3327
5467
7050
14418
17501
4863
1132
11656
11175
5952
9591
-624
8008
5154
2717
6990
3400
5800
2101
8907
5243
7408
-1175
6351
1365
902
1564
1975
-101
941
375
253
-263
2185
-1274
2193
17
-2524
1278
-2974
5756
9738
-1229
-3849
4090
1404
847
5464
-3120
3028
3024
-336
4937
881
985
-132
5586
2831
3801
-1835
5291
1573
571
1751
1660
-1013
552
228
-195
-642
1857
273
392
351
1019
982
897
815
613
757
123
525
935
680
477
-97
838
204
107
328
40
586
18
444
180
176
129
146
108
184
4
-151
-130
80
-7
16
223
-49
3785
4277
3703
2978
2664
6325
4197
4356
3560
3241
5058
7413
3787
3557
1930
3529
1621
2921
1504
2960
4186
2917
3250
2183
3897
1135
781
260
298
144
99
434
-153
176
150
147
250
-1290
1208
1420
1853
543
2801
3650
2793
1775
1616
1982
1422
638
94
663
612
305
25
221
-480
42
-702
-373
49
-467
-605
133
-576
-150
-335
368
609
463
-22
282
9
127
3311
1824
175
789
997
-205
3662
557
615
368
2514
-548
-1046
903
-295
1696
2374
3726
-1143
-5317
1099
2397
1551
-618
-1266
-2185
848
276
-1383
-506
498
298
92
56
-410
-346
366
3378
1878
40
1448
1612
157
3862
376
619
362
2712
-236
-1232
1082
-243
1792
2691
3580
-625
-5270
1345
2539
1921
-601
-862
-1968
1368
179
-896
-316
644
487
4
545
-435
-760
504
14
-22
121
-375
124
-355
-413
-13
3
-166
-229
-124
182
-99
86
69
-36
328
-157
-61
-160
-100
-189
125
-157
29
-98
155
-40
99
87
-21
139
-116
64
306
57
-49
-74
-19
-445
-540
-61
-83
98
-13
8
-143
-35
-23
-98
-125
-201
-395
-255
-276
-38
18
-21
5
-156
33
-1
-177
-11
-238
-89
-174
22
5
0
-28
59
-218
1983-Sep
1983-Aug
1983-Jul
1983-Jun
1983-May
1983-Apr
1983-Mar
1983-Feb
1983-Jan
1982-0ec
1982-Nov
1982-0ct
1982-Sep
1982-Aug
1982-Jul
1982-Jun
1982-May
1982-Apr
1982-Mar
1982-Feb
1982-Jan
1981-0ec
1981-Nov
1981-0ct
1981-Sep
1981-Aug
1981-Jul
1981-Jun
1981-May
1981-Apr
1981-Mar
1981-Feb
1981-Jan
1980-0ec
1980-Nov
1980-0ct
1980-Sep
21128
20143
13602
18570
23027
15069
21941
17295
16449
17051
19930
17331
16324
15395
11492
10838
11751
10813
11934
9932
6724
10982
13529
8368
9892
9331
9521
13634
10133
10280
13170
9315
8297
11024
9652
10033
10890
19666
21303
14766
16813
19971
15232
18550
15770
15209
15339
18946
15356
14002
14241
9425
9840
9468
8444
9691
7084
5006
9870
11607
6871
7844
7308
7097
10817
7951
8420
10197
6600
5952
10085
7804
7978
8707
1463
-1160
-1164
1757
3056
-163
3391
1525
1240
1712
984
1975
2322
1154
2067
997
2283
2368
2243
2847
1718
1112
1922
1496
2048
2023
2424
2817
2182
1860
2972
2716
2345
939
1847
2055
2183
1846
3
-16
1632
3505
-274
2691
90
1574
244
989
1612
831
727
-450
522
802
1473
931
580
905
1841
21
-169
35
483
750
1589
1566
722
1409
1115
874
1148
1533
499
551
1177
-445
-779
1156
2587
-1485
1640
-957
734
-700
577
1062
841
448
-815
44
-454
662
688
-30
445
1551
-99
-152
-125
271
352
286
393
-127
441
364
170
532
363
17
729
-14
128
42
138
58
-18
-54
-33
27
11
-52
72
-2
-176
-18
-20
150
141
45
129
59
-54
-59
43
-18
41
63
55
-24
87
17
28
82
49
102
-15
-65
124
163
101
-31
405
317
85
78
-58
-141
131
110
216
29
241
236
769
489
155
74
184
135
43
49
126
177
231
216
164
120
196
367
28
89
72
62
43
559
156
621
369
455
911
1021
1002
872
1074
334
368
-225
426
142
262
337
181
43
406
217
209
135
-110
53
-7
105
1033
1033
643
754
356
595
478
997
435
-156
-383
-1163
-1148
125
-449
112
700
1435
-335
1467
-5
363
1491
426
2517
476
1481
895
1312
2268
813
-729
1902
1665
2013
1540
1674
1227
616
1137
1564
1601
1471
-208
314
1556
1632
-45
-928
-895
407
36
341
966
1552
34
1866
231
641
1500
416
2797
318
1476
791
1325
2348
841
-787
2033
1627
1381
1529
798
980
321
495
1084
1404
865
-335
301
663
1023
-187
-85
-91
-204
-77
112
-142
-57
-173
-264
-169
-26
-58
-81
-53
192
-58
123
-78
-182
-41
39
-147
-122
255
4
286
-53
58
531
7
116
332
-85
107
565
48
10
-25
-76
-104
-217
-21
-26
-34
-134
15
-73
-141
-78
-26
-99
-72
-36
-91
-23
-28
-34
29
-46
3
-108
54
496
270
31
29
581
27
248
44
11
241
151
1980-Aug
1980-Jul
1980-Jun
1980-May
1980-Apr
1980-Mar
1980-Feb
1980-Jan
1979-Dec
1979-Nov
1979-0ct
1979-Sep
1979-Aug
1979-Jul
1979-Jun
1979-May
1979-Apr
1979-Mar
1979-Feb
1979-Jan
1978-Dec
1978-Nov
1978-0ct
1978-Sep
1978-Aug
1978-Jul
1978-Jun
1978-May
7675
9015
11907
5703
6073
7769
8977
8174
8024
5914
8581
5170
7933
7758
5205
4780
5596
4624
3779
5558
3369
4859
6467
5483
6167
5018
5730
6156
7736
7178
9277
6339
6208
7198
7169
5451
7040
7008
7693
4299
7129
5960
4496
5584
4653
3497
4366
5515
3208
4620
4863
4542
5598
4101
3942
5607
-62
1837
2630
-635
-135
571
1808
2723
984
-1094
888
871
803
1798
709
-804
943
1127
-587
43
161
239
1605
941
569
918
1788
549
117
236
291
-1076
-536
222
1842
1761
105
-134
795
680
161
486
159
-617
620
338
-4
-63
496
76
1006
158
-165
-860
1003
578
-22
-70
41
-1102
-846
-128
607
911
-4
-58
576
564
83
509
22
-775
390
-14
-26
-100
-157
161
838
-65
-285
-823
748
245
70
85
41
-160
-86
40
102
208
-9
-86
155
106
-14
6
55
-107
144
32
-92
-109
215
22
148
14
45
35
93
22
33
49
67
103
248
59
56
-26
-21
-46
51
-5
-35
-36
17
105
36
54
35
64
98
-108
64
80
177
-29
61
-37
36
172
142
84
148
252
1077
668
138
57
13
16
128
8
64
160
49
266
78
81
340
1
-44
129
-102
-44
100
348
-178
1601
2338
440
400
349
-34
962
879
-960
93
191
642
1311
550
-187
324
789
-583
107
-335
162
599
783
734
1778
785
-29
-745
762
1718
425
-63
-103
-264
483
547
-1037
56
92
511
1042
297
-149
242
524
-597
168
-349
64
572
704
710
1313
522
-541
104
396
118
130
403
64
333
24
-18
35
-17
109
241
127
-82
49
20
23
-49
-71
14
-67
-7
87
382
136
73
291
306
603
-37
224
-62
129
126
274
-37
-16
72
-9
22
105
24
-11
1
-60
9
88
-17
52
-28
70
30
72
358
Official
Equity,
Net
Gross
Foreign
Purch.
Foreign
Gross
Foreign
Sales
Foreign
L-T
L-T
Secur.
from US
Secur.
to US
Foreign
Net
L-T
Foreign
Bonds
Purch.,
net
Secur.,
Purch.,
net
Net
Foreign
Acquis.
of
Other
Acquis.
L-T
Foreign
Equity
Purch.,
net
Secur.,
Transac.
Increase
in
Foreign
Holdings
of
Dollardenom.
S-T
U.S.
Secur.&
Other
Custody
Liabs.
L-T
L-T
Secur.,
net
Secur.
U.S.
Treas.
Bills,
Private,
net
Official,
net
13
14
15
16
17
18
19
20
21
22
23
24
25
-499
-2098
-407
-682
207
1624
1178
1170
3397
1628
-674
922
13
96
228
1005
341
-57
538
-48
521269
533521
509150
427091
427523
386611
467689
562409
416018
481546
435103
400513
347373
345527
382984
320818
311874
271576
305916
285369
568667
570882
524197
449890
430430
408364
475608
585708
435160
503060
446636
415863
369409
363283
386714
344949
312253
289263
323449
301369
-47398
-37361
-15047
-22799
-2907
-21753
-7919
-23299
-19142
-21514
-11533
-15350
-22036
-17756
-3730
-24131
-379
-17687
-17533
-16000
-28458
-17583
-6691
-13558
-9364
-18537
-10091
-14990
-7659
-8803
44
-3985
-5615
-337
2247
-17822
16604
-8879
-5038
-11269
-18940
-19778
-8356
-9241
6457
-3216
2172
-8309
-11483
-12711
-11577
-11365
-16421
-17419
-5977
-6309
-16983
-8808
-12495
-4731
15609
84885
93532
77657
122417
43896
83004
88140
47613
75208
93169
70981
52380
89196
103921
84307
79625
76781
74973
26858
-13077
-32644
-10405
-11909
-11125
-14472
-15741
-9135
-12940
-10405
-9024
-14840
-11535
-11092
-12209
-14807
-14865
-14120
-12941
-10747
2532
52241
83127
65748
111292
29424
67263
79005
34673
64803
84145
56141
40845
78104
91712
69500
64760
62661
62032
16111
6547
17033
623
-10338
3892
25568
55190
26021
900
3009
-12112
9367
-5197
2515
6042
-3087
-5495
-15543
-46341
8076
-4909
9487
4071
-14473
2130
3784
-4518
-3907
-18698
2028
6544
9421
-17116
17319
5148
-18534
1164
-7018
-29513
-637
4426
1797
4991
-3904
-1512
2601
5429
-1536
-665
2586
957
824
-4127
2268
716
-8499
-1085
-5261
-5464
507
-9335
7690
-920
-10569
3642
1183
-9947
-2371
-18033
-558
5587
8597
-12989
15051
4432
-10035
2249
-1757
-24049
-1144
-725
51
54
-542
627
1528
-743
-13
112
108
-453
172
1094
330
178
-701
-97
-139
-222
-89
174
-9
93
-54
-19
29
4
19
0
-40
-18
-159
-75
70
42
-150
-378
284927
324790
275612
243220
262524
274212
254868
228176
233685
234657
250076
252603
260671
329508
270193
271946
228354
227110
277422
260661
201448
259213
246802
227376
201270
231569
187380
213241
205481
238141
222488
213161
204926
260232
230864
239004
215170
293641
346568
291089
250390
284902
285986
270664
258080
242053
253537
259405
260356
264494
326732
284099
285653
229179
237566
299583
261552
213083
256282
258702
235890
195561
236663
179595
214731
213084
236881
221779
211332
203597
239159
230207
239494
217923
-8714
-21778
-15477
-7170
-22378
-11774
-15796
-29904
-8368
-18880
-9329
-7753
-3823
2776
-13906
-13707
-825
-10456
-22161
-891
-11635
2931
-11900
-8514
5709
-5094
7785
-1490
-7603
1260
709
1829
1329
21073
657
-490
-2753
-6199
-6695
-381
-1711
-8293
-3997
-5594
-25409
-7578
-9764
-1071
-1298
6030
841
-8190
-3549
5871
-7523
-10525
11918
2827
11465
-5684
3258
3441
-156
11863
5291
-4981
2234
6865
1064
-1749
7722
5574
7325
394
-2515
-15083
-15096
-5459
-14085
-7777
-10202
-4495
-790
-9116
-8258
-6455
-9853
1935
-5716
-10158
-6696
-2933
-11636
-12809
-14462
-8534
-6216
-11772
2268
-4938
-4078
-6781
-2622
-974
-6156
765
3078
13351
-4917
-7815
-3147
49926
43454
75910
81818
61470
89677
47988
37273
44972
48969
80970
55111
92104
70124
54445
80511
75141
71688
19003
19742
42102
82397
65933
92993
58852
66212
24666
44590
38041
69386
42384
41967
42194
70822
52024
54733
38431
-13062
-10929
-5192
-8523
-7789
40671
-6281
-6323
-6820
-7260
-7060
-9239
-11632
-6652
-2672
-7747
-10233
-9304
-9351
-11961
-12826
-12159
-11542
-10547
-10157
-22911
-8742
-9130
-9396
-9674
-7639
-7617
-5384
-4054
-199
20
20
36864
32525
70718
73295
53681
130348
41707
30950
38152
41709
73910
45872
80472
63472
51773
72764
64908
62384
9652
7781
29276
70238
54391
82446
48695
43301
15924
35460
28645
59712
34745
34350
36810
66768
51825
54753
38451
21033
-8445
6425
-7561
-2244
-11987
16256
2800
18125
17897
101982
2358
-8224
23848
20530
8781
7598
8751
4891
-19936
10870
-13671
-3337
20638
435
6715
-4600
-2259
8405
6960
-5887
-5767
13379
4933
113620
9325
-6850
-980
3561
-4651
-7683
-5706
164
-1029
7370
4756
3851
31243
3912
-9121
9504
14531
511
-3048
11111
-1889
-8302
9091
-3661
2166
8301
-5875
11945
1883
279
2448
4756
-536
-1959
2872
14152
22234
7839
-5575
4760
2951
2364
-4734
5995
3617
-897
1165
2435
754
15514
-4365
-2084
3224
3404
-1943
500
3402
-1842
-574
703
106
2280
-1133
-318
2313
-702
-4322
2102
3086
-3756
1844
2117
2127
8037
1105
-5740
610
-7015
-2949
-11701
-3453
-132
6205
2321
3097
15729
8277
-7037
6280
11127
2454
-3548
7709
-47
-7728
8388
-3767
-114
9434
-5557
9632
2585
4601
346
1670
3220
-3803
755
12025
14197
6734
-5576
-676
-751
150
-96
79
192
308
761
289
162
143
156
99
-2
-87
54
33
210
-336
-168
394
-22
274
161
194
186
128
82
188
-84
-1537
20
112
126
72
-37
472
226591
185776
198199
158025
204174
200390
186671
185129
205877
221714
236861
214379
248529
232184
263833
219130
236418
251377
240754
217698
204871
235762
225812
218751
263338
250526
196680
178180
189184
159056
164045
161862
170219
176635
158717
171983
171431
213586
186202
199790
167926
202483
204241
174014
176699
206588
227208
242341
213339
259558
234380
268600
224329
223223
252433
230703
220103
226902
233936
212903
217934
275383
261315
199095
175815
185880
168582
162088
167685
177194
161570
156761
171627
167938
13005
-426
-1591
-9901
1691
-3851
12657
8430
-711
-5494
-5480
1040
-11029
-2196
-4767
-5199
13195
-1056
10051
-2405
-22031
1826
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-452
-527
-672
790
-124
-1245
-1306
-1332
-1488
-1998
-2597
-681
-253
-617
2249
-1231
-829
-668
-79
240
-474
-755
-601
-1592
-423
-1562
-439
-2467
-1203
-1132
-387
-118
-733
-1114
-260
-243
-75
-205
-133
-187
852
333
-728
-684
485
841
708
2088
480
-398
-94
-302
608
-1256
-781
-598
-215
47
331
11284
394
6738
24152
1221
-4008
6545
2925
11343
13190
3078
157
11980
2172
-1214
1398
4293
1063
15737
6218
9786
10158
3654
80
-1279
2591
7129
2089
4733
17976
4760
1393
14445
4976
3364
6539
267
4
4
4
4
4
4
4
4
3
4
4
3
4
3
4
3
4
3
-296
3
492
0
0
0
0
0
0
-200
-200
-600
0
0
0
0
0
0
0
11287
397
6742
24156
1224
-4004
6549
2929
11346
13194
3082
160
11984
2175
-1210
1401
4297
1066
15441
6221
10278
10158
3654
80
-1279
2591
7129
1889
4533
17376
4760
1393
14445
4976
3364
6539
267
1787
-3160
717
762
595
-4101
-1324
-265
-2623
2838
164
-2715
5353
2995
2333
224
2544
-2091
1749
-241
3094
4016
6267
1490
5170
4006
-1535
4615
-5884
-969
-243
5502
1843
-390
-835
206
-352
1125
-3964
-465
213
373
-3771
-4187
-1169
-2982
-150
-3061
-1886
4660
3489
662
-448
942
-194
940
-1363
2145
2227
2138
5209
5160
1628
-2959
4516
-5506
-2264
-1969
4775
2353
1430
-1027
-70
-952
117
921
1510
-378
-172
837
123
-1801
-268
115
2205
-1767
1633
-503
548
-431
-474
1111
-690
-702
-72
-545
312
-1078
1437
-1490
-450
-259
1722
-1374
1118
-236
-1843
1714
-1096
-588
-627
1008
-4885
-1975
591
545
-4609
-4311
632
-2714
-265
-5265
-119
3027
3992
114
-17
1416
-1305
1631
-661
2217
2771
1827
6287
3723
3118
-2508
4774
-7228
-890
-3087
5011
4196
-284
68
517
-325
-31
42
33
161
-199
55
297
97
5
164
173
-151
27
18
-13
36
115
73
-86
52
-104
-21
-185
14
-281
-245
-244
-46
-209
-200
-59
-190
-56
-373
-11
49
22
22327
20220
18588
17909
19901
17026
19694
16418
13766
12482
11183
11157
10547
8399
8648
8793
8364
9239
6616
5903
6751
6478
6067
7299
5728
5027
6744
5136
6303
6330
5170
6676
5613
4743
4208
4031
5056
19282
22089
17684
17116
18235
17099
22664
20899
15516
12436
11710
11187
11351
9033
8560
9930
8904
10192
7457
7363
7229
7099
7430
8085
7298
5849
7381
4859
6165
6972
5480
6517
5264
4569
5279
3886
5264
3045
-1870
904
793
1666
-72
-2970
-4481
-1750
46
-527
-30
-804
-634
89
-1138
-540
-953
-842
-1461
-478
-621
-1363
-787
-1570
-821
-636
277
138
-641
-310
159
349
174
-1071
145
-208
2058
-2399
1062
366
1657
188
-1262
-3095
-983
-49
-109
272
-764
-416
310
-548
-371
-1050
-696
-999
203
169
-1133
-599
-1228
-476
-138
170
170
-692
-291
14
-1
272
-884
170
-200
987
530
-159
427
9
-260
-1708
-1386
-767
95
-418
-302
-40
-218
-221
-590
-170
97
-146
-462
-682
-790
-230
-188
-342
-346
-498
107
-32
50
-19
145
350
-98
-187
-26
-8
7850
8024
6570
4909
8130
6773
15110
13577
3728
1546
13642
10597
4103
9860
-830
8566
6988
5489
5005
-3378
6420
3877
9095
3838
4571
-4181
6563
1918
-342
417
2163
357
1382
605
-1228
-464
2343
0
0
0
-500
0
-500
-450
-400
-400
0
0
0
0
0
-950
0
0
-400
-400
0
-500
0
0
0
0
0
-800
0
0
0
0
0
-650
0
7250
0
0
7850
8024
6570
4409
8130
6273
14660
13177
3328
1546
13642
10597
4103
9860
-1780
8566
6988
5089
4605
-3378
5920
3877
9095
3838
4571
-4181
5763
1918
-342
417
2163
357
732
605
6022
-464
2343
1615
1862
3157
16336
9238
5474
435
-353
643
1595
-2993
1612
-1747
-1403
1267
1931
141
-2286
1820
2554
-4044
-2605
-1731
3065
-232
-1035
4142
-1209
4455
-864
1100
-4660
3074
3784
1364
991
2133
787
894
2837
4201
2510
5560
1587
77
2826
1008
-4404
1030
-1248
-2305
229
2377
1475
-1498
1521
2355
-4426
-2342
-691
3176
81
-996
2850
-915
3796
-1364
230
-4458
3254
2736
1923
1011
1673
425
565
-1208
-729
334
1493
-2027
-1435
1700
966
-3325
1096
848
2122
35
240
-423
-963
-1019
144
-238
972
-1096
-614
-1072
-1601
802
1088
854
772
740
-2054
2497
1750
140
71
430
362
330
4045
4931
2176
4067
3614
1513
1127
42
-1079
-67
-2095
-4427
194
2137
1898
-535
2541
2211
-4188
-3313
406
3790
1153
605
2048
-2003
2942
-2136
-510
-2403
757
986
1783
940
1244
-162
-125
-86
26
-191
-321
-99
-26
-63
-150
7
-111
128
117
-129
37
99
71
88
130
47
-9
62
157
484
-47
95
30
206
81
-108
54
26
167
-105
87
410
5093
3877
3547
4730
3749
3542
4013
4140
3631
3413
3285
3320
3300
3544
2338
2294
3241
2590
3215
2039
1753
2696
2934
2154
1851
1920
2415
2415
2162
1980
2487
2033
1845
2509
2184
2450
1928
5179
4453
4224
5092
5227
4610
4960
4629
3821
4094
4383
5066
4582
4933
3016
2974
2926
2704
3777
2133
1724
3412
5021
2304
1902
1946
3037
3054
2339
2724
2801
1993
2066
2368
1963
3013
2609
-86
-576
-677
-363
-1479
-1069
-947
-489
-190
-681
-1098
-1746
-1282
-1389
-678
-680
316
-115
-562
-94
29
-716
-2087
-150
-50
-27
-622
-639
-176
-744
-314
40
-220
142
221
-563
-681
-11
-366
-189
238
-837
-524
-515
-264
137
-404
-360
-1438
-1122
-1398
-725
-754
435
-48
-590
-128
-108
-770
-1957
-110
-254
-40
-681
-484
-212
-632
-121
40
-240
217
95
-211
-115
-76
-210
-488
-600
-642
-544
-432
-225
-327
-277
-738
-308
-160
8
47
74
-119
-67
28
34
136
54
-130
-40
204
13
59
-155
36
-112
-194
1
20
-76
126
-352
-567
1376
-1736
-1840
1394
1577
-1231
2444
1036
1050
1031
-114
229
1040
-236
1388
318
2598
2254
1682
2753
1747
396
-165
1346
1998
1996
1802
2178
2006
1116
2658
2756
2125
1081
2068
1492
1502
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1376
-1736
-1840
1394
1577
-1231
2444
1036
1050
1031
-114
229
1040
-236
1388
318
2598
2254
1682
2753
1747
396
-165
1346
1998
1996
1802
2178
2006
1116
2658
2756
2125
1081
2068
1492
1502
-148
-1140
3682
461
1151
813
-3236
-426
4908
3963
-3138
1668
2589
-384
2609
1878
-172
-2496
-1085
-4834
-703
4157
1088
634
-3189
-4814
685
-424
-3566
2304
3210
449
-967
763
5150
1562
-231
123
-1298
3899
832
397
1339
-3155
-232
6529
3470
-1235
1802
1934
-1568
2392
2330
-872
-2798
-977
-3988
-177
3307
718
-1080
-2479
-2704
-2176
161
-3530
838
3741
845
79
1111
4494
1259
-773
713
1222
-467
994
-485
857
-1117
246
2754
-281
-177
2289
1665
75
77
1562
237
400
148
145
-93
562
-59
234
263
34
-133
305
284
-331
236
379
-200
-28
-218
228
-324
-591
-2519
4366
-162
882
482
-2037
-478
3775
3752
-1058
-486
269
-1643
2315
768
-1109
-3198
-1125
-4133
-83
2745
777
-1314
-2741
-2738
-2043
-143
-3814
1168
3505
466
278
1139
4712
1031
-449
171
137
17
-67
110
111
37
20
34
132
17
44
31
6
21
20
44
243
51
-22
-4
102
42
113
-133
53
56
80
1980
2396
2133
1943
1478
1865
2201
1918
1552
1459
1700
1270
1988
1411
1357
1396
1272
1527
1188
1159
1248
1216
1223
1036
1373
1273
1357
1292
2477
2154
2935
2324
1538
1843
2706
2205
2009
1886
1943
2394
2718
1844
1952
1319
1246
1570
1580
1633
1220
1515
1930
1065
1520
1607
2054
1347
-498
242
-802
-380
-59
22
-505
-287
-457
-428
-243
-1124
-731
-434
-595
77
25
-42
-392
-474
28
-299
-707
-29
-147
-334
-697
-55
-292
321
-620
-279
-18
21
-71
-50
-326
-344
-44
-783
-608
-421
-577
15
20
-45
-365
-522
40
-462
-688
40
-199
-344
-636
-43
-206
-79
-182
-102
-41
2
-434
-237
-131
-84
-199
-341
-122
-13
-18
62
6
3
-28
48
-12
163
-19
-69
52
10
-61
-12
-559
2079
1828
-1016
-195
594
1303
2436
527
-1522
645
-252
73
1364
114
-727
969
1085
-980
-430
189
-61
898
912
422
584
1091
494
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-559
2079
1828
-1016
-195
594
1303
2436
527
-1522
645
-252
73
1364
114
-727
969
1085
-980
-430
189
-61
898
912
422
584
1091
494
1459
1514
2240
2631
-1560
-4455
13
1096
3027
-5596
-1194
165
2108
3595
2703
-8684
-7261
-5432
-2564
1278
5034
3936
3448
-945
635
529
-486
-391
1890
1422
2670
2927
-1852
-4913
-500
1288
3567
-5447
-1977
170
791
3923
2441
-8331
-7276
-5888
-2423
818
5051
4045
2378
-607
-301
495
-1164
-860
61
-652
-506
723
419
524
130
90
-177
43
-546
-525
70
802
-136
-444
885
-15
180
-16
-13
-311
-541
686
178
-760
-266
321
1829
2075
3176
2204
-2271
-5437
-630
1198
3745
-5489
-1431
695
722
3121
2577
-7887
-8160
-5872
-2603
834
5063
4356
2919
-1293
-478
1255
-899
-1182
Other
Negot.
Instr.&
Select.
Other
Liabs,
Private,
net
Change
in
Banks'
Own
Net
Dollardenom.
Liabs.
Official,
net
Monthly
Net
TIC
Flows
Private,
net
Official,
net
26
27
28
29
30
31
32
11456
7546
-3448
4135
1762
21784
59708
29928
19598
981
-18656
-54
11919
-14804
894
15447
-6659
-8525
-16828
8713
4733
9309
7355
5860
9563
24211
53686
17780
15386
6929
-7486
7204
-4272
-10710
7335
9447
-3519
812
-14795
1451
6723
-1763
-10803
-1725
-7801
-2427
6022
12148
4212
-5948
-11170
-7258
16191
-4094
-6441
6000
-3140
-9337
-2033
7262
-20034
1198
-7453
13648
-14821
4569
-105673
12417
71759
7909
4994
3315
32116
7930
28720
12692
-11609
15990
-36800
27445
-10955
70472
76297
69058
100363
59561
16780
117443
107332
75721
77027
68823
67764
88549
126474
79105
47656
63108
-21109
51632
-42478
61104
83202
57144
88768
32750
22839
100780
99829
72525
65651
57148
63348
66503
112641
82461
42465
57450
-27000
45757
31523
9368
-6904
11914
11595
26811
-6059
16663
7503
3196
11376
11675
4416
22046
13833
-3356
5191
5658
5891
5875
22013
-12006
11076
122
3462
-12151
17285
-4570
13369
14046
70739
-1554
897
14344
5999
8270
10646
-2360
6780
-11634
1779
-10010
-5503
12337
6310
-5230
-6483
-2538
5957
2204
-5351
-3808
10507
-9219
91386
1486
-1275
8592
-13296
22665
6860
-9901
-6745
-1504
-607
9565
9311
57861
-1329
8998
10346
4610
-3253
10485
-4064
7107
-21397
-92
-5088
-6308
3493
5539
-7088
-11369
1551
633
2483
-3984
-2064
10535
-3259
87896
-1952
-5703
13421
1290
-11589
-6738
13363
-5406
18789
-3963
3804
4735
12878
-225
-8101
3998
1389
11523
161
1704
-327
9763
1871
-4922
805
8844
771
1858
4886
-4089
5324
-279
-1367
-1744
-28
-5960
3490
3438
4428
-33721
60155
-4661
-81899
30969
61298
11415
-22065
19181
-7519
7624
19378
-10058
-46483
-48415
48603
699
38194
47576
-1771
13441
52110
-21322
-9573
13655
-15620
101188
-41572
25612
-1483
3325
17876
6953
37790
-75780
25846
34077
24176
84235
72482
-16165
82406
179659
69378
11685
75458
52087
183516
67608
62190
40837
23888
130148
73205
109329
62119
-13926
53587
108677
29732
93511
62785
34396
112512
-8371
62662
65189
32183
46459
57142
109491
89665
89924
65678
-11486
91239
83039
-25805
61095
165046
38121
-14449
63746
32336
119429
61513
48892
-8078
-7423
76992
57740
84194
38114
-42155
48650
102735
18376
44911
69244
25736
89823
-15925
50614
50959
32970
43449
58030
103205
59560
74120
62331
35662
-7004
-10557
9640
21311
14613
31257
26134
11712
19751
64087
6095
13298
48915
31311
53156
15465
25135
24005
28229
4937
5942
11356
48600
-6459
8660
22689
7554
12048
14230
-787
3010
-888
6286
30105
15804
3347
-6366
14087
16588
-8546
-13462
13261
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868
3672
-273
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Page I of I
December 15, 2006
HP-200
Statement from Treasury Secretary Henry M. Paulson
at the Closing of the U.S.-China Strategic Economic
Dialogue
Beijing, China- Ttlank you Madame Wu for your great hospitality. My colleagues
and I have been welcomed with tremendous warmth by you, your colleagues, and
the Chinese people We are Ql'ateful to Presldellt Hu, Premier Well arld you for
hosting the first Strategic Economic Dialogue.
Thank you also, for fostering ttle spirit of openness and cooperation in which our
discussions were held. China and the United States have shared economic
Interests, and we agree on many issues. When we disagree, we do so With mutual
respect and with an eye toward finding agreement where possible.
Our conversations over the last two days have been very frank and productive We
both seek the best way forward on difficult Issues. While we cannot resolve every
difference in a single meeting, the candid conversations we have had here wrll
make progress more achievable.
The United States and China know that our economic relationship is best when it
produces benefits for both our countries. And we know that balanced sustalilable
growth in China is vital to the strength of tile global economy
We Will each take measures to address global Imbalances, notably through greater
national savings in the United States and through Increased domestic consumption
and exchange rate flexibility in China. and maintaining open investment in both
countries.
The United States will share our experiences with the Chinese government on
enhancing China's social safety net; opening China's markets to competition and
investment: and developing cleaner, more abundant sources of energy.
And we welcome China's role as a responSible stakeholder in international
organizations particularly the WTO We look forward to working together to help
craft a successful Doha agreement. It also is encouraging that we have agreed on
so many principles even though we have differences on the timing of certain
reforms.
We have agreed to continue and focus discussions on a number of issues,
Including working toward sustainable growth and greater integration IIlto the global
economy without Significant trade imbalances, and maintaining high productivity
and enhancing protections for intellectual property rights
The agreements we have forged and the relationships we have built Will make
future discussions even more fruitful. On behalf of the American delegation. I thank
Madame Wu for her hospitality. We leave here With more optimism for the future,
and we look forward to hostillg you in Wasilingtoll next year
:tp:llwww.treas.goy/press/releases/hp200.htm
1/3/2007
Page I 01"2
December 15, 2006
hp-201
Statement by Treasury Secretary Henry M. Paulson
at U.S. Delegation Press Conference
following the U.S.-China Strategic Economic Dialogue
Beijing, China- Good afternoon Over the last two days my colleagues and I have
met with our Chinese partners to discuss a range of issues that are at the Ileart of
our long-term economic relationship Our discussions have been frank and
productive
We have agreement With the Chinese goverrlment on a number of fundamelltal
principles. We agree on the need for balanced, sustainable growth in China. without
large trade imbalances, which Will aid China's successful Integration Into the global
economy. Important pieces of that equation Include exchange rate flexibility
intellectual property IIglltS protecllons, Increasing the role of consumption In the
economy and operllng up the sel'vlce sector. We Will establish a working group to
discuss opening the services sector to competition and investment
China's currency policy is a core Issue in our economic relationship. We have
indicated to the Chinese in the clearest possible terms that more flexibility in their
exchange rate Will help China achieve more balanced economic growth, enhance
the effectiveness of monetary policy, safeguard the health of the financial sector
and promote over time an orderly reduction of external Imbalances.
The Chinese share our view tilat long-term growth, balance and stability In their
economy will depend on open, competitive markets, including capital markets
Open capital markets Will create an infrastructure for the Chinese to float their
currency over the medluill-term Both Sides have agreed that the NYSE and the
NASDAO should open offices in China. a symboliC milestone toward China's fUl1her
Integration Into global capital markets. We also have agreed to launch an
investment dialogue with exploratory discussions to encourage Investment and
protect investor rights In each of our countries.
China's full participation in the global economy requires transparency and a
cormnltrnent to enforcll19 International laws. especially III relation to property rights.
Both Sides have committed to reinvigorating discussions Within the Joint Committee
on Commerce and Trade to improve transparency and intellectual property
protections.
Trade IS of course an essential element of China's economy and of ItS connection
with the global economy We have agreed that both the United States and China
will strive for a successful resolution of the Doha Round of world trade talks, and we
will intenSify bilateral contacts to advance toward that goal
Energy Issues were an importallt part of our diSCUSSions. The United States and
China are two of the largest energy users In the world. Our energy poliCies and
actions have a significant impact on energy markets and on the global environment
In addition to continuing our dialogue on sustainable and environmentally
responSible growth, we have agreed that China Will participate In the FutureGen
proJect, which is an international effort aimed at developing clean, energy supplies
We are also launching a Joint economic study on energy and the environment.
We leave here with greater confidence that we are on the right path. The Strategic
Economic Dialogue is focused on long-term challenges. but we need tangible
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1/3/2007
Page 2 of2
successes to measure our progress along the way. With that in mind, we have
established a number of Important workplans to focus our efforts to tackle a number
of signlflcallt Issues, including openllllj of serVices, health care, energy and the
environment, transparency, IrlVestment and aViation
Our next meeting of the Dialogue will take place in May in Washington Today we
agreed that at the next meeting we Will focus on tile efforts of both nations to
achieve Innovative SOCieties and gl'eater openness to trade alld III vestment alHJ
without significant trade imbalances.
I am grateful to my colleagues Secretary Leavitt, Secretary Gutierrez, Secretary
Bodman, Secretary Cilao, and Ambassador Schwab for making this first meeting of
the Strategic Economic Dialogue a success. I've been Irl Washington now only a
short time. And I am thol'oughly enJOYing working With these talented colleagues
and the rest of PreSident Bush's economic team to advance America's interests
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December 15, 2006
HP-202
US Government Releases FY06 Financial Report
Was~llngton, DC- The Treasury Department and the Office of Management and
Budget today released the fiscal year 2006 FinanCial Report of tile Umtecf States
Governmcnt. The Financial Report, which complemerlts the President's Budget to
be released in February, details the U S government's finanCial position am!
condition The report also provides information about Significant future obligations
by looking at prospective SOCial Security and Medicare costs.
The revenue results were $2.4 trrillon, nearly a 12 percent Increase over 2005
revenues These FinanCial Report revenues are appmximately the same as the
2006 year-end budget receipts because the accounting basis for tax revenues is
generally the same for financial reporting as it is for budgeting.
"The President's economic agenda has produced a strong economy, creating
millions of Jobs, spurring revenues and meetmg the President's deficit reduction
goal well ahead of schedule," said Secretary Henry M. Paulson. "This report also
demonstrates the urgency of addressing Americans' retirement security The health
of today's economy provides a strong foundation for addressing the long-term fiscal
challenges highlighted in the Financial Report"
As reponed In the fiscal year-end budget results this fall, record level tax receipts
led to a narmwlng gap between costs and revenues for the federal government.
Consistent with the impmved budget results, the Financial Repon's 2006
$450 billion net operating costs are approximately $310 billion lower than the 2005
figure
Despite this short-term progress, funding for current SOCial Security and Medicare
participants will come up $44 trrllion short In the next 75 years at net present value,
according to the report. Without fundamental reform, the cost of these programs is
prOjected to trrple as a percentage of the U.S. economy by the year 2080.
"This report shows we are maklllg progress getting our fiscal house in order In the
near-term. But it also puts In stark terms tile necessity of addressing the rapid
increase in entitlement spending over time," said OMB Director Rob Portman. "The
burden on future generations will be overwhelming if we don't face the
unsustainable growth in important pmgrams like Medicare, Medicaid and Social
Security. This is our biggest budgetary challenge and one that will require a
bipanisan solution"
The report states that gross operating costs of the federal government were $3.1
trillion, down $47 billioll from 2005 The decrease was partly due to a change in
interest rate assumptions used III actuarial accounting methods for postemployment benefits In certain agencies
As reqUired by law, Treasury first Issued the Financial Report subject to audit for
fiscal year 1997 to increase publiC awareness of the government's fmances. For the
past three years, Treasury has Issued the report on December 15, ahead of the
statutory deadline of March 31.
The Department has delivered the report to all members of the Congressional
leadership, as required by law. OMB and the Department are also taking the
additional step this year of sending the report to all members of the U S House of
ttp:llwww.treas.gov/press/releascs/ho202.htm
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Page 201'2
Representatives and the US Senate. As it moves to electronic distribution,
Treasury has delivered the report to tens of tllousands e-mail subscribers and
posted the report on several government websltes Including
http://www.fms.treasgov/fr/index.html.
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December 15, 2006
HP-203
Ryan to Be Sworn Into Office with Treasury Ceremony
Washlllgton, DC-Treasury Secretary Henry M Paulson will swear In ASSistant
Secretary for FinanCial Markets Antllony W Ryan at a cererTIollY Irl Treasury's
Cash Room orl Monday, lJecember 18 at 1000 a.m. Under Secretary Robert K
Steel will partiCipate In tile ceremony. Tl,e ASSistant Secretary for Financial Markets
serves as senior adViser to the Secretary, Deputy Secretary, and Under Secretary
on broad matters of domestic finance, financial markets, Federal, State and local
finance, Federal Government credit policies, lending and privatization. The
ASSistant Secretary also serves as the senior member of tile Treasury Financing
Group and coordinates tile inter-agency President's Working Group on Financial
Markets
Media Without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or frances.anderson@dotreasgov With the following Information:
name, Social Security number, and date of birth.
Who Secretary Henry M. Paulson
Under Secretary for Domestic Finance Robert K. Steel
Assistant Secretary for Financial Markets Anthony W Ryan
What Swearing In Ceremony
When Monday, December 18
1000 a.m EST
Where Cash Room
U.S. Treasury Department
1500 Pennsylvania Ave, NW
Washington, DC
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December 14, 2006
Ilp204
lannicola Remarks before BITS Financial Services Roundtable Advisory
Committee
Before the BITS Financial Services Roundtable Advisory Council Meeting
Washington, DC - Good momlng Thank you for Inviting me to speak today. I'm
here to give you an update on the field of financial education and to tell you how
you can playa role in that field
First of all the good news is that there truly is a field of financial education If you go
back as recently as 10 to 15 years ago you won't find the emphasis on this Issue as
we have today. While some people certainly did write about alld leam about
personal finance before then, the same focus Simply wasn't tilere. Financial
education was a minor detail or an asterisk, and was targeted to a relatively small
segment of the population But today financial education is a pursuit in its own right
with broad applicability for all Americans. Now poliCY makers, non-profits, for-profits
and consumers are all beginning to see how financial literacy issues come up
frequently in everyday life. The IneVitability, the necessity of this topic is quickly
becoming mme obvious to more people.
Our robust marketplace for finanCial services has placed all of us in charge of a
large and growing number of our own financial deCISions. For Instance, your
retirement savings program used to be managed solely by your employer witilOUt
your input. That's not as common anymore Also, credit cards used to be hard to
come by. If you've checked your mailbox lately, you'll know those days are gone.
And at one time there were only a few baSIC ways to finance a home. Now there
are a number of options for structuring or restructuring a mortgage.
Times have changed on us. It's as If every American adult has suddenly received
an unwelcome promotion to the position of CFO of hiS or her household. Are we
ready for the job? And If not, why not? Is It that we know less than our parents' or
grandparents' generations? Or IS it perhaps that we simply need to know mme now
than they did then?
Everything that I've seen leads me to the same basic conclusion - that over the
years our financial chOices have Simply outpaced our financial knowledge. And the
only way to catch up to those choices is through financial education.
When I'm asked about the status of financial education in America, I frequently say
that the movement of financial literacy is in its adolescence. It's not new anymore,
but It IS not mature yet elthel At the federal level we're trying to bring thiS isslJe to
adulthood. So let me give you a high level update about our efforts the last few
years
In 2002 the Department of Treasury set up its Office of Financial Education As the
Office has developed It has grown to execute a variety of functions Including:
setting standards for financial literacy programs. giving technical assistance to
financial educators brokering partnerships between the supply and demand Sides
of financial education: and performing outreach across the country to raise the
awareness of the need for financial education and the resources available to meet
those needs
In 2003 Congress passed and the PreSident signed the Fair and Accurate Credit
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Page 2 of2
Transactions Act which, among other things, addressed financial literacy by
establishing a commisSion of 20 federal agencies, all of which do somethlllg in
financial education Treasury was named the head of that commission.
In 2004 that commission launched a central web site and toll free hotline. The
address is ','
II i\'r I " , .
& tile Ilotllne is 1-888 my money Both are available
in English and Spanisll These resources provide a one-stop sllop for free, federal
fillancial education information covering a broad range of tOPICS I encourage you
to Visit tile site and to Ilave your institutions link to It for the benefit of yOlJl'
customers
In April of tillS year Hlat sC'lIne commission released the first-ever national strategy
for financial literacy. Tile document IS called "Taking Ownership of the Future." It IS
available for you here today and al rnymoney.gov
The purpose of tile Strategy and of our efforts In general is to Ilelp advance the
noble goal of bringing more people, more families into the sunlight of prosperity, of
giving them a tangible, enduring stake in their own futures.
There are two paths befole each person we are trying to help. The first is a rocky
path that leads to a place where the complexity of the marketplace is overwhelming,
where people are easy prey for fraud and where bad choices lead to bad outcomes
that can last a lifetime
The other path travels through financial literacy and It takes people to a place where
understanding replaces apprehension, where people make the most of their
abundant options and where people have that real stake in their futures - it is a
place some of us refer to as the Ownership Society. It is based on the idea that a
community is defined as much by shared aspirations as shared geography. All of
us want to provide for our families, save for a "rainy day," own a IlOfTle and have a
financially secure retirement. Our growing economy opens the door to those things
for us; financial knowledge ernpowers us to walk through that door.
But what can financial Institutions like yours do to help? Quite a bit. Your
organlzatiorls are uniquely positioned to help not Just your customers but all
Americans learn more about their money
I am here today to encourage you to do Just that. In my work at Treasury's Office of
Financial Education, I've seen a number of solid programs sponsored by finanCial
institutions which represent a good start. However the need is great and there is
still room for programs that are well-researched, carefully designed and actively
distributed. In fact the National Strategy's Call to Action 4.3 specifically inVites
consumer lenders to playa role in promoting financial literacy. Our office stands
ready to help your institutions play this Important role in raising our nation's level of
finarlclal literacy
As I close, let me remind you of something I'm sure you already know. That in
busilless making a profit and making a difference are not just compatible, they're
complementary. The best educated consumers Will be your best customers.
People With a good understanding of financial concepts Will be your best
employees. Citizens who understand basic economic issues will be better informed
voters. Because of all this I'm sure you can see how starting or expanding your
efforts to promote financial literacy IS In the best Interest of everyone, including your
shareholders. Thanks for your time today and best wishes on a successful
conference.
-30-
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Page 1 of 1
December 15, 2006
HP-205
The First U.S.-China Strategic Economic Dialogue
December 14-15, Beijing
Fact Sheet
In Beijing on December 14 and 15, the United States ann China held the first
Strategic Economic Dialogue, with the theme of "Chllla's Development Road and
Chllla's Economic Development Str'ategy" The dialogue was co-chaired by
Treasury Secl'etary Henry M. Paulson. Jr. and Vice Premier Wu Yi. as
representatives of the two countries' PreSidents. During one and a half days of
productive and in-depth discussiolls Or! overarching and long-term strategic
economic issues, we reaffirmed our commitment to pursuing macroeconomic
poliCies, such as China's eXChange rate regime reform and Increasing the U.S.
savings rate, to promote balanced and strong growth and prosperity in our two
nations.
Based on effective intellectual property rights protection, the rule of law, and the
dismantling of trade and Investment bamers, we agreed on the importance of
establishing open and competitive markets, accelerating development and Job
creation, stimulating domestic and international trade and Investment, and
promoting sustainable development through energy security, environmental
protection, and access to health care. 80th sides committed to take posItive steps
to strengthen the WTO, IIlcluding through successful conclusion of the Doha
Round, and Will intensify bilateral contacts to thiS end.
Through our diSCUSSions, we decided to prioritize work during the next six months In
several strategic areas Both sides agreed to conduct discussions on development
of efficient IIlnovatlve service sectors and on ways to improve health care. We are
launching a bilateral investment dialogue With exploratory discussions to conSider
the possibility of a bilateral Investment agreement, enhancing cooperation on
transparency Issues, and launching a JOint economic study on energy and
environment
Furthermore, we committed to Invigorate ongoing work Within the JCCT on hightech trade, I PR, and market economy status/structural issues. Utilizing other
existing mechanisms, both sides agreed to Increase bilateral cooperation on more
effiCient and environmentally sustainable energy use, faCilitation of personal and
business travel, development assistance, and MDB lending.
Fillally, both sides agreed that NYSE and NASDAQ should open offices III China,
that China Will partiCipate III the government steering committee of the FutureGen
project, and that the United States Will suppol1 China's membership In the IADB
Both Sides concluded an agreement facilitating finanCing to support U S. exports to
China and agreed to re-Iaunch bilateral air services negotiations.
The next SED wrll be held in Washington. D.C. in May 2007
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Page 1 of 2
December 19. 2006
2006-12-19-10-32-11-12217
U.S. International Reserve Position
The Treasury Department today I'eleased US reserve assets datil for tile latest week As indicated In this table. US reserve assets
totaled $65.980 million as of the end of that week. cOlllpared (0 $66.522 million as of Hle end of the prior week
I. Official U.S. Reserve Assets (m US millions)
December 8, 2006
I
11 Foreign Currency Reserves .
66,522
TOTAt'I'
II
Euro
I
I
12,529
I
I
12,453
I
I
10.928
II
TOTAL
I
I
23,457
Yen
TOTAL
I
II
I
23.192
I
I
I
17.603
Euro
I
I
12,408
12.348
0
I
I
b.ii. Of which. banks located abroad
0
I
b.ili. Banks headquartered Olilslcie the US
0
0
0
0
5.326
5.289
uch. issuer headquartered m the US
Yen
I
I
65,980
II
a. Securities
II
December 15, 2006
I
II
0
II
II
I
10,784
II
0
b. Total depOSits with
in Oii er central banks and BIS
b.ii. Banks headquartered in the US
Ib iii
12
13
14
17,780
5.327
Of which. banks located In ttle U S
IMF Reserve Position 2
5.255
0
0
Special Drawing Rights (SDRs) 2
II
8.918
8.855
Gold Stock :l
II
11.041
11.041
I
0
15. Other Reserve Assets
I
I
I
I
I
0
I
I
II
TOTAL
I
I
I
II
II
II
0
I
II. Predetermined Short-Term Drains on Foreign Currency Assets
December 8, 2006
II
I
1. Foreign currency loans and securities
Euro
I
II
Yen
TOTAL
I
I
0
December 15, 2006
II
I
I
Euro
Yen
0
2. Aggregate short and long positions In forwards and futures n foreign currencies vis-a-vis the US. dollar
12 a Short POSitions
12b Long positions
13 Other
0
II
II
II
I
I
I
0
0
1
I
I
I
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
[
r
December 8, 2006
II
1
II
Euro
II
II
ttP://www.treas.gov/press/releases/2006121910321112217.htm
Yen
II
II
TOTAL
II
II
II
December 15, 2006
Euro
II
II
Yen
II
II
TOTAL
I
I
I
113/2007
Page 2 of2
l1. Contingent liabilities in foreign currency
II
1.a. Collateral guarantees on debt due within 1
year
0
0
"
[1.b. Other contingent liabilities
"
"II
2. Foreign currency securities with embedded
options
\3 Undrawn, unconditional credit lines
I
"
I
II
I
"
0
I
I
0
1/
0
0
[3.a. With other central banks
3.b. With banks and other financial institutIOns
Headquartered m the U. S.
I
II
I
II
I
"I
With banks and other fmanclal institutions
Headquartered outside the U. S.
4. Aggregate short and long positions of options
in foreign
Icurrencies vis-a-vis the U.S. dollar
14.a. Short positions
I
0
I
II
II
II
I
4.a.1. Bought puts
4.a.2. Written calls
I
I
I
I
I
0
II
II
II
4.b. Long positions
I"
I
4.b.1. Bought calls
\4b2 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 SOR/doliar exchange rate for the reporting date. The entnes 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.
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December 19, 2006
HP-206
Treasury Designates Individual Supporting AI Qaida, Other Terrorist
Orga nizations
The US Depaltment of the Treasury today designated Mohammed AI Ghabra, a
naturalized British citizen who provloes material and logistical support to al Oalda
and otiler terrorist organizations
"Mohammed AI Ghil[)ra ilers ~)acked al Qalda and ot~ler violent jlhadlst groups,
facilitating travel for recruits seeking to meet with al Qalda leaders and take part In
terrorist training," said Adam Szubin, Director of the Office of Foreign Assets
Control (OFAC). "We must act against those who fund and facilitate al Qalda's
agenda of violence against Innocents."
AI Ghabra ~las organized travel to Pakistan for IndiViduals seeking to meet with
senror al Qaida Individuals and to undertake Jihad training. Several of these
IndiViduals Ilave returned to the UK to engage in covert activity on behalf of al
Qalda. Additionally, AI G~labra has prOVided material support and facilitated the
travel of UK-based IndiViduals to Iraq to support the illsurgents fight Clgainst
coalition forces.
In addition, AI Ghabra has also provided material and logistical support to oUler
terrorist organizations based in Pakistan, such as Harakat ul-Jihad-I-Islami (HUJI).
While in Pakistan, Al Gilabra Illet with Haroon Rachid Aswat, who is currently
detained in the UK and subject to a US extradition request on terrorism charges
ApClrt from Hle finallClal and logistical support actiVities that led to his deSignation,
AI Ghabra maintams contact With a significant number of terrorrsts. Inr;luding senior
al Qaida offiCials In Pakistan. In 2002, Al Ghabra met with and stayed at the home
of Faraj AI-Llbl. wllo, until he was detained by Pakistani authorrtles In 2005, served
as al Qaida's Director of Operations. AI Ghabra IS also in regular contact With UKbased Islamlst extremists and has been Involved In the radicaliZing of IndiViduals III
the UK through the distribution of extremist media.
Al Ghabra also has strong links to the Kashmiri militant group Harakat UI-Mujahldin
(HuM), which ilas beell deSignated a terrorist organizatlorl by the United Nations
Information shows that AI Ghabra himself has ulidertaken jlhadl training at a HuM
tramlng camp III Kasllmlr. AI Ghabra Intellded to fight rn Kashmir but was
prevented frolll dOing so by HuM as they Ileeded Illdlvlduals to return to Hle UK to
raise funds.
Identifier Information
Mohammed AI Ghabra
JUIlO 1, 1980
DOB
DamascLls, Syria
POB
British
Natlollality
094629366
UK Passport:
East London
Address
United Kingdom (UK)
Mohammed AI Ghabra was deSignated today pursuallt to Executive Order 13224,
which IS aimed at financially Isolating terrorists, terrorist faCilitators, and finanCiers
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This designation freezes any assets AI Ghabra may have under U.S. jurisdiction
and prohibits a\l financial and commercial transactions by any U.S. person and AI
Ghabra.
- 30-
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Page 1 of 1
10 view or pont tne /-'Ur content on tnlS page. Clown/oaCl tne free AClobe® Acrobat® HeaCler®.
December 19. 2006
HP-207
Treasury, IRS Issue Final S·Corporation ESOP Regulations
Washington. DC- Treaslll'y and the IRS Issued final regulations today under section
409(p) of the Internal Revenue Code with respecllo an employee stock ownership
plan (ESOP) that holds stock of a Subchapter S corporation
The final regulations are the culmination of a process that began when the
Economic Growth and Tax Relief Reconciliation Act of 2001 enacted section 409
(p), which ensures that the special tax benefits afforded to ESOPs that hold
Subchapter S corporation stock do not extend to cases III which the ownership IS
concentrated among a small number of owners
The regulations. effective for plan years that begin on or after January 1, 2006.
replace eXlstlllg temporary regulations with various modifications to reflect
comments received.
- 30-
REPORTS
•
Final Regulations
ttp://www.treas.gov/press/releases/hp207 .
113/2007
[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9302]
RIN 1545-BC34
Prohibited Allocations of Securities in an S Corporation
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations that provide guidance
concerning requirements under section 409(p) of the Internal Revenue Code for
employee stock ownership plans (ESOPs) holding stock of Subchapter S
corporations. These final regulations generally affect plan sponsors of, and
participants in, ESOPs holding stock of Subchapter S corporations.
DATES: Effective Date: These regulations are effective December 20,2006.
Applicability Dates: These regulations are generally applicable with
respect to plan years beginning on or after January 1,2006. See the Effective
Date section of the preamble for specific information.
FOR FURTHER INFORMATION CONTACT: John T. Ricotta or Veronica A.
Rouse at (202) 622-6090 (not a toll-free number).
2
SUPPLEMENTARY INFORMATION:
Background
This document contains final regulations (26 CFR Part 1) under section
409(p) of the Internal Revenue Code (Code).
Section 409(p)(1) requires an ESOP holding employer securities
consisting of stock in an S corporation to provide that, during an allocation year,
no portion of the assets of the plan attributable to, or allocable in lieu of, the
employer securities may accrue (or be allocated directly or indirectly under any
plan of the employer meeting the requirements of section 401 (a)) for the benefit
of any disqualified person. Section 409(p)(3)(A) provides that a nonallocation
year includes any plan year during which the ownership of the S corporation is so
concentrated among disqualified persons that they own or are deemed to own at
least 50 percent of its shares. Section 409(p )(4) provides, in general, that a
disqualified person is any person whose deemed-owned ESOP shares (allocated
ESOP shares and proportion of suspense account shares) are at least 10
percent of the number of deemed-owned shares of S corporation stock held by
an ESOP or for whom the aggregate number of shares owned by such person
and the members of such person's family is at least 20 percent of deemed-owned
ESOP shares. Under section 409(p)(5), the determination of whether a person is
a disqualified person and whether a plan year is a nonallocation year is also
made separately taking into account synthetic equity if such treatment results in
treating the person as a disqualified person or the year as a non allocation year.
3
Temporary regulations under section 409(p) were issued on July 21,2003,
(68 FR 42970). The text of those temporary regulations also served as the text
of a notice of proposed rulemaking (REG-129709-03) published at 68 FR 43058.
The 2003 regulations provided guidance on identifying disqualified persons,
determining whether an ESOP has a non allocation year, and defining synthetic
equity under section 409(p)(5), and reserved some issues, including the
definition of a prohibited allocation, the tax effect of a prohibited allocation, and
certain issues relating to the definition of synthetic equity.
A public hearing on the 2003 regulations was held on November 17, 2003.
New temporary regulations under section 409(p) (TO 9164) were published in the
Federal Register on December 17, 2004, (69 FR 75455). The new temporary
regulations (2004 temporary regulations) addressed certain issues raised in the
comments, as well as addressing the topics reserved in the 2003 temporary
regulations. The text of the 2004 temporary regulations also served as the text
for a notice of proposed rulemaking (REG-129709-03) published at (69 FR
75492).
A public hearing on the 2004 proposed regulations was held on April 20,
2005. After consideration of the comments received, these final regulations
adopt the provisions of the proposed regulations with certain modifications
discussed in this preamble.
Explanation of Provisions
Definition of Prohibited Allocation
4
These regulations retain the rule of the 2004 temporary regulations
concerning prohibited allocations under which there is an impermissible accrual
to the extent employer securities consisting of stock in an S corporation are held
under the ESOP for the benefit of a disqualified person during a nonallocation
year. Thus, in the event of a non allocation year, S corporation shares held in a
disqualified person's account and all other ESOP assets attributable to S
corporation stock, including distributions, sales proceeds, and earnings, are
treated as an impermissible accrual whether attributable to contributions in the
current year or a prior year. A commentator questioned whether the definition of
prohibited allocation in the 2004 temporary regulations should include account
balances of disqualified persons from prior years. The rule of the 2004
temporary regulations has been retained because it is consistent with the intent
of the statute, and the IRS and Treasury Department believe it is necessary to
prevent the concentration of ownership interests that section 409(p) was
intended to prevent.
A commentator also questioned the treatment of proceeds from the sale of
stock previously allocated to a disqualified person's account under the 2004
temporary regulations. The commentator expressed concern that treating the
sales proceeds as an impermissible accrual when the original allocation of stock
is already a prohibited allocation is a double penalty. The final regulations do not
change this rule in the 2004 temporary regulations. An allocation of sales
proceeds from stock held for the benefit of a disqualified person back into the
account of the disqualified person is as valuable an accrual for the disqualified
5
person as an investment in employer stock. This treatment is also consistent
with the prohibition in section 409(p)(1) with respect to amounts that are
"allocable in lieu of' employer stock.
Effect of a Prohibited Allocation
These regulations retain the rule of the 2004 regulations that if there is a
prohibited allocation during a nonallocation year, the ESOP fails to satisfy the
requirements of section 4975(e)(7) and ceases to be an ESOP. As a result, the
exemption from the excise tax on prohibited transactions for loans to leveraged
ESOPs contained in section 4975(d)(3) would cease to apply to any loan (with
the result that the employer would owe an excise tax with respect to the
previously exempt loan). These regulations clarify that an additional result would
be the plan's failure to satisfy the qualification requirements under section 401 (a)
for not operating the plan in accordance with its terms to reflect section 409(p).
Other consequences include imposition of an excise tax on the S corporation
under section 4979A. An example has been added to these final regulations to
illustrate the impact of these rules on an S corporation ESOP.
These regulations include the rule from the 2004 regulations under which
a prohibited allocation is a deemed distribution that is not an eligible rollover
distribution. These regulations also add that same rule to the list of distributions
that are not eligible rollover distributions in the regulations under section 402(c)
(at §1.402(c)-2 of the Treasury Regulations). As a result, under recently
proposed regulations relating to designated Roth contributions under section
402A, a deemed distribution as a result of a section 409(p) prohibited allocation
6
with respect to a designated Roth account would not constitute a qualified
distribution for pu rposes of section 402A. See proposed § 1.402A-1 , A-11 , at 71
FR 4320 (January 26,2006).
Prevention of Nonaliocation Year
The preamble to the 2004 regulations described methods that a plan
might use to prevent the occurrence of a nonaliocation year, including (1) a
reduction of synthetic equity (for example, through cancellation or distribution),
(2) a sale of the S corporation securities held in the participant's ESOP account
before a nonaliocation year occurs so that the account is not invested in S
corporation stock, or (3) a transfer of the S corporation securities held for the
participant under the ESOP into a separate portion of the plan that is not an
ESOP or to another qualified plan of the employer that is not an ESOP.
Any methods of preventing a non allocation year must satisfy applicable
legal and qualification requirements, including the nondiscrimination
requirements of section 401 (a)(4) (including the rules at § 1.401 (a)(4 )-4 relating
to benefits, rights and features), and implementation of these methods must be
completed before a nonaliocation year occurs. These regulations retain the
special rule provided in the 2004 regulations for applying the nondiscrimination
requirements under section 401(a)(4) for a plan that uses the transfer method.
Thus, these regulations provide that, if a transfer is made from an ESOP to a
separate portion of the plan (or to another qualified plan of the employer) that is
not an ESOP in order to prevent a nonaliocation year, then both the ESOP and
the plan that is not an ESOP will not fail to satisfy the requirements of
7
§1.401 (a)(4 )-4 merely because of the transfer. Similarly, these regulations
provide that, subsequent to the transfer, the plan will not fail to satisfy the
requirements of §1.401 (a)(4)-4 merely because of the benefits, rights, and
features with respect to the transferred benefits if those benefits, rights, and
features would satisfy the requirements of § 1.401 (a)(4 )-4 if the mandatory
disaggregation rule for ESOPs at §1.41 0(b)-7(c)(2) did not apply. These
regulations clarify that any such transfers must be effectuated by an affirmative
action taken no later than the date of the transfer, and all subsequent actions
(including benefit statements) must be consistent with the transfer having
occurred on that date. Further, in order to use the transfer method to prevent a
nonallocation year, the plan must provide for the transfer of the stock to the nonESOP portion of the plan.
A commentator described another method of preventing a nonallocation
year under which stock of a participant is exchanged for cash or other assets,
which are already in the accounts of other participants in order to change the
stock holdings among participants before a nonallocation year occurs, but which
does not change the overall stock holding of the ESOP trust. This method has
been referred to as reshuffling. The commentator requested that relief from the
nondiscriminatory availability requirements be extended to this method.
Absent a special rule for applying the nondiscrimination requirements of
section 401(a)(4), it will be difficult for a plan to prevent a nonallocation year
through reshuffling without violating section 401 (a)(4). The right of each
participant to have or not have a particular investment in his or her account
8
(either as a participant-directed investment or as a trustee-directed investment) is
a plan right or feature that is subject to the current and effective availability
requirements of §1.401 (a)(4)-4. Accordingly, if assets in the accounts of one or
more non-highly compensated employees (NHCEs) are mandatorily eXChanged,
then, in the absence of other relevant factors, the plan would generally be
expected to fail to satisfy the nondiscriminatory availability requirements of
§1.401(a)(4)-4.
The IRS and Treasury Department do not believe that it would be
appropriate to provide a special rule that would materially weaken the standard
for nondiscriminatory availability of participant rights to a particular investment
under the plan. By contrast, the special nondiscrimination rules for stock
transferred out of the ESOP do not change the rights of NHCEs to any particular
investment in the plan as a whole, but simply allow the transfer and allow the
rights of participants whose stock is transferred out of the ESOP to be taken into
account in determining whether the rights of participants whose stock remains in
the ESOP satisfy the nondiscriminatory availability requirements of §1.401(a)(4)4.
An S corporation may be able to achieve the same result as reshuffling by
reducing contributions for HCEs who are or may become disqualified persons, by
providing additional benefits to NHCEs who are not disqualified persons, by
expanding coverage to include all employees, or by diversifying out of employer
stock for HCEs who are or may become disqualified persons and who are
qualified participants within the meaning of section 401 (a)(28)(8)(iii) (that is, by
9
mandating diversification using one of the diversification options that are offered
to all qualified participants, for which there is an existing special
nondiscrimination rule at §1.401(a)(4)-4(d)(6)). Thus, in addition to plan
transfers, any of these actions may help prevent the concentration of deemedowned ESOP shares that section 409(p) prohibits, without the nondiscrimination
problems otherwise associated with reshuffling. Of course, any transfer or other
method used to ensure compliance with section 409(p) must also satisfy any
other legal requirements that may apply, including section 407(b)(2) of the
Employee Retirement Income Security Act of 1974 (ERISA) (88 Stat. 829) Public
Law 93-406 (which, in relevant part, generally prohibits a plan from investing
more than 10 percent of elective deferral accounts in employer stock, unless the
plan is an ESOP, the investment is at the direction of the partiCipant, or another
exception applies).
Treatment of Family Members as Disqualified Persons
The 2004 regulations included a number of attribution rules, which these
regulations retain, including the application of the section 318 attribution rules to
ownership of synthetic equity in determining who is a disqualified person.
Section 409(p) contains references to the section 318 rules in certain cases,
such as in determining a nonallocation year, but commentators pointed out that
the section 318 rules did not apply for purposes of the disqualified person
definition, which was not reflected in an example. Another commentator pointed
out that the rules for determining whether family members are disqualified
persons varies according to the individual being tested. For example, the
10
technical language of section 409(p)(4)(D) treats parents-in-law as members of a
married child's family when testing whether a child is a disqualified person, but
not as members of the same family as the child's parents when testing whether
the child's parents are disqualified persons. In response to comments, the
regulations have been modified to clarify these rules, including revisions in the
examples to illustrate the application of the rules to specific factual patterns.
Determination of Number of Shares of Non-Stock-Based Synthetic Equity
These regulations retain the rules from both the 2003 and the 2004
regulations regarding calculation of the number of shares of synthetic equity that
are not determined by reference to shares of stock of the S corporation. These
regulations provide that the person who is entitled to the synthetic equity is
treated as owning a number of shares of stock in the S corporation equal to the
present value of the synthetic equity (with such value determined without regard
to any lapse restriction as defined under the section 83 regulations) divided by
the fair market value of a share of the S corporation's stock as of the same date.
These regulations also retain the special rule under the 2004 regulations that
permits the ESOP to provide, on a reasonable and consistent basis for all
persons, for the number of synthetic equity shares treated as owned on a
determination date to remain constant for up to a 3-year period from that date
(triennial method). This rule addresses concerns raised in comments to the 2003
regulations regarding the volatility of the number of shares of synthetic equity
where that calculation is based on the value of an S corporation share.
11
A commentator questioned whether the triennial method of the 2004
regulations should be expanded to permit a more flexible triennial period that
allows for the acceleration or delay of the triennial determination date. The
commentator argued that, since the triennial method's purpose is to eliminate the
risk attributable to volatility of the present value of the nonqualified deferred
compensation stock and the risk attributable to the fair market value of company
stock, the inability to delay or accelerate the date, automatically and daily if
necessary, weakens the purpose of the method.
These regulations include changes in the triennial methodology to permit
the ability, during the 3-year period, to accelerate a determination date
prospectively in the event of a change in the plan year or any merger,
consolidation, or transfer of ESOP assets under section 414(1). However, a
determination date may not be changed retroactively and the change must be
effectuated by a plan amendment adopted before the new determination date. 1
A commentator also requested clarification regarding how shares of
synthetic equity are calculated with respect to nonqualified deferred
compensation. Specifically, the commentator wanted to know what discount rate
should be used to calculate the present value of nonqualified deferred
compensation, and how to determine the number of equivalent shares for a splitdollar life insurance arrangement. These regulations do not mandate a specific
discount rate for calculating the present value of nonqualified deferred
1 As indicated in Notice 2005-95,2005-51 IRB, dated December 19, 2005, the general deadline
for discretionary amendments in Rev. Proc. 2005-66, 2005-37 IRB 509, does not apply if a statute
or regulation specifically provides an earlier deadline. These regulations provide such an earlier
deadline.
12
compensation or a specific method for determining the equivalent number of
shares for a split dollar arrangement. However, any assumptions used for such
purposes must be reasonable.
Finally, a commentator asked whether an individual S corporation
shareholder's right of first refusal to acquire S corporation stock from an ESOP
for its fair market value is considered synthetic equity. The regulations have
been revised to clarify that the right of first refusal to acquire stock held by an
ESOP is not treated as a right to acquire stock of an S corporation under these
regulations if the right to acquire stock would not be taken into account under
§1.1361-1(1)(2)(iii)(A) in determining whether an S corporation has a second
class of stock and the price at which the stock is acquired under the right of first
refusal is not less than the price determined for purposes of the put right required
by section 409(h). See §54.4975-11 (d)(5) of the Excise Tax Regulations. Of
course, any right of first refusal must comply with the requirements of §54.49757(b )(9) of the Excise Tax Regulations. In addition, these regulations give the
Commissioner the authority to treat a right of first refusal as synthetic equity if the
Commissioner determines, based on the facts and circumstances, that the right
to acquire stock held by the ESOP constitutes an avoidance or evasion of section
409(p).
Effective Dates
These regulations generally are applicable for plan years beginning on or
after January 1,2006. However, these regulations retain, by cross reference, the
2004 regulations for plan years beginning before January 1,2006.
13
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 also has been determined that section 553(b) of
the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these
regulations, and because the regulation does not impose a collection of
information requirement upon 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, the temporary and proposed regulations preceding these final
regulations were submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on its impact on small business.
Drafting Information
The principal authors of these regulations are John T. Ricotta and
Veronica A. Rouse 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 in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding an
entry to read, in part, as follows:
14
Authority: 26 U.S.C. 7805 * * *
Section 1.409(p)-1 is also issued under 26 U.S.C. 409(p)(7). * * *
Par. 2. Section 1.402(c)-2, A-4, is revised by redesignating paragraph (g)
as (h) and adding a new paragraph (g) to read as follows:
§1.402(c)-2 Eligible rollover distributions; questions and answers.
**** *
A-4. * * *
(g) Prohibited allocations that are treated as deemed distributions
pursuant to section 409(p). * * *
Par. 3 Section 1.409(p)-1 is added to read as follows:
§1.409{p)-1 Prohibited allocation of securities in an S corporation.
(a) Organization of this section and definition--(1) Organization of this
section. Section 409(p) applies if a nonallocation year occurs in an ESOP that
holds shares of stock of an S corporation that are employer securities.
Paragraph (b) of this section sets forth the general rule under section 409(p)(1)
and (2) prohibiting any accrual or allocation to a disqualified person in a
nonallocation year. Paragraph (c) of this section sets forth rules under section
409(p)(3), (5), and (7) for determining whether a year is a nonallocation year,
generally based on whether disqualified persons own at least 50 percent of the
shares of the S corporation, either taking into account only the outstanding
shares of the S corporation (including shares held by the ESOP) or taking into
account both the outstanding shares and synthetic equity of the S corporation.
Paragraphs (d), (e), and (f) of this section contain definitions of disqualified
15
person under section 409(p)(4) and (5), deemed-owned ESOP shares under
section 409(p)(4)(C), and synthetic equity under section 409(p)(6)(C). Paragraph
(g) of this section contains a standard for determining when the principal purpose
of the ownership structure of an S corporation constitutes an avoidance or
evasion of section 409(p).
(2) Definitions. The following definitions apply for purposes of section
409(p) and this section, as well as for purposes of section 4979A, which imposes
an excise tax on certain events.
(i) Deemed-owned ESOP shares has the meaning set forth in paragraph
(e) of this section.
(ii) Disqualified person has the meaning set forth in paragraph (d) of this
section.
(iii) Employer has the meaning set forth in §1.41 O(b )-9.
(iv) Employer securities means employer securities within the meaning of
section 409(1).
(v) ESOP means an employee stock ownership plan within the meaning of
section 4975(e)(7).
(vi) Prohibited allocation has the meaning set forth in paragraph (b)(2) of
this section.
(vii) S corporation means S corporation within the meaning of section
1361.
(viii) Synthetic equity has the meaning set forth in paragraph (f) of this
section.
16
(b) Prohibited allocation in a nonallocation year--(1) General rule. Section
409(p)(1) provides that an ESOP holding employer securities consisting of stock
in an S corporation must provide that no portion of the assets of the plan
attributable to (or allocable in lieu of) such employer securities may, during a
nonallocation year, accrue under the ESOP, or be allocated directly or indirectly
under any plan of the employer (including the ESOP) meeting the requirements
of section 401 (a), for the benefit of any disqualified person.
(2) Additional rules--(i) Prohibited allocation definition. For purposes of
section 409(p) and this section, a prohibited allocation means an impermissible
accrual or an impermissible allocation. Whether there is impermissible accrual is
determined under paragraph (b)(2)(ii) of this section and whether there is an
impermissible allocation is determined under paragraph (b)(2)(iii) of this section.
The amount of the prohibited allocation is equal to the sum of the amount of the
impermissible accrual plus the amount of the impermissible allocation.
(ii) Impermissible accrual. There is an impermissible accrual to the extent
that employer securities consisting of stock in an S corporation owned by the
ESOP and any assets attributable thereto are held under the ESOP for the
benefit of a disqualified person during a non allocation year. For this purpose,
assets attributable to stock in an S corporation owned by an ESOP include any
distributions, within the meaning of section 1368, made on S corporation stock
held in a disqualified person's account in the ESOP (including earnings thereon),
plus any proceeds from the sale of S corporation securities held for a disqualified
person's account in the ESOP (including any earnings thereon). Thus, in the
17
event of a non allocation year, all S corporation shares and all other ESOP assets
attributable to S corporation stock, including distributions, sales proceeds, and
earnings on either distributions or proceeds, held for the account of such
disqualified person in the ESOP during that year are an impermissible accrual for
the benefit of that person, whether attributable to contributions in the current year
or in prior years.
(iii) Impermissible allocation. An impermissible allocation occurs during a
nonallocation year to the extent that a contribution or other annual addition
(within the meaning of section 415(c)(2)) is made with respect to the account of a
disqualified person, or the disqualified person otherwise accrues additional
benefits, directly or indirectly under the ESOP or any other plan of the employer
qualified under section 401 (a) (including a release and allocation of assets from a
suspense account, as described at §54.4975-11 (c) and (d) of this chapter) that,
for the nonallocation year, would have been added to the account of the
disqualified person under the ESOP and invested in employer securities
consisting of stock in an S corporation owned by the ESOP but for a provision in
the ESOP that precludes such addition to the account of the disqualified person,
and investment in employer securities during a nonallocation year.
(iv) Effects of prohibited allocation--(A) Deemed distribution. If a plan year
is a nonallocation year, the amount of any prohibited allocation in the account of
a disqualified person as of the first day of the plan year, as determined under this
paragraph (b)(2), is treated as distributed from the ESOP (or other plan of the
employer) to the disqualified person on the first day of the plan year. In the case
18
of an impermissible accrual or impermissible allocation that is not in the account
of the disqualified person as of the first day of the plan year, the amount of the
prohibited allocation, as determined under this paragraph (b)(2), is treated as
distributed on the date of the prohibited allocation. Thus, the fair market value of
assets in the disqualified person's account that constitutes an impermissible
accrual or allocation is included in gross income (to the extent in excess of any
investment in the contract allocable to such amount) and is subject to any
additional income tax that applies under section 72(t). A deemed distribution
under this paragraph (b)(2)(iv)(A) is not an actual distribution from the ESOP.
Thus, the amount of the prohibited allocation is not an eligible rollover distribution
under section 402(c). However, for purposes of applying sections 72 and 402
with respect to any subsequent distribution from the ESOP, the amount that the
disqualified person previously took into account as income as a result of the
deemed distribution is treated as investment in the contract.
(8) Other effects. If there is a prohibited allocation, then the plan fails to
satisfy the requirements of section 4975(e)(7) and ceases to be an ESOP. In
such a case, the exemption from the excise tax on prohibited transactions for
loans to leveraged ESOPs contained in section 4975(d)(3) would cease to apply
to any loan (with the result that the employer would owe an excise tax with
respect to the previously exempt loan). As a result of these failures, the plan
would lose the prohibited transaction exemption for loans to an ESOP under
section 4975(d)(3) of the Code and section 408(b)(3} of Title I of the Employee
Retirement Income Security Act of 1974, as amended (ERISA). Finally, a plan
19
that does not operate in accordance with its terms to reflect section 409(p) fails to
satisfy the qualification requirements of section 401 (a), which would cause the
corporation's S election to terminate under section 1362. See also section
4979A(a) which imposes an excise tax in certain events, including a prohibited
allocation under section 409(p).
(C) Example. The rules of this paragraph (b)(2)(iv) are illustrated by the
following example:
Example. (i) Facts. Corporation M, an S corporation under section 1361,
establishes Plan P as an ESOP in 2006, with a calendar plan year. Plan P is a
qualified plan that includes terms providing that a prohibited allocation will not
occur during a nonallocation year in accordance with section 409(p). On
December 31, 2006, all of the 1,000 outstanding shares of stock of Corporation
M, with a fair market value of $30 per share, are contributed to Plan P and
allocated among accounts established within Plan P for the benefit of
Corporation M's three employees, individuals A, B, and C, based on their
compensation for 2006. As a result, on December 31, 2006, participant A's
account includes 800 of the shares ($24,000); participant B's account includes
140 of the shares ($4,200); and participant C's account includes the remaining
60 shares ($1,800). The plan year 2006 is a nonallocation year, participants A
and B are disqualified persons on December 31,2006, and a prohibited
allocation occurs for A and B on December 31, 2006.
(ii) Conclusion. On December 31, 2006, participants A and B each have a
deemed distribution as a result of the prohibited allocation, resulting in income of
$24,000 for participant A and $4,200 for participant B. Corporation M owes an
excise tax under section 4979A, based on an amount involved of $28,200. Plan
P ceases to be an ESOP on the date of the prohibited allocation (December 31,
2006) and also fails to satisfy the qualification requirements of section 401 (a) on
that date due to the failure to comply with the provisions requiring compliance
with section 409(p). As a result of having an ineligible shareholder under section
1361 (b)(1 )(8), Corporation M ceases to be an S corporation under section 1361
on December 31, 2006.
(v) Prevention of prohibited allocation--(A) Transfer of account to nonESOP. An ESOP may prevent a nonallocation year or a prohibited allocation
during a non allocation year by providing for assets (including S corporation
20
securities) allocated to the account of a disqualified person (or a person
reasonably expected to become a disqualified person absent a transfer
described in this paragraph (b)(2)(v)(A)) to be transferred into a separate portion
of the plan that is not an ESOP, as described in §54.4975-11(a)(5) of this
chapter, or to another plan of the employer that satisfies the requirements of
section 401 (a) and that is not an ESOP. Any such transfer must be effectuated
by an affirmative action taken no later than the date of the transfer, and all
subsequent actions (including benefit statements) generally must be consistent
with the transfer having occurred on that date. In the event of such a transfer
involving S corporation securities, the recipient plan is subject to tax on unrelated
business taxable income under section 512.
(8) Relief from nondiscrimination requirement. Pursuant to this paragraph
(b)(2)(v)(8), if a transfer described in paragraph (b)(2)(v)(A) of this section is
made from an ESOP to a separate portion of the plan or to another qualified plan
of the employer that is not an ESOP, then both the ESOP and the plan or portion
of a plan that is not an ESOP do not fail to satisfy the requirements of
§1.401 (a)(4)-4 merely because of the transfer. Further, subsequent to the
transfer, that plan will not fail to satisfy the requirements of §1.401 (a)(4)-4 merely
because of the benefits, rights, and features with respect to the transferred
benefits if those benefits, rights, and features would satisfy the requirements of
§ 1.401 (a)(4 )-4 if the mandatory disaggregation rule for ESOPs at §1.41 O(b)7(c)(2) did not apply.
21
(c) Nonallocation year. A year is a nonallocation year if it is described in
the general definition in paragraph (c)(1) of this section or if the special rule of
paragraph (c)(3) of this section applies.
(1) General definition. For purposes of section 409(p) and this section, a
nonallocation year means a plan year of an ESOP during which, at any time, the
ESOP holds any employer securities that are shares of an S corporation and
either-(i) Disqualified persons own at least 50 percent of the number of
outstanding shares of stock in the S corporation (including deemed-owned ESOP
shares); or
(ii) Disqualified persons own at least 50 percent of the sum of:
(A) The outstanding shares of stock in the S corporation (including
deemed-owned ESOP shares); and
(8) The shares of synthetic equity in the S corporation owned by
disqualified persons.
(2) Attribution rules. For purposes of this paragraph (c), the rules of
section 318(a) apply to determine ownership of shares in the S corporation
(including deemed-owned ESOP shares) and synthetic equity. However, for this
purpose, section 318(a)(4) (relating to options to acquire stock) is disregarded
and, in applying section 318(a)(1), the members of an individual's family include
members of the individual's family under paragraph (d)(2) of this section. In
addition, an individual is treated as owning deemed-owned ESOP shares of that
individual notwithstanding the employee trust exception in section 318(a)(2)(8)(i).
22
If the attribution rules in paragraph (f)(1) of this section apply, then the rules of
paragraph (f)(1) of this section are applied before (and in addition to) the rules of
this paragraph (c)(2).
(3) Special rule for avoidance or evasion. (i) Any ownership structure
described in paragraph (g)(3) of this section results in a nonallocation year. In
addition, each individual referred to in paragraph (g)(3) of this section is treated
as a disqualified person and the individual's interest in the separate entity
described in paragraph (g)(3) of this section is treated as synthetic equity.
(ii) Pursuant to section 409(p )(7)(8), the Commissioner, in revenue
rulings, notices, and other guidance published in the Internal Revenue 8ulletin
(see §601.601 (d)(2)(ii)(Q) of this chapter), may provide that a non allocation year
occurs in any case in which the principal purpose of the ownership structure of
an S corporation constitutes an avoidance or evasion of section 409(p). For any
year that is a nonallocation year under this paragraph (c)(3), the Commissioner
may treat any person as a disqualified person. See paragraph (g) of this section
for guidance regarding when the principal purpose of an ownership structure of
an S corporation involving synthetic equity constitutes an avoidance or evasion of
section 409(p).
(4) Special rule for certain stock rights. (i) For purposes of paragraph
(c)(1) of this section, a person is treated as owning stock if the person has an
exercisable right to acquire the stock, the stock is both issued and outstanding,
and the stock is held by persons other than the ESOP, the S corporation, or a
related entity (as defined in paragraph (f)(3) of this section).
23
(ii) This paragraph (c)(4) applies only if treating persons as owning the
shares described in paragraph (c)(4)(i) of this section results in a nonallocation
year. This paragraph (c)(4) does not apply to a right to acquire stock of an S
corporation held by a shareholder that is subject to Federal income tax that,
under §1.1361-1 (1)(2)(iii)(A) or (1)(4)(iii)(C), would not be taken into account in
determining if an S corporation has a second class of stock, provided that a
principal purpose of the right is not the avoidance or evasion of section 409(p).
Under the last sentence of paragraph (f)(2)(i) of this section, this paragraph
(c)( 4 )(ii) does not apply for purposes of determi ni ng ownershi p of deemed-owned
ESOP shares or whether an interest constitutes synthetic equity.
(5) Application with respect to shares treated as owned by more than one
person. For purposes of applying paragraph (c)(1) of this section, if, by
application of the rules of paragraph (c)(2), (c)(4), or (f)(1) of this section, any
share is treated as owned by more than one person, then that share is counted
as a single share and that share is treated as owned by disqualified persons if
any of the owners is a disqualified person.
(6) Effect of nonallocation year. See paragraph (b) of this section for a
prohibition applicable during a nonallocation year. See also section 4979A for an
excise tax applicable in certain cases, including section 4979A(a)(3) and (4)
which applies during a nonallocation year (whether or not there is a prohibited
allocation during the year).
(d) Disqualified persons. A person is a disqualified person if the person is
described in paragraph (d)(1), (d)(2), or (d)(3) of this section.
24
(1) General definition. For purposes of section 409(p) and this section, a
disqualified person means any person for whom-(i) The number of such person's deemed-owned ESOP shares of the S
corporation is at least 10 percent of the number of the deemed-owned ESOP
shares of the S corporation;
(ii) The aggregate number of such person's deemed-owned ESOP shares
and synthetic equity shares of the S corporation is at least 10 percent of the sum
of-(A) The total number of deemed-owned ESOP shares of the S
corporation; and
(8) The person's synthetic equity shares of the S corporation;
(iii) The aggregate number of the S corporation's deemed-owned ESOP
shares of such person and of the members of such person's family is at least 20
percent of the number of deemed-owned ESOP shares of the S corporation; or
(iv) The aggregate number of the S corporation's deemed-owned ESOP
shares and synthetic equity shares of such person and of the members of such
person's family is at least 20 percent of the sum of-(A) The total number of deemed-owned ESOP shares of the S
corporation; and
(8) The synthetic equity shares of the S corporation owned by such
person and the members of such person's family.
(2) Treatment of family members; definition--(i) Rule. Each member of the
family of any person who is a disqualified person under paragraph
25
(d)( 1)(iii) or (iv) of this section and who owns any deemed-owned ESOP shares
or synthetic equity shares is a disqualified person.
(ii) General definition. For purposes of section 409(p) and this section,
member of the family means, with respect to an individual-(A) The spouse of the individual;
(8) An ancestor or lineal descendant of the individual or the individual's
spouse;
(C) A brother or sister of the individual or of the individual's spouse and
any lineal descendant of the brother or sister; and
(D) The spouse of any individual described in paragraph (d)(2)(ii)(8) or (C)
of this section.
(iii) Spouse. A spouse of an individual who is legally separated from such
individual under a decree of divorce or separate maintenance is not treated as
such individual's spouse under paragraph (d)(2)(ii) of this section.
(3) Special rule for certain nonallocation years. See paragraph (c)(3) of
this section (relating to avoidance or evasion of section 409(p)) for special rules
under which certain persons are treated as disqualified persons.
(4) Example. The rules of this paragraph (d) are illustrated by the
following examples:
Example 1. (i) Facts. An S corporation has 800 outstanding shares, of
which 100 are owned by individual 0 and 700 are held in an employee stock
ownership plan (ESOP) during 2006, including 200 shares held in the ESOP
account of 0, 65 shares held in the ESOP account of participant P, 65 shares
held in the ESOP account of participant 0 who is P's spouse, and 14 shares held
in the ESOP account of R, who is the daughter of P and O. There are no
unallocated suspense account shares in the ESOP. The S corporation has no
synthetic equity.
26
(ii) Conclusion. Under paragraph (d)(1 )(i) of this section, 0 is a
disqualified person during 2006 because O's account in the ESOP holds at least
10% of the shares owned by the ESOP (200 is 28.6% of 700). During 2006,
neither P, Q, nor R is a disqualified person under paragraph (d)(1 )(i) of this
section, because each of their accounts holds less than 10% of the shares
owned by the ESOP. However, each of P, Q, and R is a disqualified person
under paragraph (d)(1 )(iii) of this section because P and members of P's family
own at least 20% of the deemed-owned ESOP shares (144 (the sum of 65,65
and 14) is 20.6% of 700). As a result, disqualified persons own at least 50% of
the outstanding shares of the S corporation during 2006 (O's 100 directly owned
shares, O's 200 deemed-owned shares, P's 65 deemed-owned shares, Q's 65
deemed-owned shares, and R's 14 deemed-owned shares are 55.5% of 800).
Example 2. (i) Facts. An S corporation has shares that are owned by an
ESOP and various individuals. Individuals Sand T are married and have a son,
U. Individuals V and Ware married and have a daughter, X. Individuals U and X
are married. Individual V has a brother Y. Their percentages of the deemedowned ESOP shares of the S corporation are as follows: T has 6%; U has 7%;
and V has 8%. Neither S, W, X, nor Y has any deemed-owned ESOP shares
and the S corporation has no synthetic equity. However, individual Sand
individual Y each own directly a number of shares of the outstanding shares of
the S corporation.
(ii) Conclusion. In this example, individual U is a disqualified person under
paragraph (d)(1) of this section (because U's family consists of S, T, U, V, W,
and X, and, in the aggregate, those persons own more than 20% of the deemedowned ESOP shares) and individual X is also a disqualified person under
paragraph (d)(1) of this section (because 1's family consists of S, T, U, V, W, and
X, and, in the aggregate, those persons own more than 20% of the deemedowned ESOP shares). Further, individuals T and V are each a disqualified
person under paragraph (d)(2) of this section because each is a member of a
family that includes one or more disqualified persons and each has deemedowned ESOP shares. However, individuals S, W, and Yare not disqualified
persons under this paragraph (d). For example, S does not own more than 10%
of the deemed-owned ESOP shares, and S's family, which consists of S, T, U,
and X, owns, in the aggregate, only 13% of the deemed-owned ESOP shares
(X's parents are not members of S's family because the family members of a
person do not include the parents-in-law of the person's descendants). Further,
note that, for purposes of determining whether the ESOP has a nonallocation
year under paragraph (c) of this section, the shares directly owned by Sand Y
would be taken into account as shares owned by disqualified persons under the
attribution rules in paragraph (c)(2) of this section.
27
(e) Deemed-owned ESOP shares. For purposes of section 409(p) and
this section, a person is treated as owning his or her deemed-owned ESOP
shares. Deemed-owned ESOP shares owned by a person mean, with respect to
any person-(1) Any shares of stock in the S corporation constituting employer
securities that are allocated to such person's account under the ESOP; and
(2) Such person's share of the stock in the S corporation that is held by
the ESOP but is not allocated to the account of any participant or beneficiary
(with such person's share to be determined in the same proportion as the shares
released and allocated from a suspense account, as described at §54.4975-11 (c)
and (d) of the Excise Tax Regulations, under the ESOP for the most recently
ended plan year for which there were shares released and allocated from a
suspense account, or if there has been no such prior release and allocation from
a suspense account, then determined in proportion to a reasonable estimate of
the shares that would be released and allocated in the first year of a loan
repayment).
(f) Synthetic equity and rights to acquire stock of the S corporation--(1)
Ownership of synthetic equity. For purposes of section 409(p) and this section,
synthetic equity means the rights described in paragraph (f)(2) of this section.
Synthetic equity is treated as owned by the person that has any of the rights
specified in paragraph (f)(2) of the section. In addition, the attribution rules as set
forth in paragraph (c)(2) of this section apply for purposes of attributing
ownership of synthetic equity.
28
(2) Synthetic equity--(i) Rights to acquire stock of the S corporation--(A)
General rule. Synthetic equity includes any stock option, warrant, restricted
stock, deferred issuance stock right, stock appreciation right payable in stock, or
similar interest or right that gives the holder the right to acquire or receive stock
of the S corporation in the future. Rights to acquire stock in an S corporation with
respect to stock that is, at all times during the period when such rights are
effective, both issued and outstanding, and held by a person other than the
ESOP, the S corporation, or a related entity are not synthetic equity but only if
that person is subject to federal income taxes. (See also paragraph (c)(4) of this
section.)
(8) Exception for certain rights of first refusal. A right of first refusal to
acquire stock held by an ESOP is not treated as a right to acquire stock of an S
corporation under this paragraph if the right to acquire stock would not be taken
into account under §1.1361-1 (1)(2)(iii)(A) in determining if an S corporation has a
second class of stock and the price at which the stock is acquired under the right
of first refusal is not less than the price determined under section 409(h). See §
54.4975-11 (d)(5) of the Excise Tax Regulations. The right of first refusal must
also comply with the requirements of §54.4975-7(b)(9) of the Excise Tax
Regulations. This paragraph (f)(2)(i)(8) does not apply if, based on the facts and
circumstances, the Commissioner finds that the right to acquire stock held by the
ESOP constitutes an avoidance or an evasion of section 409(p). See also
section 408(d) of ERISA. under which the exemption provided by section 408(e)
of ERISA (and the related exemption at section 4975(d)(13) of the Code) does
29
not apply to an owner-employee, including an employee or officer of an S
corporation who is a 5 percent owner.
(ii) Special rule for certain stock rights. Synthetic equity also includes a
right to a future payment (payable in cash or any other form other than stock of
the S corporation) from an S corporation that is based on the value of the stock
of the S corporation, such as appreciation in such value. Thus, for example,
synthetic equity includes a stock appreciation right with respect to stock of an S
corporation that is payable in cash or a phantom stock unit with respect to stock
of an S corporation that is payable in cash.
(iii) Rights to acquire interests in or assets of an S corporation or a related
entity. Synthetic equity includes a right to acquire stock or other similar interests
in a related entity to the extent of the S corporation's ownership. Synthetic equity
also includes a right to acquire assets of an S corporation or a related entity other
than either rights to acquire goods, services, or property at fair market value in
the ordinary course of business or fringe benefits excluded from gross income
under section 132.
(iv) Special rule for nonqualified deferred compensation. (A) Synthetic
equity also includes any of the following with respect to an S corporation or a
related entity: any remuneration to which section 404(a)(5) applies; remuneration
for which a deduction would be permitted under section 404(a)(5) if separate
accounts were maintained; any right to receive property, as defined in §1.83-3(e)
of the Income Tax Regulations (including a payment to a trust described in
section 402(b) or to an annuity described in section 403(c)) in a future year for
30
the performance of services; any transfer of property in connection with the
performance of services to which section 83 applies to the extent that the
property is not substantially vested within the meaning of §1.83-3(i) by the end of
the plan year in which transferred; and a split-dollar life insurance arrangement
under §1.61-22{b) entered into in connection with the performance of services
(other than one under which, at all times, the only economic benefit that will be
provided under the arrangement is current life insurance protection as described
in §1.61-22(d)(3)). Synthetic equity also includes any other remuneration for
services under a plan, method, or arrangement deferring the receipt of
rd
compensation to a date that is after the 15th day of the 3 calendar month after
the end of the entity's taxable year in which the related services are rendered.
However, synthetic equity does not include benefits under a plan that is an
eligible retirement plan within the meaning of section 402(c)(8)(8).
(8) For purposes of applying paragraph (f)(2)(iv)(A) of this section with
respect to an ESOP, synthetic equity does not include any interest described in
such paragraph (f)(2)(iv)(A) of this section to the extent that-(1) The interest is nonqualified deferred compensation (within the meaning
of section 3121 (v)(2)) that was outstanding on December 17,2004;
(.f.) The interest is an amount that was taken into account (within the
meaning of §31.3121 (v)(2)-1 (d) of this chapter) prior to January 1, 2005, for
purposes of taxation under chapter 21 of the Internal Revenue Code (or income
attributable thereto); and
31
(~)
The interest was held before the first date on which the ESOP acquires
any employer securities.
(v) No overlap among shares of deemed-owned ESOP shares or synthetic
equity. Synthetic equity under this paragraph (f)(2) does not include shares that
are deemed-owned ESOP shares (or any rights with respect to deemed-owned
ESOP shares to the extent such rights are specifically provided under section
409(h)). In addition, synthetic equity under a specific subparagraph of this
paragraph (f)(2) does not include anything that is synthetic equity under a
preceding provision of paragraph (f)(2)(i), (ii), (iii), or (iv) of this section.
(3) Related entity. For purposes of this paragraph (t), related entity means
any entity in which the S corporation holds an interest and which is a partnership,
a trust, an eligible entity that is disregarded as an entity that is separate from its
owner under §301.7701-3 of this chapter, or a qualified subchapter S subsidiary
under section 1361 (b)(3).
(4) Number of synthetic shares--(i) Synthetic equity determined by
reference to S corporation shares. In the case of synthetic equity that is
determined by reference to shares of stock of the S corporation, the person who
is entitled to the synthetic equity is treated as owning the number of shares of
stock deliverable pursuant to such synthetic equity. In the case of synthetic
equity that is determined by reference to shares of stock of the S corporation, but
for which payment is made in cash or other property (besides stock of the S
corporation), the number of shares of synthetic equity treated as owned is equal
to the number of shares of stock having a fair market value equal to the cash or
32
other property (disregarding lapse restrictions as described in §1.83-3(i)). Where
such synthetic equity is a right to purchase or receive S corporation shares, the
corresponding number of shares of synthetic equity is determined without regard
to lapse restrictions as described in §1.83-3(i) or to any amount required to be
paid in exchange for the shares. Thus, for example, if a corporation grants an
employee of an S corporation an option to purchase 100 shares of the
corporation's stock, exercisable in the future only after the satisfaction of certain
performance conditions, the employee is the deemed owner of 100 synthetic
equity shares of the corporation as of the date the option is granted. If the same
employee were granted 100 shares of restricted S corporation stock (or restricted
stock units), subject to forfeiture until the satisfaction of performance or service
conditions, the employee would likewise be the deemed owner of 100 synthetic
equity shares from the grant date. However, if the same employee were granted
a stock appreciation right with regard to 100 shares of S corporation stock
(whether payable in stock or in cash), the number of synthetic equity shares the
employee is deemed to own equals the number of shares having a value equal to
the appreciation at the time of measurement (determined without regard to lapse
restrictions).
(ii) Synthetic equity determined by reference to shares in a related entity.
In the case of synthetic equity that is determined by reference to shares of stock
(or similar interests) in a related entity, the person who is entitled to the synthetic
equity is treated as owning shares of stock of the S corporation with the same
aggregate value as the number of shares of stock (or similar interests) of the
33
related entity (with such value determined without regard to any lapse restriction
as defined at §1.83-3(i)).
(iii) Other synthetic equity--(A) General rule. In the case of any synthetic
equity to which neither paragraph (f)(4)(i) of this section nor paragraph (f)(4)(ii) of
this section apply, the person who is entitled to the synthetic equity is treated as
owning on any date a number of shares of stock in the S corporation equal to the
present value (on that date) of the synthetic equity (with such value determined
without regard to any lapse restriction as defined at §1.83-3(i)) divided by the fair
market value of a share of the S corporation's stock as of that date.
(8) Use of annual or more frequent determination dates. A year is a
nonallocation year if the thresholds in paragraph (c) of this section are met at any
time during that year. However, for purposes of this paragraph (f)(4)(iii), an
ESOP may provide that the number of shares of S corporation stock treated as
owned by a person who is entitled to synthetic equity to which this paragraph
(f)(4)(iii) applies is determined annually (or more frequently), as of the first day of
the ESOP's plan year or as of any other reasonable determination date or dates
during a plan year. If the ESOP so provides, the number of shares of synthetic
equity to which this paragraph (f)(4)(iii) applies that are treated as owned by that
person for any period from a given determination date through the date
immediately preceding the next following determination date is the number of
shares treated as owned on the given determination date.
(C) Use of triennial recalculations. (1) Although an ESOP must have a
determination date that is no less frequent than annually, if the terms of the
34
ESOP so provide, then the number of shares of synthetic equity with respect to
grants of synthetic equity to which this paragraph (f)(4)(iii) applies may be fixed
for a specified period from a determination date identified under the ESOP
through the day before a determination date that is not later than the third
anniversary of the identified determination date. Thus, the ESOP must provide
for the number of shares of synthetic equity to which this paragraph (f)(4)(iii)
applies to be re-determined not less frequently than every three years, based on
the S corporation share value on a determination date that is not later than the
third anniversary of the identified determination date and the aggregate present
value of the synthetic equity to which this paragraph (f)(4)(iii) applies (including
all grants made during the three-year period) on that determination date.
(~)
However, additional accruals, allocations, or grants (to which this
paragraph (f)(4)(iii) applies) that are made during such three-year period are
taken into account on each determination date during that period, based on the
number of synthetic equity shares resulting from the additional accrual,
allocation, or grant (determined as of the determination date on or next following
the date of the accrual, allocation, or grant). See Example 3 of paragraph (h) of
this section for an example illustrating this paragraph (f)(4)(iii)(C).
(~) If, as permitted under this paragraph (f)(4 )(iii)(C), an ESOP provides
for the number of shares of synthetic equity to be fixed for a specified period from
a determination date to a subsequent determination date, then that subsequent
determination date can be changed to a new determination date, subject to the
following conditions:
35
(i) The change in the subsequent determination date must be effectuated
through a plan amendment adopted before the new determination date;
(li) The new determination date must be earlier than the prior
determination date (that is, the new determination date must be earlier than the
determination date applicable in the absence of the plan amendment);
(iii) The conditions in paragraph (f)(4)(iii)(C)(~) of this section must be
satisfied measured from the new determination date; and
(iv) Except to the extent permitted by the Commissioner in revenue
rulings, notices, or other guidance published in the Internal Revenue Bulletin (see
§601.601 (d)(2)(ii)(b) of this chapter), the change must be adopted in connection
with either a change in the plan year of the ESOP or a merger, consolidation, or
transfer of plan assets of the ESOP under section 414(1) (and the new
determination date must consistent with that plan year change or section 414(1)
event).
(1:,) Conditions for application of rules. This paragraph (f)(4)(iii)(C) only
applies with respect to grants of synthetic equity to which this paragraph (f)(4)(iii)
applies. In addition, paragraph (f)(4)(iii)(C) of this section applies only if the fair
market value of a share of the S corporation securities on any determination date
is not unrepresentative of the value of the S corporation securities throughout the
rest of the plan year and only if the terms of the ESOP include provisions
conforming to paragraph (f)(4 )(iii)(C)(l) of this section which are consistently
used by the ESOP for all persons. In addition, paragraph (f)(4)(iii)(C)(1) of this
section applies only if the terms of the ESOP include provisions conforming to
36
paragraphs (f)(4)(iii)(C)(1) of this section which are consistently used by the
ESOP for all persons.
(iv) Adjustment of number of synthetic equity shares where ESOP owns
less than 100 Percent of S corporation. The number of synthetic shares
otherwise determined under this paragraph (f)( 4) is decreased ratably to the
extent that shares of the S corporation are owned by a person who is not an
ESOP and who is subject to Federal income taxes. For example, if an S
corporation has 200 outstanding shares, of which individual A owns 50 shares
and the ESOP owns the other 150 shares, and individual B would be treated
under this paragraph (f)(4) as owning 100 synthetic equity shares of the S
corporation but for this paragraph (f)(4)(iv), then, under the rule of this paragraph
(f)(4)(iv), the number of synthetic shares treated as owned by B under this
paragraph (f)(4) is decreased from 100 to 75 (because the ESOP only owns 75
percent of the outstanding stock of the S corporation, rather than 100 percent).
(v) Special rule for shares with greater voting power than ESOP shares.
Notwithstanding any other provision of this paragraph (f)(4), if a synthetic equity
right includes (directly or indirectly) a right to purchase or receive shares of S
corporation stock that have per-share voting rights greater than the per-share
voting rights of one or more shares of S corporation stock held by the ESOP,
then the number of shares of deemed owned synthetic equity attributable to such
right is not less than the number of shares that would have the same voting rights
if the shares had the same per-share voting rights as shares held by the ESOP
with the least voting rights. For example, if shares of S corporation stock held by
37
the ESOP have one voting right per share, then an individual who holds an
option to purchase one share with 100 voting rights is treated as owning 100
shares of synthetic equity.
(g) Avoidance or evasion of section 409(p) involving synthetic equity--(1)
General rule. Paragraph (g)(2) of this section sets forth a standard for
determining whether the principal purpose of the ownership structure of an S
corporation involving synthetic equity constitutes an avoidance or evasion of
section 409(p). Paragraph (g)(3) of this section identifies certain specific
ownership structures that constitute an avoidance or evasion of section 409(p).
See also paragraph (c)(3) of this section for a rule under which the ownership
structures in paragraph (g)(3) of this section result in a nonallocation year for
purposes of section 409(p).
(2) Standard for determining when there is an avoidance or evasion of
section 409(p) involving synthetic equity. For purposes of section 409(p) and this
section, whether the principal purpose of the ownership structure of an S
corporation involving synthetic equity constitutes an avoidance or evasion of
section 409(p) is determined by taking into account all the surrounding facts and
circumstances, including all features of the ownership of the S corporation's
outstanding stock and related obligations (including synthetic equity), any
shareholders who are taxable entities, and the cash distributions made to
shareholders, to determine whether, to the extent of the ESOP's stock
ownership, the ESOP receives the economic benefits of ownership in the S
corporation that occur during the period that stock of the S corporation is owned
38
by the ESOP. Among the factors indicating that the ESOP receives those
economic benefits include shareholder voting rights, the right to receive
distributions made to shareholders, and the right to benefit from the profits
earned by the S corporation, including the extent to which actual distributions of
profits are made from the S corporation to the ESOP and the extent to which the
ESOP's ownership interest in undistributed profits and future profits is subject to
dilution as a result of synthetic equity. For example, the ESOP's ownership
interest is not subject to dilution if the total amount of synthetic equity is a
relatively small portion of the total number of shares and deemed-owned shares
of the S corporation.
(3) Specific transactions that constitute an avoidance or evasion of
section 409(p) involving segregated profits. Taking into account the standard in
paragraph (g)(2) of this section, the principal purpose of the ownership structure
of an S corporation constitutes an avoidance or evasion of section 409(p) in any
case in which-(i) The profits of the S corporation generated by the business activities of a
specific individual or individuals are not provided to the ESOP, but are instead
substantially accumulated and held for the benefit of the individual or individuals
on a tax-deferred basis within an entity related to the S corporation, such as a
partnership, trust, or corporation (such as in a subsidiary that is a disregarded
entity), or any other method that has the same effect of segregating profits for the
benefit of such individual or individuals (such as nonqualified deferred
compensation described in paragraph (f)(2)(iv) of this section);
39
(ii) The individual or individuals for whom profits are segregated have
rights to acquire 50 percent or more of those profits directly or indirectly (for
example, by purchase of the subsidiary); and
(iii) A nonallocation year would occur if this section were separately
applied with respect to either the separate entity or whatever method has the
effect of segregating profits of the individual or individuals, treating such entity as
a separate S corporation owned by an ESOP (or in the case of any other method
of segregation of profits by treating those profits as the only assets of a separate
S corporation owned by an ESOP).
(h) Examples. The rules of this section are illustrated by the following
examples:
Example 1. Relating to determination of disqualified persons and
nonallocation year if there is no synthetic equity. (i) Facts. Corporation X is a
calendar year S corporation that maintains an ESOP. X has a single class of
common stock, of which there are a total of 1,200 shares outstanding. X has no
synthetic equity. In 2006, individual A, who is not an employee of X (and is not
related to any employee of X), owns 100 shares directly, B, who is an employee
of ~, owns 100 shares directly, and the remaining 1,000 shares are owned by an
ESOP maintained by X for its employees. The ESOP's 1,000 shares are
allocated to the accounts of individuals who are employees of X (none of whom
are related), as set forth in columns 1 and 2 in the following table:
40
2
Deemed-Owned
ESOP Shares (total
of 1,000)
3
B
330
33%
Yes
C
145
14.5%
Yes
D
75
7.5%
No
E
30
3%
No
F
20
2%
No
400 (none exceed
10 shares)
1% or less
No
1
Shareholders
Other participants
Percentage
Deemed-Owned
ESOP Shares
4
Disqualified Person
(ii) Conclusion with respect to disqualified persons. As shown in column
4 in the table contained in paragraph (i) of Example 1, individuals Band Care
disqualified persons for 2006 under paragraph (d)(1) of this section because
each owns at least 10% of X's deemed-owned ESOP shares. However, the
synthetic equity shares owned by any person do not affect the calculation for any
other person's ownership of shares.
(iii) Conclusion with respect to non allocation year. 2006 is not a
nonallocation year under section 409(p) because disqualified persons do not own
at least 50% of X's outstanding shares (the 100 shares owned directly by B, B's
330 deemed-owned ESOP shares, plus C's 145 deemed-owned ESOP shares
equal only 47.9% of the 1,200 outstanding shares of X).
Example 2. Relating to determination of disqualified persons and
nonallocation year if there is synthetic equity. (i) Facts. The facts are the same
as in Example 1, except that, as shown in column 4 of the table in this Example
2, individuals E and F have options to acquire 110 and 130 shares, respectively,
of the common stock of X from X:
41
2
DeemedOwned
ESOP
Shares
(total of
1,000)
3
Percentage
DeemedOwned
ESOP
Shares
B
330
33%
Yes (col. 3)
C
145
14.5%
Yes (coI.3)
D
75
7.5%
No
30
3%
20
2%
400 (none
exceeds 10
shares)
1% or less
1
Shareholder
E
F
Other
participants
4
Options
(240)
110
130
5
Shareholder
Percentage
of DeemedOwned
ESOP plus
Synthetic
Equity
Shares
6
Disqualified
Person
11.1% ([30+
91.7]
divided by
1,091.7)
Yes (col. 5)
11.6% ([20
+108.3]
divided by
1,108.3)
Yes (col. 5)
No
(ii) Conclusion with respect to disqualified persons. Individual E's
synthetic equity shares are counted in determining whether E is a disqualified
person for 2006, and individual F's synthetic equity shares are counted in
determining whether F is a disqualified person for 2006. Applying the rule of
paragraph (f)(4 )(iv) of this section, E's option to acquire 110 shares of the S
corporation converts under paragraph (f)(4 )(iv) of this section, into 91.7 shares of
synthetic equity (110 times the ratio of the 1,000 deemed-owned ESOP shares to
the sum of the 1,000 deemed-owned ESOP shares plus the 200 shares held
outside the ESOP by A and 8). Similarly, F's option to acquire 130 shares of the
S corporation converts into 108.3 shares of synthetic equity (130 times the ratio
of the 1,000 deemed-owned ESOP shares to the sum of the 1,000 deemedowned ESOP shares plus the 200 shares held outside the ESOP by A and B).
However, the synthetic equity shares owned by any person do not affect the
calculation for any other person's ownership of shares. Accordingly, as shown in
column 6 in the table contained in paragraph (i) of Example 2, individuals B, C, E,
and F are disqualified persons for 2006.
42
(iii) Conclusion with respect to nonallocation vear. The 100 shares owned
directly by B, B's 330 deemed-owned ESOP shares, C's 145 deemed-owned
ESOP shares, E's 30 deemed-owned ESOP shares, E's 91.7 synthetic equity
shares, F's 20 deemed-owned ESOP shares, plus F's 108.3 synthetic equity
shares total 825, which equals 58.9% of 1,400, which is the sum of the 1,200
outstanding shares of X and the 200 shares of synthetic equity shares of X held
by disqualified persons. Thus, 2006 is a non allocation year for X's ESOP under
section 409(p) because disqualified persons own at least 50% of the total shares
of outstanding stock of X and the total synthetic equity shares of X held by
disqualified persons. In addition, independent of the preceding conclusion, 2006
would be a nonallocation year because disqualified persons own at least 50% of
X's outstanding shares because the 100 shares owned directly by B, B's 330
deemed-owned ESOP shares, C's 145 deemed-owned ESOP shares, E's 30
deemed-owned ESOP shares, plus F's 20 deemed-owned ESOP shares equal
52.1 % of the 1,200 outstanding shares of X.
Example 3. Relating to determination of number of shares of synthetic
equity. (i) Facts. Corporation Y is a calendar year S corporation that maintains
an ESOP. Y has a single class of common stock, of which there are a total of
1,000 shares outstanding, all of which are owned by the ESOP. Y has no
synthetic equity, except for four grants of nonqualified deferred compensation
that are made to an individual during the period from 2005 through 2011, as set
forth in column 2 in the following table. The ESOP provides for the special rules
in paragraph (f)(4 )(iii) of this section to determine the number of shares of
synthetic equity owned by that individual with a determination date of January 1
and the triennial rule redetermining value, as shown in columns 4 and 5:
1
Determination
Date
January 1, 2005
2
Present Value of
Nonqualified
Deferred
Compensation
on Determination
Date
4
3
Share Value
New Shares of
Synthetic
on
Determination Equity on
Determination
Date
Date
A grant is made
on January 1,
2005, with a
present value of
$1,000. An
additional grant
of nonqualified
deferred
compensation
with a present
value of $775 is
$10 per share
100
5
Aggregate
Number of
Synthetic
Equity Shares
on
Determination
Date
100
43
January 1, 2006
January 1, 2007
January 1, 2008
January 1, 2009
January 1, 2010
January 1, 2011
made on March
1,2005.
An additional
grant is made on
December 31,
2005, which has
a present value
of $800 on
January 1, 2006.
The March 1,
2005, grant has
a present val ue
on January 1,
2006, of $800.
No new grants
made.
An additional
grant is made on
December 31 ,
2007, which has
a present value
of $3,000 on
January 1, 2008.
The grants made
during 2005
through 2007
have an
aggregate
present value on
January 1, 2008,
of $3,750.
No new grants
are made.
No new grants
are made.
No new grants
are made. The
grants made
during 2005
through 2008
have an
aggregate
present value on
January 1, 2011,
of $7,600.
$8 per share
200
300
$12 per share
$15 per share
300
200
450
$11 per share
450
$22 per share
450
$20 per share
380
44
(ii) Conclusion. The grant made on January 1, 2005, is treated as 100
shares until the determination date in 2008. The grant made on March 1, 2005,
is not taken into account until the 2006 determination date and its present value
on that date, along with the then present value of the grant made on December
31, 2005, is treated as a number of shares that are based on the $8 per share
value on the 2006 determination date, with the resulting number of shares
continuing to apply until the determination date in 2008. On the January 1,2008,
determination date, the grant made on the preceding day is taken into account at
its present value of $3,000 on January 1, 2008 and the $15 per share value on
that date with the resulting number of shares (200) continuing to apply until the
next determination date. In addition, on the January 1, 2008, determination date,
the number of shares determined under other grants made between January 1,
2005 and December 31, 2007, must be revalued. Accordingly, the aggregate
value of all nonqualified deferred compensation granted during that period is
determined to be $3750 on January 1,2008, and the corresponding number of
shares of synthetic equity based on the $15 per share value is determined to be
250 shares on the 2008 determination date, with the resulting aggregate number
of shares (450) continuing to apply until the determination date in 2011. On the
January 1, 2011, determination date, the aggregate value of all nonqualified
deferred compensation is determined to be $7,600 and the corresponding
number of shares of synthetic equity based on the $20 per share value on the
2011 determination date is determined to be 380 shares (with the resulting
number of shares continuing to apply until the day before the determination date
in 2014, assuming no further grants are made).
(i) Effective dates--(1) Statutory effective date. (i) Except as otherwise
provided in paragraph (i)(1 )(ii) of this section, section 409(p) applies for plan
years ending after March 14,2001.
(ii) If an ESOP holding stock in an S corporation was established on or
before March 14, 2001, and the election under section 1362(a) with respect to
that S corporation was in effect on March 14, 2001, section 409(p) applies for
plan years beginning on or after January 1, 2005.
(2) Regulatory effective date. This section applies for plan years
beginning on or after January 1, 2006. For plan years beginning before January
1,2006, §1.409(p)-1T (as it appeared in the April 1,2005, edition of 26 CFR part
1) applies.
Deputy Commissioner for Services and Enforcement.
Mark E. Matthews
Approved:
November 30, 2006
Acting Assistant Secretary of the Treasury (Tax Policy).
Eric Solomon
Page 1 of 1
December 19, 2006
HP-208
Treasury Releases Semiannual Report on International and Economic and
Exchange Rate Policies
Washington, DC -- The Treasury Department today released Its Semiannual Report
on International and Econolllic and Exchange Rate Policies.
• Click here to review the report,
http://www.treasgov/press/releases/hp20S.htm
1/3/2007
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ZT~~1:~'f-S;~-:·; ~ .. ,!:;~::'C:,~~i£f.F.4Pj!~~il<l j
SEMIANNUAL REPORT ON INTERNATIONAL ECONOMIC AND
EXCHANGE RATE POLICIES
<BACK
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The Treasury Department's Report to Congress on International Economic and Exchange Rate
Policies outlines the currency practices of America's major trading partners.
Authorizing Statute 0
December 2006
Report 18
Appendix I: Patterns of Indicators IE
Appendix II: Exchange Rate Misalignment: What the Models Tell Us and Methodological
Considerations 18
Appendix III: The Adequacy of Foreign Exchange Reserves IE
May 2006
Report IE
Appendix I: Patterns of Indicators IE
Appendix II: Fixed vs Flexible Exchange R<'ltes IE
Fact Sheef: Commitments by Chinese Officials IE
Fact Sheet: Chinese Actions on Exchange Rate Flexibility, Financial Reform and Balanced
Growth IE
November 2005
Report 18
Appendix: Analysis of Exchange Rates Pursuant to the Act
"TOP
Last Updated: December 19,2006
http://www.treasury gOYJofficeslintemati onal-affairsl economi c-exchange-ratesl
1/3/2007
Page 1 of2
December 20,2006
HP-209
President Bush Signs Bill
to Make Health Care more Affordable, Accessible
Washington, DC- President George W Bush signed the Health Opportunity Patient
Empowerment Act of 2006 today, enhancing Americans' access to tax-advantaged
health care savings. The law, part of the Tax Relief and Health Care Act of 2006,
provides new opportunities for health savings account (HSA) participants' to build
their funds.
"Health savlIlgs accounts am IInprovlng the way Americans obtain the care they
need ThiS bill makes HSAs more fleXible and makes it easier for participants to put
money aside for their personal Ilealth care," said Treasury ASSistant Secretary for
Tax PoliCy Enc Solomon
HSA provisions of the Act include
Allow roll overs from health FSAs and HRAs into HSAs through 2011.
Employers can transfer funds from FleXible Spending Arrangements (FSAs) or
Health Reimbursement Arrangements (HRAs) to an HSA for employees switching
to coverage under an HSA-compatible health plan. The amounts rolled over to
HSAs from FSAs or HRAs are over and above the amounts allowed as annual
contributions. The maximum contribution IS the balance in the FSA or HRA as of
September 21,2006, or If less, the balance as of the date of the transfer The
provision is limited to one rJlstrihutlon with respect to each health FSA or HRA of the
IndiVidual. If an indiVidual does not remain an eligible Individual for the 12 months
following the month of the contribution, the transferred amount IS IIlcluded in income
and subject to a 10 percent additional tax
Increase in annual HSA contribution. Previously, the maximum HSA contribution
was the lesser of the deductible of the Individual's HSA-eliglble plan or a statutory
maximum. The new rules make the limit the statutory maximum contribution,
regardless of the IIldivldual's deductible. For 2007, the maximum contribution for
an eligible Individual With self-only coverage IS $2,850, and the maximum
contribution for an eligible IndiVidual With family coverage IS S5,650 These lirilits
are Indexed for IIlflatlon
Full HSA contribution regardless of month individual becomes eligible.
Normally, the HSA contribution is pro rated based on the number of months that an
indiVidual during the year a person was an eligible IndiVidual The new prOVISions
provide an exception to thiS rule that Will allow individuals who become covered
under an HSA-eliglble plan In a month other than January to make the maximum
HSA contribution for the year based on tilelr coverage in the last month of the year.
This elimlrlates a common bamer to switchlrlg to HSA-eliglble coverage. If an
individual does not stay In the HSA-ellglble plan 12 months following the last month
of the year of the first year of eligibility, tile amount which could not have been
contributed except for this provISion will be Irlcluded in Income and subject to a 10
percent additional tax
One-time transfer from IRAs to HSAs. The new rules allow for a one-time
contribution to an HSA of amounts distributed from an IndiVidual Retirement
Arrangement (IRA). The contribution must be made In a direct trustee-to-trustee
transfer. The IRA transfer will not be Included In Income or subject to the early
Withdrawal additional tax. The transfer is limited to the maximum HSA contribution
for the year, and the amount contributed IS not allowed as a deduction Generally,
P://WWw.treas.gov!pressJreleasesfhp209.htm
1/3/2007
Page 2 of 2
only one transfer may be made during the lifetime of an individual. If an Individual
electlllg the one-time transfer does not reillain an eligible individual for the 12
months following the montil of the contribution, the transferred aillount is included
in IIlcome and subject to a 10 percent additional tax.
Certain FSA coverage treated as disregarded coverage, Under prevIous law, If
an FSA had a grace period followlIlg the end of the plan year allowing participants
to incur additional reimbursable expenses, participants were treated as having
disqualifying coverage, reducing tlleir HSA contribution for that year, even though
they had sWitched to HSA-eliglble coverage at the first of the year. The new rules
treat cel·taill FSA coverage dUring a grace period as disregarded coverage,
eliminating any resulting reciuctlon In the HSA contribution for the year. First, the
coverage IS disregarded if the balance in the health FSA at the end of the plan year
is zero Second, the coverage IS disregarded if the year-end t)alance IS transferred
directly to an HSA fom the FSA, as noted above.
Earlier indexing of cost of living adjustments. Previously, Indexing was based
on a 12-month period ending on August 31. The new rules change the base period
to the 12-month period ending on March 31 and require that adjusted amounts for a
year be published by June 1 of the preceding year. ThiS change will provide
employers and health plans with more time to design qualifying HSA-eligible plans
and individuals with more time to make decisions about their health care for the
next year.
Allow greater employer contributions for lower-paid employees. Previously,
employer contributions under the comparability rules had to be the same amount or
percentage of the deductible for all employees with the same category of coverage
Consequently, employers could not contribute higher amounts to lower-paid
employees. The new rules prOVide an exception to the comparability rules allowlllg
employers to contribute more to the HSAs of non-highly compensated individuals
For this purpose, the definition of "highly compensated employee" IS based on
same definition used for qualified retirement plans.
-30-
o:IIWWw.treas.g ovJpresslreleaseslhp209.htm
1/3/2007
Page I of I
December 21 . 2006
HP-210
TREASURY WELCOMES ENTRY INTO FORCE OF US-FRENCH INCOME,
ESTATE TAX PROTOCOLS
Washington, DC- The Treosury Department today welcomed the entry Into force
of protocols to the Income tax and estate tax treaties between the United States
and France. The protocols were signed in December 2004. and amend the existing
Income tax treaty concluded in 1994 and the eXisting estate tax treaty concluded in
1978.
The protocol to the income tax treaty makes technical changes to resolve several
Issues that have arisen under the treaty following its entry IIItO force In 1995. Tile
most Important prOVision clarifies the manner In WhlCi1 the treaty will apply In the
case of investments made into France by US persons through partnerships and
other fiscally-transparent entities.
In general, thiS protocol will have effect. with respect to taxes withheld at source, for
amounts paid or credited on or after February 1,2007, and with respect to other
taxes, for taxable periods beginning on or after January 1, 2007. However.
because the rules benefiting U.S. reSidents investing through partnerships are
intended to ensure that the treaty provides results that are consistent with the intent
of the negotiators of the 1995 treaty, those changes will be applicable as of the
effective dates of the 1995 treaty
The protocol to the estate tax treaty was negotiated following changes in the U.S
estate tax law In 1988 that affected non-citizen spouses of U.S. decedents. The
protocol provides some estate tax relief In the form of a marital deduction in the
case of a French spouse of a U.S decedent where the estate IS of relatively modest
size. The estate tax protocol also makes a number of technical changes to take
into account changes In each country's tax law since the estate tax treaty entered
into force in 1980.
Although the estate tax protocol generally will be effective with respect to gifts made
and deaths occurring after the exchange of Instruments of ralificatlon, the relief
prOVided with respect to surViving nOll-citizen spouses and the pro rata unified
credit will be effective with respect to gifts made and deaths occurring after
November 10. 1988 (the effective date of the 1988 legislative changes).
Claims for refund asserting the benefits of the protocol that otherWise would be
barred by the statute of limitations must be made within one year of entry into force
of the protocol, however. and all clalllls for retroactive relref are subject to the rules
regarding the United States' ability to tax former citizens and long-term residents
The two protocols are an important step forward in keeping our eXisting treaty
network up to date and serve to strengthen an already strong relalionship with an
Important treaty partner They are the latest manifestation of the close economic
ties and deep friendship between our two countries
-30-
http://WWw_treas.gov/pres.iJ.release.iihp210.htm
1/3/2007
Page I of3
December 1,2006
HP-211
Remarks by Treasury Deputy Assistant Secretary Ahmed Saeed
at the Africa Oil & Gas Forum: Expectations & Reality
Washington, D.C - I would like to Hlank the Corporate Council on Africa and In
particular, Steven Hayes fOI the opportunity to speak on thiS very Important matter
am also honored to be speakrng ilt this lunch along with Deputy Mlnlstel'
Noormaholl1ed from Mozambique. I must begin, however, with a mild reproach to
CCA for my position in the line of speakers. Not only do I have the daunting task of
trying to add something Insightful after all of the distingUished speakers who have
participated in the last two days, but I also stand hetween OUI guests and lunctl
Therefore. I'll try to be brief
The Treasury Department focuses on the world's finilncial sectors and global
economic developmerlts. I Will therefol'e focus on thiS theme, and diSCUSS the
linkages between Africa's all amI gas sector and the US and global economies.
Africa has long played an important role on the world stage. It is il continent that IS
Significant in population and diversity, and IS rich in tradition and culture. Its
contributions to world CIVilization are numerous and long-standing. However, the
continent represents a small fraction - less than 2 percent - of global GDP
But Africa is a global player In the energy markets, and It plays a particularly
Impol1ant role here in the United States. As others this morning have noted, the
continent currently supplies 19 percent of U.S crude oil Imports - a figure that Will
rise as tile U.S continues to diversify its supply. Africa is also an Illlportant source
of global energy supply, accounting for 12 percent of world crude oil production
Africa has reaped the benefits of Its oil resources. The IMF estimates that GOP
growth could top on average 10 percent In 2007 in sub-Saharan Africa's net oil
exporters. In certain countries, ot! will have an even more pronounced Impact. For
instance, the IMF projects Angola's GOP to Increase by 30 percent in 2007.
And yet despite this ot! wealth. some of the countries ricllest In 011 and other
extractives are also the poorest. Average per capita illcome III 2005 in sub-Saharan
Africa oil producers was S537 Furthermore, despite the availability of abulldililt oil
reserves, Afllca has yet to fully exploit Its resources fully. Although Nigeria alone
has greater proven reserves than the United States, III September there were 27
times as many offshore l'lgs In operation in the United States as there were In all of
Afrrca - 1.739 figs compared to 64. In addition, Africa has far more unexplored
territory than we do in our country. There are a number of reasons for this
discrepancy, but these statistics reveal the stark reality that global resources are
poor'ly distributed in the pursuit of this valuable resource, and Africa has large
untapped areas that could be explored and harnessed
How African Governments Can Realize the Benefits of Natural Resources
The impoliant question IS. of course, how African governments could do more to
realize the benefits inherent In thiS untapped wealth. I would like to diSCUSS three
areas where there is much to commend, but where more remains to be done
First, and in many ways most significantly, resource allocations cannot be made
more efficient until investment environments are Improved substantially in African
all. and for that matter, non-at! prodUCing countries Speakers have noted Africa's
http://www.treas.gov/presslreleases /bp2Jl.htm
1/3/2007
Page 2 of 3
poor rankings on a variety of surveys, sLich as TranspcHency International's
Corruption Index. Another similar ranking IS the IFe's annual DOlllg BUSiness
Indicators report. Unfortunately, 1ll311Y African countries contlilue to score very
poorly on these indices Tile I Fe's doing busliless indicators recently ranked three
African 011 producing countries (Cameroon, the Democratic Republic of Congo and
Chad) as some of the most difficult places in the worlel to enforce contracts
There IS, however, clearly an Irnpetus for change emerging in AfriCa, and strung
mOdels for businoss climate reform are emerglllg on the continent. Zambia, Egypt.
and Burkina Faso all ranked III the IFC's top ten list of reformers thiS year. I
personally had the opportunity to see the reforms in Burkina Faso first hand earlier
thiS year wilen I Visited Burkina's new busiliess registration center (CEFORE) The
streamlined processes put III place at CEFORE have dramatically reduced the time
required to register a business ill Burkina Faso - a fact born out not Just In statistics
but by the conversations that I had with many small bUSinesspeople In
Ouagadougou
Second, it IS imperative that oil resources be used to foster broader economic
development if Africa's oil wealth IS to translate IIltu long-run sustainable growth.
Even as world oil prices and Africa's 011 production IIlcrease, ordinary Africans do
not always reap the benefits. ContinUing poverty and lack of equity, against the
backdrop of high oil prices, can lead to civil strife and attacks on 011 infrastructure.
The Niger Delta IS a case In point, where fully a qual1er of Nigeria's eXisting oil
production capaClly is off llile due to militant actiVity spurred by worsening socioeconomic conditions.
Establishing transparent processes for collecting and uSing national revenues,
Including those derived from energy production, could help avoid such troubles. Put
sUCCinctly, oil revenues should benefit all Citizens In oil producing countries Several
countries are making progress in this area. For example, Cameroon and Angola
publish information on oil revenue. Nigeria has published a series of oil-sectorrelated audit reports and brought the quasifiscal actiVities of its national oil company
into the national budget Four more oil producing countries subscnbed to the
Extractive Industry Transparency Initiative In 2005-06 ThiS inlliatlve empowers
citizens to know what amount of wealth their governments are receiving so that
governments can be held accountable.
The IMF has also shown its commitment to helplllg countries improve transparency
in the oil sector, particularly With its recent "Guide on Resource Revenue
Transparency," a guide we highly recommend to all oil-prodUCing countries. There
has been progress in improvlllg transparency. but African governments and private
oil companies need to build on thiS platform. They can and should do more.
Third, It is essential that the stewards of government economic policy ensure that
the macroecollomic framework is robust enough to manage the Impact of volatile 011
revenues 011 the economy It IS heartening to see that there has been a real
Improvement III macro-economic poliCY management on the Afflcan contlllent, and
there is a great deal to commel1lj on thiS front.
Monetary policy, IIlcreasingly Illlplemented by IIldependent central banks. has
effectively controlled inflation Some central banks have also taken proactive
measures, such as introducing new monetary tools to help control growth In the
money supply. As a result of these efforts, the average year-end inflation rate of
sub-Saharan Africa's oil exporting coulltries has actually fallen over the last four
years Nigeria, for example, has managed to bring inflation to historically low levels
despite the influx of billions of dollars of surplus oil inflows in 2006.
Fiscal poliCY management has also improved While each country has pursued ItS
own combination of policies, a key policy measure in some countries, and again
Nigeria deserves mention, has been the adoption of a fiscal rule for budgeting
purposes that saves all oil revenue receipts above a certalll price per barrel. In
addition, efforts have been made in some countries to Improve the medium-term
expenditure frameworks and strengthen publiC expenditure management. One area
that certainly could use more attention IS extending fiscal prudence at the national
level to sub-national and provinCial governments and strengthening their ability to
http://WWw.treas.gov/pressJreleases/hp211.htm
1/3/2007
Page 3 of 3
spend efficiently.
African policymakers also need to think about how they will manage their 011
resources for the long-terril. AltilOugll circumstances vary slgnifrcantly from country
to courltry, there are intriguing models to consider' from other countrres In the
Persian Gulf, an area that I deell with qUite frequently, governments invest excess
oil revelllie In state-owned funds tilelt qencrate Investment returns and WillCll can
be tapped wilen all r'everlues Felli or utiler crr'cumstances anse. Kuwait. fOl' eX.ample,
wlttldrew $80 bilirorl frolll rts 011 fund at tile tlille of the first Gulf Welr in order to
manage the task of r'econstructlon Otller examples such as Alaska or Norway offer
other potential models,
Conclusion
The world needs Africa, Global markets will increaSingly depend on African energy
reserves to meet rising demand, This situation presents a challenge and
opportUlllty to African poliCY makers. The wealth that oil Will proVide to Africa, If
managed efficierltly, has tile potentral to drive sustainable and equitable economic
growth, and tillS III turn can Improve the welfare arid well-berng of crtlzens. At the
Treasury Department, and in the United States Government as a whole, we look
forward to belllg a partner III this endeavor. Thank you
http://www.treas.gov/press/releases/hp211.htm
1/312007
Page I of 3
10 view or Print me pUr content on rnts page. (Jownloa(J the tree A(JOlJe'R) AcrolJar(R, KeaOeflf9.
December 29, 2006
hp-212
Report On U.S. Holdings of Foreign Securities At End-Year 2005
The findings from an annual survey of U.S portfolio holdings of foreign securities at
year-end 2005 are released today and posted on the U.S. Treasury web site
(www.treas.gov/tic/fpis.html).
The survey was undertaken JOilltly by the US. Treasury, the Federal Reserve Bank
of New York, and the Board of Governors of the Federal Reserve System. Future
surveys are scheduled to be carned out annually. The next repoli will present
results from the survey for year-end 2006.
A complementary survey measuring foreign portfolio holdings of U.S. secuflties is
also carried out annually. Preliminary results from the most recent such survey,
covering seCUrities held as of June 30. 2006. are expected to be reported by March
30.2007.
Overall Results
The survey Illeasured the value of U.S. holdings of foreign secuntles at year-end
2005 of approximately $4.609 billion, with $3,318 billion held in foreign equities,
$1,028 billion in foreign long-term debt securities (original term-to-maturity in
excess of one year), and $263 billion in foreign short-term debt seCUrities. The
previous survey measured U S. holdings at year-end 2004 of approximately $3,787
billion, With $2,560 billion held In foreign equities, $993 billion in foreign long-term
debt seCUrities, and $233 billion in foreign short-term debt securities (see Table 1)
US. holdings by country at the end of 2005 were by far the largest for the United
Kingdom (S815 billion), followed by Japan ($531 billion) and Canada ($419 billion)
(see Table 2)
The surveys are part of an Internationally-coordinated effort under the auspices of
the International Monetary Fund (IMF) to Illlprove the measurement of portfolio
asset holdings.
Table 1. Value of U.S. holdings of foreign securities, by type of security, at
end-2004 and end-2005
(Billions of dollars)
Dec. 31, 2004
Dec. 31, 2005
Long-term Securities
3,553
4,346
equity
2,560
3.318
993
1,028
Type of Security
long-term debt
http://www.treas.gov/pressJre1eases/hp212.htm
1/3/2007
Page 2 of 3
Short-term debt seCLHlties
Total
233
263
3,787
4,609
U.S Portfolio Investment by Country
Table 2. Value of U,S. holdings of foreign securities, by country and type of
security, for the countries attracting the most U.S. investment, as of
December 31. 2005
(Billions of dollars, except as noted)
Debt securities
Total
Equities
Longterm
Shortterm
1
United Kingdom
815
538
185
92
2
Japan
531
493
35
2
3
Canada
419
248
158
14
4
France
274
205
48
21
5
Cayman Islands
249
103
118
28
6
Germany
217
158
49
10
7
Switzerland
196
192
2
2
8
Netherlands
192
133
52
7
9
Bermuda
187
174
11
2
10
Australia
128
71
49
9
11
South Korea
119
110
8
0
12
Brazil
90
69
22
0
13
MexIco
8G
58
28
0
14
Italy
79
64
12
3
15
Ireland
75
33
17
25
16
Sweden
75
41
16
18
17
Spain
70
64
6
1
18
Taiwan
58
57
1
.
19
Finland
49
44
4
0
http://www .treas.gov/press/releases/hp212.htm
1/3/2007
Page 3 of 3
20
Netherlands Antilles
47
45
2
21
Luxembourg
46
11
29
6
22
Hong Kong, SAR
46
44
2
0
23
Israel
44
29
15
0
24
Singapore
36
29
7
0
25
Norway
36
22
9
5
445
283
143
19
4,609
3,318
1.028
263
Rest of world
Total value of
Investment
Greater than zero and less than $500 million. Note Items may not add to total due
to rounding.
-30-
The stock of foreign securities for December 31, 2005, reported in thiS survey does
not, for a number or reasons, correspond to the stock of foreign securities on
December 31, 2004, plus cumulative flows reported In Treasury's transaclions
reporting system. An analYSIS of the relation between the stock and flow data is
available In Table 5 and the associated text of the final report on US holdings of
foreign securities at end-year 2005.
REPORTS
•
(PDF) Report on U.S. Portfolio Holdings of Foreign Securities at End-Year
2005
http://WWw.treaSr8ov/pressJreleases/hp212.htm
1!3!2007
Report on
U.S. Portfolio Holdings of
Foreign Securities
as of December 31, 2005
Department of the Treasury
Federal Reserve Bank of New York
Board of Governors of the Federal Reserve System
December 2006
U.S. Holdings of Foreign Securities
Page i
CONTENTS
Introduction .................................................................. I
Chapter I.
Findings from the 2005 Survey ......................................... 3
Chapter 2.
Data Collection Methodology ........................................ 20
Tables
1.
Market value of U.S. holdings of foreign securities, by type of security,
as of the survey dates ................................................... 3
2.
Market value of U.S. holdings of foreign securities, by country and type of security,
for the countries attracting the most U.S. investment, as of December 31,2005 ..... 5
3.
Market value of U.S. holdings of foreign long-term securities, for the countries
attracting the most U.S. investment, as of the survey dates ..................... 6
4.
Measured and estimated market value of U.S. holdings of foreign
long-term securities, by type of security, as of December 31, 2005 ................ 7
5.
Market value of U.S. holdings of foreign long-term securities and
foreign holdings of U.S. long-term securities, as of selected dates, 1994-2005 ...... 8
6.
Market value of U.S. holdings of foreign equities, by country, size of domestic equity
markets, and share of each market that is U.S. held, for the countries attracting the
most U.S. investment, as of December 31, 2005 ............................. 9
7.
Market value of U.S. holdings of foreign equities, by country and amount held in
depositary receipts, for the countries attracting the most U.S. investment,
as of December 31, 2005 ............................................... 10
8.
Market value of U.S. holdings of foreign debt securities, by currency of
denomination, as of December 31, 2004, and December 31, 2005 ............... 11
9.
Market value of U.S. holdings of foreign long-term debt securities, by remaining
maturity, as of December 31, 2004, and December 31, 2005 ................... 12
U.S. Holdings of Foreign Securities
Page ii
10. Market value of U.S. holdings of foreign debt securities, by country and sector of
issuer, as of December 31, 2005 ......................................... ) 3
II a. Market value of U.S. holdings of foreign long-term securities in advanced
economies, Caribbean financial centers, and developing countries and
countries in transition, as of December 31, 2004, and December 31, 2005 ........ 14
II b. Market value of U.S. holdings of foreign equities in advanced economies,
Caribbean financial centers, and developing countries and countries in transition,
as a share of the total outstanding, as of December 31, 2005 ................... 15
12a. Market value of U.S. holdings of foreign securities,
by geographic region, as of December 31, 2004, and December 31, 2005 ......... 16
12b. Market value of U.S. holdings of foreign equities, by geographic region,
as a share of the total outstanding, as of December 31, 2005 ................... 17
13. Market value of U.S. holdings of foreign securities, by industry,
as of December 31, 2005 ............................................... 18
14. Coverage in 2001 of the Institutions Reporting in 2005 ....................... 22
15. Final Gross-up Factors ................................................. 24
A. Statistical Appendix
16. Market value of U.S. holdings of foreign securities, by country and
type of security, ~s of December 31, 2005 .................................. 26
17. Market value of U.S. holdings of foreign long-term securities, by country,
as of the survey dates .................................................. 32
18. Market value of U.S. holdings of foreign equities, by country,
as of the survey dates .................................................. 40
19. Market value of U.S. holdings offoreign long-term debt securities,
by country, as of the survey dates ........................................ 48
20. Market value of U.S. holdings of foreign short-term debt securities,
by country, as of the survey dates ........................................ 56
11
U.s. Holdings of Foreign Securities
Page iii
21. Market value of U.S. holdings of foreign long-term debt securities,
by country and currency, as of December 31,2005 .......................... 60
22. Market value of U.S. holdings of foreign short-term debt securities,
by country and currency, as of December 31,2005 .......................... 66
23. Market value of U.S. holdings of foreign long-term debt securities, by country
and type of security, as of December 31, 2005 .............................. 69
24. Market value of U.S. holdings of foreign short-term debt securities, by country
and type of security, as of December 31,2005 .............................. 74
25. Market value of U.S. holdings of foreign debt securities, by country
and sector of issuer, as of December 31, 2005 .............................. 77
26. Market value of U.S. holdings of foreign equities, by country and amounts held as
Depositary Receipts, as of December 31, 2005 .............................. 83
27. Market value of U.S. holdings of foreign equities, by country and type of security,
as of December 31, 2005 ............................................... 88
28. Market value of U.S. holdings of foreign equities, by country, size of domestic equity
markets, and share of each market that is U.S.-held, as of December 31,2005 ..... 94
Appendix B.
Forms and Instructions ......................................... 100
111
u.s. Holdings of Foreign Securities
Page 1
Introduction
This report presents data and analyses regarding u.s. portfolio investment in foreign equity and
debt securities. I The data are drawn primarily from the latest survey of U.S. holdings of foreign
securities as of December 31,2005. The survey was a joint undertaking of the U.S. Treasury
Department, the Federal Reserve Bank of New York, and the Board of Govemors of the Federal
Reserve System.
The 2005 survey was the sixth survey of U.S. ownership of foreign securities conducted by the
United States, with prior surveys conducted as of March 31, 1994, December 31, 1997,
December 31, 2001, December 31, 2003, and December 31, 2004. 2 The surveys were initiated as
the level of U.S. investment in foreign securities began to grow significantly in the 1990s.
The structure of the surveys has evolved over time. The first two U.S. surveys measured only
holdings of foreign long-term securities; beginning with the 2001 survey, information is
collected on U.S. holdings of both foreign long-term and short-term securities. 3 Further, the
first three surveys were conducted at widely-spaced intervals and were "benchmark" surveys;
that is, they collected data from a large number of institutions in an attempt to measure total U.S.
holdings as comprehensively as practical. Beginning with the December 2003 survey, surveys
are conducted annually. Full benchmark surveys will continue to be conducted at five-year
intervals. In the four years following each benchmark survey, annual data will be collected from
only the largest reporters who collectively reported approximately 90 percent of the market value
of foreign holdings as measured by the preceding benchmark survey. The December 2005
survey was not a benchmark survey, thus its measured results had to be "grossed-up" to estimate
total U.S. holdings. The procedures used to perform this extrapolation are described in Chapter
2, Survey Methodology.
The surveys collect information at the individual security level, making possible both detailed
editing and the presentation of data in a wide variety of ways, such as by country, security type,
currency, remaining term-to-maturity, and industry. Experience has shown that collecting
security level data results in far more accurate survey results than can be obtained by collecting
aggregate information. Many significant errors can be detected in the security-level data that
would otherwise go undetected in aggregate data. In addition, the collection of security level
data is efficient because survey respondents need to report data in only one format, instead of
1. U.S. portfolio investment in foreign securities, for the purposes of this report, includes all foreign securities
owned by U.S. residents except where the owner has a direct investment relationship with the foreign issuer of the
securities. Direct investment means the ownership or control, directly or indirectly, by one person or by a group of
affiliated persons, of 10 percent or more of the voting stock of an incorporated business enterprise, or an equivalent
interest in an unincorporated enterprise. Data on direct investment are collected by the Bureau of Economic
Analysis (BEA), Department of Commerce, and published in the Survey afCurrent Business and on the BEA web
site.
2. The Treasury Department conducted a survey during World War II of all foreign assets owned by U.S.
residents as of May 1943. That survey measured portfolio investment as well as other forms of investment, but it is
removed in time and in purpose from the modem survey program that began with the 1994 survey.
3. Long-term securities are defined as all equity securities and all debt securities with an original term-tomaturity of more than one year. Short-term securities are debt securities with an original term-to-maturity of one
year or less.
Page 2
U.S. Holdings of Foreign Securities
aggregating and reporting their holdings in a variety of different ways, such as those shown in
the tables in this report.
The surveys are part of an internationally coordinated effort under the auspices of the
4
International Monetary Fund (lMF) to improve the measurement of portfolio asset holdings.
Seventy-three countries or geographic regions, including most of the industrial and financial
center countries, participated in the 2005 survey. The Coordinated Portfolio Investment Surveys
(CPIS) were initiated primarily because there has been a wide discrepancy between worldwide
measured portfolio assets and worldwide measured portfolio liabilities, with reported liabilities
exceeding reported assets. Future U.S. asset surveys will also be part of IMF-coordinated efforts
and will continue to measure U.S. holdings of both long-term and short-term foreign securities.
Chapter 1 of this report presents the 2005 survey findings. Chapter 2 discusses data collection
methodology. Appendix A presents a variety of statistics not included elsewhere in the report.
Appendix B contains a copy of the forms and instructions used by the survey.
The Treasury Department, the Federal Reserve Bank of New York, and the Federal Reserve
Board wish to express their appreciation to all survey respondents whose efforts and information
have made this report possible.
4. International Monetary Fund, Portfolio Investment: ePIS Data Results, which can be found on the web at
http://www.imforg/externallnp/sta/pi/datarsl.htm. Also, see the discussion regarding the ePIS following Table 1
below.
2
Page 3
U.S. Holdings of Foreign Securities
Chapter 1. Findings from the 2005 Survey
The data presented in this report are drawn primarily from the survey of U.S. ownership of
foreign securities conducted as of December 31, 2005. Data from previous surveys -- conducted
as of March 31, 1994, December 31, 1997, December 31,2001, December 31,2003, and
December 31, 2004 -- are also frequently included. In all tables, components may not sum to
totals because of rounding. All data are presented, to the extent possible, at market value as of
the date of the survey. With the exception of zero-coupon securities, the market value of U.S.
holdings of foreign securities in this report are given using "clean prices"; that is, values are
computed exclusive of accrued and unpaid interest. The value of accrued and unpaid interest for
U.S. holdings of foreign long-term debt securities was not estimated for the most recent survey
but was calculated at approximately $12 billion as of December 31, 2004.
U.S. Holdings over Time by Type of Security
Table 1 shows total U. S. holdings of foreign securities, by type of security held, as measured by
the six surveys conducted. U.S. holdings of foreign short-term securities were only measured by
the four most recent surveys.
1. Market value of U.S. holdings of foreign securities, by type of security,
as of the survey dates
I
IOns 0 f doars
II
except as note d
March
December
December
December
December
December
Type of security
1994
1997
2001
2003
2004
2005
Long-term securities·
870
1,755
2,170
2,954
3,553
4,346
Equity
567
1,208
1,613
2,079
2,560
3,318
Long-term debt
304
547
557
874
1,028
Short-term debt
n.a.
n.a.
147
199
993
233
Total
n.a.
n.a.
2,317
3,152
3,787
4,609
263
n.a. Not avaIlable.
1. Long-term securities are defined as those without a stated maturity date (such as equities) or with an original
term-to-maturity in excess of one year.
U.S. holdings of foreign securities increased significantly during 2005. Holdings of foreign
equities ($758 billion) increased much more rapidly than did holdings of foreign debt ($65
billion), making total U.S. ownership of foreign equities ($3,318 billion) almost three times as
large as holdings of foreign debt ($1,291 billion). However, the increase in U.S. equity holdings
during 2005 resulted more from equity price appreciation than from actual increased net
acquisitions of foreign securities. A more complete discussion of the factors affecting the
change in U.S. holdings during 2005 accompanies Table 4.
U.S. investors have not always shown such a marked preference for foreign equities. A survey
conducted by the United States during World War II found that equities accounted for only 38
percent of U.S. foreign securities holdings. It is estimated that by 1984 only 29 percent of U.S.
foreign securities holdings were estimated to be equities. But after 1984 the pattern began to
U.S. Holdings of Foreign Securities
Page 4
change and by 1987 the levels of debt and equity held were essentially equal. 5
The U.S. preference for cross-border equities is not shared by other major cross-border investing
countries. The IMF's most recently completed Coordinated Portfolio Investment Survey (which
measures holdings of foreign securities) shows that of the ten countries with the largest private
sector holdings of foreign securities (United States, United Kingdom, Japan, France,
Luxembourg, Germany, Ireland, Netherlands, Italy, and Switzerland), only the United States
held more foreign equity than debt. 6
U.S. Portfolio Investment by Country
The United Kingdom was by far the first choice of U.S. international investors at the end of
2005, as it has been in all previous surveys except for the initial survey in 1994, which showed
Japan as the country attracting the highest level of US. investment. The United Kingdom also
attracted the highest level of investment into each type of security (equity, long-term debt, shortterm debt). Japan was a close second in terms of attracting U.S. equity investment, and together
Japan and the United Kingdom attracted almost a third of total U.S. foreign portfolio equity
investment.
The table shows very different patterns of investment by country, with U.S. holdings of Swiss
securities almost exclusively in equities while US. investors owned more Cayman Island debt
than equity. To some extent these patterns represent the availability of securities, as relatively
little debt has been issued by Swiss institutions, whereas the Swiss equity market is one of the
largest in the world. The very high percentage of short-term debt holdings attributed to the
United Kingdom reflects a tendency of internationally active financial firms to issue short-term
debt through their United Kingdom offices.
It should be noted that the country attribution of U.S. holdings of foreign securities presented in
this report should be very accurate. This is because information was collected at the individual
security level, and it is a relatively straightforward matter to determine the country of residence
of the security issuer in most cases. This point is made because in the companion surveys of
foreign ownership of U.S. securities, it is often not possible to determine the country of residence
of the ultimate beneficial owners of US. securities, due to either chains of intermediaries
involved in the custody or management of these securities or lack of ownership information on
bearer (unregistered) securities.
5. These estimates were based on monthly Treasury International Capital securities transactions data.
6. International Monetary Fund, Portfolio Investment: ePlS Data Results, table 9, which can be found on the
web at http://www.imf.org/external/np/stalpi/04/Table09.htm.
Page 5
u.s. Holdings of Foreign Securities
2. Market value of U.S. holdings of foreign securities, by country and type of security, for
the countries attracting the most U.S. investment, as of December 31,2005
Billions of dollars
Debt
I
I
Total
Equity
United Kingdom
815
538
277
185
92
Japan
531
493
38
35
2
Canada
419
248
171
158
14
France
274
205
69
48
21
Cayman Islands
249
103
146
118
28
Germany
217
158
59
49
10
Switzerland
196
192
4
2
2
Netherlands
192
133
59
52
7
Bermuda
187
174
13
II
2
Australia
128
71
57
49
9
Korea, South
119
110
8
8
0
90
69
22
22
*
1,192
824
368
291
76
3,318
1,291
1,028
263
Country or category
Brazil
Rest of world
Total
4,609
* Greater than zero but less than $500 mIllion.
Total
Long-term
Short-term
Table 16 in the Statistical Appendix shows the data in Table 2 above for an expanded list of
countries.
Level of Portfolio Investment by Country over Time
Table 3 shows the countries attracting the most U.S. portfolio investment in their long-term
securities as of the six survey dates. Only data on long-term securities are presented because the
1994 and 1997 surveys did not collect information on short-term securities. However, Table 20
in the Statistical Appendix shows U.S. holdings of foreign short-term securities in the four most
recent surveys.
By a clear margin, the United Kingdom, Japan, and Canada have occupied the top three positions
in each survey. In the 1994 survey U.S. investment in these three countries was roughly equal.
But U.S. holdings of United Kingdom securities have grown much more rapidly than have
holdings of Japanese or Canadian securities and are much larger than in either of these two
countries in the 2005 survey.
u.s. Holdings of Foreign Securities
3.
Page 6
Market value of U.S. holdings of foreign long-term securities, for the countries
attracting the most U.S. investment, as of the survey dates
Billions of dollars
December
March
2005
Country or category
1994
United Kingdom
120
131
272
167
431
564
627
197
367
108
42
177
\00
205
293
289
815
531
332
419
174
206
274
Cayman Islands
11
19
138
70
121
249
Germany
48
118
175
Switzerland
21
108
63
184
192
119
140
196
Netherlands
48
120
76
143
174
192
Bermuda
9
24
27
57
125
116
163
192
187
Rest of world
308
645
53
614
86
843
97
1,053
1,206
Total
870
1,755
2,170
2,954
3,553
4,346
Japan
Canada
France
Australia
217
128
The rapid growth in holdings of Bennudan securities over the 1994-2005 period owes in large
part to the fact that several large corporations changed their country of incorporation from the
United States to Bennuda, which had the effect of changing what had been U.S. investment in
U.S. securities into investment in Bennudan securities. The Cayman Islands is another small
island economy attracting a rapidly increasing level of U.S. investment. Much of this investment
is the result of ownership of securities issued by companies that are incorporated in the Cayman
Islands (a so-called "offshore financial centers") for tax or regulatory reasons by companies
whose center of economic activity is elsewhere.
Tables 17-20 in the Statistical Appendix show, respectively, historical data by country on U.S.
ownership of total foreign securities, equities, long-tenn debt, and short-tenn debt. In these
tables there are some figures which may be explained by factors other than U.S. investor
sentiment. For instance, a sharp rise or decline in the level of U.S. investment could be caused
by a company in country A having been acquired in total by a company in country B, causing
what had been U.S. investment in country A to become U.S. investment in country B.
Page 7
U.S. Holdings of Foreign Securities
Measured and Estimated Value of U.S. Holdings of Foreign Long-Term Securities
The United States has a two-part system for measuring cross-border securities activity. In
addition to annual direct surveys of positions, such as those discussed in this report, the system
also collects monthly data on cross-border transactions in long-term securities. 7 The monthly
data are available with an approximately 45-day lag and can thus be combined with the most
recent position data to form more timely estimates of positions. The estimation procedure
involves adjusting data from the preceding survey for price and exchange rate changes, adding
price-adjusted transactions data, and making adjustments for estimated stock swaps, transactions
cost, and principal repayments of asset-backed securities. It should be noted that there are
inherent inaccuracies in such estimates. For example, it is not possible to know precisely which
foreign securities U.S. residents buy or sell or the exact timing of the transactions. Table 4
presents both the estimated and directly measured positions. There are errors possible in all
parts of such computations: the previous survey, the transactions data, the adjustments, and the
current survey.
4.
Measured and estimated market value of U.S. holdings of foreign long-term
securities, by type of security, as of December 31, 2005
BiIIions of doIIars
December
2004
Type .of
secunty
Measured
(I)
December 2005
January 2005 - December 2005
Net
purchases
(2)
Transaqion
costs
(3)
Stock!
swaps
(4)
Valuation
adjustments!
(5)
Estimated
(H~tlj:2t5 )
Measured
(7)
Measured
less
estimated
(8)
993
45
(7)
n.a.
(55)
976
1,028
52
2,560
127
(12)
4
393
3,072
3,318
246
Total
3,553
1.
Staff estimates.
n.a. Not applicable.
172
(19)
4
338
4,048
4,346
298
Debt
Equity
U.S. holdings of foreign long-term securities, as measured by the two most recent portfolio asset
surveys, increased by $793 billion during 2005, from $3,553 at end-2004 to $4,346 at end-2005. This
compares to an estimated increase during the year of $495 billion, composed of $172 billion in net
purchases of foreign long-term securities as measured by the TIC monthly transactions systems
(column 2), estimated valuation gains of$338 billion (column 5), and -$15 billion in other adjustments
(columns 3 and 4). The bulk of both the increase in holdings and the gap between the measured and
estimated levels was in the equity position. In contrast, the position measured by the end-2004 survey
was very close to the estimated position formed as described above.
7 For a detailed discussion on the U.S. system for measuring cross-border financial flows, see C. Bertaut,
W. Griever, and R. Tryon, "Understanding U.S. Cross-Border Securities Data", Federal Reserve Bulletin, May
2006, 59-75, available online at http://www.federalreserve.gov/pubslbulletin/2006/cross_border_securities. pdf.
Page 8
U.S. Holdings of Foreign Securities
u.s. Foreign Portfolio Investment Compared with Foreign Portfolio Investment
in the United States
The following table shows both U.S. holdings of foreign long-term securities and foreign holdings of
U.S. long-term securities over time. The dates chosen are those when a survey was conducted either
of foreign holdings of U. S. securities or of U. S. holdings of foreign securities. Thus for each date one
figure represents a survey-measured position and the other an estimated position (marked with an
asterisk).
Market value of U.S. holdings of foreign long-term securities and foreign holdings of
U.S. long-term securities, selected dates, 1994-2005
5.
I
IOns 0 f d 0 11 ars exce)t as note d
Date
Dec. 1994
U.S. holdings of
foreign IO.ng-term
secunttes
870*
Forei§n holdings
ofU .. long-term
secunttes
Ratio of U.S.
holdings to
foreign
holdings
1,244
.70
374
Net foreign holdings
oflong-term secuntles
Dec. 1997
1,755
2,806*
.63
1,051
Dec. 2001
2,170
3,944*
.55
1,774
Dec. 2003
2,954
4,970*
.59
2,016
Dec. 2004
3,553
5,972*'
.59
2,419'
4,346
6,712*
.65
2,366
Dec. 2005
* Staff estimates.
r. Revised.
Foreign holdings of U.S. long-term securities have consistently exceeded U.S. holdings of foreign
long-term securities. However, during 2005 this gap decreased by about $50 billion, as U.S. holdings
of foreign long-term securities grew faster than did the estimated level of foreign holdings of U.S.
securities. This reversal of trend was caused in part by the difference in valuation changes in crossborder equity holdings: U.S. holdings of foreign equities increased in value by almost $400 billion,
whereas (from the U.S. perspective) foreign-held U.S. equities gained less than $100 billion.
There are two significant differences between the U.S. and foreign cross-border holdings. First, U.S.
investors predominantly hold equities (76 percent), whereas foreign investors predominantly hold U.S.
debt securities (only 34 percent are equities). Thus, although total foreign holdings are well in excess
of total U.S. holdings, U.S. holdings of foreign equity ($3.3 trillion) easily exceed foreign holdings of
U.S. equity ($2.3 trillion). Second, while almost all U.S. holdings represent investments made by
private investors (both institutions and individuals), approximately a quarter of foreign holdings are
owned by foreign official institutions, such as central banks and other governmental entities. Since
foreign official institutions predominantly own debt securities (89 percent), their holdings help to
explain the overall foreign preference for U.S. debt securities. 8
8
See Table 6 in the "Report on Foreign Portfolio Holdings of U.S. Securities as of June 30, 2005" at
www.treas.gov/tic/shI2005r.pdf.
Page 9
U.S. Holdings of Foreign Securities
u.s. Equity Investment by Country
Table 6 ranks countries based on the level of U.S. investment in their equity securities. Also shown is
the relative size of each country's equity market based on data from Standard & Poor's Global Stock
Markets Factbook 2006, and the ratio of U.S. holdings of the country's equities to the total market
capitalization. This ratio can give a rough indication of the percentage of each country's total equities
outstanding that are u.S.-owned. However, in some instances a company will incorporate in one
country but have its securities trade in another. This practice can cause the ratio to yield odd results,
such as those shown for Bermuda, where U.S. investors' holdings easily exceed the size of the
country's domestic equity market.
For the leading countries (excluding the offshore financial centers of Bermuda and the Cayman
Islands), U.S. investors held between 10 percent (Japan) and 20 percent (Switzerland) of each
country's total equity markets. Overall, U.S. investors held approximately 12 percent of total foreign
equities outstanding. By comparison, foreign investors held just under 10 percent of total U.S.
equities outstanding as of June 2005. 9
6. Market value of U.S. holdings of foreign equities, by country, size of domestic equity
markets, and share of each market that is U.S. held, for the countries attracting the most
U.S. investment, as of December 31,2005
Billions of dollars except as noted
Country or region
Equity
United Kingdom
Japan
Canada
France
Switzerland
Bermuda
Germany
Netherlands
Korea, South
Cayman Islands
Rest of world
Total
538
493
248
205
192
174
158
133
110
103
964
3,318
Rank
accordinff to
market capita ization '
2
1
4
3
8
90
5
12
13
104
Ratio of U.S.
holdings to total
domestic market
capitalization2
.18
.10
.17
.12
.20
>1
.13
.18
.15
>1
.12
I. Market capitalization data are from Standard & Poor's Global Stock Markets Factbook 2006 and are based on
year-end 2005 total market values of domestic exchanges. Rank order excludes the United States, which has the
largest equity market capitalization.
2. U.S. holdings include securities of companies registered in each country, some of which may not trade on
domestic exchanges, thus U.S. holdings can exceed the total size of a country's domestically-traded securities.
9 See Table 2 in the "Report on Foreign Portfolio Holdings of U.S. Securities as of June 30, 2005" at
www.treas.gov/tic/shI2005r.pdf.
Page 10
U.S. Holdings of Foreign Securities
Table 28 in the Statistical Appendix shows the information contained in the above table for an
expanded list of countries.
U.S. Investment in Depositary Receipts
Table 7 again ranks countries based on the level of U.S. investment in their equity securities as
well as presenting the amounts of these investments that are represented by holdings of depositary
receipts (DRs), primarily American Depositary Receipts (ADRs). Depositary receipts are
negotiable certificates held in a bank in one country that represent a specific number of shares of
a stock that trades on an exchange in another country. They entitle their owners to all dividends,
capital gains or losses, and voting rights, just as if the underlying shares were directly owned.
ADRs are depositary receipts that trade on U.S. exchanges in U.S. dollars and that facilitate the
holding and trading of foreign securities by U.S. residents.
7.
Market value of U.S. holdings of foreign equities, by country and amount held in
depositary receipts, for the countries attracting the most U.S. investment, as of
December 31,2005
Billions of dollars except as noted
Country or region
United Kingdom
Japan
Canada
France
Switzerland
Bennuda
Gennany
Netherlands
Korea, South
Cayman Islands
Rest of world
Total
Equity
Depositary Receipts
Percentage
Depositary Receipts
538
493
248
205
192
174
158
133
110
103
964
151
36
1
30
28
28
7
17
31
21
4
221
10
23
19
4
23
3,318
541
16
*
15
15
*
Table 26 in the Statistical Appendix shows the infonnation contained in the above table for an
expanded list of countries.
Page 11
U.S. Holdings of Foreign Securities
U.S. Investment in Foreign Debt Securities by Currency of Denomination
U.S. investors have a strong and growing preference for foreign debt securities denominated in
U.S. dollars. In the 2005 survey, 78 percent of U.S.-owned foreign debt securities were
denominated in U.S. dollars, compared with 74 percent at year-end 2004 and 69 percent at yearend 2003. During both 2004 and 2005, although U.S. investors increased their total holdings of
foreign debt securities, in both years they decreased their holdings of foreign currencydenominated foreign debt securities.
The preference for U.S. dollar-denominated debt was strongest in short-term securities, with 87
percent of all such holdings denominated in U.S. dollars, whereas 76 percent of long-term debt
was U.S. dollar-denominated.
The vast majority of foreign currency-denominated foreign debt holdings are denominated in one
of the world's other major currencies (euros, yen, British pounds, and Canadian dollars).
During 2005, U.S. investors decreased their holdings of debt securities denominated in euros and
yen while increasing their holdings denominated U.K. pounds and Canadian dollars.
8.
Market value of U.S. holdings of foreign debt securities, by currency of
denomination, as of December 31,2004, and December 31,2005
BiIlions of dollars except as noted
Currency
U.S. dollar
Euro
Canadian dollar
U.K. pound
Yen
Other currencies
Total
2005
Amount
I Percentage
1,011
78
10
128
41
3
3
38
3
33
3
40
1,291
100
Amount
906
159
33
34
58
36
1,226
2004
Percentage
74
13
3
3
5
3
I
100
Table 21 in the Statistical Appendix shows U.S. holdings of foreign long-term debt securities by
country and currency for an expanded list of countries. Table 22 shows the same data for
holdings of foreign short-term debt securities.
Page 12
U.S. Holdings of Foreign Securities
Maturity Structure of U.S. Foreign Debt Holdings
Table 9 presents the maturity structure of U.S.-owned foreign long-term debt securities. In both
the 2004 and 2005 surveys the median time-to-maturity, or remaining maturity, for long-term
securities (those issued with an original time-to-maturity in excess of one year) was just under 7
years (see footnote I of Table 9). There was no appreciable difference in the maturity structure
of u.S.-owned securities issued by foreign governments and those issued by the private sector.
9. Market value of U.S. holdings of foreign long-term debt securities, by remaining
maturity, as of December 31, 2004, and December 31,2005
Remaining maturity (years)
2005 Percent of total ,
2004 Percent of total'
One or less
10.0
7.8
1-2
8.9
7.7
2-3
6.7
6.5
3-4
6.3
7.2
4-5
8.0
7.6
5-6
6.7
6.8
6-7
5.3
8.7
7-8
6.1
6.0
8-9
5.2
6.7
9-10
6.0
6.4
10-15
6.8
6.9
15-20
4.5
4.4
20-25
6.1
3.9
25-30
9.0
9.8
30-40
4.3
3.7
I. Excludes perpetual bonds and securities with unknown maturity dates that together amounted to approximately
$30 billion in 2004 and $40 billion in 2005, or about 3 percent of total foreign long-term debt securities held by U.S.
residents.
Page 13
U.S. Holdings of Foreign Securities
u.s. Holdings of Foreign Private and Government Debt
In the most recent survey, U.S. investors held primarily long-term debt issued by foreign private
institutions. This pattern represents a significant shift from the first asset survey conducted in
1994, when U.S. investors held predominantly foreign government debt. Each succeeding
survey has shown an increasing percentage of U.S. holdings of foreign long-term debt invested
in private sector securities (1994 - 25% private, 1997 - 48%, 2001 - 56%, 2003 - 62%, 2004 66%, 2005 - 70%). U.S. holdings of short-term debt are highly concentrated in private sector
Issues.
10. Market value of U.S. holdings of foreign debt securities, by country and sector of
issuer, as of December 31,2005
Billions of dollars
Long-term
Country
I Government)
Private
I Government)
United Kingdom
277
168
17
91
1
Canada
171
108
49
10
4
Cayman Islands
146
118
*
28
0
France
69
29
19
15
6
Germany
59
21
28
7
2
Netherlands
59
48
3
5
2
Australia
57
43
5
8
*
Ireland
42
15
2
22
3
Japan
38
7
28
1
2
Luxembourg
35
29
*
6
*
Rest of world
338
135
156
48
2
721
307
241
22
Total
*
Private
Total
Short-term
1,291
. .
Greater than zero but less than $500 mIllion .
1. "Government" includes central, local, and provincial governments, government-sponsored or guaranteed
corporations, and international organizations.
Table 25 in the Statistical Appendix shows the information contained in the above table for an
expanded list of countries.
Page 14
U.S. Holdings of Foreign Securities
u.s. Portfolio Investment by Type of Market
Tables 11 a and 11 b present U.S. foreign portfolio investment by type of foreign market:
advanced economies, Caribbean financial centers, and developing countries. Table 11 a shows
the levels of such investment in the two most recent surveys, while Table 11 b compares this
investment to the total size of the domestic equity markets.
Investment in the twenty-eight advanced economies accounted for the bulk of U.S. foreign
investment in the two most recent surveys (Table l1a), attracting 79 percent and 78 percent of
the total in 2004 and 2005, respectively. The share invested in both developing countries and
Caribbean financial centers was little changed during 2005. Much of the investment recorded
for the Caribbean financial centers results from investment in securities that are registered in
these countries for tax or regulatory reasons by companies whose center of economic activity is
elsewhere.
U.S. investment in all of these market categories was predominantly in equity securities at end2005, whereas in 2004 U.S. investment in developing countries was split more evenly between
equity and debt securities.
lla.
Market value of U.S. holdings of foreign securities in advanced economies,
Caribbean financial centers, and developing countries and countries in transition,
as of December 31,2004, and December 31,2005
Billions of dollars except as noted
2005
2004
1 Pet. 1 Equity 1
1 Equity I
Debt
79
2,076
928
421
11
277
144
170
362
10
207
154
1,291
3,787
100
2,560
1,226
Market
Total
Advanced
economies'
3,605
78
2,652
952
3,003
Caribbean financial
centers 2
520
11
351
169
Developing countries
and countries in
transition
484
11
314
4,609
100
3,318
Total
Debt
Total
I
Pet.
1. Austraha, Austna, BelgIUm, Canada, Cyprus, Denmark, Fmland, France, Gennany, Greece, Hong Kong,
Iceland, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal,
Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom.
2. Bahamas, Bennuda, British Virgin Islands, Cayman Islands, Netherlands Antilles, and Panama.
Page 15
U.S. Holdings of Foreign Securities
Based on the share of total equity markets held (Table lIb), U.S. investors have a clear
preference for equities issued by advanced economies rather than those issued by developing
countries, holding almost twice as great a share of the advanced economies' total markets. The
figures for Caribbean Financial Centers are essentially meaningless in this type of comparison,
because many of the securities issued through these countries trade on exchanges outside of
these countries, resulting in foreign ownership far exceeding total domestic market
capitalization.
llb.
1
Market value of U.S. holdings of foreign equities in advanced economies,
Caribbean financial centers, and developing countries and countries in transition,
as a share of the total outstanding, as of December 31,2004 and December 31,2005
IOns 0 f doars
II
except as note d
2005
Region/category
Equity
Advanced economies 1
2,652
2004
Ratio of U.S. holdings
to total domestic market
capitalization 3
Equity
Ratio of U.S. holdings to
total domestic market
capitalization 3
.127
2,076
.110
Caribbean financial centers 2
351
>1
277
>1
Developing countries
314
.054
207
.056
3,318
.125
2,560
.113
Total
1. Australia, Austria, Belgium, Canada, Cyprus, Denmark, Finland, France, Gennany, Greece, Hong Kong,
Iceland, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Singapore,
South Korea, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom.
2. Bahamas, Bennuda, British Virgin Islands, Cayman Islands, Netherlands Antilles, and Panama.
3. Market capitalization data are from Standard & Poor's Global Stock Markets Factbook 2006 and are based on
year-end 2005 total market values of domestic exchanges. Rank order excludes the United States, which has the
largest equity market capitalization. U.S. holdings include securities of companies registered in each country that
may not trade on domestic exchanges, thus U.S. holdings can exceed the total market value of a country's
domestically-traded securities.
U.s. Portfolio Investment by Geographic Region
Tables 12a and 12b show the distribution of U. S. portfolio investment by geographic region,
with again the first table showing the levels of such investment in the two most recent surveys,
while the following table compares this investment to the total size of the domestic equity
markets.
As shown in Table 12a, Europe continued to attract the lion's share of U.S. cross-border portfolio
investment, increasing by 11 percent since the 2004 survey and garnering 50 percent of the total
in the 2005 survey. However, Europe's share was down from 53 percent in the prior survey, as
U.S. investment in Asia grew very rapidly during 2005. Although U.S. holdings of Asian equity
increased from $566 billion to $851 billion during 2005, U.S. holdings of Asian debt declined
from $98 billion to $90 billion. The market value of U.S. portfolio investment grew particularly
fast in Japan (45 percent), Korea (61 percent), and Taiwan (66 percent) during 2005.
Page 16
U.S. Holdings of Foreign Securities
U.S. investment in Canadian securities ($418 billion) was only slightly lower than was U.S.
investment in securities of issuers in South America, Central America, Africa, and Australia and
Oceania combined ($433 billion). Holdings of Canadian debt securities were higher than those
of any other geographic area shown in Table 12a with the exception of Europe.
A large share of U.S. investment in Africa continued to be directed to South Africa, which
attracted $34 billion of the $46 billion invested in the continent. U.S. portfolio investment in the
Australia and Oceania region is composed primarily of investment in Australia and New
Zealand.
12a. Market value of u.S. holdings of foreign securities, by geographic region,
as of December 31,2004, and December 31, 2005
I Ions 0 fd oars
11
excepl as no t ed
2004
2005
Region/category
Total
I
Percent
I
Equity
I
Debt
Total
I
Percent
I
Equity
l
Debt
2,297
50
1,614
683
2,013
53
1,356
657
1,061
23
757
303
953
25
659
294
940
20
851
90
664
18
566
98
498
11
330
168
400
11
258
142
418
10
248
171
345
9
180
164
146
3
81
65
120
3
65
54
127
3
75
52
97
3
48
49
114
2
79
35
92
2
57
35
Africa
46
1
40
7
35
1
29
6
Int'lorgs.
22
0
*
22
20
1
*
20
Europe
Of which:
euro C1.lITyncy
countnes
Asia
Caribbean
2
Canada
A~trali~ and
ceama
South America
Central America
3
Total
4,609
100
3,318
1,291
3,787
100
2,560
1,226
Greater than zero but less than $500 mIllIon.
1. Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal,
and Spain.
2. Includes Bermuda and the Bahamas well as all Caribbean nations. This grouping is different than the
Caribbean financial centers shown in tables 11 a and 11 b.
3. Includes Mexico.
*
U.S. investors held 12 percent of the total value of foreign equities outstanding at end-2005, up
from 11 percent of the total at end-2004 (Table I2b). The share held by U.S. investors increased
or remained constant in each of the geographic regions shown. The percentage held is, again,
not meaningful for the Caribbean region and it is skewed upwards for Central America, due to
the presence of offshore financial centers in these regions. The share of U.S. holdings in the
Central American region drops from .32 to .24 if Panama, an offshore financial center, is
removed from the calculation.
Page 17
U.S. Holdings of Foreign Securities
12b. Market value of U.S. holdings of foreign equities, by geographic region,
as a share of the total outstanding, as of December 31,2004 and December 31, 2005
1
excepl as no t ed
IOns 0 f doars
II
2004
2005
Equity
Ratio of U.S.
holdings to total
domestic market
capitalization I
Region/category
Equity
Ratio of U.S.
holdings to total
domestic market
capitalization I
Europe
1,614
.13
1,356
.12
757
.12
659
.10
Asia
851
.08
566
.08
Caribbean 2
330
>1
258
>1
Canada
248
.17
180
.15
Australia and Oceania
81
.10
65
.08
South America
75
.10
48
.09
Central America)
79
.32
57
.32
Africa
40
.06
29
.05
3,318
.12
2,560
.11
Of which: euro currency countries
Total
1. Market capltahzatlOn data are from Standard & Poor's Global Stock Markets Factbook 2006. U.S. holdmgs
include securities of companies registered in each country that may not trade on domestic exchanges, thus U.S.
holdings can exceed the total market value of a country's domestically-traded securities.
2. Includes Bermuda and the Bahamas well as all Caribbean nations. This grouping is different than the
Caribbean financial centers shown in tables 11 a and 11 b.
3. Includes Mexico.
U.S. Ownership of Foreign Securities by Industry
Combining both equity and debt investments, the foreign economic sectors attracting the highest
levels of U.S. investments (based on the GICs 10 classification system) were Commercial Banking
($453 billion), Oil and Gas ($334 billion), Government ($330 billion), Diversified Financial
Services ($248 billion), and Insurance ($204 billion). I I The fastest growing sectors were Oil &
Gas ($97 billion) and Pharmaceuticals ($65 billion), whereas the Government sector recorded
10 The Global Industry Classification Standard (GICS) system, developed by Morgan Stanley Capital
International and Standard & Poor's, was selected because it can be used to categorize security issuers worldwide,
enabling both foreign holdings of U.S. securities and U.S. holdings offoreign securities to be shown using the same
classification system.
In the 2005 survey, some firms that were classified as Commercial Banks in prior surveys were shifted
into the Capital Markets category, lowering the Commercial Banks total and increasing the Capital Markets total by
approximately $41 billion.
II
Page 18
U.S. Holdings of Foreign Securities
the greatest decrease ($37 billion).
Equity investment was highest in the Oil and Gas ($309 billion) and Commercial Banks ($224
billion) sectors; debt holdings were highest in the Government ($328 billion) and Commercial
Banks ($229 billion) sectors.
13.
Market value of U.S. holdings of foreign securities, by industry,
as of December 31,2005
Millions of dollars
Industry
Aerospace & Defense
Air Freight & Logistics
Airlines
Auto Components
Automobiles
Beverages
Biotechnology
Building Products
Capital Markets (including Mutual Funds)
Chemicals
Commercial Banks
Commercial Services & Supplies
Communications Equipment
Computers & Peripherals
Construction & Engineering
Construction Materials
Consumer Finance
Containers & Packaging
Distributors
Diversified Financial Services
Diversified Telecommunication Services
Electrical Equipment
Electronic Equipment & Instruments
Energy Equipment & Services
Food & Staples Retailing
Food Products
Government I
Health Care Equipment & Supplies
Health Care Providers & Services
Hotels, Restaurants & Leisure
Household Durables
Household Products
Industrial Conglomerates
*
Total
24,980
3,310
14,653
9,056
81,847
49,500
738
2,508
208,313
75,672
453,360
82,721
112,262
16,161
40,288
51,264
13,395
2,634
9,633
248,004
172,747
83,227
72,327
75,811
31,083
20,998
330,778
91,968
21,150
50,423
48,014
67,891
136,622
Equity
19,477
3,074
13,950
7,655
80,372
37,511
738
2,298
103,289
68,072
224,650
74,788
81,954
15,798
37,462
45,609
10,732
1,986
9,414
149,574
131,091
82,022
65,814
69,843
29,387
18,634
2,034
83,855
17,427
46,054
46,542
66,628
123,796
Debt
Long-terml
5,503
236
703
294
1,474
9,124
*
209
71,926
7,600
105,853
7,934
30,308
363
2,826
5,016
914
648
220
77,359
41,655
1,204
6,328
5,555
1,574
2,255
306,858
2,102
3,723
4,369
1,472
1,263
12,826
Shortterm
°
°
°
1,107
2,866°
°
33,098°
122,857°
°
°
°
638°
1,749
°
21,071°
°
185°
414
122
109
21,886
6,011
Greater than zero but less than $500,000.
I. Includes securities issued by local governments as well as government-sponsored or guaranteed corporations.
°
°
°
°
°
u.s. Holdings of Foreign Securities
13.
Page 19
Market value of U.S. holdings of foreign securities, by industry,
as of December 31,2005 (continued)
Millions of dollars
Industry
Insurance
Internet & Catalog Retail
Internet Software & Services
IT Services
Leisure Equipment & Products
Machinery
Marine
Media
Metals & Mining
Multiline Retail
Office Electronics
Oil & Gas
Paper & Forest Products
Personal Products
Pharmaceuticals
Real Estate
Road & Rail
Semiconductors &
Semiconductor Equipment
Software
Specialty Retail
Textiles, Apparel & Luxury Goods
Thrifts & Mortgage Finance
Tobacco
Trading Companies & Distributors
Transportation Infrastructure
Utilities - Electric
Utilities - Gas
Utilities - Multi- & Unregulated Power
Utilities - Water
Utilities - Other
Wireless Telecommunication Services
Unknown
Total
Total
Equity
Debt
Long-terml Short-term
203,640
12,072
1,891
19,570
22,673
75,955
24,441
66,557
168,578
15,522
13,792
333,783
34,348
9,395
161,524
60,879
30,215
187,107
11,990
1,883
18,891
22,147
70,043
20,380
54,521
141,242
14,606
13,478
309,314
16,834
9,385
155,525
54,452
23,939
13,929
83
8
679
525
5,912
4,061
12,036
27,226
916
314
22,130
17,514
10
4,672
5,092
6,276
2,605
0
0
0
0
0
0
0
110
0
0
2,339
0
0
1,327
1,335
0
21,425
16,637
40,570
29,758
96,789
24,287
12,648
5,133
58,963
94,066
5,632
4,912
659
36,392
203,066
4,609,105
20,376
16,224
39,749
29,041
28,329
23,848
12,634
3,676
52,283
69,367
4,119
2,989
659
34,525
82,620
3,317,705
1,048
413
820
717
49,981
439
14
633
6,550
24,601
1,060
1,922
0
1,867
97,037
1,028,179
0
0
0
0
18,479
0
0
824
130
98
453
0
0
0
23,409
263,221
U.S. Holdings of Foreign Securities
Page 20
Chapter 2. Data Collection Methodology
As stated in the Introduction, the U.S. system for measuring U.S. holdings of foreign securities
consists of "benchmark" surveys conducted at five-year intervals and smaller surveys conducted
annually in non-benchmark years. The benchmark surveys collect data from a large number of
institutions in an attempt to measure total U.S. holdings as comprehensively as practical. In the
four years following each benchmark survey, data are collected from only the largest reporters
who collectively reported the vast majority of data in the preceding benchmark survey. The
December 2005 survey was not a benchmark survey, thus its measured results had to be
"grossed-up", as described below, to estimate total U.S. holdings.
Custodians were required to report holdings of foreign securities at the individual security level.
End-investors that did not use U.S.-resident custodians exclusively were required to report in the
same manner on securities they held or entrusted to foreign custodians. End-investors
exclusively using U.S.-resident custodians were only required to report aggregate holdings so
entrusted, by custodian and type of security. In total, 218 firms reported data in this survey, with
most data being reported by custodians.
A relatively small number of U.S. firms dominated the foreign securities custody business at the
end of2005, with the ten largest respondents reporting 89 percent of the total security-bysecurity data submitted on the survey. Banks were the leading custodians, though broker-dealers
also reported significant amounts of custodial holdings.
Data provided by respondents were supplemented by information on security characteristics
obtained on-line through Bloomberg Data Services. The collection of data on individual
securities, combined with this ancillary information, made it possible for the survey compilers to
present the data in a variety of ways without placing additional burden on survey respondents for
that information.
The survey was conducted under the authority of the International Investment and Trade in
Services Survey Act (22 U.S.C. 3101 et seq.). Reporting on the survey was mandatory, and
penalties could have been imposed for noncompliance. Data were collected for holdings as of
December 31, 2005, and were to be reported to the Federal Reserve Bank of New York, acting as
agent for the Department of the Treasury, no later than the first Friday of March 2006. A copy
of the survey forms and instructions is included in Appendix B.
Data Analysis and Editing
The detailed security level data submitted by respondents were SUbjected to extensive analysis
and editing before they were accepted as accurate. The first step in the process was to scrutinize
respondent data to identify systemic errors within each respondent's submission. Each
respondent's data were analyzed individually and compared with the data submitted in the
previous year's survey. Reported securities with the largest market values were analyzed in
detail, and the other reported securities were analyzed in the aggregate to identify common types
of reporting errors.
u.s. Holdings of Foreign Securities
Page 21
Once the analysis of the data for each respondent was completed, the data were analyzed on a
security-by-security basis, across all reporters. Securities subject to particular scrutiny included
those with either a large quantity or market value reported, those with particularly high or low
prices, and those comprising a large percentage of securities issued by a particular country.
The data were also examined by categories, such as country of issuer, type of security, and type
of issuer. This review was especially useful in eliminating cases in which the mis-coding of a
security with a small market value could have a large relative impact upon a small category.
The most common reporting problem was the provision of inconsistent information for the same
security from different subparts of a large reporting financial institution or from different
reporting institutions. Procedures were developed to identify and resolve inconsistent reporting
within a reporting institution as well as across reporting institutions.
Research was conducted to reconcile the year-end holdings reported on the 2005 survey with
monthly transactions data on long-term securities reported on the TIC S form. These two sets of
data were compared on both the individual respondent level and the macro level. Estimates of
year-end 2005 holdings for both equity and long-term debt were calculated by combining the
year-end 2004 survey data with aggregate TIC S transactions data during 2005 and valuation
adjustments. Respondents with resulting positions outside of the expected range, either in total
or at the country level, were asked to explain the observed differences.
Many securities were submitted without market values, which led to calculated prices of zero. In
some cases, this presented no problem because the relevant price could be determined from
commercial sources or from data submitted by other survey respondents. For the remaining
securities that were reported without market values, a great deal of time and effort was involved
in attempting to determine their prices.
Avoidance of Data Gaps and Double Counting
Respondent's reports were examined to ensure that frequently omitted securities were included,
such as those of international organizations resident in the United States and those of former
U.S. corporations that have re-incorporated outside of the United States. Checks were also made
to detect and exclude securities of u.S.-resident entities. In addition, the security-by-security
data provided by end-investors were examined to ensure that only securities held either directly
by the end-investor or through foreign custodians were reported on a security-by-security basis.
In some cases, foreign securities may be entrusted to a u'S.-resident custodian which, in tum,
entrusts the securities to another u.S.-resident custodian. To avoid double-counting in
custodians' reports, u.S.-resident custodians who passed the foreign securities to other U.S.resident custodians were instructed not to provide security-by-security information on these
securities, but instead only to identify the custodian(s) involved and the amount(s) entrusted.
The reports provided by end-investors and U.S.-resident custodians using U.S.-resident subcustodians were examined to ensure that all significant U.S.-resident custodians were included
on the survey panel and to provide a crude check on the aggregate amounts reported by each
custodian. Special analyses were performed to ensure that respondents excluded their foreign
operations and foreign customers and that they included all of their U.S. organizational units.
Page 22
U.S. Holdings of Foreign Securities
Gross-Up Factors and Calculation of Total U.S. Holdings of Foreign Securities
As previously stated, the December 2005 survey collected data from only the largest U.S.resident custodians and end-investors. Thus, the data collected had to be "grossed-up" to provide
an estimate for the unreported residual. The procedures used to perform this extrapolation are
described below.
The institutions included in the December 2005 survey collectively reported 94 percent of the
total market value of securities measured in the December 2001 benchmark survey. Thus it was
assumed that approximately 6 percent of total U.S. foreign holdings were unmeasured by the
2005 survey. However, the percentage of coverage varied significantly by type of issuer and
type of security, as shown in Table 14.
14.
Coverage in 2001 of the Institutions Reporting in 2005
Millions of dollars except as noted
Type of security and foreign
Issuer
Equity
Total
Government issuers
Private issuers
Long -Term Debt
Total
Government issuers
Private issuers
Short-Term Debt
Total
Government issuers
Private issuers
Amount reported
in 2001 by 2005
Amount reported
in 2001
reporters
Ratio of 200 1 amount
reported to amount
reported in 2001
by 2005 regorters
1,611,582
164
1,611,418
1,539,533
136
1,539,397
1.04680
1.20510
1.04679
501,266
224,944
276,322
442,827
204,433
238,394
1.13197
1.10033
1.15910
147,849
15,971
130878
137,690
14,264
123426
1.06653
1.11967
1.06038
One gross-up option was to extrapolate each component in the 2005 data by the broad ratios
(gross-up factors) in the last column in Table 14. However, extrapolating every country cell by a
simple ratio (for that security type and issuer type) would in some cases lead to poor countryspecific results because the securities issued by entities in some countries are not uniformly
likely to be held by the 2005 survey reporters. Performing the extrapolation on a country-bycountry basis for each specific type of security and issuer would clearly provide more accurate
country-specific results. However, in most cases, the sum of the country-specific basic
extrapolation will not equal the total provided by the ratios shown in Table 14. The reason, of
course, is that through time there will be shifts in the relative amounts of U.S.-held securities
issued by each country. The relative accuracy of the two procedures cannot be known.
U.S. Holdings of Foreign Securities
Page 23
The gross-up procedure used to estimate the market values for all foreign holdings was a twostep process. First, for each country and specific security type and issuer, a "first order" total
market value was calculated. In almost all cases, this first order estimate was obtained by
multiplying the 2005 reported market values by the corresponding 2001 gross-up factors
(obtained by dividing the 2001 reported market value for that country, type of security, and type
of issuer for all reporters in 2001, by the corresponding amount reported in 2001 by the
institutions on the 2005 panel). However, in some cases, mostly those in which the 2001
reported market values were small, the gross-up factor was above 2.0. In these cases
(with a few exceptions for equities in which the ratio was only slightly above 2.0), it was felt that
an additive process would yield, on average, more accurate results. Therefore, the 2005
estimates of total market value were obtained by adding the amount reported in 2001 by those
reporters which were not on the 2005 panel to the reported data.
The first step approach yielded aggregate country totals that, for most combinations of securities
and issuers, approximated the amounts which would have been obtained by applying the grossup factors shown in Table 14 to the country totals directly. However, where the two results were
significantly different, the individual country data were examined in order to determine the likely
cause of the discrepancy and judgemental adjustments were applied. For example, if a country
had a large increase in reported holdings by institutions in the 2005 panel and the multiplicative
technique was used, the reviewers may have believed that the gross-up factor obtained from
2001 data was too high to be appropriate for 2005. Ifso, the factor was adjusted downward
slightly. In some cases in which the additive option was used and the country experienced a
major economic decline (or rapid growth), the additive amount was adjusted downward (or
upward).
For securitylissuer types in which U.S. residents had large holdings, these judgemental
adjustments tended to be small. For securitylissuer types in which the market values were small,
the adjustments relied on specific information about the types of shifts observed and less effort
was made to approximate the average factors shown in Table 14. In general, the judgemental
adjustments made in 2005 were similar to than those made for the 2004 survey for two reasons:
(1) the differences from 2001 observed in 2005 were similar to those observed in 2004, and (2)
changing the adjustment strategy between 2004 and 2005 would have resulted in changes to the
annual growth rates which were not data-based.
Table 15 repeats the information presented in Table 14 and in addition shows the final implicit
gross-up factors that were actually used, by type of issuer and broad security type, in the
rightmost column.
Page 24
U.S. Holdings of Foreign Securities
15.
Final Gross-up Factors
Mil'
I IOns 0 f do11 ars
exc~t
as noted
Type of security and
foreign issuer
Equity
Total
Government issuers
Private issuers
Long-Term Debt
Total
Government issuers
Private issuers
Short-Term Debt
Total
Government issuers
Private issuers
Ratio of 2001
amount reported
Implicit gross-up
Amount reported
to amount
factors actually
Amount reported in 2001 by 2005 reported in 2001
used
by 2005 reporters
in 2001
reporters
1,611,582
164
1,611,418
1,539,533
136
1,539,397
1.04680
1.20510
1.04679
1.04418
1.00788
1.04420
501,266
224,944
276,322
442,827
204,433
238,394
1.13197
1.10033
1.15910
1.1 0751
1.08136
1.11915
147,849
15,971
130878
137,690
14,264
123426
1.06653
1.11967
1.06038
1.09946
1.09919
1.09949
Currency tables on a country-by-country basis also required extrapolation. The separate grossup factors required to extrapolate these tables created minor differences in the adjusted currency
totals by country when compared to the country data for each specific type of security and issuer.
Realignment of these minor differences was achieved by "scaling" these tables For each
country, the grossed-up total by specific type of security was divided by the grossed-up total by
currency. This ratio was then applied to the data for each currency for the specific country.
Acknowledgments
The Department of the Treasury, the Federal Reserve Bank of New York and the Federal
Reserve Board of Governors wish to express their appreciation to the Securities Reports Division
of the Federal Reserve Bank of New York for preparation of the U.S. portfolio data. Under the
direction of Patricia Selvaggi, divisional staff who were responsible for data analysis
were: Kenneth Aberbach, Lois Burns, Evelyn Castillo, David Hubbs, Nigel Jones, Aaron
Gononsky, Brian Goodwin, Frank Innocenti, Jason Nuccio, Philip Papaelias, Marc Plotsker, and
Paula Webster. Automation staff, working under the direction of Howard Brickman, who were
responsible for obtaining properly formatted data files and for facilitating data loads and
update were: Amador Castelo, Melissa Harris and Susan Ma. Business Systems Development
staff, working under the direction of Jean Stoloff and Kenneth Ruff, who developed and
enhanced the database and reports, were: Yee Ying Chan and Aswin Subramaniam. Staff who
provided timely data entry and file loading support, working under the direction of Laura
Iannolino, were: Mary Ann Campano, Jackie Charles-Gouaige, Natasha Fair, and Ada
Hernandez. Yvonne Nickens of the Board of Governors of the Federal Reserve System also
provided valuable assistance in preparing this report.
U.S. Holdings of Foreign Securities
Page 25
Statistical Appendix
Page 26
U.S. Holdings of Foreign Securities
16.
Market value of U.S. holdings of foreign securities, by country and type of security,
as of December 31, 2005
MIl'J'IOns 0 f doars
II except as note d
Debt
Country or region
Total
Short-term
Albania
6
0
6
0
Andorra
5
5
0
0
Anguilla
3
3
0
0
33
32
2
0
Argentina
6,853
1,144
5,696
12
Aruba
1,189
0
1,189
0
128,202
71,141
48,560
8,501
17,280
10,724
5,113
1,444
3,266
2,327
930
9
*
*
0
0
272
*
272
0
24,664
19,947
4,215
502
50
41
9
0
186,662
173,842
11,232
1,588
*
0
*
0
114
0
114
0
5
3
I
90,286
68,560
21,697
28
8,383
5,899
2,449
34
428
78
350
0
Canada
418,925
247,823
157,509
13,593
Cayman Islands
248,771
102,603
118,399
27,768
Antigua and Barbuda
Australia
Austria
Bahamas
Bangladesh
Barbados
Belgium
Belize
Bermuda
Bolivia
Bosnia and Herzegovina
Botswana
Brazil
British Virgin Islands
Bulgaria
*
I
Long-term
Equity
Greater than zero but less than $500,000.
°
Page 27
U.S. Holdings of Foreign Securities
16.
Market value of U.S. holdings of foreign securities, by country and type of security,
as of December 31,2005 (continued)
Millions of dollars excer>t as note d
Debt
Country or region
I
Long-tenn
Equity
Short-tenn
Chile
12,099
3,520
8,577
2
China, mainland '
28,443
26,888
1,544
11
5,018
753
4,266
*
73
73
0
0
439
20
400
19
92
0
92
0
703
189
514
0
*
*
0
0
210
105
103
2
1,742
1,727
15
0
25,276
15,652
8,970
653
Dominican Republic
764
*
662
101
Ecuador
984
41
942
*
3,754
2,567
983
205
838
*
822
16
97
62
35
0
1
1
0
0
Finland
48,777
44,393
4,010
375
France
273,879
205,113
47,801
20,965
French Guiana
*
*
0
0
Georgia
*
0
*
0
216,726
158,013
48,997
9,717
3
2
1
0
211
211
0
0
Colombia
Cook Islands
Costa Rica
Cote d'Ivoire
Croatia
Cuba
Cyprus
Czech Republic
Denmark
Egypt
El Salvador
Estonia
Falkland Islands
Gennany
Ghana
Gibraltar
*
Total
Greater than zero but less than $500,000.
I. Excludes Hong Kong, Macau, and Taiwan, which are reported separately.
u.s. Holdings of Foreign Securities
16.
Page 28
Market value of U.S. holdings of foreign securities, by country and type of security,
as of December 31,2005 (continued)
Millions of dollars except as noted
Debt
Country or region
Total
10,555
9,529
1025
0
2
0
2
0
207
*
206
0
Guernsey
6,396
5,797
597
2
Honduras
45
0
17
28
46,225
44,465
1,731
29
Hungary
5,635
4,880
754
1
Iceland
3,229
14
3,215
0
33,226
32,753
473
0
9,025
7,127
1,874
24
75,368
33,027
16,893
25,448
61
36
26
0
Israel
44,313
29,125
15,183
5
Italy
79,393
63,915
12,038
3,440
446
2
440
4
Japan
530,885
493,343
35,072
2,470
Jersey
19,057
824
8,316
9,917
Jordan
72
40
32
0
336
6
330
0
21
3
17
0
118,507
110,264
8,243
0
Greece
Grenada
Guatemala
Hong Kong
India
Indonesia
Ireland
Isle of Man
Jamaica
Kazakhstan
Kenya
Korea, South
*
Short-term
Long-term
Equity
Greater than zero but less than $500,000.
Page 29
U.S. Holdings of Foreign Securities
16.
Market value of U.S. holdings of foreign securities, by country and type of security,
as of December 31,2005 (continued)
Millions 0 f do Jl ars except as note d
Debt
Country or region
Total
Short-term
12
10
3
0
408
100
308
*
6,749
5,172
1,576
0
Liechtenstein
66
66
*
0
Lithuania
52
20
33
0
46,287
11,134
29,329
5,824
53
0
53
0
11,282
6,934
4,348
0
96
*
96
0
5,546
5,047
498
0
238
188
48
I
Mexico
86,107
57,876
28,198
34
Monaco
9
9
0
0
Morocco
440
299
141
0
Namibia
1
1
0
0
191,883
132,769
51,760
7,353
Netherlands Antilles
47,223
45,378
1,844
*
New Zealand
11,935
4,633
5,238
2,064
31
0
30
I
Latvia
Lebanon
Liberia
Luxembourg
Macedonia
Malaysia
Malta
Marshall Islands
Mauritius
Netherlands
Nicaragua
*
I
Long-term
Equity
Greater than zero but less than $500,000.
Page 30
U.S. Holdings of Foreign Securities
16.
Market value of U.S. holdings of foreign securities, by country and type of security,
as of December 31,2005 (continued)
Millions of dollars except as noted
Debt
Country or region
Total
I
Short-term
Norway
36,334
22,023
9,455
4,856
Pakistan
389
364
25
0
Panama
26,151
20,998
4,940
213
782
782
0
0
Peru
4,588
870
3,718
0
Philippines
7,179
3,068
4, III
0
Poland
7,537
4,562
2,974
I
Portugal
6,053
5,323
643
87
Romania
251
249
2
0
28,764
18,631
10,133
0
3
3
0
0
98
0
98
0
*
*
0
0
108
7
101
0
36,361
29,109
6,938
314
Slovakia
309
I
309
0
Slovenia
79
48
31
0
South Africa
34,211
31,605
2,607
0
Spain
69,821
63,514
5,712
595
93
74
19
0
74,618
40,530
16,481
17,608
196,138
191,812
2,187
2,139
Papua New Guinea
Russia
Saint Kitts and Nevis
Saint Lucia
Senegal
Serbia and Montenegro
Singapore
Sri Lanka
Sweden
Switzerland
*
Long-term
Equity
Greater than zero but less than $500,000.
Page 31
U.S. Holdings of Foreign Securities
16.
Market value of U.S. holdings of foreign securities, by country and type of security,
as of December 31, 2005 (continued)
Millions of dollars except as noted
Debt
Country or region
I
Long-tenn
Equity
Short-tenn
Taiwan
57,877
57,088
789
*
Thailand
10,538
8,992
1,400
145
Trinidad and Tobago
516
2
488
26
Tunisia
639
*
639
0
Turkey
14,201
11,122
3,056
22
*
*
0
0
1,276
50
1,226
0
814,784
537,891
184,958
91,935
Uruguay
1,073
3
1,070
0
Venezuela
6,113
483
5,520
III
Vietnam
306
*
306
0
Zambia
12
11
1
0
Zimbabwe
79
32
47
0
*
*
0
0
International Organizations
21,962
21
18,965
2,976
Middle East oil-exporters '
2,696
138
2,555
3
222
II
211
0
4,609,112
3,317,712
1,028,179
Bahram, Iran, Iraq, Kuwait, Oman, Qatar, SaudI ArabIa, Umted Arab EmIrates.
Algeria, Gabon, Libya, Nigeria.
Greater than zero but less than $500,000.
263,221
Turks and Caicos Islands
Ukraine
United Kingdom
Other and unknown
African oil-exporters 2
Total
1.
2.
*
Total
Page 32
U.S. Holdings of Foreign Securities
17.
Market value of u.s. holdings of foreign long-term securities, by country,
as of the survey dates
Millions of dollars
Country or category
December
1997
December
2001
December
2003
December
2004
December
2005
Albania
0
32
10
4
5
6
Andorra
0
14
0
0
2
5
n.a.
0
0
0
2
3
0
0
0
1
12
33
16,319
38,567
4,379
4,304
4,826
6,841
0
22
271
906
1,114
1,189
26,592
46,999
53,111
85,672
97,418
119,701
Austria
2,626
5,662
3,510
9,170
13,659
15,836
Bahamas
1,064
910
1,640
2,889
2,650
3,257
Bangladesh
5
7
4
*
0
*
Barbados
0
17
54
253
256
272
Belarus
0
3
0
*
0
0
7,329
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
9,169
12,140
15,764
23,297
24,162
5
34
8
77
60
50
9,115
26,607
125,207
116,206
163,411
185,074
Bolivia
1
12
0
2
0
*
Bosnia and Herzegovina
0
3
11
50
149
114
Botswana
I
147
22
4
7
5
12,013
51,656
33,453
50,146
62,989
90,257
n.a.
1,138
2,011
3,599
4,463
8,348
10,803
n.a.
n.a.
n.a.
n.a.
n.a.
Anguilla l
Antigua and Barbuda
Argentina
Aruba
Australia
Belgium-Luxembourg2
Belgium2
Belize
Bermuda
Brazil
British Virgin Islands
British West Indies l
*
March
1994
Greater than zero but less than $500,000.
n.a. Not avaIlable.
1. Separate reporting for Anguilla, British Virgin Islands, Cayman Islands, Montserrat, and Turks and Caicos
began with the 1997 survey; previously these were reported as the British West Indies.
2. Belgium and Luxembourg were reported as a combined entity in the 1994 survey.
Page 33
U.S. Holdings of Foreign Securities
17.
Market value of U.S. holdings of foreign long-term securities, by country,
as of the survey dates (continued)
Millions of dollars
March
1994
December
1997
December
2001
December
2003
December
2004
December
2005
23
1,310
1,763
1,443
1,173
428
Burma
0
142
0
0
0
0
Cambodia
0
I
0
0
0
0
Cameroon
0
4
0
0
0
0
108,190
177,473
205,209
288,700
332,249
405,332
n.a.
19,247
70,081
120,954
184,128
221,003
0
0
I
0
0
0
Chile
2,671
8,126
5,947
9,697
11,598
12,097
China, mainland 2
2,085
5,434
3,004
13,731
12,710
28,432
555
4,163
2,760
3,488
4,455
5,018
Comoros
0
21
0
*
0
0
Congo (Brazzavil!e)
0
13
0
0
0
0
Congo (Kinshasa)
0
*
0
0
0
0
Cook Islands
0
1
0
0
*
73
III
165
158
319
241
420
Cote d'Ivoire
19
458
162
96
98
92
Croatia
10
496
763
676
716
703
Cuba
I
*
0
*
I
*
Cyprus
0
322
110
101
103
208
453
808
481
1,293
1,876
1,742
9,911
16,758
11,551
20,416
22,780
24,623
Country or category
Bulgaria
Canada
Cayman Islands 1
Central African Republic
Colombia
Costa Rica
Czech Republic
Denmark
Dominica
0
2
0
0
0
Greater than zero but less than $500,000.
n.a. Not avaIlable.
1. Separate reporting for Anguilla, British Virgin Islands, Cayman Islands, Montserrat, and Turks and Caicos
began with the 1997 survey; previously these were reported as the British West Indies.
2. Excludes Hong Kong, Macau, and Taiwan, which are reported separately.
*
0
Page 34
U.S. Holdings of Foreign Securities
17.
Market value of U.S. holdings of foreign long-term securities, by country,
as of the survey dates (continued)
Millions of dollars
March
1994
December
1997
December
2001
December
2003
December
2004
December
2005
0
87
164
512
472
662
201
2,032
774
902
1,091
984
Egypt
2
832
603
571
1,149
3,549
EI Salvador
0
51
51
582
658
822
Estonia
0
27
44
174
343
97
Ethiopia
0
*
0
0
0
0
Falkland Islands
0
0
0
0
*
1
Finland
7,052
20,715
54,604
40,705
38,353
48,403
France
42,412
99,752
138,291
173,716
206,465
252,914
French Guiana
0
*
0
*
*
*
Gambia
0
32
22
30
0
0
Georgia
0
*
4
*
0
*
47,652
108,414
118,319
174,641
191,604
207,010
12
358
208
350
4
3
Gibraltar
259
*
22
11
64
211
Greece
676
2,741
4,563
5,935
8,290
10,555
Grenada
0
*
8
6
2
2
Guadeloupe
0
1
0
0
0
0
Guatemala
28
193
58
109
173
206
Guernsey'
n.a.
450
4,645
5,348
5,941
6,394
0
*
0
5
0
0
Country or category
Dominican Republic
Ecuador
Germany
Ghana
Guyana
Haiti
0
0
0
0
0
*
Greater than zero but less than $500,000.
n.a. Not available.
1. Separate reporting for Guernsey and Jersey began with the 1997 survey; in the 1994 survey these were included
in the United Kingdom.
*
u.s. Holdings of Foreign Securities
17.
Page 35
Market value of U.S. holdings of foreign long-term securities, by country,
as of the survey dates (continued)
Millions of dollars
December
1997
December
2001
December
2003
December
2004
December
2005
0
17
17
22
15
17
18,171
31,628
32,047
37,628
37,328
46,197
Hungary
567
4,846
2,026
3,064
5,104
5,634
Iceland
352
309
224
133
243
3,229
India
1,352
8,138
7,173
18,683
23,515
33,226
Indonesia
2,164
4,345
1,841
5,072
6,985
9,001
Ireland
4,482
17,666
31,384
30,642
46,244
49,920
0
9
I
0
15
61
Israel
4,436
12,298
21,180
28,653
34,308
44,308
Italy
31,587
59,171
46,985
63,927
74,845
75,953
7
329
268
40
195
442
131,198
166,758
196,866
292,668
366,860
528,415
Jerseyl
n.a.
1,554
1,615
5,197
7,074
9,140
Jordan
39
219
98
57
41
72
Kazakhstan
0
121
140
102
346
336
Kenya
0
36
16
22
17
21
Kiribati
0
24
0
0
0
0
6,925
15,262
34,475
53,338
73,544
118,507
Kyrgyzstan
0
0
0
*
11
0
Latvia
0
4
13
*
8
12
Lebanon
6
813
87
151
223
408
Country or category
Honduras
Hong Kong
Isle of Man
Jamaica
Japan
Korea, South
March
1994
73
0
2
2
26
0
Greater than zero but less than $500,000.
n.a. Not avaIlable.
I. Separate reporting for Guernsey and Jersey began with the 1997 survey; in the 1994 survey these were included
in the United Kingdom.
Lesotho
*
U.S. Holdings of Foreign Securities
17.
Page 36
Market value of U.S. holdings of foreign long-term securities, by country,
as of the survey dates (continued)
Millions of dollars
December
1997
December
2001
December
2003
December
2004
December
2005
291
1,400
1,359
4,328
7,829
6,749
70
5
59
19
35
66
0
41
51
28
5
52
n.a.
8,289
10,941
21,069
34,181
40,463
Macedonia
0
20
34
42
40
53
Madagascar
0
2
3
0
0
0
Malawi
0
0
19
0
0
0
Malaysia
9,564
9,078
4,258
7,954
10,684
11,282
Maldives
0
*
0
0
0
0
Mali
0
0
4
0
0
0
Malta
43
148
93
19
17
96
Marshall Islands
72
35
66
942
4,475
5,546
Mauritania
0
0
0
0
0
*
Mauritius
3
731
149
174
325
237
51,526
63,751
48,772
56,145
66,121
86,074
0
39
29
0
0
0
25
0
2
3
8
9
Mongolia
0
0
0
I
0
0
Morocco
365
561
369
162
228
440
Mozambique
0
0
3
0
0
0
Namibia
9
132
1
3
1
I
47,464
120,150
143,375
173,780
191,544
184,530
24,727
15,871
17,002
10,326
Netherlands Antilles
* Greater than zero but less than $500,000.
n.a. Not aVaIlable.
I. Belgium and Luxembourg were reported as a combined entity in the 1994 survey.
30,252
47,223
Country or category
Liberia
Liechtenstein
Lithuania
Luxembourg l
Mexico
Moldova
Monaco
Netherlands
March
1994
u.s. Holdings of Foreign Securities
17.
Page 37
Market value of U.S. holdings of foreign long-term securities, by country,
as of the survey dates (continued)
Millions of dollars
March
1994
December
1997
December
2001
December
2003
December
2004
December
2005
0
I
0
0
0
0
6,283
8,817
4,056
8,905
10,439
9,871
7
76
19
0
37
30
Norway
6,349
14,267
13,831
20,168
28,422
31,478
Pakistan
226
1,521
180
133
147
389
0
1
0
0
0
0
2,208
6,595
9,868
18,583
24,279
25,938
55
174
155
235
314
782
1
81
0
0
0
0
463
3,544
1,673
3,999
3,874
4,588
2,491
7,327
4,015
5,037
5,690
7,179
95
4,495
3,098
3,480
5,624
7,536
Portugal
1,323
8,233
4,350
5,077
6,313
5,966
Romania
0
211
13
151
172
251
47
12,153
10,208
21,554
21,314
28,764
Rwanda
0
*
0
0
0
0
Saint Kitts and Nevis
0
*
0
*
*
3
Saint Lucia
0
0
0
0
49
98
Saint Vincent and Grenadine
1
0
0
0
0
0
Sao Tome and Principe
0
33
0
0
0
0
Senegal
1
7
0
*
*
*
0
Serbia and Montenegro
* Greater than zero but less than $500,000.
13
1
15
1
108
Country or category
New Caledonia
New Zealand
Nicaragua
Palau
Panama
Papua New Guinea
Paraguay
Peru
Philippines
Poland
Russia
Page 38
U.S. Holdings of Foreign Securities
17.
Market value of U.S. holdings of foreign long-term securities, by country,
as of the survey dates (continued)
Millions of dollars
Country or category
March
1994
December
1997
December
2001
December
2003
December
2004
December
2005
Seychelles
0
52
0
1
0
0
Sierra Leone
0
1
0
*
0
0
6,838
10,735
22,818
24,883
29,081
36,047
Slovakia
1
184
133
88
190
309
Slovenia
0
224
14
87
37
79
Solomon Islands
0
*
0
0
0
0
Somalia
0
6
0
*
0
0
5,179
12,541
7,861
17,849
24,647
34,211
24,493
32,146
39,825
50,094
68,074
69,226
86
193
158
87
79
93
Sudan
0
*
0
0
0
0
Suriname
0
46
0
0
0
0
Swaziland
0
1
3
5
3
0
Sweden
21,925
51,886
33,606
40,284
52,862
57,011
Switzerland
21,073
63,140
76,354
119,000
139,738
193,999
531
6,227
19,860
27,228
34,885
57,877
Tanzania
0
*
7
0
0
0
Thailand
4,793
5,624
2,698
7,312
7,097
10,392
Tokelau Islands
0
20
0
*
0
0
Tonga
0
50
0
0
0
0
83
464
469
606
477
490
37
Tunisia
* Greater than zero but less than $500,000.
280
168
1,280
588
639
Singapore
South Africa
Spain
Sri Lanka
Taiwan
Trinidad and Tobago
u.s. Holdings of Foreign Securities
17.
Page 39
Market value of U.S. holdings of foreign long-term securities, by country,
as of the survey dates (continued)
Millions of dollars
Country or category
March
1994
December
1997
December
2001
December
2003
December
2004
December
2005
Turkey
963
7,010
3,525
5,713
8,137
14,179
Turks and Caicos Islands l
n.a.
419
32
57
*
*
Uganda
0
I
5
*
0
0
Ukraine
0
90
203
603
1,548
1,276
119,607
271,680
430,882
563,955
627,365
722,849
254
613
603
603
1,303
1,073
Uzbekistan
0
0
1
4
0
0
Venezuela
5,115
7,827
3,655
5,303
6,863
6,003
Vietnam
0
37
21
81
113
306
Zambia
18
9
5
5
2
12
Zimbabwe
75
169
88
61
68
79
180
870
40
35
*
*
9,854
16,975
11,878
17,552
18,162
18,986
0
458
602
990
1,454
2,693
361
843
636
320
191
222
870,260
1,755,015
2,169,735
2,953,781
3,553,387
4,345,891
United Kingdom2
Uruguay
Country Unknown
International Organizations
Middle East oil-exporters3
African oil-exporters 4
Total
*
Greater than zero but less than $500,000.
n.a. Not avaIlable.
1. Separate reporting for Anguilla, British Virgin Islands, Cayman Islands, Montserrat, and Turks and Caicos
began with the 1997 survey; previously these were reported as the British West Indies.
2. Separate reporting for Guernsey and Jersey began with the 1997 survey; in the 1994 survey these were included
in the United Kingdom.
3. Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates.
4. Algeria, Gabon, Libya, Nigeria.
Page 40
U.S. Holdings of Foreign Securities
18.
Market value of U.S. holdings of foreign equities, by country, as of the survey dates
Millions of dollars
Country or category
March
1994
December
1997
December
2001
December
2003
December
2004
December
2005
Albania
0
0
0
0
0
0
Andorra
0
5
0
0
2
5
n.a.
0
0
0
2
3
0
0
0
I
12
32
7,616
12,892
744
846
1,161
1,144
0
11
*
0
*
0
16,917
31,120
37,112
56,454
57,052
71,141
1,223
3,707
1,204
3,925
8,976
10,724
88
568
1,162
1,819
1,779
2,327
Bangladesh
5
7
4
0
0
*
Barbados
0
I
I
2
10
*
Belarus
0
I
0
0
0
0
5,021
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
6,099
8,415
10,621
18,083
19,947
5
29
7
25
26
41
8,356
22,617
118,878
107,538
153,549
173,842
Bolivia
0
*
*
2
0
0
Bosnia and Herzegovina
0
0
I
0
4
0
Botswana
1
131
20
3
3
3
8,447
31,338
21,801
31,781
43,104
68,560
n.a.
698
1,774
2,269
3,716
5,899
Anguilla'
Antigua and Barbuda
Argentina
Aruba
Australia
Austria
Bahamas
Belgium-Luxembourg 2
Belgium 2
Belize
Bermuda
Brazil
British Virgin Islands'
n.a.
n.a.
n.a.
n.a.
n.a.
6,536
British West Indies'
* Greater than zero but less than $500,000.
n.a. Not avaIlable.
I. Separate reporting for Anguilla, British Virgin Islands, Cayman Islands, Montserrat, and Turks and Caicos
began with the 1997 survey; previously these were reported as the British West Indies.
2. Belgium and Luxembourg were reported as a combined entity in the 1994 survey.
U.S. Holdings of Foreign Securities
18.
Page 41
Market value of U.S. holdings of foreign equities, by country, as of the survey dates
(continued)
Millions of dollars
Country or category
December
1997
December
2001
December
2003
December
2004
December
2005
Bulgaria
0
*
*
5
6
78
Burma
0
3
0
0
0
0
Cambodia
0
I
0
0
0
0
Cameroon
0
0
0
0
0
0
39,655
70,798
89,591
149,267
180,398
247,823
n.a.
5,612
35,764
45,287
69,750
102,603
Central African RepUblic
0
0
0
0
0
0
Chad
0
0
0
0
0
0
Chile
2,492
4,555
1,917
2,102
2,564
3,520
China, mainland 2
899
2,256
2,370
13,064
11,645
26,888
Colombia
284
704
150
133
270
753
Comoros
0
2
0
*
0
0
Congo (Brazzaville)
0
0
0
0
0
0
Congo (Kinshasa)
0
*
0
0
0
0
Cook Islands
0
I
0
0
0
73
Costa Rica
0
*
5
5
5
20
Cote d'Ivoire
0
2
6
0
2
0
Croatia
0
126
255
270
234
189
Cuba
0
*
0
*
*
*
Cyprus
0
120
59
17
3
105
300
763
444
1,249
1,843
1,727
1,819
8,917
7,533
10,429
14,488
15,652
Canada
Cayman Islands l
Czech Republic
Denmark
*
March
1994
Greater than zero but less than $500,000.
n.a. Not aVaIlable.
I. Separate reporting for Anguilla, British Virgin Islands, Cayman Islands, Montserrat, and Turks and Caicos
began with the 1997 survey; previously these were reported as the British West Indies.
2. Excludes Hong Kong, Macau, and Taiwan, which are reported separately.
U.S. Holdings of Foreign Securities
18.
Page 42
Market value of U.S. holdings of foreign equities, by country, as of the survey dates
(continued)
Millions of dollars
Country or category
December
1997
December
2001
December
2003
December
2004
December
2005
Dominica
0
2
0
0
0
0
Dominican Republic
0
*
13
4
*
*
Ecuador
6
98
18
5
25
41
Egypt
2
763
340
523
1,093
2,567
El Salvador
0
39
2
0
*
*
Estonia
0
17
39
138
304
62
Falkland Islands
0
0
0
0
*
1
Finland
2,957
14,785
51,307
35,162
33,860
44,393
France
25,647
85,019
112,205
130,761
164,634
205,113
French Guiana
0
*
0
*
*
*
Gambia
0
*
1
0
0
0
Georgia
0
*
3
*
0
0
25,580
64,965
72,200
103,239
123,685
158,013
12
358
207
349
3
2
Gibraltar
252
*
22
I
64
211
Greece
538
1,513
2,810
3,957
6,980
9,529
Grenada
0
*
*
0
0
0
Guadeloupe
0
0
0
0
0
0
Guatemala
0
2
0
0
0
*
Guernsey I
n.a.
378
4,576
4,636
5,399
5,797
Guyana
0
*
0
0
0
0
Honduras
0
*
0
*
0
0
Germany
Ghana
*
March
1994
Greater than zero but less than $500,000.
n.a. Not available.
I. Separate reporting for Guernsey and Jersey began with the 1997 survey; in the 1994 survey these were included
in the United Kingdom.
Page 43
U.S. Holdings of Foreign Securities
18.
Market value of U.S. holdings of foreign equities, by country, as of the survey dates
(continued)
Millions of dollars
December
1997
December
2001
December
2003
December
2004
December
2005
17,527
28,102
30,154
36,210
35,395
44,465
145
3,483
1,702
2,412
4,503
4,880
0
3
41
3
2
14
India
1,134
6.176
6,897
18,500
23,152
32,753
Indonesia
1,935
2,488
1,526
4,406
6,116
7,127
Ireland
2,641
14,147
28,374
22,191
32,422
33,027
0
9
I
0
*
36
Israel
2,581
7,036
13,333
16,361
19,054
29,125
Italy
13,797
41,547
33,686
38,971
57,494
63,915
4
3
1
I
2
2
99,413
136,404
170,714
255,494
330,427
493,343
Jerse/
n.a.
1,517
29
867
436
824
Jordan
0
40
61
40
19
40
Kazakhstan
0
1
2
*
*
6
Kenya
0
19
5
6
2
3
Kiribati
0
*
0
0
0
0
4,352
4,428
29,537
49,121
66,639
110,264
Kyrgyzstan
0
0
0
0
*
0
Latvia
0
4
13
*
4
IO
Lebanon
0
133
38
23
49
100
Lesotho
0
70
2
2
25
0
Country or category
Hong Kong
Hungary
Iceland
Isle of Man
Jamaica
Japan
Korea, South
March
1994
5,866
5,172
2,589
701
924
100
Liberia
* Greater than zero but less than $500,000.
n.a. Not available.
I. Separate reporting for Guernsey and Jersey began with the 1997 survey; in the 1994 survey these were included
in the United Kingdom.
Page 44
U.S. Holdings of Foreign Securities
18.
Market value of U.S. holdings of foreign equities, by country, as of the survey dates
(continued)
Millions of dollars
March
1994
December
1997
December
2001
December
2003
December
2004
December
2005
70
5
59
19
35
66
0
14
3
3
3
20
n.a.
5,345
2,357
6,026
7,634
11,134
Macedonia
0
0
0
0
0
0
Madagascar
0
I
3
0
0
0
Malawi
0
0
19
0
0
0
9,115
4,713
2,578
4,075
6,474
6,934
Mali
0
0
4
0
0
0
Malta
0
0
*
*
*
*
MarshalI Islands
0
0
65
705
3,727
5,047
Mauritania
0
0
0
0
0
0
Mauritius
3
65
71
62
143
188
34,665
34,965
26,279
28,529
37,516
57,876
Moldova
0
*
*
0
0
0
Monaco
25
0
2
3
8
9
Mongolia
0
0
0
0
0
0
Morocco
24
217
37
16
89
299
Mozambique
0
0
3
0
0
0
Namibia
0
130
I
*
I
I
38,054
106,984
112,751
115,792
136,467
132,769
8,096
15,809
14,544
23,359
28,730
45,378
0
1
0
0
0
0
3,861
2,004
5,3 II
4,300
New Zealand
* Greater than zero but less than $500,000.
n.a. Not avaIlable.
1. Belgium and Luxembourg were reported as a combined entity in the 1994 survey.
4,720
4,633
Country or category
Liechtenstein
Lithuania
Luxembourg!
Malaysia
Mexico
Netherlands
Netherlands Antilles
New Caledonia
Page 45
U.S. Holdings of Foreign Securities
18.
Market value of U.S. holdings of foreign equities, by country, as of the survey dates
(continued)
Millions of dollars
December
1997
December
2001
December
2003
December
2004
December
2005
0
0
0
0
0
0
Norway
3,929
9,494
7,906
11,972
18,153
22,023
Pakistan
226
1,180
86
85
III
364
0
*
0
0
0
0
2,152
3,556
7,450
14,822
19,450
20,998
55
165
155
235
314
782
I
*
0
0
0
0
449
2,341
452
1,087
666
870
1,910
2,848
1,344
1,634
2,222
3,068
75
1,618
1,197
1,671
3,072
4,562
Portugal
1,106
6,993
3,819
3,949
5,505
5,323
Romania
0
4
3
24
120
249
16
8,457
4,613
13,259
10,775
18,631
Saint Kitts and Nevis
0
*
0
*
*
3
Saint Lucia
0
0
0
0
0
0
Saint Vincent and Grenadine
0
0
0
0
0
0
Sao Tome and Principe
0
0
0
0
0
0
Senegal
1
4
0
*
*
*
Serbia and Montenegro
0
*
0
0
0
7
Seychelles
0
6
0
1
0
0
Sierra Leone
0
I
0
*
0
0
6,832
Singapore
* Greater than zero but less than $500,000.
10,185
21,376
21,932
23,968
29,109
Country or category
Nicaragua
Palau
Panama
Papua New Guinea
Paraguay
Peru
Philippines
Poland
Russia
March
1994
Page 46
U.S. Holdings of Foreign Securities
18.
Market value of U.S. holdings of foreign equities, by country, as of the survey dates
(continued)
Millions of dollars
Country or category
December
1997
December
2001
December
2003
December
2004
December
2005
Slovakia
I
87
3
14
*
1
Slovenia
0
56
4
13
1
48
Somalia
0
3
0
*
0
0
4,438
9,937
6,714
15,101
21,600
31,605
13,733
25,223
32,455
43,801
63,002
63,514
Sri Lanka
86
133
35
33
31
74
Suriname
0
46
0
0
0
0
Swaziland
0
1
*
0
*
0
Sweden
11,769
38,784
24,274
27,529
38,284
40,530
Switzerland
20,962
61,897
75,587
117,910
138,187
191,812
468
4,939
19,607
26,970
34,554
57,088
Tanzania
0
*
7
0
0
0
Thailand
4,113
2,158
1,916
6,477
5,961
8,992
Tokelau Islands
0
*
0
*
0
0
Tonga
0
0
0
0
0
0
Trinidad and Tobago
2
1
158
*
5
2
Tunisia
0
0
4
*
*
*
Turkey
630
6,005
2,269
3,781
5,561
11,122
Turks and Caicos Islands 1
n.a.
384
32
57
*
*
Uganda
0
1
5
0
0
0
Ukraine
0
61
2
17
25
50
99,729
217,525
350,014
420,675
455,919
537,891
South Africa
Spain
Taiwan
United Kingdom2
*
March
1994
Greater than zero but less than $500,000.
n.a. Not aVailable.
\. Separate reporting for Anguilla, British Virgin Islands, Cayman Islands, Montserrat, and Turks and Caicos
began with the 1997 survey; previously these were reported as the British West Indies.
2. Separate reporting for Guernsey and Jersey began with the 1997 survey; in the 1994 survey these were included
in the United Kingdom
Page 1 of 1
10 view or prmt tne fJUI- content on thiS page, aown/oaa the tree Aaooe® AcroOat® HeaGer®.
December 29. 2006
hp-213
Report to Congress on Financial Implications of U.S. Participation in the
International Monetary Fund
042005 and 01 - 042006
REPORTS
•
(PDF) Report to Congress on Financial Implications of U.S. Participation in
the International Monetary Fund
http://www.treas_govlpresslrelease1iLhp213.htm
1/312007
REPORT TO CONGRESS ON FINANCIAL IMPLICATIONS OF
U.S. PARTICIPATION IN
THE INTERNATIONAL MONETARY FUND
Q4 2005 and Q 1 - Q4 2006
This report has been prepared in compliance with Section 504(b) of Appendix E, Title V of the
Consolidated Appropriations Act for FY 2000. I The report focuses exclusively on the financial
implications of U.S. participation in the International Monetary Fund (IMF) and does not attempt
to quantify the broad and substantial economic benefits to the United States and the global
economy resulting from U.S. participation in the IMF.
As required, the report provides financial information on the net interest income and valuation
changes associated with U.S. participation in the IMF. The broader context for the financial
implications of U.S. participation in the IMF and the methodology used in deriving these figures
have been laid out in previous reports. The methodology is also summarized briefly in the
footnotes attached to the tables. Reports under Section 504(b) are made available to the public
on the Treasury website: http://www.treas.gov/press/reports.htm1.
This report provides quarterly data for the fourth quarter of fiscal year 2005 and the full fiscal
year of 2006. It provides information on u.S. participation in the IMF's General Department as
well as information related to U.S. holdings of Special Drawing Rights (SDRs) as part of its
international reserves and the financial implications of U.S. participation in the SDR Department
of the IMF.2
Data on the net interest income and valuation changes related to u.S. participation in the IMF's
General Department during the fourth quarter of fiscal year 2005 and the first to fourth quarters
of fiscal year 2006 are provided in Table 1. For comparison purposes, the previous three fiscal
years of data are also provided. 3
Similarly, data for net interest income and valuation changes related to U.S. participation in the
SDR Department of the IMF during the fourth quarter of fiscal year 2005 and the first to fourth
quarters of fiscal year 2006 are provided in Table 2. For comparison purposes, previouslyreported data for the last three fiscal years are also provided.
I Section 504(b) of Appendix E, Title V of the Consolidated Appropriations Act for FY 2000, Public Law 106-113,
113 Stat. 1501 A-317, requires that the Secretary of the Treasury prepare and transmit to the appropriate committees
of the Congress a quarterly report on United States participation in the International Monetary Fund (IMF), detailing
the costs or benefits to the United States as well as valuation gains or losses on the United States' reserve position in
the IMF.
2 The SDR is an international reserve asset created by the IMF. The SDR is used as a unit of account by the IMF
and other international organizations. Its value is determined as a weighted average of a basket of currencies -- the
dollar, euro, pound sterling and yen. The SDR carries a market-based interest rate determined on the basis of a
weighted average of interest rates on short-term instruments in the markets of the currencies included in the SDR
valuation basket.
3 Data for the second quarter of fiscal year 2005 have been revised. The resultant increase in net interest income is
$3 million.
The table footnotes explain the columns shown and provide pertinent information and
assumptions used in the calculations.
As shown in Table 1, for the fourth quarter of fiscal year 2005 and the first to fourth quarters of
fiscal year 2006, the financial implications of U.S. participation in the General Department
reflected a net interest income effect of negative $105 million. The valuation change in the U. S.
Reserve Position for the fourth quarter of fiscal year 2005 and the first to fourth quarters of fiscal
4
year 2006 was $32 million.
As shown in Table 2, for the fourth quarter of fiscal year 2005 and the first to fourth quarters of
fiscal year 2006, the net interest income effect of U.S. participation in the SDR Department was
negative $1 million. The valuation change on U.S. SDR holdings for the fourth quarter of fiscal
year 2005 and the first to fourth quarters of fiscal year 2006 was $5 million. s
Attachments
For an explanation of the methodology used in deriving these figures, see the section on "Calculating the Financial
Implications of U.S. Participation in the General Department" in the report prepared for the fourth quarter of fiscal
year 2000, submitted in December 2000 and available at http://www.treas.gov/press/releases/report3073.htm
5 For an explanation of the methodology used in deriving these figures, see the section on "Calculating the Financial
Implications of U.S. Participation in the SDR Department" in the report prepared for the fourth quarter of fiscal year
2000, submitted in December 2000 and available at http://www.treas.gov/press/releases/report3073.htm.
4
2
Net Interest Income and Valuation Changes Related to U.S. Participation in the IMF
Table 1
-- General Department --
u.s. Fiscal Year, Quarterly
(millions of U.S. Dollars)
Transactions under U.S.
Quota (Letter of Credit
& Transfers of Reserve
Fiscal Year Ended 9/30
Assets) Cumulative
U.S. Loans to IMF
(Under SFF, GAB,
NAB)
Cumulative
Total U.S.
Transactions with
thelMF/1
Interest Expense
Associated with
Financing U.S.
Transactions with
thelMF
Remuneration
Received by U.S. Interest Received by
U.S. from IMF
from IMF&
under SFF, GAB,
Refund of Burden
Sharing
and NAB
2003
QI: Oct - Dec 02
Q2: Jan - Mar 03
Q3: Apr - June 03
Q4: July - Sept 03
-$18,152
-18.826
-18,737
-19.136
Col. 2
SO
0
0
0
Col.3
-SI8.152
-18,826
-18,737
-19.136
Total
2004
QI: Oct - Dec 03
-$16,702
SO
-$16.702
Q2: Jan - Mar 04
Q3: Apr -June 04
Q4: July -Sept 04
-15.886
-14,530
-13,867
0
0
-15.886
-14,530
0
-13,867
Total
Col. 4
Valuation Changes
on U.S. Reserve
Position
Col.6
Col.5
Col. 7
Total
Total
(Col 7+8)
Col. 9
Col. 8
-$79
$97
$0
$18
5580
S598
-72
-67
91
0
19
15
234
439
253
454
13
$65
469
$1,722
482
$1,787
5903
-78
-220
$916
-57
50
S698
SI,035
-405
-65
82
78
-$283
$348
0
0
$0
-565
-58
$7&
SO
$13
79
-60
-67
69
74
0
0
0
21
9
7
-S249
S300
SO
$50
43
$648
$82
$88
$0
$9
$1,026
$0
$0
$35
$12
-440
-565
$0
$0
$24
$79
-75
-$54
$25
-159
-130
69
179
205
2005
Ql: Oct - Dec 04
-$12.882
$0
-$12,882
-$73
Q2: Jan - Mar 05
Q3: Apr -June 05
-9.119
-9,677
0
0
-9.119
-9.677
-$53
-$59
Q4: July -Sept 05
-7,772
0
-7,772
-$51
-$237
Total
Net Interest
Income
(Col. 4+5+6)
(Col 1+2)
Col.I
Valuation
Interest Calculations
Transactions with the IMF
$71
$75
S316
-211
-553
-51
2006
Q I: Oct - Dec 05
-2,660
0
-2,660
-$41
$69
$0
Q2: Jan - Mar 06
-1,947
0
0
S58
$40
$29
$41
-2,296
-$18
-$14
$0
Q3: Apr -June 06
-1,947
-2,296
SO
$26
Q4: July -Sept 06
-1,023
0
-1,023
-512
$42
$0
$30
18
48
-$85
$210
SO
S125
$107
$232
Total
Note: Detail may not add to total due 10 rOllnding.
110
Table 2
Net Interest and Valuation Changes Related to U.S. Participation in the IMF
-- SDR Department --
u.s. Fiscal Year, Quarterly
(millions of U.S. Dollars)
Fiscal Year Ended
9/30
Dollar Value of
SDR Holdings
Dollar Value of
Cumulative SDR
Allocation
Net SDR Holdings
(Col. I - 2)
Col.l
Valuation
Interest Calculations
Net SDR Holdings
Col. 2
Col. 3
Interest Expense
Associated with
Financing
Interest Income
Cumulative U.S.
on Net SDR
SDR Transactions
Holdings
Col. 4
Col.S
Net Interest
Income
(Col. 4+ 5)
Valuation
Changes
Col. 6
Col. 7
Total
Total
(CoL 6 + 7)
Col. 8
2003
Oct - Dec 02
Jan - Mar 03
Apr - June 03
July - Sept 03
$12,166
11,392
11,720
12,062
$6,661
6,731
6,864
7,005
$5,505
4,662
4,857
5,057
$30
27
21
20
$97
-$21
-16
-15
-16
-$68
$9
11
6
4
$29
$146
58
92
100
$396
$154
69
97
104
$425
2004
QI: Oct - Dec 03
Q2: Jan - Mar 04
Q3: Apr - June 04
Q4: July - Sept 04
Total
$12,638
12,645
12,659
12,782
$7,281
7,228
7,184
7,197
$5,357
5,417
5,475
5,585
$20
21
21
24
$87
-$17
-17
-20
-25
-$79
$3
5
-1
$8
$199
-39
-33
10
$137
$202
-34
-32
10
$145
2005
Q I : Oct - Dec 04
Q2: Jan - Mar 05
Q3: Apr - June 05
Q4: July - Sept 05
Total
$13,628
11,565
11,243
8,245
$7,609
7,402
7,137
7,102
$6,019
4,162
4,106
1,143
$29
33
26
26
$1l4
-$34
-29
-32
-10
-$106
-$5
3
-6
16
$8
$319
-163
-149
-20
-$14
$315
-160
-155
-4
-$5
2006
Q I : Oct - Dec 05
Q2: Jan - Mar 06
Q3: Apr - June 06
Q4: July - Sept 06
Total
$8,210
$8,344
$8,618
$8,655
$7,003
$7,059
$7,248
$7,234
$1,207
$1,284
$1,369
$1,421
$11
$9
$11
$13
$44
-$12
-$15
-$17
-$18
-$62
-$1
-$5
-$6
-$5
-$17
-$16
$10
$34
-$3
$25
-$17
$5
$29
-$8
$8
Q I:
Q2:
Q3:
Q4:
Total
Notl!. Detail may 110{ add 10 10lal due 10 roul/ding
TABLE 1
Footnotes to Columns
Column 1: Total cumulative transactions under the U.S. Quota, including drawings by the IMF under the Letter of Credit (75% portion of the U.S.
quota) and the transfers ofreserve assets to the IMF (generally 25% of the U.S. quota). This does not include cumulative valuation changes.
Column 2: Total cumulative dollar funding through loans to the IMF made by the U.S. under the Supplementary Financing Facility (SFF, in
1980), the General Arrangements to Borrow (GAB, in FY1998) and the New Arrangements to Borrow (NAB, in FY1999). All U.S. loans under
the three facilities/arrangements have been repaid.
Column 3: Total cumulative U.S. transactions with the IMF (horizontal summation of columns 1 and 2).
Column 4: Total interest associated with total cumulative transactions shown in column 3. This includes interest paid on additional public
borrowing to fund day-to-day transactions under the Letter of Credit and occasional transfers under loan arrangements (SFF, GAB, NAB), as well
as interest income forgone due to the transfer of reserve assets to the IMF at the time of a quota increase. In order to provide resources under the
Letter of Credit or under loan arrangements, the Treasury borrows from the public via additional issuance in the Treasury market; average cost of
funds is used as a proxy for calculating the associated interest cost. This portion of the total interest paid enters the U.S. budget as interest on the
public debt. For purposes of calculating forgone interest on the transfer of reserve assets to the IMF, the SDR interest rate is used.
Column 5: The U.S. earns interest on the non-gold portion of its reserve position in the IMF. This interest is called remuneration and, in
combination with an adjustment by the IMF related to burden-sharing, is paid by the IMF every quarter. If remuneration is paid in SDRs, it is paid
to the Exchange Stabilization Fund (ESF) and the ESF transfers the dollar equivalent to the Treasury General Fund. It is recorded in the budget as
an offsetting receipt from the public. If the United States took payment in dollars (which it does not now do), the payment would be in the form of
a decrease in the U.S. Letter of Credit and a counterpart increase in the U.S. reserve position.
Column 6: These amounts constitute the interest payments the United States has received on its loans to the IMF under the SFF, GAB, and NAB.
Column 7: Total net interest paid, forgone or received as a result of U.S. participation in the General Department of the IMF.
Column 8: The U.S. reserve position in the IMF is denominated in SDRs. The valuation gain (if positive) or loss (if negative) refers to the
exchange rate gain or loss on the reserve position due to changes in the dollar value of the SDR. For example, if the SDR appreciates/dollar
depreciates, then the dollar value of the reserve position rises and a valuation gain is recorded. This column would also include valuation gains or
losses experienced as a result of U.S. loans under the SFF, GAB and NAB.
Column 9: The total of net interest and valuation changes, obtained by summing column 7 and column 8.
TABLE 2
Footnotes to Columns
Column 1: Total stock of U.S. holdings of SDRs measured at the end of period, converted into dollars at the end of period exchange rate. Source:
IMF.
Column 2: Total stock of U.S. SDR allocations measured at the end of period, converted into dollars at the end of period exchange rate. Since
U.S. SDR allocations have been constant since 1981, changes in dollar value ofSDR allocations reflect only exchange rate changes. Source: IMF.
Column 3: Total stock of U.S. SDR holdings minus allocations measured from end of period (Column 2 minus Column 3), converted into dollars
at the end of period exchange rate.
Column 4: Net interest earned on SDR holdings. Derived by subtracting actual charges on SDR allocations from actual interest earned on SDR
holdings.
Column 5: Net effect on U.S. borrowing costs of cumulative net SDR holdings, derived by mUltiplying the dollar equivalent of cumulative net
SDR holdings by the average cost of funds rate. Interest is calculated on the basis of end-quarter holdings and compounded quarterly.
Column 6: Net interest income (Column 5 plus Column 6).
Column 7: The valuation change refers to the gain or loss over the period on the reserve position due to changes in the dollar value of the SDR.
For example, if the SDR appreciates/dollar depreciates, then the impact on the dollar value of U.S. holdings ofSDRs is positive, and a valuation
gain is recorded. The change is calculated by subtracting the beginning of period dollar value of SDR reserves from the same SDR reserve figure
converted to dollars using the end of period exchange rate. This isolates changes due to exchange rate movements from changes due to actual SDR
transactions over the period.
Column 8: The total net interest and valuation changes (sum of Columns 7 and 8).
Page 1 of 1
January 3, 2007
HP-214
President's Proposal to Balance the Budget by 2012
"Over the past few years, pro-growth economic policies have generated higher
revenues. Together with spending restraint, these policies allowed us to meet our
goal of cutting the budget deficit in half three years ahead of schedule We did so
without taxing the working people. We kept taxes low."
- President Bush, January 3, 2007
"The President's tax cuts have laid the foundation for sustained economic growth
and job creation. A strong economy means higher revenues to the Treasury. If we
can keep our economy growing by continuing with economic policies that keep
taxes low and drive job creation and productivity, while restraining spending, we
can achieve a balanced budget by 2012."
-- Treasury Secretary Henry M. Paulson, January 3, 2007
Americans are keeping more of their hard-earned money because of the
President's tax cuts.
(*Figures are since June of 2001 and include the Economic Growth and Tax Relief
Act of 2001, the Job Creation and Worker Assistance Act of 2002, and the Jobs and
Growth Tax Relief Act of 2003.)
•
•
•
Americans kept $1.1 trillion by the end of 2006.
Americans will keep $2.4 trillion over the next ten years (with permanent tax
relief).
Americans will keep $3.5 trillion total through 2016 (if permanently
extended).
The President's tax relief boosted economic growth which has generated
higher and higher revenues for the federal coffers.
•
•
•
Tax receipts were up 11.8 percent in FY06 on top of FY05's 14.6 percent
increase.
So far this fiscal year, receipts have grown another 8.8 percent compared to
the same period last year.
Since FY03, when the President signed the most recent tax cuts into law,
revenues have increased 35 percent.
-30-
http://www.trcro.gov/preBs!r~l~hp214.htm
2/2/2007
Page 1 of 1
January 4, 2007
HP-215
Hoyt to Be Sworn Into Office with Treasury Ceremony
Washington, DC--Treasury Secretary Henry M. Paulson will swear in the
Department's General Counsel Bob Hoyt at a ceremony in Treasury's Cash Room
on Friday, January 5 at 4:00p.m.
Treasury's General Counsel serves as the chief law officer of the Department of the
Treasury and a senior policy advisor to the Secretary. In addition, he is responsible
for the supervision of approximately 2,000 lawyers within the Department's legal
division.
Media without Treasury press credentials should contact Brittni Aldridge at (202)
622-2960, or BrlttrliAlcJrlcJge@do Iredo; gov with the following information: full name,
Social Security number, and date of birth.
Who
Secretary Henry M. Paulson
Deputy Secretary Robert M. Kimmitt
General Counsel Robert F. Hoyt
What
Swearing In Ceremony
When
Friday, January 5
4:00 p.m. EST
Where
Department of the Treasury
Cash Room
1500 Pennsylvania Ave., NW
Washington, DC
http://www.trea&.g()v/pr0&Sfr>:1~flit~~/hp215.htm
2/2/2007
Page 1 0[2
January 4, 2007
HP-216
Three Entities Targeted by Treasury for Supporting Syria's WMD Proliferation
The U.S. Department of the Treasury today designated three Syrian entities, the
Higher Institute of Applied Science and Technology (HIAST), the Electronics
Institute, and the National Standards and Calibration Laboratory (NSCL), pursuant
to Executive Order 13382, an authority aimed at freezing the assets of proliferators
of weapons of mass destruction (WMD) and their supporters.
"Syria is using official government organizations to develop nonconventional
weapons and the missiles to deliver them," said Stuart Levey, Treasury's Under
Secretary for Terrorism and Financial Intelligence (TFI). "We will continue to take
action to prevent such state-sponsored WMD proliferators from using the
international financial system."
All three entities meet the criteria for designation under E.O. 13382 because they
are subordinates of the Scientific Studies and Research Center (SSRC), which was
designated by President George W Bush in the Annex to E.O. 13382 issued on
June 29, 2005. SSRC is the Syrian government agency responsible for developing
and producing non-conventional weapons and the missiles to deliver them. SSRC
also has an overtly promoted civilian research function; however, its activities focus
substantively on the development of biological and chemical weapons.
Syria's Electronics Institute is responsible for missile-related research and
development, and HIAST is a Syrian educational institution which provides training
to SSRC engineers. The U.S. Commerce Department's Bureau of Industry and
Security in March 2005 added SSRC, HIAST, and NSCL to the Entity List, a public
list of entities whose activities pose a risk of diverting exported and reexported
items into programs related to weapons of mass destruction, among other sensitive
activities. The Entities List also includes entities for which U.S foreign policy goals
are served by imposing additional license requirements on exports and reexports to
those entities.
Additionally, Japan has identified the SSRC, HIAST, and NSCL as entities of
proliferation concern. NSCL has also been identified by South Korea as an entity of
proliferation concern.
Designations under E.O. 13382 prohibit all transactions between the designees and
any U.S. person and freeze any assets of the designees that are in the United
States or in the possession or control of U.S. persons.
Background on E.O. 13382
Today's action builds on President Bush's issuance of E.O. 13382 on June 29,
2005. Recognizing the need for additional tools to combat the proliferation of
WMD, the President signed the E.O. authorizing the imposition of strong financial
sanctions against not only WMD proliferators, but also entities and individuals
providing support or services to them.
In the Annex to E.O. 13382, the President identified eight entitles operating in North
Korea, Iran, and Syria for their support of WMD proliferation. E.O. 13382
authorizes the Secretary of the Treasury, in consultation with the Secretary of State,
the Attorney General, and other relevant agencies, to designate additional entities
and individuals providing support or services to the entities identified in the Annex
to the Order.
http://www.trea&.g-ov/press/releas.e.s/hp216.htm
2/2/2007
Page 2 of2
In addition to the entities identified in the annex of E.O. 13382, the Treasury
Department has designated twenty-one entities and one individual as proliferators
of WMD, specifically
•
•
•
Eight North Korean entities on October 21, 2005;
Two Iranian entities on January 4, 2006;
One Swiss individual and one Swiss entity tied to North Korean proliferation
activity on March 30, 2006;
• Four Chinese entities and one U.S entity tied to Iranian proliferation activity
on June 8, 2006;
• Two Iranian entities on July 18, 2006; and
• Three Syrian entities on January 4,2007.
The designation announced today is part of the ongoing interagency effort by the
United States Government to combat WMD trafficking by blocking the property of
entities and individuals that engage in proliferation activities and their support
networks.
http://www.treas.gov/pres~rdeasesihp216.htm
2/2/2007
Page 1 ot 1
January 4, 2007
hp-217
Secretary Paulson on Nightly Business Report
Treasury Secretary Henry M Paulson discussed balancing the budget, entitlement
reform, and capital markets issues in an interview with Nightly Business Report on
January 4.
REPORTS
•
Transcript of Secretary Paulson's Interview
http://www.treas.gov1press.!releases/hp217.htm
2/2/2007
Nightly b',lsmess Report . Tr~(lSllry Secretary Henry Paulson Talks About How He Plans To Work With ... Page 1 of 2
Transcripts
Treasury Secretary Henry Paulson Talks About How He Plans To Work With The Democrats
Thursday, January 04,2007
PAUL KANGAS: As the Democrats take control of the House, Treasury Secretary Henry Paulson is hoping members of Congress will embrace
President Bush's soon to be released new budget. That plan is expected to call for extending tax cuts and increasing defense spending, while
holding the line on other programs. In an exclusive interview, Washington bureau chief Darren Gersh talked with Paulson this afternoon and
began by asking how he plans to sell that budget to the Democrats.
HENRY PAULSON, TREASURY SECRETARY: I think it's going to be an easy budget to sell to the American people, and hopefully to -- to sell to
members of the Congress. Because it's a -- it shows real progress with regard to the deficit. You know, we're two years -- three years ahead of
schedule to cut the deficit in half. And the budget shows steady progress in balancing in 2012. And the key is -- is a strong and growing economy
and tax revenues that are coming in at a very fast pace.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Now the president has for years said his goal was to cut the budget
deficit in half. And the administration has argued that the budget deficit at current levels was really not much of a factor in the economy. So why
is it that the president was OK with the budget deficit when the Republicans were in control, but now Democrats are in charge and he wants to
balance the budget.
PAULSON: This is a natural extension of where we have been going. And nothing has changed in terms of the fiscal situation in the last four or
five months. It's a strong fiscal situation. We've got a budget deficit that's less than two percent of GOP. And it is -- and given the fact that
revenues are coming in and the economy is strong, it looks like we're going to be able to balance.
GERSH: You came to Washington in part, in large part, because you wanted to work on entitlement reform. And lately I've been hearing
Democrats and Republicans talk about back in the mid '80s when Ronald Reagan, Tip O'Neill, the Democratic speaker got together and they
shored up Social Security. Would the administration accept a deal on Social Security that shored it up financially, that ensured solvency, but
didn't reform the system, didn't add the private accounts the president wants.
PAULSON: Let me be real clear here. As we've talked, and as I've talked to members of Congress, there is a real understanding on both sides
of the aisle -- Democrats and Republicans that this is a serious problem. And there is a real understanding that it can be fixed. But it's going to
be very difficult, because the impediments are political. And so no one says it's going to be easy. And so we're at the stage right now where I'm
not dealing in hypotheticals. What I'm doing is I'm reaching out and I'm getting some receptivity and saying let's come in and let's discuss this
topic and let's not have any preconditions. You know how strongly that we feel about personal accounts. We're not going to take those off the
table. We're not going to ask you to take things off the table that you may want to put on the table. So everybody will come in with their ideas and
we will talk.
GERSH: Let me ask you about CEO compensation. I understand that the Senate Finance Committee is looking at the tax treatment of these
huge stock-option grants that fired CEOs like Bob Nardelli at Home Depot are getting. Do you think it's a good idea to take a look at the tax
treatment that stock options get and might that have an impact on executive compensation?
PAULSON: Well, I'm very willing to talk with either the Senate Finance Committee or the House Ways & Means about tax treatments and tax
generally. I don't believe, you know, radical or dramatic tax reform is the answer to CEO compensation.
GERSH: Do you think these -- the tax treatment of stock options, because they are favored, they're tax favored, has encouraged -PAULSON: We could have quite a discussion about whether it's tax favored or not. Because the -- the CEOs don't pay taxes on stock options
until they are realized, OK. And many stock options expire worthless. You know, they are only worth something if the stock price goes up. But
again, the -- I don't believe the issue of CEO compensation and any excesses there, I don't think that's a -- it's a tax matter. I think that is another
http://www.pbs.org/nbr/sitdonnirftmnscripts/070 104cl
3/912007
Nightly btlSiness
Report. Treasury Secretary Henry Paulson Talks About How He Plans To Work With ... Page 2 of2
matter and that is between shareholders, boards of directors and the CEOs.
GERSH: You also chair the president's working group on financial markets.
PAULSON: Right.
GERSH: And there is a lot of money flowing into private equity right now. And I hear some concerns that there is a lot of debt being built up
because of the private equity boom. And some people are worried that when you have a lot of debt, things could end badly. Is that an issue that
you are looking at?
PAULSON: I would say that the president's working group is looking at a number of topics. And we're very carefully following changes in the
capital markets. And one of the changes in the last four or five years has been a pretty dramatic increase in private pools of capital. And these
would be private equity funds, hedge funds and I believe by and large that private pools of capital have made our capital markets more efficient,
more effective and they have been good for the capital markets. But there have been significant changes and you know, I think it bears looking
at pretty carefully. And so we're taking a careful look at it.
GERSH: Secretary Paulson, thank you for your time.
PAULSON: Thank you.
Privacy
Policy
S
I Terms I Feedback I rilBi - pRSd
&
o casts
http;//www.p!rr.()rg/nbr/3ite/enniritranscripts/070 104cl
© 2007 Community Television Foundation of South
Florida Inc.
3/9/2007
Page 1 of2
January 8, 2007
2007 -1-8-16-57 -59-9012
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 $65,954 million as of the end of that week, compared to $65,980 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
I
I
I
December 15, 2006
TOTAL
65,980
1. Foreign Currency Reserves 1
Euro
a. Securities
I
12,408
I
Yen
TOTAL
10,784
65,954
I
I
I
Euro
II
23,192
lror=:=hich, issuer headquartered in the US.
December 22, 2006
12,435
0
Yen
10,699
I
I
I
TOTAL
I
I
I
17,598
23,134
0
b. Total deposits with:
Ib.i. Other central banks and BIS
I
12,348
I
I
5,255
b.ii. Banks headquartered in the US.
17,603
I
I
I
I
12,390
0
5,208
0
0
b.ii. Of which, banks located abroad
0
b.ili. Banks headquartered outside the US.
0
b.iii. Of which, banks located in the U.S.
0
0
2. IMF Reserve Position 2
5,289
5,302
3. Special Drawing Rights (SDRs) 2
8,855
8,878
11,041
11,041
I
4. Gold Stock 3
I
15. Other Reserve Assets
I
I
II
0
I
I
0
I
II
TOTAL
II
0
I
I
I
I
0
I
I
I
I
II. Predetermined Short-Term Drains on Foreign Currency Assets
I
December 15, 2006
Yen
Euro
1. Foreign currency loans and securities
l
I
I
TOTAL
0
I
I
December 22, 2006
Euro
Yen
II
I
Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
!a. Short positions
I
I
II
2.b. Long positions
13. Other
0
0
0
0
I
I
0
I
I
I
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
December 22, 2006
December 15, 2006
Euro
r
I
http://www.treas.gov/pressfreleases/2007181657599C
Yen
TOTAL
Euro
Yen
I
II
II
TOTAL
I
I
2/2/2007
Page 2 of2
11. Contingent liabilities in foreign currency
I
1.a. Collateral guarantees on debt due within 1
year
0
"I
II
1.b. Other contingent liabilities
II
I
12. Foreign currency securities with embedded
lopticlns
II
I
3. Undrawn, unconditional credit lines
0
"
0
I
I
II
II
11
I
I
0
I
I
0
0
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
IHeadquartered outside the U. S
I
4. Aggregate short and long positions of options
in foreign
I
I
Currencies vis-a-vis the U.S. dollar
4.a. Short positions
1
4.a.1. Bought puts
14.a.2. Written calls
0
0
I
I
1
I
1
I
I
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
I
I
I
II
1
"
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 entnes 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.
http://www,treas.gov/pressfreleaseSL20071816575990
2/212007
Page 1 of2
January 8. 2007
2007 -1-8-17 -5-0-9109
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 $66.053 million as of the end of that week. compared to $65.954 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
I
December 22, 2006
December 29, 2006
I
65,954
66,053
I
TOTAL
1. Foreign Currency Reserves 1
a. Securities
Euro
Yen
12,435
10,699
I
I
I
Of which, issuer headquartered in the US.
TOTAL
Euro
Yen
TOTAL
I
23,134
12,498
10,683
23.181
I
0
I
17,663
I
II
"II
0
"
b. Total deposits with:
Ib.i. Other central banks and BIS
I
5,208
12.390
12,460
17,598
I
"
II
5.203
b.ii. Banks headquartered in the US.
0
b.ii. Of which. banks located abroad
n
b.iii. Banks headquartered outside the US.
0
0
0
0
Ib.iii. Of which. banks located in the U.S.
I
0
"
5,302
2. IMF Reserve Position 2
I
13. Special Drawing Rights (SDRs) 2
4. Gold Stock 3
15. Other Reserve Assets
I
5.297
8,878
8.870
11,041
11,041
I
I
0
0
II
0
I
II. Predetermined Short-Term Drains on Foreign Currency Assets
December 22, 2006
I
I
I
Yen
I
I
I
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
12.a. Short positions
I
TOTAL
I
0
I
"II
0
I
I
0
I
0
II
0
II
1. Foreign currency loans and securities
Euro
TOTAL
Yen
Euro
December 29, 2006
I
0
I
I
2.b. Long positions
0
3. Other
0
II
II
"I
I
III. Contingent Short-Term Net Drains on Foreign Currency Assets
lI
I
I
Euro
"
http://www,treas.gov/pressfreleasesI20071817509109
December 22,2006
II
Yen
II
TOTAL
December 29,2006
Euro
"Yen
TOTAL
""
2/2/2007
Page 2 of2
\1. Contingent liabilities in foreign currency
II
1.a. Collateral guarantees on debt due within 1
year
II
II
I
I
1.b. Other contingent liabilities
II
II
II
II
II
I
II
II
II
12. Foreign currency securities with embedded
lIoptions
13.b. With banks and other financial institutions
I
0
I
I
II
0
3. Undrawn, unconditional credit lines
13.a. With other central banks
0
11
0
1\
I
0
I
0
I
I
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
0
0
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
14.b.2. Written puts
II
II
I
I
I
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
21 The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official 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.
http://www,treas.gov/pressfreleases/20071817509109
2/2/2007
Page 10f2
January 8, 2007
2007 -1-8-17 -16-24-9241
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 $65,688 million as of the end of that week, compared to $66,053 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
December 29, 2006
January 5, 2007
66,053
65,688
TOTAL
'1. Foreign Currency Reserves 1
a. Securities
Euro
Yen
TOTAL
Euro
Yen
TOTAL
12,498
10,683
23,181
12,322
10,703
23,025
Of which, issuer headquartered in the US.
I
0
I
I
I
I . 12,287
I
0
tal deposits with:
b.i. Other central banks and BIS
I
12,460
I
5,203
17,663
5,214
I
17,501
b.ii. Banks headquartered in the US.
0
0
b.ii. Of which, banks located abroad
0
0
0
0
I
Ib.iii. Banks headquartered outside the US.
I
b.iii. Of which, banks located in the U.S.
12. IMF Reserve Position
2
13. Special Drawing Rights (SDRs)
I
II
II
II
2
14. Gold Stock 3
5,297
"
I
0
I
0
5,280
"
8,870
8,841
11,041
11,041
0
15. Other Reserve Assets
I
I
0
"
II. Predetermined Short-Term Drains on Foreign Currency Assets
January 5, 2007
December 29, 2006
I
I
Yen
Euro
I
I
I
TOTAL
0
"I
Euro
I
Yen
I
I
0
"I
2.b. Long positions
0
I
3. Other
"
I
I
II
II
II
I
0
II
"
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
"
" 0
"
2.a. Short positions
1. Foreign currency loans and securities
TOTAL
"
I
0
I
I
I
I
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
[
December 29, 2006
I
Euro
http://www.treas.gov/pressfreleases/2007181 7162492
Yen
TOTAL
I
January 5, 2007
Euro
Yen
I
I
TOTAL
I
I
I
2/2/2007
Page 2 of2
1. Contingent liabilities in foreign currency
I
0
0
1.a. Collateral guarantees on debt due within 1
Iyear
2. Foreign currency securities with embedded
options
0
3. Undrawn, unconditional credit lines
0
3.a. With other central banks
3.b. With banks and other financial institutions
I
I
II
II
I
IHeadquartered in the U. S.
3.c. With banks and other financial institutions
IHeadquartered outside the U. S.
4. Aggregate short and long positions of options
in foreign
Currencies vis-a-vis the U.S. dollar
"I
I
II"
II
I
"
I
0
0
I
I
I
I
I
I
I
I
4.a. Short positions
I
I
I
0
0
"
4.a.1. Bought puts
4.a.2. Written calls
I
I
1.b. Other contingent liabilities
I
I
14.b. Long positions
"
4.b.1. Bought calls
I
4.b.2. Written puts
I
II
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)." are based on data provided by the IMF and are
valued in dollar terms at the official SDR/doliar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://www.treas.gov/pressfreleases/20071817162492
2/212007
Page 1 of 1
January 8, 2007
HP-218
Under Secretary Levey to Hold a Press Conference on Iran
Under Secretary for Terrorism and Financial Intelligence Stuart Levey will make an
announcement on Iran during a Tuesday morning press conference at the Treasury
Department.
The following event is open to credentialed media:
Who
Stuart Levey, Under Secretary for Terrorism and Financial Intelligence
What
Press Conference on Iran
When
Tuesday, January 9, 2007 at 11 :00 a.m. EST
Where
U.S. Department of the Treasury
Media Room - 4121
1500 Pennsylvania Ave., NW
Washington, DC
Note *Media without Treasury press credentials must contact Anita Hunt at
(202) 622-2920 or anita.hunt@do.treas.gov with the following information for
clearance into the building: full name, Social Security number and date of
birth.
~ttP://www.treas.gov!press!releases/bp218.htm
2/2/2007
Page 1 of2
January 9, 2007
HP-219
Iran's Bank Sepah Designated by Treasury
Sepah Facilitating Iran's Weapons Program
The Department of the Treasury today designated Bank Sepah, a state-owned
Iranian financial institution for providing support and services to designated Iranian
proliferation firms. Bank Sepah International Pic, a wholly-owned subsidiary of Bank
Sepah in the United Kingdom, and Ahmad Derakhshandeh, Bank Sepah's
Chairman and Director, were also designated today.
"Bank Sepah is the financial linchpin of Iran's missile procurement network and has
actively assisted Iran's pursuit of missiles capable of carrying weapons of mass
destruction," said Stuart Levey, Treasury's Under Secretary for Terrorism and
Financial Intelligence (TFI). "Our action today gives effect to the United Nation's call
on all nations to deny financial assistance to Iran's nuclear and missile programs,
and we urge other countries likewise to fulfill this serious Obligation."
Treasury's Office of Foreign Assets Control (OFAC) took this action pursuant to
Executive Order 13382, an authority aimed at freezing the assets of proliferators of
weapons of mass destruction (WMD) and their supporters and isolating them
financially. Designations under E.O. 13382 prohibit all transactions between the
designees and any U.S. person and freeze any assets the designees may have
under U.S. Jurisdiction
Additionally, the United Nation Security Council unanimously passed Resolution
1737 on December 23, 2006, requiring governments worldwide to take steps to
combat Iran's illicit conduct, including freeZing the assets of named entities and
individuals associated with Iran's nuclear and missile programs, as well as the
assets of entities owned or controlled by them. The resolution also requires states
to prevent the provision to Iran of any financial assistance, or the transfer of any
financial resources or services, related to the supply, sale, transfer, manufacture, or
use of prohibited items associated with Iran's nuclear and missile programs.
Bank Sepah provides financial support and services to Iran's Aerospace Industries
Organization (AIO), Shahid Hemmat Industries Group (SHIG), and the Shahid
Bakeri Industries Group (SBIG), which were designated by President George W.
Bush on June 29, 2005, in the Annex to E.O. 13382.
AIO, a subsidiary of the Iranian Ministry of Defense and Armed Forces Logistics,
oversees all of Iran's missile industries and is the overall manager and coordinator
of Iran's missile program.
Bank Sepah IS AIO's bank of choice, and since at least 2000, Sepah has provided a
variety of critical financial services to Iran's missile industry, arranging financing and
processing dozens of multi-million dollar transactions for AIO and its subordinates,
including SBIG and SHIG.
Through its role as a financial conduit, Bank Sepah has facilitated Iran's
international purchases of sensitive material for its missile program. In 2005, Bank
Sepah financed a Chinese firm's sale of missile related items to Iran. Also in that
year, AIO directed Sepah to transfer well over half of a million dollars to a North
Korean firm associated with Komid, a North Korean entity designated for providing
Iran with missile technology.
http://www.treas.gov/pressfreleasesljf>/hp219.htm
2/212007
Page 2 of2
SHIG is responsible for Iran's ballistic missile program, most notably the Shahab
series of medium range ballistic missiles based on the North Korean-designed No
Dong missile. The Shahab is believed to be capable of carrying unconventional
warheads and has a range of at least 1500 kilometers. SHIG has received help
from China and North Korea in the development of this missile.
SBIG, an affiliate of Iran's AIO, is also involved in Iran's missile program. Among
the weapons SBIG produces is the Fateh-110 missile, with a range of 200
kilometers, and the Fajr rocket systems, a series of North Korean-designed rockets
produced under license by SBIG with ranges of between 40 and 100 kilometers
Both systems are capable of being armed with at least chemical warheads.
Bank Sepah is the fifth largest Iranian state-owned bank with more than 290
domestic branches and a presence in Rome, Paris, Frankfurt, and a wholly-owned
subsidiary in London. According to the Banker's Almanac, Bank Sepah's total
branch assets were USD 13.9 billion as of early 2005.
Background on E.O. 13382
Today's action builds on President Bush's issuance of E.O. 13382 on June 29,
2005. Recognizing the need for additional tools to combat the proliferation of WMD,
the President signed the E.O. authorizing the imposition of strong financial
sanctions against not only WMD proliferators, but also entities and individuals
providing support or services to them.
In the Annex to E. O. 13382, the President identified eight entities operating in North
Korea, Iran, and Syria for their support of WMD proliferation. E.O. 13382 authorizes
the Secretary of the Treasury, in consultation with the Secretary of State, the
Attorney General, and other relevant agencies, to designate additional entities and
individuals providing support or services to the entities identified in the Annex to the
Order.
In addition to the entities identified in the annex of E.O. 13382, the Treasury
Department has designated 23 entities and two individuals as proliferators of WMD,
specifically:
•
•
•
•
•
•
•
Eight North Korean entities on October 21,2005;
Two Iranian entities on January 4, 2006;
One Swiss individual and one Swiss entity tied to North Korean proliferation
activity on March 30, 2006; and
Four Chinese entities and one U.S. entity tied to Iranian proliferation activity
on June 8, 2006.
Two Iranian entities on July 18.2006;
Three Syrian entities on January 4, 2007; and
One Iranian entity, one UK entity, and one individual tied to Iranian
proliferation activity on January 9, 2007.
http://www.treas.gov/pressfreleases/bp219.htm
2/212007
Page 10f2
January 9, 2007
HP-220
Prepared Remarks of Stuart Levey
Under Secretary for Terrorism and
Financial Intelligence
On the Designation of Bank Sepah for
Facilitating Iran's Weapons Program
The world is by now well aware of Iran's defiance of the international community in
pursuing its nuclear program and its sponsorship of terrorist organizations that
maim and murder innocent civilians. What may be less well-known is that the
Government of Iran is facilitating its proliferation and terrorism activities through the
world's financial system, using its state-owned banks and an array of front
companies and other deceptive techniques specifically designed to evade the
controls of responsible financial institutions.
Over the past several months, we have been sharing information with our foreign
counterparts and key executives in the private sector about these deceptive
practices and discussing how best to safeguard the international financial system
against them.
As the evidence of Iran's deceptive financial practices has mounted, financial
institutions and other companies worldwide have begun to reevaluate their business
relationships with Iran. Many leading financial institutions have either scaled back
dramatically or even terminated their Iran-related business entirely. They have done
so of their own accord, many concluding that they did not wish to be the banker for
a regime that funds terrorism, defies the UN Security Council in pursuing a nuclear
program, and deliberately conceals the nature of its business.
We have taken a number of steps to combat Iran's abuse of the international
financial system In September, the Treasury took action against Iran's Bank
Saderat, which Iran used to move millions of dollars to terrorist organizations such
as Hizballah, HAMAS, and the Palestinian Islamic Jihad. Our action alerted the
world's financial community to Bank Saderat's role in funding terrorism and cut the
bank off from the U.S. financial system altogether.
On December 23, 2006, the UN Security Council unanimously passed Resolution
1737, requiring states to take a number of actions to deny Iran access to the
materials and services that support its nuclear and ballistic missile capabilities.
Under the resolution, all governments are obligated to take a number of steps to
combat Iran's proliferation activities. Among other things, the resolution requires
states to deny Iran any financial assistance, or the transfer of any financial
resources or services, related to the supply, sale, transfer, manufacture, or use of
prohibited items associated with Iran's nuclear and missile programs. It also
contains an annex listing entities and individuals responsible for these programs,
and requires states to freeze their assets and those of entities owned or controlled
by them.
In accord with these UN obligations, the Treasury today is designating Bank Sepah,
the fifth largest Iranian state-owned bank, as a supporter of WMD proliferation. In
particular, Sepah provides direct and extensive financial services to Iranian entities
responsible for developing missiles capable of carrying weapons of mass
destruction. The Treasury is taking this action under our authOrity aimed at
combating proliferation, Executive Order 13382.
http://www.treas.gov/pressfreleases/hp220.htm
2/212007
Page 2 of2
Bank Sepah has been a key provider of financial services to the Shahid Hemmat
Industries Group (SHIG) and the Shahid Bakeri Industries Group (SBIG), two
Iranian missile firms listed in the annex to the Resolution 1737 for their direct role in
advancing Iran's ballistic missile programs. Bank Sepah also provides financial
services to SHIG's and SBIG's parent entity, Iran's Aerospace Industries
Organization (AIO), which has been designated as a proliferator by the United
States for its role in overseeing all of Iran's missile industries. AIO's Director is listed
in the annex of Resolution 1737, thereby requiring states to freeze his assets as
well as the assets of entities under his ownership or control.
Since at least 2000, Bank Sepah has provided a variety of critical financial services
to Iran's missile industry, arranging financing and processing dozens of multi-million
dollar transactions for AIO and its subordinates.
The bank has also facilitated business between AIO and North Korea's chief
ballistic missile-related exporter, KOMID. Also previously designated by the
Treasury, KOMID is known to have provided Iran with missile technology. The
financial relationship between Iran and North Korea, as represented by the
business handled by Bank Sepah, is of great concern to the United States.
Finally, like certain other Iranian banks and entities, Bank Sepah has engaged in a
range of deceptive practices in an effort to avoid detection, including requesting that
other financial institutions take its name off of transactions when processing them in
the international financial system.
Our action today applies to all branches of Bank Sepah, including those in Paris,
Rome, and Frankfurt, its wholly-owned subsidiary in London, and the Bank's
chairman and director, as well as its more than 290 branches based in Iran.
The United States urges all governments to comply with their obligations under
Resolution 1737 by taking appropriate action against all entities involved in Iran's
nuclear or missile programs. The Treasury will continue to monitor and act against
any threats that Iran and other rogue actors pose to the international financial
system.
http://www.treas.gov/pressfreleases/hp220.htm
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January 10, 2007
HP-221
Treasury Secretary Paulson and MRS. Laura Bush Tour the Restoration
and Modernization of the Treasury Building
U.S Treasury Secretary Henry M. Paulson and Mrs. Laura Bush will mark the
restoration and modernization of the Treasury Building with a tour of the building
and a ceremonial ribbon cutting this week.
The Treasury Department completed a ten year, four-phase restoration and
modernization project in October of 2006, the first in almost 100 years. Many of the
most historic features of the building have been carefully restored and in some
cases presented in ways that have not been seen since the early 1870s, including
the decor of the Andrew Johnson Suite and the ceiling in the Salmon Chase Suite.
During the restoration project, the Department also was able to collect and
document architectural artifacts that span the 19th and 20th centuries. The project
also allowed the Department to update the systems, infrastructure, and safety
features of the building. For example, energy efficient lighting fixtures that replicate
the historic fixtures were installed. A public-private partnership with the Treasury
Historical Association resulted in the restoration of the decorative gilding on the
Cash Room ceiling and restoration of the West Dome.
Who
U. S. Treasury Secretary Henry M. Paulson
Mrs. Laura Bush
What
Building Tour and Ribbon Cutting
When
Thursday, January 11, 2007, 9: 10 a.m. EST
Where
Department of the Treasury
Cash Room
1500 Pennsylvania Ave., NW
Washington, DC
Note
Building tour is a pooled event
ribbon cutting is open to the press
press attending the ribbon cutting must arrive by 7:30 a.m.
REPORTS
•
Attached White House press schedule for credential information.
lttp:IIWWw.treas..gov/presslre]eases/hp221.htm
2/212007
THE WHITE HOUSE
OFFICE OF THE FIRST LADY
FOR IMMEDIATE RELEASE
January 9, 2007
PRESS SCHEDULE OF MRS. BUSH
FOR THURSDAY, JANUARY 11,2007
Thursday, January 11,2007
9:10 a.m.
MRS. BUSH participates in a Tour and Ribbon-cutting of the Restored
Treasury Building.
U.S. Department of Treasury
1500 Pennsylvania Ave., N.W.
Washington, D.C. 20220
Note: Remarks will take place in the Cash Room (2 nd Floor).
TOUR-POOL COVERAGE
REMARKS - OPEN PRESS
Final access for all print and electronic media is 7:30 a.m.
NOTE:
Those members of the press who do NOT have White House or Treasury press
credentials but would like to cover the event, you must fax your name (as it
appears on your driver's license), Social Security number and date of birth on
company letterhead to (202) 456-1523 no later than 5:00 p.m. on Wednesday,
January 10,2007. For additional credentialing or logistical questions, please
contact Dan Meyers at (440) 821-8830.
###
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January 10, 2007
HP-222
Treasury and IRS Issue Guidance on New Distribution
Provisions of the Pension Protection Act
Washington, DC- The Treasury Department and the IRS issued a notice today
providing extensive guidance on several Pension Protection Act rules relating to
distributions from tax-qualified retirement plans.
The guidance addresses many questions on PPA provisions, including:
•
•
•
•
•
•
•
interest rate assumptions for lump sum distributions
hardship distributions from a 401 (k) and similar plans
early distributions from qualified plans to terminated public safety
employees
rollovers from qualified plans to IRAs for non-spouse beneficiaries
distributions to pay for health insurance for retired public safety officers
earlier vesting of certain employer contributions
new rules for the notice and consent period for distributions
The notice also clarifies several issues concerning the provision permitting IRA
owners age 70 'h or older to directly transfer tax-free, up to $100,000 per year to an
eligible charity. For example, a check from an IRA made payable to an eligible
charity but delivered by the IRA holder still qualifies for tax-free treatment. IRAs
held on behalf of beneficiaries, as well as IRAs held by the original owners, are
eligible to use this provision. Additionally, the $100.000 annual limit applies
separately for each spouse of a married couple. If both spouses have IRAs and are
at least age 70 'h. the couple can transfer a combined total of $200.000.
REPORTS
http://www.treas.gov/pressfreleasesljf>/hp222.htm
2/212007
Part III. Administrative, Procedural, and Miscellaneous
Miscellaneous Pension Protection Act Changes
Notice 2007-7
I. PURPOSE
This notice provides guidance in the form of questions and answers with respect
to certain provisions of the Pension Protection Act of 2006, P.L. 109-280 ("PPA '06"),
that are effective in 2007 or earlier. The sections of PPA '06 addressed in this notice,
which are primarily related to distributions, are § 303 (relating to interest rate
assumptions for lump sum distributions), § 826 (relating to hardship distributions), § 828
(relating to early distributions to public safety employees), § 829 (relating to rollovers for
nonspouse beneficiaries), § 845 (relating to distributions to pay for accident or health
insurance for public safety officers), § 904 (relating to vesting of nonelective
contributions), § 1102 (relating to the notice and consent period for distributions), and
§ 1201 (relating to distributions from IRAs to charitable organizations).
II. SECTION 303 OF PPA '06
Section 415(b) of the Code provides limitations on annual benefits under a
defined benefit plan. Under § 415(b)(2)(8), if a benefit is payable in a form other than a
straight life annuity, the benefit is adjusted to an actuarially equivalent straight life
annuity for purposes of determining whether the limitations of § 415(b) have been
satisfied. Section 415(b)(2)(E) provides limitations on the actuarial assumptions that
can be used in making the adjustment under § 415(b )(2)(8). Prior to the enactment of
PPA '06, for purposes of adjusting a benefit payable in a form that is subject to the
minimum present value requirements of § 417(e)(3), § 415(b)(2)(E)(ii) provided that the
interest rate assumption must not be less than the greater of the applicable interest rate
as defined in § 417(e)(3) or the rate specified in the plan. However, § 101(b)(4) of the
Pension Funding Equity Act of 2004, P.L. 108-218, amended § 415(b)(2)(E)(ii) to
provide that, for plan years beginning in 2004 and 2005, 5.5% must be used in lieu of
the applicable interest rate (as defined in § 417(e)(3)) for purposes of adjusting the
benefit.
Section 303(a) of PPA '06 amended § 415(b )(2)(E)(ii) to provide that the interest
rate assumption for purposes of adjusting a benefit payable in a form that is subject to
the minimum present value requirements of § 417 (e )(3) must not be less than the
greatest of (i) 5.5%, (ii) the rate that provides a benefit of not more than 105% of the
benefit that would be provided if the applicable interest rate (as defined in § 417 (e )(3))
were the interest rate assumption, or (iii) the rate specified under the plan.
0-1. What is the effective date of the changes made to § 415 of the Code by
§ 303(a) of PPA '06?
A-1. The changes to § 415 of the Code made by § 303(a) of PPA '06 apply to
distributions made in plan years beginning after December 31,2005. However, the
changes do not apply to a plan with a termination date that is on or before
August 17, 2006, the date of enactment of PPA '06.
0-2. Maya plan be amended retroactively to comply with the requirements of
§ 303(a) of PPA '06 without violating the anti-cutback rules provided in § 411 (d)(6) of
the Code?
A-2. Yes. Under § 1107 of PPA '06, a plan does not violate the anti-cutback
rules of § 411 (d)(6) of the Code if it is amended retroactively to comply with § 303(a) of
PPA '06, provided the amendment is adopted on or before the last day of the first plan
year beginning on or after January 1, 2009 (2011 in the case of a governmental plan),
and the plan is operated as if such amendment were in effect as of the first date the
amendment is effective.
0-3. If a plan made a distribution in a plan year beginning in 2006 that satisfied
the limitations of § 415(b) prior to the enactment of PPA '06 but which is in excess of the
limitations of § 415(b) taking into account the amendments to § 415 made by § 303( a)
of PPA '06 (a "§ 303 excess distribution"), does the distribution violate the requirements
of § 415(b)?
A-3. Yes. However, three methods are available for correcting a § 303 excess
distribution. First, 0&A-4 of this notice sets forth a special correction method that is
available for a § 303 excess distribution made prior to September 1, 2006, provided that
the correction is completed by March 15,2007. Second, if correction is completed by
December 31 , 2007 (even if the § 303 excess distribution occurs after September 1,
2006), a plan may correct a § 303 excess distribution by using the correction method for
a § 415(b) excess distribution described in the Employee Plans Compliance Resolution
System ("EPCRS") (see section 2.04(1) in Appendix B in Rev. Proc. 2006-27, 2006-22
IRB 945) even if the plan does not meet the requirements specified in Rev. Proc. 200627, including the special requirements for self correction under Part IV of Rev. Proc.
2006-27. Finally, a plan that meets the requirements of Rev. Proc. 2006-27 may correct
§ 303 excess distributions by using the correction method for § 415(b) excess
distributions under EPCRS even after December 31, 2007. A plan that is amended
retroactively to comply with § 303(a) of PPA '06 will not fail to satisfy the requirement in
§ 1107(b)(2)(A) of PPA '06 (that the plan be operated in accordance with the terms of
the amendment) merely because it made a § 303 excess distribution, provided the
§ 303 excess distribution is corrected using one of these three correction methods.
0-4. What special correction method is available to correct a § 303 excess
distribution made prior to September 1 , 2006?
A-4. A special correction method is available for a § 303 excess distribution
made prior to September 1, 2006, provided the correction is completed by March 15,
2
2007. Under the special correction method, a plan may use the EPCRS correction
method for a § 415(b) excess distribution (as described in section 2.04(1) in Appendix 8
in Rev. Proc. 2006-27, even if the plan does not otherwise meet the requirements of
Rev. Proc. 2006-27, including the special requirements for self correction) with the
following modifications. The excess amount (Le., the amount by which the distribution
actually made exceeds the distribution permitted using the interest assumption specified
in § 415(b) as amended by PPA '06) is not required to be returned to the plan (as
otherwise required under the EPCRS correction method). Instead, a plan must issue
two Forms 1099-R (Distributions From Pensions, Annuities, Retirement or ProfitSharing Plans, IRAs, Insurance Contracts, etc.) to a participant who has received a
§ 303 excess distribution. The first Form 1099-R should include only the amount that
would have been distributed had the benefit payable been adjusted using the interest
assumptions specified in § 415(b) as amended by PPA '06. The second Form 1099-R
should include only the excess amount that was distributed, and should include code
"E" in box 7 to identify the amount as an excess distribution. As provided in the EPCRS
correction, this excess amount is not an eligible rollover distribution, and therefore must
be included in gross income in the year distributed from the plan.
III. SECTION 826 OF PPA '06
An employee's elective contributions under a cash or deferred arrangement can
only be distributed upon the occurrence of certain events, one of which is the
employee's hardship. A distribution is made on account of hardship only if the
distribution both is made on account of an immediate and heavy financial need of the
employee and is necessary to satisfy the financial need. A distribution made for any of
the expenses listed in Regulation § 1.401 (k)-1 (d)(3)(iii)(8) is deemed to be on account
of an immediate and heavy financial need of the employee. Several of these listed
expenses can be expenses of the employee's spouse or dependents.
Section 826 of PPA '06 directs the Secretary of the Treasury to modify the rules
relating to distributions from § 401 (k), § 403(b), § 409A, and § 457(b) plans on account
of a participant's hardship or unforeseeable financial emergency to permit such plans to
treat a participant's beneficiary under the plan the same as the participant's spouse or
dependent in determining whether the participant has incurred a hardship or
unforeseeable financial emergency.
Q-5. What changes are being made pursuant to § 826 of PPA '06 in the rules
relating to hardship distributions from § 401 (k) plans and § 403(b) plans and relating to
distributions on account of an unforeseeable financial emergency from a plan described
in § 457(b) or § 409A?
A-5. (a) Hardship distributions from § 401 (k) plans and § 403(b) plans. A
§ 401 (k) plan that permits hardship distributions of elective contributions to a participant
only for expenses described in § 1.401 (k)-1 (d)(3)(iii)(8) may, beginning August 17,
2006, permit distributions for expenses described in § 1.401 (k)-1 (d)(3)(iii)(8)( 1), (3), or
(5) (relating to medical, tuition, and funeral expenses, respectively) for a primary
3
beneficiary under the plan. For this purpose, a "primary beneficiary under the plan" is
an individual who is named as a beneficiary under the plan and has an unconditional
right to all or a portion of the participant's account balance under the plan upon the
death of the participant. A plan that adopts these expanded hardship provisions must
still satisfy all the other requirements applicable to hardship distributions, such as the
requirement that the distribution be necessary to satisfy the financial need. These rules
also apply to § 403(b) plans.
(b) Distributions on account of an unforeseeable financial emergency from a
plan described in § 4S7(b) or § 409A. In applying § 457(d)(1 )(A)(iii), § 1.457-6(c)(2)(i),
§ 409A(a)(2)(A)(vi), and Proposed Regulation § 1.409A-3(g)(3)(i), a plan described in
§ 457(b) or § 409A may treat a participant's beneficiary under the plan the same as the
participant's spouse or dependent in determining whether the participant has incurred
an unforeseeable financial emergency. This will be reflected in the upcoming final
regulations under § 409A.
IV. SECTION 828 OF PPA '06
Section 72(t)(1) of the Code provides for a 10% additional tax on an early
distribution from a qualified retirement plan (as defined in § 4974(c)), unless the early
distribution qualifies for one of the exceptions listed in § 72(t)(2). For example,
§ 72(t)(2)(A)(v) provides an exception to the 10% additional tax for distributions made to
an employee who separates from service after attainment of age 55. Under
§ 72(t)(3)(A), § 72(t)(2)(A)(v) does not apply to individual retirement plans.
Section 828 of PPA '06 amended § 72 of the Code by adding § 72(t)(10), which
provides that in the case of a distribution to a qualified public safety employee from a
governmental defined benefit plan, § 72(t)(2)(A)(v) is applied by substituting age 50 for
age 55. Thus, the 10% additional tax on early distributions under § 72(t)(1) does not
apply to a distribution from a governmental defined benefit plan made to a qualified
public safety employee who separates from service after attainment of age 50. This
exception to the 10% additional tax applies to distributions made after August 17, 2006
(the date of enactment of PPA '06).
Q-6. Who is a qualified public safety employee?
A-6. For purposes of § 72(t)(10), the term "qualified public safety employee"
means an employee of a State or of a political subdivision of a State (such as a county
or city) whose principal duties include services requiring specialized training in the area
of police protection, firefighting services, or emergency medical services for any area
within the jurisdiction of the State or the political subdivision of the State.
Q-7. How does a qualified public safety employee qualify for the exception to the
10% additional tax under § 72(t)(10)?
4
A-7. In order to qualify for the exception to the 10% additional tax under
§ 72(t)(10), a qualified public safety employee (i) must have received the distribution
from a governmental defined benefit plan after separating from service with the
employer maintaining the plan and (ii) the separation from service must have occurred
during or after the calendar year in which the qualified public safety employee attained
age 50. For example, a qualified public safety employee who separated from service on
June 30, 2006, and attained age 50 on December 12, 2006, is eligible for the exception
under § 72(t)(1 0) with respect to distributions made after August 17, 2006.
Q-8. What are the consequences if, before August 18, 2006, a qualified public
safety employee began receiving substantially equal periodic payments that qualify for
the exception to the 10% additional tax described in § 72(t)(2)(A)(iv) and then modified
the periodic payments after August 17, 2006?
A-8. If the payments satisfy the requirements in Q&A-7 of this notice, payments
received by the qualified public safety employee after August 17, 2006, would qualify for
the exception to the 10% additional tax under § 72(t)(1 0). However, if the modification
would result in the imposition of the recapture tax under the rules of § 72(t)( 4), then the
recapture tax applies to the payments made before August 18, 2006.
Q-9. Does the exception to the 10% additional tax under § 72(t)(1 0) apply if the
qualified public safety employee rolls over distributions from a governmental defined
benefit plan into an IRA or a defined contribution plan and subsequently takes an early
distribution from the IRA or defined contribution plan?
A-9. No. The exception to the 10% additional tax under § 72(t)(10) applies only
to amounts distributed from a governmental defined benefit plan and does not apply to
distributions from a defined contribution plan or an individual retirement plan.
Q-10. How does a payer report distributions that qualify for the exception to the
10% additional tax under § 72(t)(10) on Form 1099-R?
A-10. A payer is permitted to use distribution code 2 (early distribution, exception
applies) in box 7 of Form 1099-R. However, a payer is also permitted to use distribution
code 1 (early distribution, no known exception) in box 7 of Form 1099-R, if the payer
does not know whether the exception under § 72(t)(10) applies. For further information
on reporting, see Instructions for Forms 1099-R and 5498.
V. SECTION 829 OF PPA '06
Under § 402(c)(11) of the Code, which was added by § 829 of PPA '06, if a direct
trustee-to-trustee transfer of any portion of a distribution from an eligible retirement plan
is made to an individual retirement plan described in § 408(a) or (b) (an "IRA") that is
established for the purpose of receiving the distribution on behalf of a designated
beneficiary who is a nonspouse beneficiary, the transfer is treated as a direct rollover of
an eligible rollover distribution for purposes of § 402(c). The IRA of the nonspouse
5
beneficiary is treated as an inherited IRA within the meaning of § 408(d)(3)(C). Section
402(c)(11) applies to distributions made after December 31, 2006.
Q-11. Can a qualified plan described in § 401 (a) offer a direct rollover of a
distribution to a nonspouse beneficiary?
A-11. Yes. Under § 402(c)(11), a qualified plan described in § 401 (a) can offer a
direct rollover of a distribution to a nonspouse beneficiary who is a designated
beneficiary within the meaning of § 401 (a)(9)(E), provided that the distributed amount
satisfies all the requirements to be an eligible rollover distribution other than the
requirement that the distribution be made to the participant or the participant's spouse.
(See § 1.401 (a)(9)-4 for rules regarding designated beneficiaries.) The direct rollover
must be made to an IRA established on behalf of the designated beneficiary that will be
treated as an inherited IRA pursuant to the provisions of § 402(c)(11). If a nonspouse
beneficiary elects a direct rollover, the amount directly rolled over is not includible in
gross income in the year of the distribution. See § 1.401 (a)(31 )-1, Q&A-3 and-4, for
procedures for making a direct rollover.
Q-12. Can other types of plans offer a direct rollover of a distribution to a
nonspouse beneficiary?
A-12. Yes. Section 402(c)(11) also applies to annuity plans described in
§ 403(a) or (b) and to eligible governmental plans under § 457(b).
0-13. How must the IRA be established and titled?
A-13. The IRA must be established in a manner that identifies it as an IRA with
respect to a deceased individual and also identifies the deceased individual and the
beneficiary, for example, "Tom Smith as beneficiary of John Smith."
Q-14. Is a plan required to offer a direct rollover of a distribution to a nonspouse
beneficiary pursuant to § 402(c)(11)?
A-14. No. A plan is not required to offer a direct rollover of a distribution to a
nonspouse beneficiary. If a plan does offer direct rollovers to nonspouse beneficiaries
of some, but not all, participants, such rollovers must be offered on a nondiscriminatory
basis because the opportunity to make a direct rollover is a benefit, right, or feature that
is subject to § 401 (a)(4). In the case of distributions from a terminated defined
contribution plan pursuant to 29 C.F.R. § 2550.404a-3(d)(1 )(ii), the plan will be
considered to offer direct rollovers pursuant to § 402(c)(11) with respect to such
distributions without regard to plan terms.
Q-15. For what purposes is the direct rollover of a distribution by a nonspouse
beneficiary treated as a rollover of an eligible rollover distribution?
6
A-15. Section 402(c)(11) provides that a direct rollover of a distribution by a
nonspouse beneficiary is a rollover of an eligible rollover distribution only for purposes
of § 402(c). Accordingly, the distribution is not subject to the direct rollover
requirements of § 401 (a)(31), the notice requirements of § 402(f), or the mandatory
withholding requirements of § 3405(c). If an amount distributed from a plan is received
by a nonspouse beneficiary, the distribution is not eligible for rollover.
0-16. If the named beneficiary of a decedent is a trust, is a plan permitted to
make a direct rollover to an IRA established with the trust as beneficiary?
A-16. Yes. A plan may make a direct rollover to an IRA on behalf of a trust
where the trust is the named beneficiary of a decedent, provided the beneficiaries of the
trust meet the requirements to be designated beneficiaries within the meaning of
§ 401(a)(9)(E). The IRA must be established in accordance with the rules in Q&A-13 of
this notice, with the trust identified as the beneficiary. In such a case, the beneficiaries
of the trust are treated as having been designated as beneficiaries of the decedent for
purposes of determining the distribution period under § 401 (a)(9), if the trust meets the
requirements set forth in § 1.401 (a)(9)-4, Q&A-5, with respect to the IRA.
0-17. How is the required minimum distribution (an amount not eligible for
rollover) determined with respect to a nonspouse beneficiary if the employee dies
before his or her required beginning date within the meaning of § 401 (a)(9)(C)?
A-17. (a) General rule. If the employee dies before his or her required beginning
date, the required minimum distributions for purposes of determining the amount eligible
for rollover with respect to a nonspouse beneficiary are determined under either the
5-year rule described in § 401 (a)(9)(B)(ii) or the life expectancy rule described in
§ 401 (a)(9)(B)(iii). See Q&A-4 of § 1.401 (a)(9)-3 to determine which rule applies to a
particular designated beneficiary. Under either rule, no amount is a required minimum
distribution for the year in which the employee dies. The rule in Q&A-7(b) of
§ 1.402(c)-2 (relating to distributions before an employee has attained age 70/'2) does
not apply to nonspouse beneficiaries.
(b) Five-year rule. Under the 5-year rule described in § 401(a)(9)(B)(ii), no
amount is required to be distributed until the fifth calendar year following the year of the
employee's death. In that year, the entire amount to which the beneficiary is entitled
under the plan must be distributed. Thus, if the 5-year rule applies with respect to a
nonspouse beneficiary who is a designated beneficiary within the meaning of
§ 401 (a)(9)(E), for the first 4 years after the year the employee dies, no amount payable
to the beneficiary is ineligible for direct rollover as a required minimum distribution.
Accordingly, the beneficiary is permitted to directly roll over the beneficiary's entire
benefit until the end of the fourth year (but, as described in Q&A-19 of this notice, the 5year rule must also apply to the IRA to which the rollover contribution is made). On or
after January 1 of the fifth year following the year in which the employee died, no
amount payable to the beneficiary is eligible for rollover.
7
(c) Life expectancy rule. (1) General rule. If the life expectancy rule described in
§ 401 (a)(9)(8)(iii) applies, in the year following the year of death and each subsequent
year, there is a required minimum distribution. See Q&A-5(c)(1) of § 1.401 (a)(9)-5 to
determine the applicable distribution period for the nonspouse beneficiary. The amount
not eligible for rollover includes all undistributed required minimum distributions for the
year in which the direct rollover occurs and any prior year (even if the excise tax under
§ 4974 has been paid with respect to the failure in the prior years). See the last
sentence of § 1.402(c)-2, Q&A-7(a).
(2) Special rule. If, under paragraph (b) or (c) of Q&A-4 of § 1.401 (a)(9)-3, the
5-year rule applies, the nonspouse designated beneficiary may determine the required
minimum distribution under the plan using the life expectancy rule in the case of a
distribution made prior to the end of the year following the year of death. However, in
order to use this rule, the required minimum distributions under the IRA to which the
direct rollover is made must be determined under the life expectancy rule using the
same designated beneficiary.
Q-18. How is the required minimum distribution with respect to a nonspouse
beneficiary determined if the employee dies on or after his or her required beginning
date?
A-18. If an employee dies on or after his or her required beginning date, within
the meaning of § 401 (a)(9)(C), for the year of the employee's death, the required
minimum distribution not eligible for rollover is the same as the amount that would have
applied if the employee were still alive and elected the direct rollover. For the year after
the year of the employee's death and subsequent years, see Q&A-5 of § 1.401 (a)(9)-5
to determine the applicable distribution period to use in calculating the required
minimum distribution. As in the case of death before the employee's required beginning
date, the amount not eligible for rollover includes all undistributed required minimum
distributions for the year in which the direct rollover occurs and any prior year, including
years before the employee's death.
Q-19. After a direct rollover by a nonspouse designated beneficiary, how is the
required minimum distribution determined with respect to the IRA to which the rollover
contribution is made?
A-19. Under § 402(c)(11), an IRA established to receive a direct rollover on
behalf of a nonspouse designated beneficiary is treated as an inherited IRA within the
meaning of § 408(d)(3)(C). The required minimum distribution requirements set forth in
§ 401 (a)(9)(8) and the regulations thereunder apply to the inherited IRA. The rules for
determining the required minimum distributions under the plan with respect to the
nonspouse beneficiary also apply under the IRA. Thus, if the employee dies before his
or her required beginning date and the 5-year rule in § 401 (a)(9)(8)(ii) applied to the
nonspouse designated beneficiary under the plan making the direct rollover, the 5-year
rule applies for purposes of determining required minimum distributions under the IRA.
If the life expectancy rule applied to the nonspouse designated beneficiary under the
8
plan, the required minimum distribution under the IRA must be determined using the
same applicable distribution period as would have been used under the plan if the direct
rollover had not occurred. Similarly, if the employee dies on or after his or her required
beginning date, the required minimum distribution under the IRA for any year after the
year of death must be determined using the same applicable distribution period as
would have been used under the plan if the direct rollover had not occurred.
VI. SECTION 845 OF PPA '06
Code § 402(1), which was added by § 845(a) of PPA '06, provides for an
exclusion from gross income for distributions from certain retirement plans (referred to
in this notice as "Eligible Government Plans") used to pay qualified health insurance
premiums of an eligible retired public safety officer. The exclusion applies with respect
to an eligible retired public safety officer who elects to have qualified health insurance
premiums deducted from amounts distributed from an Eligible Government Plan and
paid directly to the insurer. Qualified health insurance premiums include premiums for
accident and health insurance or qualified long-term care insurance contracts for the
eligible retired public safety officer and his or her spouse and dependents. The
distribution is excluded from gross income to the extent that the aggregate amount of
the distributions does not exceed the amount used to pay the qualified health insurance
premiums of the eligible retired public safety officer and his or her spouse and
dependents. An "Eligible Government Plan" is a governmental plan described in
§ 414(d) that is either: a § 401 (a), § 403(a), or § 403(b) plan; or an eligible
governmental plan under § 457(b). Section 402(1) applies to distributions in taxable
years beginning after December 31, 2006.
Q-20. Who is an eligible retired public safety officer for purposes of the exclusion
under § 402(1)?
A-20. An employee is an eligible retired public safety officer for purposes of the
exclusion under § 402(1) only if the employee is an individual who separated from
service, either by reason of disability or after attainment of normal retirement age, as a
public safety officer with the employer who maintains the Eligible Government Plan from
which the distributions to pay qualified health insurance premiums are made. Thus, a
public safety officer who retires before attainment of normal retirement age is not an
eligible retired public safety officer unless the public safety officer retires by reason of
disability. The terms of the Eligible Government Plan from which the participant will be
receiving the distributions apply in determining whether a public safety officer has
separated from service by reason of disability or after attainment of normal retirement
age.
Q-21. Who is a public safety officer?
A-21. For purposes of § 402(1), the term "public safety officer" means an
individual serving a public agency in an official capacity, with or without compensation,
as a law enforcement officer, a firefighter, a chaplain, or as a member of a rescue squad
9
or ambulance crew. See § 1204(9)(A) of the Omnibus Crime Control and Safe Streets
Act of 1968 (42 U.S.C. 3796b(9)(A)).
Q-22. Under what circumstances are the provisions of § 402(1) available for
eligible retired public safety officers?
A-22. The favorable tax treatment under § 402(1) is available only when an
eligible retired public safety officer elects to have an amount subtracted from his or her
distributions from an Eligible Government Plan and such amount is used to pay qualified
health insurance premiums. The employer sponsoring the Eligible Government Plan is
not required to offer such an election.
Q-23. Can the accident or health plan receiving the payments of qualified health
insurance premiums be a self-insured plan?
A-23. No. The accident or health plan must be an accident or health insurance
plan. Thus, the plan must be providing insurance issued by an insurance company
regulated by a State (including a managed care organization that is treated as issuing
insurance).
Q-24. Will an eligible retired public safety officer be entitled to favorable tax
treatment under § 402(1) with respect to benefits attributable to service other than as a
public safety officer?
A-24. Yes. Benefits attributable to service other than as a public safety officer
are eligible for favorable tax treatment under § 402(1), as long as the individual
separates from service as a public safety officer, by reason of disability or after
attainment of normal retirement age, with the employer maintaining the Eligible
Government Plan.
Q-25. If an eligible retired public safety officer dies, are amounts subtracted from
distributions made to the decedent's surviving spouse or dependents eligible for
favorable tax treatment under § 402(1)?
A-25. No. Section 402(1) provides that the distribution is not includible in the
gross income of an employee who is an eligible retired public safety officer. Thus, the
exclusion would not extend to amounts subtracted from distributions to other
distributees.
Q-26. Is an eligible retired public safety officer limited in the amount that the
officer can exclude from gross income for distributions from an Eligible Government
Plan used to pay qualified health insurance premiums?
A-26. Yes. The aggregate amount that is permitted to be excluded, with respect
to any taxable year, from an eligible retired public safety officer's gross income by
reason of § 402(1) is limited to $3,000. For purposes of applying this $3,000 limitation,
10
distributions with respect to the eligible retired public safety officer that are used to pay
for qualified health insurance premiums from all Eligible Government Plans are
aggregated.
Q-27. Are amounts used to pay qualified health insurance premiums that are
excluded from gross income under § 402(1) taken into account for purposes of
determining the itemized deduction for medical care expenses under § 213?
A-27. No. Amounts used to pay qualified health insurance premiums that are
excluded from gross income under § 402(1) are not taken into account in determining
the itemized deduction for medical care expenses under § 213.
VII. SECTION 904 OF PPA '06
Prior to the effective date of PPA '06 § 904, a defined contribution plan satisfied
the minimum vesting requirements of Code § 411 (a) with respect to employer
nonelective contributions if it maintained a 5-year vesting schedule or a 3 to 7 year
vesting schedule. Section 904 of PPA '06 amended the minimum vesting requirements
to require faster vesting of employer nonelective contributions to a defined contribution
plan. Under Code § 411 (a)(2)(8) as amended by § 904 of PPA '06, a defined
contribution plan satisfies the minimum vesting requirements with respect to employer
nonelective contributions if it has a 3-year vesting schedule or a 2 to 6 year vesting
schedule. Code § 411 (a)(2)(8) as amended by § 904 of PPA '06 generally applies to
contributions for plan years beginning after December 31,2006.
Q-28. If a plan amendment changes the plan's vesting schedule to satisfy Code
§ 411 (a)(2)(8) as amended by § 904 of PPA '06, is the plan amendment required to
satisfy § 411 (a)(1 O).?
A-28. Yes. A plan amendment that changes the vesting schedule must satisfy
Code § 411(a)(10). Although § 411(a)(10)(8) would require a participant with at least 3
years of service to elect to have the nonforfeitable percentage of his accrued benefit
determined without regard to the amendment, the plan must ensure that any such
election satisfies the vesting requirements of § 411 (a)(2)(8), as amended by § 904 of
PPA '06. Thus, such a participant must be provided, at all times, a vesting percentage
that is no less than the minimum under a vesting schedule that satisfies § 904 and the
vesting percentage determined under the plan without regard to the amendment. Under
Temporary Regulation § 1.411 (a)-8T, no election need be provided for any participant
whose nonforfeitable percentage under the plan, as amended, at any time cannot be
less than such percentage determined without regard to such amendment.
Q-29. Can a plan have separate vesting schedules for employer nonelective
contributions that are and are not subject to Code § 411 (a)(2)(8), as amended by § 904
of PPA '06?
11
A-29. Yes. A plan can have a vesting schedule for employer nonelective
contributions for plan years beginning after December 31, 2006, and another vesting
schedule for other employer nonelective contributions under the plan, provided that the
plan separately accounts for the contributions made under the vesting schedule in effect
prior to the first day of the first plan year beginning after December 31, 2006, and the
vesting schedule for employer nonelective contributions for plan years beginning after
December 31, 2006, satisfies Code § 411 (a)(2)(8), as amended by § 904 of PPA '06.
0-30. If a plan maintains a bifurcated vesting schedule, how is it determined
whether a contribution is for a plan year beginning before January 1, 2007?
A-30. A contribution is for a plan year that begins before January 1, 2007, if it is
allocated under the terms of the plan as of a date in that plan year and is not subject to
any conditions that have not been satisfied by the end of that plan year. This applies
even if the contribution is not made until the next plan year. Thus, for example, if a plan
with a calendar-year plan year makes a contribution as of December 31,2006, based
on compensation and service in 2006, and the contribution is not contingent on the
occurrence of an event after 2006, then the contribution is treated as made for the 2006
plan year and is not subject to Code § 411(a)(2)(8), as amended by § 904 of PPA '06,
even if it is not contributed until 2007. Forfeitures and ESOP allocations from a
suspense account are treated in the same manner for this purpose.
VIII. SECTION 1102 OF PPA '06
Section 1102 of PPA '06 makes certain changes to the notice requirements
related to distributions. Section 1102(a) provides that a notice required to be provided
under § 402(f), § 411 (a)( 11 ), or § 417 may be provided to a participant as much as 180
days before the annuity starting date. Section 1102(b) directs the Secretary to modify
the regulations under § 411 (a)(11) of the Code and § 205 of ERISA to provide that the
description of a participant's right to defer a distribution must also include a description
of the consequences of failing to defer receipt of a distribution. The modifications made
by § 1102 apply to years beginning after December 31,2006. However,
§ 11 02(b )(2)(8) provides that a plan will not be treated as failing to meet the new
requirements under § 1102(b) if the plan administrator makes a reasonable attempt to
comply with the new requirements under that section during the period that is within 90
days of the issuance of regulations required by § 11 02(b).
0-31. How does the effective date of § 1102 operate?
A-31. The provisions of § 1102 apply to plan years that begin after
December 31 ,2006. This means that the new rules relating to the content of the
notices apply only to notices issued in those plan years, without regard to the annuity
starting date for the distributions. Similarly, the 180-day period for distributing notices
applies to notices distributed in a plan year that begins after December 31 ,2006. This
change to the 180-day period also modifies the definition of the maximum OJSA
explanation period under § 1.411 (d)-3(g), which is used in applying the timing rules for
the effective date of a plan amendment under the rules of § 1.411 (d)-3(c) and (f) in the
12
case of an amendment that is adopted in a plan year that begins after
December 31, 2006.
0-32. Is a plan required to revise the notice under § 411 pursuant to the
modifications made by § 11 02(b) before the regulations are amended to reflect the
requirement?
A-32. Yes. A plan administrator is required to revise the notice under § 411 to
reflect the modifications to the requirements made by § 1102(b) for notices provided in
plan years beginning after December 31,2006. However, pursuant to § 1102(b)(2)(8)
of PPA '06, a plan will not be treated as failing to meet the new requirements under
§ 11 02(b) if the plan administrator makes a reasonable attempt to comply with the new
requirements under that section in the case of a notice that is provided prior to the 90th
day after the issuance of regulations reflecting the modifications required by § 1102(b).
0-33. Is there a safe harbor available to a plan administrator that would be
considered a reasonable attempt to comply with the requirement in § 1102(b)(1) that a
description of a participant's right to defer receipt of a distribution include a description
of the consequences of failing to defer?
A-33. Yes. A description that is written in a manner reasonably calculated to be
understood by the average participant and that includes the following information is a
reasonable attempt to comply with the requirements of § 1102(b)(2)(8): (a) in the case
of a defined benefit plan, a description of how much larger benefits will be if the
commencement of distributions is deferred; (b) in the case of a defined contribution
plan, a description indicating the investment options available under the plan (including
fees) that will be available if distributions are deferred; and (c) the portion of the
summary plan description that contains any special rules that might materially affect a
participant's decision to defer. For purposes of clause (a), a plan administrator can use
a description that includes the financial effect of deferring distributions, as described in
§ 1.417(a)(3)-1(d)(2)(i), based solely on the normal form of benefit.
IX. SECTION 1201 OF PPA '06
Section 1201(a) of PPA '06 adds § 408(d)(8) to the Code, which is applicable to
distributions made in taxable years 2006 and 2007. Under § 408(d)(8), generally, if a
distribution from an IRA owned by an individual after the individual has attained age
70~ is made directly by the trustee to certain organizations described in § 170(b)(1 )(A),
the distribution is excluded from gross income. The exclusion is only available to the
extent that the distribution would otherwise have been includible in gross income, and
§ 408(d)(8)(D) provides a special rule for determining the amount that would otherwise
be includible in gross income. In addition, the exclusion applies only if the contribution
would otherwise qualify for a charitable contribution deduction under § 170 (without
regard to the percentage limitations of § 170(b)). A distribution that is eligible for this
exclusion is called a qualified charitable distribution.
13
Q-34. Is there an overall limit on the amount that may be excluded from gross
income for qualified charitable distributions that are made in a year?
A-34. Yes. The income exclusion for qualified charitable distributions only
applies to the extent that the aggregate amount of qualified charitable distributions
made during any taxable year with respect to an IRA owner does not exceed $100,000.
Thus, if an IRA owner maintains multiple IRAs in a taxable year, and qualified charitable
distributions are made from more than one of these IRAs, the maximum total amount
that may be excluded for that year by the IRA owner is $100,000. For married
individuals filing a joint return, the limit is $100,000 per individual IRA owner.
Q-35. Is the exclusion for qualified charitable distributions available for a
distribution made to any organization eligible to receive charitable contributions that are
deductible by the donor for income tax purposes?
A-35. No. Qualified charitable distributions may be made to an organization
described in § 170(b)(1 )(A), other than supporting organizations described in
§ 509(a)(3) or donor advised funds that are described in § 4966(d)(2).
Q-36. Is the exclusion for qualified charitable distributions available for
distributions from any type of IRA?
A-36. Generally, the exclusion for qualified charitable distributions is available for
distributions from any type of IRA (including a Roth IRA described in § 408A and a
deemed IRA described in § 408(q)) that is neither an ongoing SEP IRA described in
§ 408(k) nor an ongoing SIMPLE IRA described in § 408(p). For this purpose, a SEP
IRA or a SIMPLE IRA is treated as ongoing if it is maintained under an employer
arrangement under which an employer contribution is made for the plan year ending
with or within the IRA owner's taxable year in which the charitable contributions would
be made.
Q-37. Is the exclusion for qualified charitable distributions available for
distributions from an IRA maintained for a beneficiary if the beneficiary has attained age
70Y2 before the distribution is made?
A-37. Yes. The exclusion from gross income for qualified charitable distributions
is available for distributions from an IRA maintained for the benefit of a beneficiary after
the death of the IRA owner if the beneficiary has attained age 70Y2 before the
distribution is made.
Q-38. If a 2006 distribution satisfies all the requirements under § 408(d)(8), but it
was made before August 17, 2006 (the date PPA '06 was enacted), is the amount
distributed excludable as a qualified charitable distribution?
A-38. Yes. Section 408(d)(8) is applicable to distributions made at any time in
2006. Thus, a distribution made in 2006 that satisfies the requirements under
14
§ 408(d)(8) is a qualified charitable distribution even if it was made before August 17,
2006.
0-39. Is the amount of a qualified charitable distribution deductible as a
charitable contribution under § 170?
A-39. No. For purposes of determining the amount of charitable contributions
that may be deducted under § 170, qualified charitable distributions which are excluded
from income under § 408(d)(8) are not taken into account. However, qualified
charitable distributions must still satisfy the requirements to be deductible charitable
contributions under § 170 (other than the percentage limits of § 170(b)), including the
substantiation requirements under § 170(f)(8).
0-40. Is a qualified charitable distribution subject to withholding under § 3405?
A-40. No. A qualified charitable distribution is not subject to withholding under
§ 3405 because an IRA owner that requests such a distribution is deemed to have
elected out of withholding under § 3405(a)(2). For purposes of determining whether a
distribution requested by an IRA satisfies the requirements under § 408(d)(8), the IRA
trustee, custodian, or issuer may rely upon reasonable representations made by the IRA
owner.
0-41. Is a check from an IRA made payable to a charitable organization
described in § 408(d)(8) and delivered by the IRA owner to the charitable organization a
direct payment to such organization?
A-41. Yes. If a check from an IRA is made payable to a charitable organization
described in § 408(d)(8) and delivered by the IRA owner to the charitable organization,
the payment to the charitable organization will be considered a direct payment by the
IRA trustee to the charitable organization for purposes of § 408(d)(8)(8)(i).
0-42. Will a qualified charitable distribution be taken into account in determining
whether the required minimum distribution requirements of §§ 408(a)(6), 408(b)(3), and
408A(c)(5) have been satisfied?
A-42. Yes. The amount distributed in a qualified charitable distribution is an
amount distributed from the IRA for purposes of §§ 408(a)(6), 408(b)(3), and
408A(c)(5).
0-43. What are the tax consequences of a direct payment of an amount from an
IRA to a charity where the transaction is intended to satisfy the requirements of
§ 408(d)(8) but fails to do so?
A-43. If an amount intended to be a qualified charitable distribution is paid to a
charitable organization but fails to satisfy the requirements of § 408(d)(8), the amount
paid is treated as (1) a distribution from the IRA to the IRA owner that is includible in
15
gross income under the rules of § 408 or § 408A, as applicable; and (2) a contribution
from the IRA owner to the charitable organization that is subject to the rules under § 170
(including the percentage limits of § 170(b)).
0-44. Will a distribution made directly by the trustee to a § 170(b)( 1)(A)
organization (as permitted by § 408(d)(8)(B)(i)) be treated as a receipt by the IRA owner
under § 4975(d)(9)?
A-44. Yes. The Department of Labor, which has interpretive jurisdiction with
respect to § 4975(d), has advised Treasury and the IRS that a distribution made by an
IRA trustee directly to a § 170(b)(1 )(A) organization (as permitted by § 408(d)(8)(B)(i))
will be treated as a receipt by the IRA owner under § 4975(d)(9), and thus would not
constitute a prohibited transaction. This would be true even if the individual for whose
benefit the IRA is maintained had an outstanding pledge to the receiving charitable
organization.
DRAFTING INFORMATION
The principal author of this notice is Ange/ique V. Carrington of the Employee
Plans, Tax Exempt and Government Entities Division. For further information regarding
this notice, please contact the Employee Plans taxpayer assistance telephone service
at (877) 829-5500 (a toll-free number) between the hours of 8:30 am and 4:30 pm
Eastern Time, Monday through Friday. Ms. Carrington may be reached at (202) 2839888 (not a toll-free number).
16
Page 1 of2
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January 11, 2007
HP-223
Remarks by Treasury Secretary
Henry M. Paulson
at the Treasury Ribbon Cutting Ceremony
Treasury Department Cash Room
Good morning. Thank you all for being here.
It is truly a special occasion when the First Lady of the United States visits the
Treasury Department. Mrs. Bush, welcome - we are delighted you're here. We
appreciate the opportunity to show you our historic building.
Thank you also to our Treasurer, Anna Cabral, and to the Chairman of the Treasury
Historical Association, Tom O'Malley, for speaking earlier. And welcome to all the
members of the Treasury Historical Association who dedicate time and resources to
preserving the history of the Department.
Thanks to Deputy Secretary Bob Kimmitt and his wife, Holly, who just accompanied
Wendy and the First Lady and me on a tour of the building. And great thanks to
Richard Cote, our curator, for an expert history of the building.
Today is a special day for the Treasury. And Mrs. Bush, we are honored to have
you here for the official ribbon-cutting of the Treasury Building and Annex Repair
and Restoration Project.
Over the last decade, architects, historians, engineers, carpenters, and many other
contributors have worked to modernize the Treasury building while remaining true
to its historic character. Many of you - including Polly Dietz, the project manager,
and Jim Thomas, our facilities director - are on stage and in the audience - and
you deserve a round of applause.
Few buildings in Washington boast such a rich history as this one. Today's
Treasury building stands on the same spot as the very first Treasury building in
Washington in 1800.
Since then, the history of the Treasury building has been shaped by our close
proximity to our neighbor, the President.
Sometimes it would have been helpful to be a little further away. For instance, in
1814, as the British burned the White House, they torched the Treasury building for
good measure.
The task of rebuilding Treasury fell to James Hoban, the original architect of the
White House.
In 1869, President Ulysses S. Grant held his inaugural ball here in the Cash Room.
Unfortunately, little attention was paid to the hats and coats of partygoers, some of
whom had to wait hours to retrieve their possessions. Thus it became the first and
last inaugural ball held in the Cash Room.
But we've been much better about keeping track of money.
http://www.treas-gmLipress!releaseslbp223.htm
2/2/2007
Page 2 of2
Up until the 1970s, members of the public could come into the Cash Room and
exchange notes and bonds of the United States government for cash. Currency
was stored in this room and in the adjacent vaults.
However, I'm sorry to inform everyone here today that the only cash you'll find in
this room is in your wallets.
On our tour today, we saw two other magnificent rooms with presidential historythe Salmon Chase suite and the Andrew Johnson suite.
The Chase suite has been restored beautifully. Today the rooms look much the
same as they did when Abraham Lincoln and Salmon Chase met there to discuss
the financing of the Civil War.
After President Lincoln's assassination in 1865, the newly sworn-in President
Andrew Johnson wanted to allow an appropriate amount of time for Mrs. Lincoln
and her family to move out of the White House. Treasury Secretary Hugh
McCulloch offered the new president his own suite on the third floor, and President
Johnson took him up on the offer. He ran the federal government out of the
Treasury building for eight weeks.
We share plenty of happy memories with the White House, too. In fact, the very first
telephone line installed in the Treasury Building - back in 1877 - connected
Treasury with the White House.
And believe me, President Bush keeps the number handy.
Mrs. Bush, this is just part of the rich history shared by the Treasury Department
and the White House. It's a history we're proud of. And through the active
involvement of Treasury employees, as well as public and private donors, we intend
to preserve the historical integrity of our building for future generations.
Mrs. Bush's own work in support of historic preservation has been demonstrated
throughout her public life. She is also a highly respected and effective voice on
education and youth, and she is active around the world on issues of economic
development, the rights of women, and the eradication of diseases such as
HIV/AIDS and malaria. Everywhere Mrs. Bush travels, she represents the President
and the United States of America in a truly exemplary manner.
It is now my great pleasure and honor to introduce the First Lady of the United
States, Laura Bush.
REPORTS
•
•
Trf-;,lsury BLJlldllig
Treasury Tour
Rest()l~ltloll i1l1ci M()rjell1l,~<11101
http://WWw.treas-govJpressJreteaseslhp223.htm
Filel :-;11(~t
2/2/2007
·r
u.s. Treasury Department Office of Public Affairs
Treasury Building Restoration and Modernization
Fact Sheet
•
The restoration project began in June 1996 prompted by a fire on the roof The restoration
was completed in October 2006.
•
The primary inknt was to mo<iemizc the building intrastmcture \vith an emphasis Oil sakty.
electrical, mechanical, and plumbing systems while maintaining a balance with the historic
l~lbric.
•
During the course of the ten year project an estimated L 100 individuals were involved,
Their etTotts included: fire recovery. construction, design. security. telecommunications.
relocations. maintenance, preservation and project management.
•
Ivlany ofthe building's basic intl'ustrllcture systems dated from the early 1900s. They
outliwd their useii.1I lit~ and were in need
major repair, alteration. and renovation.
Examples of some o1'1he renovations:
of
•
•
•
•
•
•
•
•
•
•
•
•
Deteriorated and damaged architectural interiors
Antiquated and ine±Ticient heating system
No central air conditioning system
Insuflicient fresh air supply
Inadequate electrical grounding
No dedicated power supply
No comprehensive fire protection and suppression s)'stem
r\ntilJuated elevator system
Unrepaired tire damage
Antiquated plumbing system
No emergency power syskm
Numerous deficiencies in Building Codes, Life Safety Codes, and ADA
compl iance
•
Construction was accomplish~d ill four s~qu~ntial phases. A single phase at a time was
fully vacated for constl1lction, with the remaining three phases being fuJly occupied and
operational.
•
Accomplishments include:
ArchiTectural: Repaired and restored interior tinishes and an.:hitectural details.
provided accessibility to the physicaIly challenged. installed a new skylight system.
provided new reproduction energy efficient sash. cleaned and repainted exterior
granik fa'iatil:!. and provided knant build~outs.
Mechanical: Replaced the entire HV AC system. installed new chillers and cooling
towers. replaced the hot and chilled water distribution systems. replaced the air
distribution syskm. and provided a Direct Digital Control (DDC) energy
management system.
EleCTrical: Provided a new electrical system. replaced switchgear and transformers.
provided new feeds to building. replaced all panels and wiring. changed service f,'om
120/208 volt to 480/277 volL replaced all light ti:-..1ures. provide e:\1erior lighting.
provided clean povver source. and provid~d all ~m~rg~llcy power syskm.
Plumbing: Rep/aced waste lines, vent stacks. plumbing fixtures. rain leaders. toilet
fixtures. and supply lilles.
ute Sa(etv:
Provided li.d/ sprinkler prokction and a new fire alarm s~'stcm;
established fire safety balTiers along with fire control and ~vacuation zon~s.
Secllntv: Provide an electronic security access system with optical readers and
card technology.
Sll1aI1
Elevators: Replaced or upgraded seven elevators.
Telecornmunicatlons: Provided a ne\v int,'ustruc1url:! with fiber optics to each work
~tation. <llld provided ,1 stak of the art teleconferencing and broadcasting center.
·r
(,:.
"
IT.S. Treasury Department Office of Public Affairs
Treasury Secretary Paulson and Mrs. Laura Bush
Tour the Restoration and Modernization of the Treasury Building
Januarv 11, 2007
* Andrew .Johnson Suite:
In 1864. the Treasury Secretary's otlice was relocated to a suite overlooking the Whjte IIouse.
This second suih: of rooms. called the Andrew Johnson Suite. has been restored. Following the
assassination of A.braham Lincoln in 1865, Treasury Secretary Hugh rvkCulloch offered the use
of his oftice to President Johnson for six weeks while. Mary Todd Lincoln remained in the White
I-louse. This historical event was captured in period i.mgra vings by the press. which provided
pictorial archi val materials for its I\;storatioll in 1991. The prqject was a pUblic-private enterprise
with the Commit1ee for the Preservation of the Treasury Building providing funding for the
restoration. It now serves as the otIice of the lTllder Secretary for International Ailllirs.
President Johnson occupied the outer omce while Secretary ~kCulloch kept his own adjacent
office. The office was decorated by the New York firm of Pottier & StYl11l1S who also decorated
the White I-louse for President Grant in 1869. The chairs. table and over-mantel Illin-or are by
Pottier & Stymus, and the gilt rams head chairs are stY'listically similar to what is in the White
I-louse collection. The star carpet was reproduced based on period engravings as \vere the
drapery treatments. The room originally had a dado paper and the doors \\ierc originally t~lUX
grained. distinguishing this office from the others on the floor.
*Salmol1 P. Chase Suite:
The Curator's Ofl'ice restored tbe Salmon P. Chase Suite in 1992. The Chase Suite is named after
the Treasury Secrdary who served under President Abraham Lincoln. President Lincoln mel
with Chase in this oftice on a regular basis to discuss the financing of the Civil War.
The interior of Chase's office was restored to its 1860 appearance. as the olTice was described in
gn~at detail in period newspaper accounts. The original ceiling is especially noteworthy.
containing allegorical figures of Treasury and Justice. indicative of Chase's role as Treasur~;
Secretary and also his background in law. Secretary Chase would lakr assume the position of
Chief Justice of the U.S. Supreme Court.
The antique 1i.lrnishings in the room are from the Treasury Collection which consists of over
5,000 ol~jects of fine and decorative al1s. tviuch of the collection has come fj'om the Treasury
building and ft'om the Treasury bureaus. It was first recognized by Treasury Secretary A.ndrew
Mellon v,'ho grouped the antiques together and organized the first Treasury Collection.
Highlights in the room include the large over-mantel mirror which is described in detail in a
period nev,:spaper account and a sol'a bearing the "lTS" crest. both designed by the O/lice of the
SUI,h~r\'isiug Architect in their atklllpt to stauciarclize govenllllent fUlllislIiugs. Comparable pieces
with embkmatie shields arc found in the White House collection and date to the same period.
Diplomatic Reception Room:
The Secretary's Diplomatic Reception Room is a historicall~: inspired space, creakd for Treasury
Secretary .lames Baker. The restoration was complded in 198X. Tbe 1l1l"11iture in the room dates
from th~ p~riod 1865-] 870, many ofth~ pi~ces by the New York firm of Pottier & Stymus. This
is the same prominent d~corating firm who completed the Andrew Johnson Suite in 1864 and the
White House in 1869.
*Sc('f'{·tan· Paulson's Oftice:
The present space became the Office of the Secretary in 1910, lhe date of the last building
modernization before the present TBARR project. It is the fifth site in the building to be
occupied by the Secretary of the Tr~asury.
Deputv Sec,'dan- Kimmitt's Oftice:
Immediately adjacent to the Secretary's Otlice is Deputy Secretary RobCJ1 Kimnutt's otlice.
When the TBA.RR pr~ject was working in this space, the Curator's Office conducted
investigatiw work on the c~iling and found decoratiw paint that dates to 1875.
From our research, we know that it is the work of William 1. !v1cPherson, a decorative painter
from Boston who worked in the building for seven weeks. McPherson is best known for his
decorative paint in the Secrdary of the Navy's Oflice in the former State, War and Navy
building as well as at the Connecticut Stak Capitol.
*\Vest Dome:
The West Dome r~storation was ulldeJ1aken during the last phase of the TBARR project, and
compkted in 2004. The monumental dome represents the work of the Supervising Architect
Alfred Mullell.
The original construction was delayed five years be·caus~ of the Civil War and the financial
hardships that it imposed 011 tbe building project. The surviving drawings show Mulldt's cardlll
consideration of several design options, finally settling on a triple dome. This design solution
2
allo\v~d natural light to com~ through two contiguous skylights ~ach positiond dir~dly over a
staircase. Th~ c~ntral oculus was originallyb'osted and contain~d a ventilator to circulak air
throughout the at1ic story.
Paint analysis rewaled that the original decorative palette contained many architectural dements
th"t wl;'re gilt. The palette is the same lIsed by the an.'hitect t~)r Treasury's \Vest Lobby. the
second floor White: HOllse entJ'i.llh..'C. as well as the Cash Room. The gilding is now symbolic of
the period called the "gilded age~" wh~n America achieved great economic prosperity after the
Civil War.
Treasurer's Ollice:
The Treasurer's Ofl1.ce contains one of the last remaining of the original four vaults that served
the Cash Room. Constructed under an 1863 patent by the architect. Isaiah Rogers. the "BurglarProof Vault"' consisted of iron and sted plates \vith 1\vo layers of iron balls in cavities that were
int~ndcd to rotak tl'edy if pi~rced by a drill.
The Treasurer's Ofllce has traditionally been locakd at TreasllIy's North entrance since the wing
was completed in 1869.
*Cash Room:
The Cash Room and the West Dome are regarded as TreaslllY's most important architectural
spaces. Both areas represent the designs ofTreaswy Super\'ising Architect. Alhed Mullett. \vho
would go 011 to design tbe State, War and Navy Building, now the Eisenhower Executive OUice
Building. The Cash Room was originally designed as a banking hall where any government
dral1 could b~ rede~med [or cash.
White the ta9ade ofTreasury's North Wing is Greek Revival. the Cash Room is architect
MulleWs first venture into the French Second Empire Style. This building style would
completely consume architect Mulktt in his designs tor the Stak. War and Navy Building.
Completed in 1869, the room is constructed of seven different types of marble, the ceiling gilded
with a palette similar to what you have just seen in the \Vest Dome. The room is the result of a
pUblic-private partnership, the initial funding fro1ll1he Committee for the Preservation ofthe
Treasur~! Building and most recently, the restoration of the ceiling gilding a gift to the
DeTXH1mcilt trom the Treasury Historical Association.
* notes pooled en.'ut portion
3
I"age 1 011
January 12, 2007
HP-224
U.S. Fiscal Outlook Improves Significantly in December
Fiscal Year to Date Deficit Down;
Monthly Surplus Up More than 300 Percent
"Today's monthly Treasury statement shows that tax receipts have reached a new
record and that we are moving in the right direction toward a balanced budget by
2012. This good news reflects the strong state of our economy. The President's tax
relief has helped make this possible by creating the conditions for sustained
economic growth and job creation."
- Assistant Secretary for Economic Policy Phillip Swagel
Highlights:
The Fiscal Year to Date deficit ($80 billion) is down 33 percent ($39 billion)
compared to the same period last year. The President's tax relief has stimulated
strong economic growth. This strong growth has contributed to record-level receipts
and the creation of more than 7.2 million jobs since August 2003. October to
December receipts for FY 07 are at $574 billion, running 8 percent ($43 billion)
higher compared to the same period for FY 06.
December brought record-level monthly tax receipts ($260 billion) and a
record-level surplus ($45 billion) for the month. The monthly surplus was up
306 percent ($34 billion) compared to December 2005 ($11 billion).
December 15 brought the largest ever single day corporate tax receipts ($73
billion). This broke the previous record set in September 2006 ($72 billion).
Maintaining low tax rates will help ensure continued economic growth, lift
Americans living standards, and enable us to address our longer term fiscal
challenges from a position of economic strength.
http://wwwtrf..as..gov/press/releases /hp224.htm
2/2/200
Page 1 ot L
January 16, 2007
2007 -1-16-17 -12-19-25673
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 $64,996 million as of the end of that week, compared to $65,688 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
January 12, 2007
January 5, 2007
II
TOTAL.!
I
11. Foreign Currency Reserves 1
65,688
Euro
la. Securities
II
I Of whiCh, issuer headquartered in the U. S.
"
I
Yen
12,322
II
"I
I
12,287
II
23,025
5,214
"II
0
II
17,501
b.ii. Banks headquartered in the US.
0
b.ii. Of which, banks located abroad
0
I
0
II
0
'b.iii. Banks headquartered outside the US.
I
b.iii. Of which, banks located in the U.S.
/I
I
I
I
12. IMF Reserve Position 2
13. Special Drawing Rights (SDRs) 2
14. Gold Stock 3
15. Other Reserve Assets
I
TOTAL
10,703
b. Total deposits with:
b.i. Other central banks and BIS
"
64,996
II
Euro
I
Yen
12,252
/I
10,562
1\
"1\
"
1\
"
/I
TOTAL
12,221
II
5,145
I
I
1\
I
II
I
17,366
II
0
1\
I
I
0
0
I
I
I
I
11,041
0
"II
"
"
0
I
4,991
8,841
II
0
/I
5,280
I
22,814
II
II
8,784
I
11,041
I
0
I
II. Predetermined Short-Term Drains on Foreign Currency Assets
[
II
January 5, 2007
II
I
1. Foreign currency loans and securities
Euro
I
Yen
1\
1\
II
TOTAL
II
0
January 12, 2007
Euro
II
1\
II
Yen
1\
II
II
I
TOTAL
0
I
I
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
2.a. Short positions
12.b. Long positions
3. Other
II
I
I
I
0
II
1\
II
!
0
I
0
II
1\
1\
I
I
1\
0
I
0
I
0
I
III. Contingent Short-Term Net Drains on Foreign Currency Assets
II
Ip=======Jva=nu=a=ry==5=,2=0,OF7======9IF'=======J,aFn=ua=r=y=1=2~,2=01r0=7====~
Euro
II
Yen
http://www.treas.gov/pressfreleasesI200711617121925hT~ htm
"
TOTAL
II
Euro
"
Yen
II
TOTAL
2/2/200
Page l.. of Z
1. Contingent liabilities in foreign currency
0
1.a. Collateral guarantees on debt due within 1
year
11.b. Other contingent liabilities
1
I
I
II
1
0
1
2. Foreign currency securities with embedded
options
0
0
3. Undrawn, unconditional credit lines
0
0
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
I
Headquartered outside the U. S.
1
I~ Aggregate short and long positions of options
foreign
I
Currencies vis-a-vis the U.S. dollar
I
0
0
4.a. Short positions
4.a.1. Bought puts
14.a.2. Written calls
I
I
I
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, anI
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.
}lttp:llwww trp:as.~ov/pre.ssJreleases/200711617121925()7:1_htm
2/21200
or
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 9 a.m. (EST) January 17,2007
CONTACT Brookly McLaughlin (202) 622-2920
TREASURY INTERNATIONAL CAPITAL DATA FOR NOVEMBER
Treasury International Capital (TIC) data for November are released today and posted on the U.S.
Treasury web site (www.treas.gov/tic).Thenextrelease.whichwillreportondataforDecember.is
scheduled for February 15,2007.
Net foreign purchases oflong-term securities were $68.4 billion.
•
Net foreign purchases oflong-term U.S. securities were $107.4 billion. Of this, net
purchases by foreign official institutions were $6.5 billion, and net purchases by private
foreign investors were $101.0 billion.
•
u.S. residents purchased a net $39.1 billion in long-term foreign securities.
Net foreign acquisition of long-term securities is estimated to have been $58.0 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities increased $15.6 billion. Foreign holdings of Treasury bills increased $9.5
billion.
Banks' own net dollar-denominated liabilities to foreign residents increased $1.3 billion.
Monthly net TIC flows were $74.9 billion. Of this, net foreign private flows were $65.8 billion and
net foreign official flows were $9.1 billion.
/-1 P --j (j--!J
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars not seasonally adiusted)
2004
2005
12 Months Through
Nov-05
Nov-06
Aug~06
Sep-06
Oct-OC>
Nov-06
Foreigners' Acquisitions of Long-term Securities
1
2
3
Gross Purchases of DomestIC U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line 1 less line 2) /1
15178.9 17157.5
14262.4 16145.9
916.5 1011.5
17242.8
16221.8
1021.0
19020.9
17930.5
1090,4
1623.1
1501.6
121.5
1626.1
1532.5
93.6
1746.3
1642.1
104.2
1803.6
1696.2
107.4
4
5
6
7
8
Private, net /2
Treasury Bonds & Notes. net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
680.9
150.9
205.7
298.0
26.2
891.1
269.4
187.6
353.1
81.0
901.5
2596
204.8
359.1
78.0
917.6
123.9
190.9
461.9
140.9
91.9
27.9
21.7
34.7
7.7
76.9
-7.9
17.7
56.8
10.3
78.9
7.8
9.9
37.5
23.6
101.0
26.0
10.8
60.3
3.9
9
10
11
12
13
Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities. net
235.6
201.1
20.8
11.5
2.2
120.4
68.7
31.6
19.1
1.0
119.S
69.8
29.9
18.2
1.6
172.8
62.3
76.0
28.2
6.3
29.6
16.9
9.8
2.7
0.2
16.7
7.7
7.9
1.8
-0.7
25.3
18.5
5.3
2.0
-0.4
6.5
1.0
3.9
3.6
-2.1
3123.1
3276.0
-152.8
3700.0
3872.4
-172.4
3615 I
3787.9
-172.7
5154.4
5386.2
-231.9
406.0
410.0
-4.0
405.6
427.7
-22.0
483.0
501.9
-\8.9
510.5
549.6
-39.\
-67.9
-85.0
-45.1
-127.3
-47.8
-125.0
-1216
-1103
-9.9
5.9
-13.4
-8.6
-7.5
-11.4
-17.8
-21.2
14
15
16
17
18
Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less line 15) 14
Foreign Bonds PurChased, net
Foreign Equities Purchased. net
19
Net Long-Term Securities Transactions (line 3 plus line 16):
763.6
839.1
848.2
858.S
117.6
71.6
85.3
68.4
20
Other AcquiSitions of Long-term Securities, net /5
-38.8
-140.0
-136.3
-141.9
-11.1
-11.9
-lOA
-10.4
724.8
699.1
712.0
716.6
106.4
59.7
74.9
58.0
190.1
60.0
26.8
33.2
-47.6
-58.9
-15.6
-43.3
-44.6
-47.S
-5.5
-42.0
112.4
-21.3
7.4
-28.7
3.9
2.1
-1.5
3.6
-10.3
-14.5
-3.9
-10.6
0.5
4.1
5.0
-0.9
15.6
9.5
1.8
7.7
130.1
77.4
52.8
I\,4
10.6
0.8
2.9
4.9
-2.0
133.7
144.0
-10.3
1.8
9.6
-7.8
4.1
5.9
-1.7
-3.5
7.3
-10.8
6.1
7.9
-1.8
63.9
16.4
15.2
14.2
-14.8
1\.2
-15.0
1.3
978.9
667.9
682.5
843.2
95.5
60.6
60.4
74.9
637.2
341.6
580.6
87.3
578.4
104.2
741.9
10\.3
83.9
11.6
48.6
11.9
67.3
-6.9
65.8
9.1
21
22
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
27
28
Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private, net
Official. net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private. net
Official. net
29
Change in Banks' Own Net Dollar-Denominated Liabilities
23
24
25
26
30 Monthly Net TIC Flows (lines 21,22.29) /8
of which
31
Private. net
32
Official, net
/\
12
13
/4
/5
/6
17
18
Net foreign purchases of U.S. securities (+)
Includes international and regional organizations
The reported division of net purchases of long-term securities between net purchases by foreign official institutions and net purchases
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and I 0.a.4 on the TIC web site.
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign securities to foreigners.
Thus negative entries indicate net U.S. purchases of foreign secunties. or an outflow of capital from the United States; positive entries
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securities +
estimated foreign acquisitions of U.S. equity through stock swapsestimated U.S. acquisitions of foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign Countries.
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are collected
quarterly and published in the Treasury Bulletin and the TIC web site.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S customers that are managed by U.S. banks or broker/dealers.
TIC data cover most components of international financial flows, bul do not include data on direct investment flows. which are collected
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data summarized here, the
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on the TIC web
site describes the scope of TIe data collection.
2
Page 1 of 1
January 18, 2007
HP-226
Treasury Deputy Secretary Kimmitt
and
Under Secretary Adams
to Attend World Economic Forum in Davos
Washington. D.C.- Treasury Deputy Secretary Robert M. Kimmitt and International
Affairs Under Secretary Timothy Adams will attend the World Economic Forum's
annual gathering next week in Davos, Switzerland.
Deputy Secretary Kimmitt will appear on a panel to discuss global economic trends.
He'll also participate in a panel looking at the way forward for the G-20, a group
established in 1999 to bring together major industrialized and developing
economies to discuss key issues in the global economy. Under Secretary Adams
will appear on two panels to discuss development and demographic trends in
China.
Deputy Secretary Kimmitt's Panels:
January 26, 3 p.m. (CET) - The G20 Agenda: 2007 and Beyond
January 27,8:15 a.m. (CET) - Global Economic Outlook
Under Secretary Adams' Panels:
January 25,8 p.m. (CET) - Pricing China's Demographic Trends
January 26, 11: 15 a.m. (CET) - Sustaining China's Next Stage Development
NOTE: Panel details are subject to change; please consult the World Economic
Forum website for the most current information:
http://www .weforum. orgl ell! events! Ai1i1lIClI Meetllig200 7!inde x. hlm
Media wishing to interview Deputy Secretary Kimmitt or Under Secretary Adams in
Davos should contact Brookly McLaughlin at: brookIYlTlcI311qhllll((1)(io ll'eas go,.
http://www.treas.gov/pressfreleaseslhp226.htm
2/212007
yage 1 or 1
January 18, 2007
HP-227
Paulson Announces Kimberly A. Reed to Head
CDFI Fund
Washington, D.C- U.S Treasury Secretary Henry M. Paulson today announced the
appointment of Kimberly A. Reed as the new director of the Treasury Department's
Community Development Financial Institutions (CDFI) Fund.
"Kimberly has served this Administration with distinction," said Treasury Secretary
Paulson. "I look forward to continuing to work with her in this important new role at
the CDFI Fund. She will help in Treasury's work to encourage more jobs and
opportunity in America's neediest communities."
The CDFI Fund expands the capacity of financial institutions to provide credit,
investment capital, and financial services to distressed urban and rural communities
in the United States. Since its creation in 1994, the Fund has awarded $820 million
through its programs In addition, the Fund administers the New Markets Tax Credit
Program, which has authority to allocate $19.5 billion in tax credits to Community
Development Entities.
Reed has served as senior adviser to both Secretary Paulson and Secretary John
W. Snow since May 2004. As senior adviser, she provided counsel on key policy
matters, including tax and economic issues. Reed also has played a key role in
coordinating issues within the Department and its Bureaus, including the CDFI
Fund, as well as with the White House and other agencies, and was involved in the
day-to-day management of Departmental operations.
Reed served as counsel and professional staff to three U.S. House of
Representatives committees from 1997 to 2004, including the Ways and Means
Committee, the Government Reform Committee and the Education and the
Workforce Committee. While at the Ways and Means Committee, she conducted
oversight reviews of various issues within the Committee's jurisdiction, including
Treasury and Internal Revenue Service policies and procedures, tax incentive
programs for economically distressed communities, the activities of tax-exempt
organizations, and the charitable response to September 11.
Originally from Buckhannon, West Virginia, Reed graduated in 1996 with a Juris
Doctor degree from West Virginia University College of Law. In 1993, she
graduated from Wesleyan College with dual degrees in biology and government.
Reed received the 2004 West Virginia Wesleyan College Young Alumni
Achievement Award, and, in 2006, Secretary Snow awarded her the Secretary's
Honor Award.
http://www.treas.gov/pressfreleaseslhp227.htm
2/2/200~
Page 1 of2
January 22, 2007
2007 -1-22-14-46-55-13499
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 $65,023 million as of the end of that week, compared to $64,996 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
January 12, 2007
January 19, 2007
64,996
65,023
TOTAL
1. Foreign Currency Reserves 1
a. Securities
:
Euro
<:>1
12,252
10,562
hich, issuer headquartered in the US.
}lO'
I
Euro
I
I
22,814
12,296
I
17,366
II
I
I
0
Yen
II
10,500
TOTAL
22,796
0
uv!-'vo:>its with:
b.i. Other central banks and BIS
I
TOTAL
12,221
5,145
I
12,269
I
I
5,110
17,379
b.ii. Banks headquartered in the US.
0
b.ii. Of which, banks located abroad
0
0
b.iii. Banks headquartered outside the US.
0
0
b.iii. Of which, banks located in the U.S.
0
0
4,991
5,003
8,784
8,804
11,041
11,041
2. IMF Reserve Position 2
11 3.
I
I
I
Special Drawing Rights (SDRs) 2
4. Gold Stock 3
5. Other Reserve Assets
0
I
I
I
I
0
I
0
I
I
I
TOTAL
II
0
I
I
0
I
I
II. Predetermined Short-Term Drains on Foreign Currency Assets
January 19, 2007
January 12, 2007
I
I
TOTAL
Yen
Euro
0
1. Foreign currency loans and securities
I
I
Euro
I
I
Yen
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
2.a. Short positions
0
I
I
2.b. Long positions
0
0
3. Other
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
January 12, 2007
I
Euro
I
Yen
I
:lttp:llwww.treas_gov/pressJreleases/200712214465513499.htm
I
I
TOTAL
I
I
I
January 19, 2007
Euro
Yen
TOTAL
I
I
2/212007
Page 2 of2
11. Contingent liabilities in foreign currency
0
1
1.a. Collateral guarantees on debt due within 1
year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded
options
I
II
I
II
I
3. Undrawn, unconditional credit lines
II
II
II
I
I
I
0
I
I
0
0
0
0
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
I
I
II
II
II
II
I
I
I
II
I
0
0
4.a. Short positions
4.a.1. Bought puts
I
II
II
Written calls
II
I
4.b. Long positions
14.b.1. Bought calls
II
14.b.2. Written puts
II
II
II
I
I
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
21 The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official 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.
htip:llwww.treas_gov/presslreleasesf200712214465513499.htm
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Page 1 of 1
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January 23, 2007
HP-228
Administration's Proposal for Affordable, Accessible, and Flexible Health
Coverage
In his State of the Union Address, President Bush will announce proposals to make
health insurance available and affordable for more Americans. The new standard
deduction for health insurance will make the tax system more progressive, with the
benefits concentrated on low- and middle-income Americans, and will increase the
number of people with health insurance.
Taxes as a percent of income would fall for the first four quintiles - the bottom 80
percent of the population.
REPORTS
•
Admlrlistratlon's Pro[)oscil for AffOleJ<:liJie. AccessilJie. <'Inri Fiexli)ie HE-!aitl,
Coverage
http://www.trp.~s:.gov/presslrelease.sjhp228.htm
2/2/2007
Administration's Proposal for Affordable, Accessible, and
Flexible Health Coverage
In his State of the Union Address, President Bush will announce proposals to
make health insurance available and affordable for more Americans. The new
standard deduction for health insurance will make the tax system more
progressive, with the benefits concentrated on low- and middle-income
Americans, and will increase the number of people with health insurance.
The New Standard Deduction for Health Insurance Makes the Tax Code
More Progressive
Tax Change as a % of Income (2007)
Percent
0.2
Quintiles
0.1
0.0 .
-0.1
-0.2
-~s
'
n
'
r
..
~'
~
0
rD,D,O
5th'
Top
10%
Top
5%
Top
1%
-0.3
-0.4
-0.5 .
-0.6
-0.7
Note: Quintiles begin at: 2nd $13,310; 3rd $28,507 ; 4th $50,448; 5th $87,758; top
10% $128,676; top 5% $177,816; top 1% $432,275.
Source: U.S. [)epartm3nt of the Treasury, Office of Tax Analysis.
Taxes as a percent of income would fall for the first four quintiles - the bottom 80
percent of the population.
Page 1 of 4
January 24, 2007
HP-229
Remarks of Anna Escobedo Cabral
U.S.Treasurer
U.S. Department of the Treasury
Before the EI Salvador Chamber of Commerce
"Motor De Crecimiento Y Desarrollo"
San Salvador, EI Salvador· Good evening. Mr. President, Madame Vice
President, distinguished leaders of EI Salvador, it's truly an honor to be here. I want
to thank Maria Elena de Alfaro and the EI Salvador Chamber of Commerce and
Industry for inviting me to join you this evening. Thank you, Patricia, for that kind
introduction, and thanks to all of you for your warm welcome.
This is my second visit to EI Salvador. I was here just last March when we released
design changes to the $10 note. It's a pleasure to return to this beautiful country
once again. It's wonderful to see your picturesque mountains and stunning waters.
It's no surprise that EI Salvador's beaches attract visitors from around the world.
But I'm most excited to be here because EI Salvador is such an important and close
partner to the United States We continue to work together to combat terror, drug
trafficking, money laundering and other international crimes. In addition, we remain
committed to advancing economic reform and trade throughout the region. On
behalf of President Bush and Secretary Paulson, I want to thank President Saca
and his Administration for your close friendship and cooperation.
One of President Bush's priorities remains working with EI Salvador and countries
throughout Latin America to promote economic development and opportunity. We
will continue to strengthen our cooperation to improve quality of life throughout the
region and achieve our critical goals.
This is also a unique time for our countries in some respects. Charles Glazer was
recently sworn-in as the new United States Ambassador to EI Salvador.
Ambassador Glazer is scheduled to arrive at the Embassy tomorrow. I had the
privilege of attending dinner at former Ambassador Barclay's residence last year.
know his tremendous work here has been well-appreciated by the Salvadorans.
Ambassador Barclay was recently named Noble Friend of EI Salvador by the
Legislative Assembly - the highest recognition that branch of government can give
to a foreign citizen. I'm sure Ambassador Glazer will draw on the strong foundation
of progress that Ambassador Barclay achieved during his tenure.
In particular, I'm pleased to be a part of this very important conference. I applaud
the efforts of the Chamber of Commerce and Industry to promote professional
development and leadership among Salvadoran women. All citizens must have the
opportunity to participate in the social, political and economic spheres of society in
order for a country to truly thrive.
Salvadoran women have continued to playa key role in the reconstruction of
Salvadoran communities and society, and women's contributions to the mainstream
economy has increased dramatically since 1992. Salvadoran women have a critical
role in this society as mothers, wives, and business leaders. Because many men
leave the country to seek work, women head an estimated 30 percent of
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2/212007
Page 2 of 4
Salvadoran families.
But Salvadoran women also hold many prominent political and professional
positions. You have a strong example of a positive female role model in your Vice
President. And the leader of this Chamber is a woman. Those are just two
examples, and I know I wouldn't have to look very hard to find more. When I was
asked to come here to talk about balancing public and private life, I wasn't sure if I
could offer any more insight than what you see every day from women like these.
The fact is, women in so many cultures learn very quickly how to manage their
professional and personal lives. After all, many of the skills we must develop to
ensure the health and well-being of our families also come in handy in the
workplace. For example, communication, time management, teamwork and morale
building, smart decision-making, and of course, leadership are all essential skills for
managers and entrepreneurs. Women carry out at least some - if not all - of these
skills every day in their personal lives. We learn how to prioritize and remain
committed and focused on what's most important.
Looking around in the audience, I know that many of the women here own their own
businesses. Many of you serve as role models for other women in your community
as well as for young women who have not yet started their careers. Your important
work is laying the foundation for others to follow. And I challenge you to continue
building on your skills and developing new ones. Because I trUly believe that if we
continue pushing ourselves to learn new things we can continue to open doors of
opportunity for ourselves as well as for others.
I know this has been true in my own life. I credit education for many of the
wonderful opportunities I've been fortunate to have throughout my life. Each of us
has unique skills and talents, and it's up to us to develop those skills through
education so that we can contribute to our communities, whether it's through our
careers, community work, or family life. Today, like so many women, I wear many
hats that extend beyond my professional career as U.S. Treasurer. I am also a wife
and a mother among other things.
I've always believed that a key way to teach and motivate young people is to lead
by example. When my children were young I wanted them to understand the
importance of education, and I wanted to set high standards for them.
I believe children will often live up to the standards we set so my children knew at a
very early age that they were expected to finish high school and go on to college.
All of them did.
As women, especially those who are mothers and those who are heads of
households, we have the opportunity through our professional careers to teach our
children that they can achieve their dreams. They can eventually have their own
business or pursue the career of their choice.
This is important because young people represent the future. The strong values we
can instill today will help enhance quality of life and advance economic growth and
security for generations to come.
In EI Salvador, this is significant because you're now at a critical time. EI Salvador
has experienced a rebirth in many ways after 12 years of bitter conflict and civil war.
Since signing the 1992 Peace Accords, the Republic has emerged a leader in the
region in addressing economic issues. You were the first to ratify and implement
CAFT A. According to the World Bank, in the next five years this landmark trade
agreement has the potential to increase trade and investment and boost economic
growth in EI Salvador, lifting tens of thousands out of poverty. CAFT A will also
deepen integration in the region and promote greater levels of foreign investment.
In addition, the tourism sector has thrived in recent years, and since dollarization in
2001, the financial sector in EI Salvador continues to expand.
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Page 3 of 4
I also want to congratulate you on the recent signing of a compact with the
Millennium Challenge Corporation. This is a five-year compact that will provide
more than $460 million to stimulate economic growth and reduce poverty in EI
Salvador. This grant enables strategic investments in education, public services,
agricultural production, rural business development and transportation
infrastructure, among other critical areas that will help improve the quality of life for
some 850,000 Salvadorans. Overall, the Millennium Challenge compact will provide
new economic opportunities in the Northern Zone and throughout EI Salvador. As
EI Salvador grows stronger in areas such as education, trade infrastructure,
technical assistance and governance through the Millennium Challenge, the
promises of the CAFT A will continue to emerge.
To be sure, this country has come a long way since 1992. You have held seven
free national elections. You have strengthened your democratic institutions, your
Armed Forces and Police. Foreign investment has increased, and you play an
increasing role in the global economy. In fact EI Salvador is one of the strongest
and most stable countries in our hemisphere. Today, this Republic represents the
promises of hope and opportunity achieved through a stable democracy.
Despite this progress, critical challenges remain. Violent crime and poverty continue
to plague Salvadoran communities, affecting many women in particular. Lack of
security threatens economic growth and reduces quality of life, and more must be
done to stop it.
As I mentioned earlier, EI Salvador and the United States share an important
partnership. We share strong trade ties, and we know that working together to
promote economic growth and stability throughout Central and Latin America is in
all of our interests. Stronger trade and investment links between our countries could
create increased growth throughout the Western Hemisphere and promote greater
security and stability. But we also know that trade alone is not enough That is why
President Bush and his Administration remain committed to working with Latin
America to confront a range of challenges from poverty and income inequality to
infrastructure and investment.
One area that we're focused on at Treasury is how do we increase investment flows
throughout Latin America? In the case of EI Salvador, remittances can playa very
significant role in enhancing development. Today, over two million Salvadoran
citizens live in the United States. That's more than a quarter of EI Salvador's
population. Each year, they send home an estimated $3 billion to their families here
in EI Salvador.
The good news is that an estimated 2.7 million Salvadorans - 42 percent of the
population - have either a checking or a savings account. In fact, EI Salvador falls
second to Chile for bank usage throughout Latin America. That means that there is
a tremendous opportunity for remittances
to become a driving force for economic growth through savings and investment. For
example, about half of the money remitted is spent on health and education. In
other words, the money is being invested back into Salvadoran communities,
helping to create jobs and expand opportunity.
Remittances can have an even greater impact if we can help those receiving this
money build their assets and invest their money wisely. This way there is a real
opportunity for individuals, especially low-income families, to build their wealth,
invest in an education, buy a house or build a business. That is why it is critical for
financial institutions to reach out to their remittance customers and make valuable
resources - such as credit, insurance and mortgage products - easily accessible.
One thing we also need to consider is the cost of remittance transactions. For
example, the average value of a transfer to EI Salvador is over $300, while the
average cost of sending the remittance is roughly five percent of the transfer value.
These transfer fees make up a large transaction cost.
At Treasury, we are committed to working with the public and private sectors to
promote expansion of savings and investment options for remittance recipients
http://www.treas_gov/presslrelea.~p229.htm
2/2/2007
Page 4 of 4
throughout Latin American. We support and encourage the development of an
environment which will facilitate the private sector's efforts to offer remittances
through formal financial channels, including the banking system.
Now, what does all of this mean to you here?
A strong economy is the lifeblood of a country. It creates opportunities for growth
and advancement and ensures prosperity for our families, our communities, and our
countries.
There's no question, EI Salvador has achieved a great deal in recent years. Not too
long ago, war was a daily reality and prosperity was an unrealized hope. You have
found new wealth and adopted new ideals. You have every reason to be optimistic
about the bright future that lies ahead for this country. All of you here can continue
to build on this success and take advantage of these opportunities by broadening
your education, building your skills, and giving back to your communities.
Mother Teresa once said, "God gave us faculties for our use; each of them will
receive its proper reward. Then do not let us try to charm them to sleep, but permit
them to do their work until divinely called to something higher."
EI Salvador will continue to flourish and it's renewed belief in democracy, freedom,
and human rights will continue to bind our two nations together and ensure
prosperity throughout Latin America.
http://www.treas..gov/press/re1ease.s!hp229.htm
2/2/2007
Page 1 of
January 26, 2007
HP-230
Treasury Targets AI Qaida Facilitators in South Africa
The U.S. Department of the Treasury today moved to designate two South African
individuals, Farhad Ahmed Dockrat and Junaid Ismail Dockrat, and a related entity
for financing and facilitating al Qaida, pursuant to Executive Order 13224. This
action freezes any assets the designees have under U.S. jurisdiction and prohibits
transactions between U.S. persons and the designees.
"Today's action targets two family members that have supported al Qaida - one by
providing funds to AI Akhtar Trust, a globally-recognized al Qaida fundraiser, and
another by facilitating travel for individuals to train in al Qaida camps," said Adam
Szubin, Director of Treasury's Office of Foreign Assets Control (OFAC). "This
designation freezes the Dockrats out of the U.S. financial system and notifies the
international community of the dangerous conduct in which the Dockrats are
engaged."
Identifying Information
Farhad Ahmed Oockrat
AKAs:
Farhaad Ahmed Dockrat
Farhad Ahmad Dockrat
Farhad Dockrat
Ahmed Dockrat
Farhaad Dockrat
Farhad Docrate
F. Dockrat
Maulana Farhad Dockrat
POB:
Pretoria, South Africa
OOB:
28 February 1959
Nationality:
South African
Address:
386 Swanepoel Street, Erasmia, Pretoria, South Africa.
Identification No.:
5902285162089/055 (South African)
Passport:
446333407 (South African, expo 26 May 2014)
Farhad Dockrat both finances and facilitates al Qaida. In one example, Dockrat in
2001 provided over 400,000 South African Rand (approximately $62,900 US) to the
Taliban ambassador to Pakistan to be forwarded to al Akhtar Trust, an Afghanistanbased fundraiser for al Qaida. AI Akhtar Trust was previously designated by the
United States under E.O. 13224 for Its support to al Qaida. AI Akhtar Trust IS also
http://www.treasgov/preis/r~1~asesJhp230.htm
2/212007
Page 2 of2
on the United Nations 1267 Committee's list of sanctioned individuals and entities
designated for providing support to al Qaida, Usama bin Ladin and the Taliban.
Junaid Ismail Oockrat
AKAs:
Junaid Docrate
Junaid Dockrat
J .1. Dockrat
Dr. Ahmed
OOB:
16 March 1971
Address 1:
Johannesburg, South Africa
Address 2:
71 Fifth Avenue, Mayfair, South Africa 2108
Address 3:
P.O. Box 42928, Fordsburg, South Africa, 2033.
Identification No.:
7103165178083 (South African)
Junaid Dockrat is an al Qaida financier, recruiter and facilitator. Junaid Dockrat in
2004 worked via phone and email with AI Qaida operations chief Hamza Rabi'a
(now deceased) to coordinate the travel of South Africans to Pakistan in order for
them to train with al Qaida. He is also responsible for raising US $120,000 that
Rabi'a received in the spring of 2004.
Sniper Africa
AKAs:
Sniper Outdoor CC
Sniper Outdoors CC
True Motives 1236 CC
Address 1:
40 Mint Road, Amoka Gardens, Fordsburg,
Johannesburg, South Africa
Address 2:
P.O. Box 42928, Fordsburg, South Africa 2003
Address 3:
16 Gold Street, Carietonville, South Africa 2500
Address 4:
P.O. Box 28215, Kensington 2101 South Africa
Website:
www.sniperafnccl.coill
Tax Number:
9113562152 (South African)
Registration:
200302847123 (South African)
Sniper Africa is seventy percent (70%) owned by Junaid Ismail Dockrat.
http://www.treas.gov/pre~rele.as.eslhp230.htm
2/2/2007
Page 1 of 1
January 26, 2007
HP-231
Paulson, Irs To Push Use Of Credit
Helping Low-Income, Working Americans
U.S. Treasury Secretary Henry M. Paulson, Jr. will join U.S. Treasurer Anna
Escobedo Cabral and IRS Commissioner Mark W. Everson on Thursday, February
1 to promote the earned income tax credit (EITC), which has brought millions of
low-income, working Americans out of poverty.
A recent Census study found that 4.6 million people - including 2.4 million children
- were lifted out of poverty in 2002, thanks to the Earned Income Tax Credit. The
EITC is already the government's largest cash assistance program targeted to lowincome Americans. Many taxpayers are eligible but fail to claim the credit.
The Treasury and the IRS will promote EITC Day, a nationwide campaign to
promote the EITC and free tax preparation services for working families. Advocates
of EITC and free tax preparation sites also will be on hand.
Who
Secretary Henry M. Paulson
Treasurer Anna Escobedo Cabral
Commissioner Mark W. Everson
What
EITC Awareness Day
When
Thursday February 1,2:30 p.m. (EDT)
Where
Department of Treasury
Media Room 4121
1500 Pennsylvania Ave., NW
Washington, DC
Media interested in attending the event at the Treasury Department must have
Treasury press credentials or should contact Frances Anderson for clearance at
(202) 622-2960 or Frc1flces.Anders0I1@clo treas gov with the following information:
name, Social Security number, and date of birth.
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2/212007
Page 1 of2
January 29. 2007
2007 -1-29-11-34-28-14233
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 $64,852 million as of the end of that week, compared to $65,023 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
January 19, 2007
January 26, 2007
65,023
64,852
TOTAL
1. Foreign Currency Reserves
I
1
I a. Securities
I
I Of which. issuer headquartered in the US.
Euro
Yen
II
12.296
I
10.500
I
Euro
TOTAL
I
22.796
I
0
II
17,379
12.244
I
Yen
I
I
I
TOTAL
I
I
22,717
10,473
0
I
b. Total deposits with:
Ib.i. Other central banks and BIS
II
b.ii. Banks headquartered in the US.
12.269
5,110
II
I
II
.iii. Banks headquartered outside the US.
Ibiii. Of which, banks located in the U.S.
0
II
~ Of which, banks located abroad
I
I
0
II
I
5,003
17,322
0
I
0
0
5,101
I
I
I
2. IMF Reserve Position 2
12,221
II
0
I
0
I
I
0
I
I
4,990
I
I
I
3. Special Drawing Rights (SDRs) 2
8.804
I
8,782
4. Gold Stock 3
11,041
I
11,041
0
I
0
5. Other Reserve Assets
I
II. Predetermined Short-Term Drains on Foreign Currency Assets
January 19, 2007
I
I
I
Euro
Yen
I
I
1. Foreign currency loans and securities
January 26, 2007
II
TOTAL
I
0
Euro
II
II
Yen
II
II
I
II
TOTAL
II
0
II
0
I
II
0
I
II
0
I
I
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar
. Short positions
I
2.b. Long positions
3. Other
II
I
0
I
0
II
0
II
II
II
II
II
II
I
III. Contingent Short-Term Net Drains on Foreign Currency Assets
January 19, 2007
Euro
II
II
http://www.treas..gov/pressirelea.sesJ200712911342814233.htm
n
January 26. 2007
I
TOTAL
Euro
I
I
Yen
II
I
I
TOTAL
I
I
2/2/20077
Page 2 of2
11. Contingent liabilities in foreign currency
1.a. Collateral guarantees on debt due within 1
year
"1.b. Other contingent liabilities
II
I
I
II
II
II
II
II
II
0
II
II
0
I
II
0
I
II
0
I
I
2. Foreign currency securities with embedded
[options
0
3. Undrawn, unconditional credit lines
0
II
I
I
3.a. With other central banks
13.b. With banks and other financial institutions
IHeadquartered in the U. S.
13.C.
With banks and other financial institutions
IHeadquartered outside the U. S
I
I
I
I
4. Aggregate short and long positions of options
in foreign
'Currencies vis-a-vis the U.S. dollar
0
0
4.a. Short positions
I
I
I
I
I
4.a.1. Bought puts
4.a.2. Written calls
't.U. LUIIY
fJ_ositions
4.b.1. Bought calls
14.b .2 . Written puts
I
I
II
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 reflecl marked-Io-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.
http://www.tre~s.gov/press/release~200712911342814233.htm
2/2/2007
Page 1 of2
January 29, 2007
HP-232
Assistant Secretary of the Office of Economic Policy
Phillip Swagel
Statement for the Treasury Borrowing Advisory
Committee
of the Securities Industry and Financial Markets
Association
Economic indicators have broadly improved since the Committee last met three
months ago. Economic activity appears to have strengthened in late 2006, the labor
market remains solid, and inflation has eased.
The labor market turned in a solid performance in 2006. The unemployment rate
ended 2006 at 4.5 percent, close to a 5-1/2 year low. Payroll job gains averaged
more than 150,000 per month during the year, with more than 7.2 million net jobs
added since the employment trough in August 2003. The labor force participation
rate increased in the final two months of the year and now stands at a 3-112 year
high. Real wages grew strongly in the second half of 2006; coupled with a decline in
energy prices, these income gains have helped to support consumer spending.
The advance estimate of GOP data for the fourth quarter of 2006 will be released
on January 31. Real GOP grew 2.0 percent at an annual rate in 200603, as
declines in housing construction and a pullback in motor vehicle production offset
expansion in other sectors. The decline in residential construction alone shaved 1.2
percentage points from 03 GOP growth. Strength in nonresidential construction
activity helped compensate in part for the slowdown in residential construction, with
investment in nonresidential structures such as commercial buildings and offices up
by nearly 16 percent at an annual rate in the third quarter.
Data released through late-January point to solid GOP growth in 200604.
Consumer spending remains buoyant, while strong corporate profits in the third
quarter suggest that businesses have a solid financial base for future expansion
and job creation. The trade deficit narrowed in October and November and net
exports are likely to make a strong positive contribution to growth in the quarter.
The housing sector appears likely to remain a substantial drag on GOP growth in
200604, but there are signs that homebuilding activity has stabilized. Housing
starts were up in November and December (though still well below year-earlier
levels), and building permits rose in December for the first time since January 2006.
The pace of existing home sales in the last quarter was below year-earlier levels,
but quite close to third-quarter levels, while new homes sales in the fourth quarter
rose 5 percent from the third quarter. The inventory of new homes on the market
equaled a 5.9 months supply at December's sales pace; while elevated, this is
below the recent 7.2 month peak in July.
Importantly, the housing slowdown does not appear to have spilled over to
consumer spending, which accounts for more than two-thirds of GOP. Retail sales
growth in December was solid, and overall consumer spending appears to have
accelerated noticeably in the fourth quarter after posting a gain of less than 3
percent in 200603. Strong growth in wages, which represent the majority of income
for most Americans, has likely been an important factor in supporting consumption.
Real average hourly earnings grew by 1.7 percent over the twelve months ending in
December, the largest annual rise since 2001. Survey data suggest that consumers
are feeling relatively confident about current economic conditions and prospects
over the near term. The University of Michigan survey of consumer sentiment
http://www.treasgovlpresslreleaseslhp232.htm
2/2/2007
Page 2 of2
reached a 3-year high in early January.
The Administration economic forecast underlying the Budget projects 2.9 percent
GDP growth during the four quarters of 2007. This is in line with the consensus of
private sector forecasts.
Headline inflation moderated substantially in the last three months of 2006. The
consumer price index (CPI) was up 2.5 percent from a year earlier in December.
This pace is well below readings in excess of 4 percent in the summer that were
driven by double-digit increases in energy prices. Energy prices have retreated
substantially since the end of last summer, at which time oil prices were above $70
per barrel and retail gasoline was above $3 per gallon. Mild winter weather across
most of the United States has reduced heating demand, allowing key petroleum
product inventories to rise to comfortable levels. Oil prices are averaging $55 per
barrel through late January, and retail gasoline prices have declined from an
average of more than $2.90 per gallon in the summer of 2006 to about $2.15 per
gallon. A simple back-of-the-envelope calculation illustrates the positive impact of
these developments on American families. The typical two-car household uses
about 550 gallons of gasoline every six months. A 75 cent reduction in retail
gasoline represents a per-household savings of more than $400 over that six-month
period.
There was also improvement in the core CPI, which strips out the volatile food and
energy categories. That price measure was up 2.6 percent from a year earlier in
December, but rose at only a 1.4 percent annual rate in the last three months of the
year, after rising at a 3.6 percent rate in the three months ending in June. One
measure of inflation expectations, the spread between nominal five-year Treasuries
and inflation-indexed bonds, has edged up recently but remains well below the
levels of last summer. Recent readings from that indicator suggest 2.3 percent
inflation going forward.
In sum, the economy is solid, with a firm labor market and signs that inflationary
pressures are easing. The outlook for 2007 is for those trends to continue.
http://www.treas...govJpress/releasesihp232.htm
2/212007
Page 1 of~
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January 31,2007
HP-233
Assistant Secretary for Financial Markets Anthony W. Ryan
February 2007 Quarterly Refunding Statement
We are offering $38.0 billion of Treasury securities to refund approximately $35.1
billion of privately held securities maturing on February 15 and to raise
approximately $2.9 billion. The securities are:
•
•
•
A new 3-year note in the amount of $16.0 billion, maturing February 15.
2010;
A new 10-year note in the amount of $13.0 billion, maturing February 15,
2017;
A new 30-year bond in the amount of $9.0 billion, maturing February 15,
2037.
These securities will be auctioned on a yield basis at 1:00 PM EST on Tuesday,
February 6; Wednesday, February 7; and Thursday, February 8, respectively. All of
these auctions will settle on Thursday, February 15. The balance of our financing
requirements will be met with weekly bills, monthly 2-year and 5-year notes, the
March 10-year note reopening and the April 5-year TIPS offering and the 10-year
TIPS reopening. Treasury also is likely to issue cash management bills in March
and April. Additional cash management bills may be required to manage volatility
associated with tax refunds.
New Treasury Auction System
Treasury will soon begin testing its new auction system, which is designed to
update existing technology, automate manual processes, and continue to maintain
the speed and reliability of the auction process. We expect testing to continue until
summer 2007. Prior to implementation of the new system, Treasury will be asking
dealers and investors to participate in mock auctions and functionality testing.
Debt Issuance Considerations
In response to ongoing strength in receipts, Treasury has made recent cuts in
nominal and TIPS coupon issuance. Continued strength in the fiscal outlook may
necessitate additional adjustments to our marketable borrowing. Treasury may
need to reduce auction sizes further or institute changes in the frequency or
composition of the current auction cycle.
Accordingly, Treasury is considering options related to the 3-year note, including
changing the frequency of issuance or eliminating the issue. We will make any
announcement regarding our decision on the 3-year note at the May refunding.
Regardless of our decision on the future of the 3-year note, Treasury confirms that
it will auction a 3-year note at the May 2007 quarterly refunding.
Please send comments and suggestions on these subjects or others relating to
Treasury debt management to (it;i)tfrLma9ullcnt~('dolrf:;~I~ qo':.
The next quarterly refunding announcement will take place on Wednesday, May 2,
2007.
http://www.treas_gov/press/re1eases/hp233.htm
2/2/200,
Page 1 of 4
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January 31,2007
HP-234
Report To The Secretary Of The Treasury
From The
Treasury Borrowing Advisory Committee
Of The
Securities Industry And
Financial Markets Association
January 30, 2007
Dear Mr. Secretary:
Since the Committee's previous meeting in November, the economic expansion has
strengthened somewhat from the slow pace that prevailed last spring and summer.
The consensus for the quarter just ended estimates that overall growth reached 3%
or better despite another steep drop in homebuilding and related activities.
Consumer spending responded vigorously to a sharp fall in energy costs and a
highly promotional holiday season. Although a mild start to the winter may have
provided an additional temporary boost to activity, confidence is rising that growth in
coming quarters will moderate close to trend barring major spillover from soft
housing markets to consumers.
Weakness in housing and autos in the second half of last year contributed to
reduced price pressures toward year end. Prices of light vehicles and other large
household goods declined at a 4% annual rate in the fall, helping to shave a couple
of tenths off year-to-year increases in core inflation rates. The more recent fall in
energy prices should also diminish or even reverse the earlier threat of passthrough effects to core inflation. Nonetheless, underlying inflation remains slightly
elevated in a 2%% to 23/.% range, while resilient hiring demands in a tight labor
market and some indications of rising labor costs have kept alive concerns about
upside risks.
Against a backdrop of tentative signs that an overbuilt housing market has begun to
clear without sizable collateral effects on the broader economy, earlier expectations
for lower interest rates in 2007 have faded. Yields on U.S. Treasury securities have
risen by roughly 40 basis points above their late November lows and market
participants now expect very little activity by the Federal Reserve over the medium
term horizon.
The Federal government's fiscal balance continues to narrow. Fiscal year 2007
budget flows thus far point to another decline in the deficit this year Continued
economic expansion joined with the equity market's rise should support tax
receipts, but public spending, especially on entitlements, also remains brisk.
In the first section of the charge, Treasury solicited the Committee's view on the
fiscal outlook and whether the continued positive surprises on tax receipts and the
overall deficit warrant any change in the debt issuance schedule.
The Treasury reviewed a series of exhibits with the Committee that highlighted the
elevated tax receipts from corporations and individuals and the fact that recent
fjgures on corporate profits, stock prices and employment suggest that these trends
should continue over the near term.
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At the same time, however, the Treasury also provided charts on the US housing
market and recent volatility in oil prices that serve as a reminder of the uncertainty
of future economic activity and tax revenue.
Members were quick to point out that while recent tax revenues have been
tremendous, the ability to forecast tax revenues, expenditures and the Federal
deficit is difficult and Treasury needs to be cautious not to extrapolate the recent
success too far Into the future. In fact, several members agreed that the
demographic effects from entitlement spending will likely put significant strains on
the budget beginning in less than a decade and that Treasury should be cautious in
making any radical changes to its coupon issuance resulting from near-term trends.
Another member highlighted the confusion over the role of the alternative minimum
tax (AMT) and its significance to recent surprises in tax revenue. And that, with the
uncertainty surrounding the election season on this and other tax and spending
issues suggests caution with respect to forecasting the deficit over the intermediate
term.
The continuation of outsized tax receipts has improved market forecasts of the US
budget deficit for fiscal year 2007 by approximately $75 billion. Committee
members discussed what actions the Treasury might take in response to the
continued reduction in net borrowing needs.
Most members agreed that the security with the least investor value was the 5-year
TIPs. While, overall, TIPs playa tremendous role for investors and are useful to
diversify issuance risk to the Treasury, members noted that the 5-year TIP is too
short in maturity to attract true investment demand and that the security was
primarily held and traded by speculators responding to and anticipating near-term
changes in commodity prices and their commensurate effect on short-term inflation
measures.
Additionally, Committee members generally agreed that the quarterly 3-year note
was the next security that the Treasury should consider reducing or eliminating if
borrowing needs merit a reduction in coupon issuance.
The three-year note which was only re-introduced a few years ago, has served the
Treasury well over time as a security that is well received in the market but does not
enjoy the same level of benchmark status as the 2-, 5- and 1O-year notes.
Consequently, it is a logical choice as a security to be introduced or eliminated as
borrowing needs change over an intermediate period.
Alternatively, one Committee member suggested that the Treasury reduce the 10year note in size or frequency along with the size of the 2-year note. However,
there was little agreement from other Committee members who almost universally
favored the reduction or elimination of 5-year TIPs and 3-year notes as needed.
A number of Committee members reiterated their belief that the bill market provides
the Treasury with tremendous financing flexibility and that the Treasury should be
cautious in making significant changes to the issuance calendar for notes and
bonds until the need for such changes is very clear.
And, at the same time, several members stressed the importance of providing the
market with advanced warning of any significant changes to the coupon calendar
and the maintenance of the Treasury's hallmark of regular and predictable
issuance.
In the second part of the charge, Treasury asked the Committee for its views on
short-term debt management in the context of recent increased volatility of
borrowing needs and cash balances.
A member of the Committee presented a series of charts depicting the volatility of
current borrowing needs, the Treasury's effectiveness of managing short-term debt
issuance and cash balances, the current state of preparedness in the financial
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2/2/2007
Page 3 of 4
system for a large-scale disruption and suggested other possible tools for Treasury
to consider in the case of a contingency event.
It was pointed out that while budgetary forecasting errors have been quite
significant, driven by a large number of factors, the volatility of outlays and receipts
is currently near the long-term average as a percentage of output. Treasury has
implemented a number of successful innovations over the past several years in the
area of short-term financing including the 4-week bill program, the Term Investment
Option Program and the recent launch of a repurchase agreement pilot program
which have served to both minimize their cost of short-term issuance and to
increase the interest earned on high cash balances.
As for contingency planning, it was noted that post 9/11 the Treasury, Federal
Reserve, large member banks, primary dealers and clearing entities have upgraded
capacity to deal with business continuity issues in critical lines and functions.
Members discussed the idea of Treasury employing Tri-Party Repurchase
Agreements for contingency planning purposes. While some members felt thiS tool
would be more useful and appropriate than Treasury setting up a line of credit or
borrowing directly from the Federal Reserve, most felt that Treasury's strongest
tools in the event of a large scale disruption would continue to be the use of moral
suasion and stopgap financing measures.
The third charge to the Committee centered on the competitiveness of the U.S.
Treasury market and what steps, if any, could be taken to improve its position.
The U.S. Treasury market is the most liquid debt market in the world and is a
benchmark against which all other debt markets are measured. The average daily
trading volume in Treasury securities exceeds $500 billion. The Treasury holds
over 200 auctions a year and over 95% of the auction results are posted within two
minutes.
One of the hallmarks of the Treasury market is the regular and predictable issuance
pattern that the Treasury maintains and the transparency the Treasury has provided
to investors and market makers. While the Committee was universal in recognizing
the success the market enjoys, members pointed out that the continued success of
the market is dependent on the continuation of these practices and policies. Also,
technology was seen as a key focus to ensure that the auction process continues to
improve both in efficiency and timeliness.
Additionally, several members stressed the importance of a "light regulatory
approach" or minimal "regulatory burden" for the Treasury. This approach has
served the Treasury well in the past and is increasingly important in a global and
more competitive market- place.
One member noted that the Treasury has distinguished itself through the fairness it
has achieved In the dissemination of information to all market participants, which is
not universally seen in many foreign government markets.
One member suggested that the Treasury should not hesitate to take a stronger
leadership role in world government bond markets and assist in the setting of
standards and policies which benefit all market participants.
In the final section of the charge, the Committee considered the composition of
marketable financing for the January-March quarter to refund approximately $35.1
billion of privately held notes maturing on February 15, 2007 as well as the
composition of marketable financing for the remainder of the January-March
quarter, including cash management bills, as well as the composition of marketable
financing for the April-June quarter.
To refund $35.1 billion of privately held notes and bonds maturing on February 15,
2007, the Committee recommended an $18 billion 3-year note due February 15,
2010, a $13 billion 10-year note due February 15, 2017 and a $10 billion 30-year
bond due February 15, 2037. For the remainder of the quarter, the Committee
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2/212007
Page 4 ot Ll
recommended a $20 billion 2-year note in February and March, a $13 billion 5-year
note in February and March and an $8 billion reopening of the 10-year note In
March.
The Committee also recommended a $30 billion 14-day cash management bill
issued March 1, 2007 and maturing March 15, 2007 as well as a $10 billion 7-day
cash management bill issued March 8, 2007 and maturing March 15, 2007. For the
April-June quarter the Committee recommended financing as found in the attached
table. Relevant features include three 2-year note issuances monthly, three 5-year
note issuances monthly, one 3-year note issuance in May, a 1O-year note issuance
in May with a reopening in June, a 30-year bond reopening in May, as well as a 10year TIPs reopening in April and a 5-year TIPs issuance in April.
Respectfully submitted,
Thomas G. Maheras
Chairman
Keith T. Anderson
Vice Chairman
Attachments (2)
Table 01 07
Table 02 07
REPORTS
•
•
T:lble 01 07
TClIJle 0207
http://www.treas.gov/press/releaseslhp234.htm
2/21200 .
US TREASURY FINANCING SCHEDULE FOR 1st QUARTER 2007
BILLIONS OF DOLLARS
ISSUE
ANNOUNCEMENT
DATE
4-WEEKAND
3&6 MONTH BILLS
AUCTION SETTLEMENT
DATE
DATE
12/28
112
1/4
1/4
1/8
1/11
1/11
1/16
1/18
1/18
1/22
1/25
1/29
1/25
2/1
2/1
2/8
2/15
2/5
2/12
2/8
2/15
2/20
2/26
2/22
2/22
3/1
3/8
3/15
3/22
CASH MANAGEMENT BILLS
14-DAY BILL
2/26
Matures 3/15
7-DAY BILL
3/5
Matures 3/15
3/5
3/12
3/19
3/26
3/1
3/8
3/15
3/22
3/29
MATURING
AMOUNT
NEW
MONEY
48.00
41.00
41.00
40.00
40.00
41.00
41.00
43.00
44.00
48.00
54.00
57.00
63.00
-9.00
-2.00
-2.00
0.00
1.00
6.00
1300
17.00
24.00
22.00
16.00
8.00
-5.00
690.00
601.00
89.00
4-WK
OFFERED
AMOUNT
3-MO
6-MO
8.00
8.00
8.00
9.00
10.00
14.00
20.00
24.00
30.00
30.00
30.00
25.00
22.00
17.00
17.00
17.00
17.00
17.00
18.00
18.00
20.00
20.00
22.00
22.00
22.00
20.00
14.00
14.00
14.00
14.00
14.00
15.00
16.00
16.00
18.00
18.00
18.00
18.00
16.00
2/28
3/1
30.00
30.00
0.00
3/7
3/8
10.00
10.00
0.00
0.00
COUPONS
CHANGE
IN SIZE
17.80
-8.80
22.90
18.10
35.10
5.90
23.30
9.70
10-Year TIPS
1/8
1/11
1/16
9.00
20-Year TIPS
2-Year Note
5-Year Note
1/18
1/23
1/31
1/24
1/31
1/31
8.00
20.00
13.00
-2.00
1/22
1/22
3-Year Note
10-Year Note
30-Year Bond
1/31
1/31
2/6
2/15
2/15
18.00
13.00
-1.00
2/7
1/31
2/8
2/15
10.00
-4.00
2-Year Note
5-year Note
2/15
2/15
2/21
2/22
2/28
2/28
20.00
13.00
10-Year Note - R
3/8
3/13
3/15
8.00
2-Year Note
5-year Note
3/26
3/28
3/26
3/29
4/2 *
4/2 •
20.00
13.00
24.00
9.00
165.00
123.10
41.90
1/25
8.00
Estimates are italicized
NET CASH RAISED THIS QUARTER:
=
130.90
R Reopening
• The March two and five-year note auctions settle on April 2. As a result, that borrowing is counted as part of the April-June
quarter's net cash raised. The December two and five-year auctions settled in Januaryl and thereby are part of this quarter's cash flow.
US TREASURY FINANCING SCHEDULE FOR 2nd QUARTER 2007
BILLIONS OF DOLLARS
ISSUE
ANNOUNCEMENT
DATE
4·WEEKAND
3&6 MONTH BILLS
3/29
4/5
4/12
4/19
4/26
5/3
5/10
5/17
5/24
5/31
6/7
6/14
6/21
CASH MANAGEMENT BILLS
3/28
14-0AY BILL
Matures 4/16
11-0AY BILL
4/2
Matures 4/16
4-0AY BILL
4/9
Matures 4/16
AUCTION SETTLEMENT
DATE
DATE
4/2
4/9
4/16
4/23
4/30
5/7
5/14
5/21
5/29
6/4
6/11
6/18
6/25
4/5
4/12
4/19
4/26
5/3
5110
5/17
5/24
5/31
6/7
6/14
6/21
6/28
MATURING
AMOUNT
NEW
MONEY
-11.00
-15.00
-22.00
-19.00
-12.00
-11.00
4.00
2.00
1.00
-3.00
-11.00
-20.00
-18.00
535.00
62.00
62.00
57.00
54.00
47.00
4800
41.00
43.00
44.00
48.00
56.00
55.00
53.00
670.00
-135.00
4-WK
OFFERED
AMOUNT
3-MO
6-MO
15.00
15.00
8.00
8.00
8.00
10.00
18.00
18.00
18.00
18.00
18.00
8.00
8.00
20.00
17.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
16.00
15.00
13.00
13.00
13.00
13.00
13.00
13.00
13.00
13.00
13.00
13.00
13.00
3/30
4/2
25.00
25.00
0.00
4/4
4/5
12.00
12.00
0.00
4/11
4/12
8.00
8.00
0.00
0.00
COUPONS
CHANGE
IN SIZE
7.00
4/5
4/12
4/16
7.00
-1.00
4/19
4/23
4/23
4/24
4/25
4/26
4/30
4/30
4/30
8.00
20.00
13.00
-3.00
3-Year Note
10-Year Note
30-Year Bond - R
5/2
5/2
5/2
5/7
5/8
5/10
5/15
5/15
5/15
15.00
13.00
6.00
-3.00
2-Year Note
5-year Note
5/24
5/24
5/29
5/30
5/31
5/31
20.00
13.00
10-Year Note - R
6/11
6/14
6/15
8.00
2-Year Note
5-year Note
6/25
6/25
6/26
6/27
7/2 •
7/2 •
20.00
13.00
19.70
13.30
156.00
121.60
34.40
10-Year TIPS - R
5-Year TIPS
2-Year Note
5-Year Note
-4.00
21.60
19.40
54.60
-20.60
21.40
11.60
8.00
Estimates are italicized
NET CASH RAISED THIS QUARTER:
R = Reopening
• The June two and five-year note auctions settle on July 2. As a result, that borrowing is counted as part of the July-September
quarter's net cash raised. The March two and five-year auctions settled in April and thereby are part of this quarter's cash flow.
-100.60
Page 1 of 5
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January 31,2007
HP-235
Minutes of the Meeting of the
Treasury Borrowing Advisory Committee
of the Bond Market Association
January 30, 2007
The Committee convened in closed session at the Hay-Adams Hotel at 10:30
a.m. All Committee members were present except Mohammed EI-Erain. Under
Secretary Robert Steel, Assistant Secretary Anthony Ryan, Deputy Assistant
Secretary Matthew Abbott, and Office of Debt Management Director Karthik
Ramanathan welcomed the Committee and gave them the charge.
Director Ramanathan presented a series of charts (see attached) highlighting
recent trends in the fiscal outlOOk, noting that US economic growth remains healthy
and continues to outpace expectations. From a fiscal perspective, corporate taxes
and individual taxes remain strong while non-withheld taxes continue to grow as
portion of government revenues. Several macroeconomic factors support these
positive trends in the fiscal outlook, including the rise in after-tax corporate profits, a
strong equity market, and low unemployment.
Ramanathan noted that while Treasury remains vigilant in monitoring potential
headwinds that may impact the current encouraging trends - including uneven
growth in the housing market and volatility in energy markets - the favorable budget
outlook would imply reductions in debt issuance over the current fiscal year. The
improvement in the budget deficit, from nearly 3.5 percent of GOP just three years
ago to 1.9 percent of GOP in 2006 has been significant. According to Ramanathan,
many market participants had recently adjusted their deficit forecast and borrowing
estimates to account for the resilience in the US economy and its positive impact on
the budget situation.
Ramanathan stated that strong receipts, coupled with moderate growth in
expenditures, have resulted in lower borrowing needs. If this trend, now in its third
year, continues, reductions in debt issuance would be needed.
The Committee then turned to the first question in the Committee charge (attached)
regarding Treasury's debt issuance strategy in light of the continued positive trends
from a fiscal and macroeconomic perspective.
In their discussion, members noted that it was difficult to forecast deficits past
FY2007 because forecast errors are generally large and substantial, regardless of
the source of such forecasts. One member commented that Treasury's past
approach to responding to reduced borrowing needs has been to first reduce bill
issuance. If changes are more secular, Treasury would make changes to coupons,
first by reducing issue sizes until liquidity becomes a concern, then reducing auction
frequencies, and then eliminating issues altogether. The member stated that it
would be worthwhile describing and reiterating this paradigm along with other
strategies for dealing with short-term and long-term borrowing needs in the policy
statement.
One member noted that even over the near term, profit growth was slowing and that
fiscal policy is a sizable unknown. Another member noted that tax receipts tended
to be pro-cyclical with economic growth, and that the fiscal improvement could be
greater than expected given current trends. A few members observed that
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structurally, over the next three to four years as baby boomers enter retirement,
Treasury's borrowing needs will increase. With that in mind, members discussed
ways of addressing lower borrowing needs over the near- to intermediate-term.
Some members advocated cutting bills further from current levels. They felt that
the bill market could handle reduced issuance. Several members noted that
coupons could be trimmed further without impacting liquidity, particularly in the
short end of the curve. Another member suggested eliminating the 10-year nominal
reopening. Others thought that it made sense to look at eliminating a short or
intermediate coupon issue. A consensus seemed to develop around eliminating
one of two securities - the 5-year TIPS or the 3-year nominal note.
Members noted that the 5-year TIPS is a trading vehicle that does not offer
significant advantages to investors seeking long-term inflation protection. The
security reacts mainly to commodity price changes. Real money demand for TIPS
remains concentrated in longer-dated issues. Members generally thought that if
Treasury needed to eliminate an issue, it would be appropriate to eliminate the 5year TIPS. However, one member noted that there was not a lot to be gained from
eliminating the 5-year TIPS in FY07 because 1) the offering size is not that great
and 2) given Treasury's standard practice of being transparent and providing six
months notice to the market, changes would have an impact in FY08, not the
current fiscal year.
Members also felt that eliminating the 3-year nominal note could be another
alternative. They noted that there is not as much sponsorship in this issue vis-a-vis
the 2-year note and the 5-year note. The lack of a futures contract for the 3-year
note also made the security more suitable for elimination. In addition, eliminating
the 3-year note, even with six months advance notice, would help to reduce
borrowing in FY2007. Several members thought that given that borrowing needs
were going to increase in the next three to four years, removing the 3-year note at
this point was prudent a structural perspective as opposed to adjusting longer-dated
issues.
Members felt that reintroducing securities in the short end of the curve would be
less costly than in the long-end, and that Treasury's past experience had shown
that it could leave a sector and return at some future date if needed.
Members also expressed the belief that Treasury should adhere to the practice of
providing markets with six months advance notice of substantial calendar changes.
Doing so minimizes premiums associated with supply changes and mitigates
market disruptions.
Next, the Committee addressed the second question in the Committee charge
regarding Treasury's debt issuance as it relates to short-term borrowing needs. In
particular, the Committee was asked to address Treasury's short-term debt
issuance given the volatility in its borrowing needs. One Committee member
presented a series of charts (attached) discussing this topic.
The member began by reviewing borrowing-need volatility. The member presented
data showing that 1) receipts were significantly more volatile than outlays and 2)
that volatility has increased over the years. Factors driving increased volatility
include the economic cycle, energy prices, congressional spending, demographics
and changes in tax provisions. The volatility created significant forecast errors.
The member then reviewed how Treasury has addressed these volatility issues
through recent innovations and effective use of short-term debt instruments. These
innovations included the introduction of 4-week bills, more effective use of cashmanagement bills, and the suspension of 52-week bills. On the investment side,
Treasury has found ways to better manage volatility during times of high cash
balances, while increasing the return on cash balances through the use of the terminvestment option and the pilot repurchase agreement programs, and by relying
less on TT&L accounts.
The member next reviewed enhancements to the securities-trading infrastructure
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across Treasury, the Federal Reserve and the private sector. These enhancements
have been designed to provide capacity in the event of unforeseen market
disruptions that may cause volatility in borrowing needs. The main enhancement
undertaken by all parties involved include fully staffed, live, geographicallydiversified, contingent operating centers. These improvements serve Treasury well
in the event of a market disruption.
The member then broached other alternatives for addressing short-term borrowing
needs in a contingency event including those suggested in a September 2006 GAO
report on short-term financing. To address an unexpected short-fall in cash, GAO
recommended that Treasury look at establishing credit lines, consider private
placements of cash management bills, and/or establish authority to borrow directly
from the Federal Reserve during periods of wide-scale disruption. The member
pointed out difficulties with all these GAO suggestions, including the Significant
costs of credit lines, the possible inability of institutions to participate in providing
credit during a criSis, and the necessity that the clearing a settlement infrastructure
to be intact for doing private placements. They also questioned the wisdom of
borrowing from the Federal Reserve, and noted the likely difficulties in obtaining the
authority to allow the Federal Reserve to lend directly to the Treasury. The member
also suggested that Treasury consider tri-party repo arrangements, acknowledging
that it also is problematic if the settlement infrastructure is not functioning.
Members generally felt that given the nature of crises, and the infrastructure
currently in place, Treasury was well placed to deal with any contingent event. One
member pointed out that the Treasury and the Fed have done a good job in
navigating these crises in the past as witnessed by 9/11. Several members noted
that cash management bills were the primary vehicle in dealing with a short term
financing contingency, and Treasury currently has a strong program in place. Other
members noted that the recommendations made by the GAO were not optimal and
that cash management bills were the most appropriate method of addressing a
severe contingency event - a process which is already well established with market
participants.
The Committee agreed that Treasury's short term debt issuance in the face of
increasing volatility has been very effective, and recommended continued
transparency and predictability in addressing future volatility.
Next the Committee addressed the third item in the charge regarding
competitiveness in the US Treasury market, and any steps that could be
undertaken to ensure that the Treasury market remained the preeminent debt
market. Deputy Assistant Secretary Abbott presented a series of charts highlighting
prominent characteristics of the US Treasury market including trading volume in
relation to other sovereign debt markets as well as other indicators of robust
liquidity including narrow bid-ask spreads, an evolving investor base, increasing
trade sizes, strong primary auction demand, and the growth of the inflation-linked
debt market.
Abbott noted that Treasury would continue to foster deep, liquid markets by
remaining transparent in its actions, issuing debt in a regular and predictable
manner, and minimizing regulatory burdens on market participants. These guiding
principles, which have resulted in the deepest, most liquid debt market approach in
the world, were also part of Treasury's overarching approach to global capital
markets as discussed by Secretary of the Treasury Henry Paulson in his recent
discussions on competitiveness.
Abbott stated that Treasury remains committed to strengthening US capital markets
by adhering to well grounded principles including: maintaining a global perspective,
providing an evolving regulatory structure, establishing rules on sound principles,
approaching regulation from a risk-based approach, and providing enforcement to
deter bad behavior. not to hinder innovation or responsible risk taking.
In discussions following the presentation, one member noted that Treasury can not
"over communicate" Another member added that keeping a light regulatory touch
on the markets was critical and embracing new, more efficient technologies was
beneficial. This member suggested that Treasury look at the compliance process
h~:llwww.treas_govJpresslr.eleaseslhp235.htm
2/2/2007
Page 4 of 5
around bid submission, noting that there is still too much human intervention and
'
that the cost for manual error was still high.
Another member noted that Treasury, as the world's largest issuer, might be able to
do more in the area of helping to set issuer standards around the globe. One
potential area of concern was that the Treasury market relies heavily on "recycling"
securities back into the markets via repurchase agreements. Treasury should
consider ways to assure that these securities will continue to be available in the
market.
Another member noted that Treasury has done a commendable job in helping to
promote competitiveness in markets, and that in terms of providing information to
markets, its methods of distributing information was more effective than any other
sovereign.
Finally, the Committee discussed its borrowing recommendations for the February
refunding and the remaining financing for this quarter as well as the April - June
quarter. Charts containing the Committee's recommendations are attached.
The meeting adjourned at 11 :50 a.m.
The Committee reconvened at the Hay-Adams Hotel at 5:30 p.m. All the
Committee members were present except Mohammed EI-Erain. The Chairman
presented the Committee report to Assistant Secretary Ryan. A brief discussion
followed the Chairman'S presentation but did not raise significant questions
regarding the report's content.
The meeting adjourned at 5:45 p.m.
Karthik Ramanathan
Director
Office of Debt Management
January 30, 2007
Certified by:
Thomas G. Maheras, Chairman
Treasury Borrowing AdviSOry Committee
Of The Bond Market Association
January 30, 2007
Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge - January 30, 2007
Fiscal Outlook
Given recent trends in the fiscal outlook, what are the TBAC's thoughts on
Treasury's debt issuance?
Short Term Debt Issuance
. '
We would like the Committee's views on Treasury debt Issuance as It relates to
short-term borrowing needs. Are there alternative schedules, Instruments, or other
issues that Treasury should consider in managing ItS short-term debt Issuance
given the volatility in its borrowing needs?
Competitiveness of the US Treasury Market
http://www.tt:"~as.gov/press/rele~es/hp235.htm
2/2/2007
Page 5 of 5
Recognizing that capital markets are constantly evolving and growing, are there any
steps that we should undertake to ensure that the Treasury market remains the
preeminent debt market?
Financing this Quarter
We would like the Committee's advice on the following:
The composition of Treasury notes and bonds to refund approximately
$35.1 billion of privately held notes maturing on February 15, 2007.
• The composition of Treasury marketable financing for the remainder of the
January-March quarter, including cash management bills.
• The composition of Treasury marketable financing for the April-June
quarter.
•
REPORTS
http://www.treas.lZ.ov/press/releases /hp235.htm
2/2/200
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Corporation Taxes
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Source: Haver Analytics
After-tax Corporate Profits
$ Trillions
$ Trillions
- - - - - - - - - -----------+1
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12 j - - - - - - - - - - - - - - - - - - - - - -
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5
Nonfarm payrolls continue to post gains while the
unemployment rate remains low
Change in Nonfarm Payrolls (SA, Thousands) and the Civilian Unemployment Rate
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Housing market trends appear uneven, and energy prices,
while moderating, remain volatile
Median Sales Price of Existing Single-Family Homes and Year-Over-Year Change
$ Thousands
20%
Y-O-Y Change
Median Sales Price
15%
225
10%
175
5%
125
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+-+-----+-------+--
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West Texas Intermediate Crude Oil
Source. Haver Analytics
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And while deficits have been declining, government
expenditures continue to outpace receipts
Federal Deficit/Surplus as a Percentage of GDP
Percent
3.0
+---
Percent
3.0
- - - - - ~ -----1
~---- ~
2.0f-----
1.0
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+----------------1
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Federal Receipts and Outlays as a Percentage of GDP
95
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00
01
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Percent
06
--- - Receipts - - Outlays
Fiscal Year
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14.0
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98
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00
01
02
03
04
05
06
Fiscal Year
Office of Debt 1\1anagemellt
9
Given recent trends, we would like the
Committee's views on the following:
• What is the Committee's view on the fiscal
outlook in 2007 and beyond?
• Is Treasury's issuance calendar
adequately placed to address its future
funding needs?
o
Ollice of Debt Management
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The US Treasury market is the most liquid
government debt market in the world
o
Office oCDebt Management
12
Among major sovereign debt markets, average daily trading
volume is highest in the US Treasury market
Average Daily Debt Trading Volume
__ us
bins $
•
Japan
600
UK
500
400
300
200
100
o I·
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•
•
•
•
~
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Source: FR2004 Primary Dealer, Japanese Securities Association, UK DM 0
o
Office of Debt Management
13
Treasury market liquidity remains healthy
o
•
Primary auction demand is deep and continues to evolve
•
Average daily trading volume in the on-the-run US Treasuries continues to
grow
•
•
•
Bid-ask spreads remain narrow
Average trade sizes in the secondary market are growing
Growth of the US inflation-linked market has surpassed that of all other
major inflation-linked debt issuers
Office ofDebt Management
14
Features of the US Treasury market:
• Transparency
• Regular and predictable issuance
• Minimal regulatory burden
e
Office of Debt Management
15
Secretary Paulson's Principles on Competitiveness in US
Capital Markets
Treasury remains committed to strengthening
not only the Treasury market but also US capital
markets as a whole.
• Global view
• Evolving and responsive regulatory structure
• Rules based on sound principles
• Risk-based approach to regulation
• Enforcement to deter bad behavior, not hinder
innovation or responsible risk taking
o
Office or Debt Management
16
We welcome the Committee's views on
the following:
+ How does the competitiveness of the US
Treasury market compare to that of foreign
bond markets?
+ Are there steps that we should undertake .
to ensure that the Treasury market
remains the preeminent debt market?
e
Office omebl Managemenl
17
~
Treasury Borrowing Advisory Committee Presentation to the Treasury
January 30, 2007
A Review of Short-Term Debt Issuance as it Relates to Short-Term Borrowing Needs
PAGE 1
71
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•
The question before this committee, and the investment community at
large, is whether the steps taken by the Treasury and others have been
sufficient to withstand a future wide scale disruption, or whether
additional measures should be considered and implemented at this
time.
•
This report will touch upon the following:
•
Current borrowing need volatility
•
•
•
The factors that will contribute to further volatility in borrowing needs
••
The effectiveness of short-term debt securities in the current environment
•
•
Treasury's effectiveness of managing high cash balances (TT&L--Treasury
Tax and Loan and the TIO--Term Investment Option, a pilot program offered
to TT &L participants)
•
•
If the market were to face a large scale disruption at a time when Treasury
cash balances were low, is the Treasury well placed to handle such a
contingency event? Is Wall Street Prepared?
••
Review the suggestions presented to Congress by the GAO; both positive
and negative
•
•
Additional tools or issues the Treasury should consider at this time
PAGE 3
~
Volatility of Borrowing Needs in Dollar Terms
300
~!!!
~
300
OJtlays Q/Q $b (+/- 1 SO)
200
200
100
100
0
I,
V'
'I"U ,
ryr- ... ··
o~VVVVYVV~
i
\I
-100
-100
-200
-200
-3OO1L--.______~------._----_.------._--_.--
-300
80
85
90
95
00
us Department of Treasury
1 L . - - - , -_ _- - - . - -_ _. - - _ - . -_ _- . - - - _ - . - - - -
80
05
PAGE 4
Source:
Receipts QJQ $8 (+/-18D)
85
90
95
00
05
~
Volatility of Borrowing Needs as a Percentage of Nominal GOP
22.0
23.0
0/0 of NGDP
22.5
21.0 .
22.0
21.5
20.0
a
21.0
20.5 ~
19.0
J;;'18.0,,,
'S
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17.0
16.0
19.0
18.5
Receipts
4~ Mean (Receipts)
1 5.0 j
80
20.0 ~
a::::
85
90
LOW
i
95
PAGE 5
Source: US Department of Treasury
;joyr
00
05
l 18. 0
17.5
~
Borrowing Have Been Trending Lower, Despite Volatility in Outlays & Receipts
Fiscal Year
2003
2004
2005
2006
2007 Estimates
OMB
eBO
Primary Dealers _
Budget
Budget %GDP
-$375
-$411
-$321
-$248
3.4%
3.50/0
2.5%
1.90/0
Budget
Budget %GDP
-$339
-$172
-$275
-2.4%
-1.3%
-2.0%
$Billions
PAGE 6
Source:
us Department of Treasury
- -
I
i
- -
I
~
Contributing Factors to Forecast Errors: Reviewing the Obvious
:
Cyclical Influences
:
Price of Oil
:
Supplemental Appropriations
:
Aging Population
:
Tax Provisions
PAGE 7
~
Contributing Factors: Cyclical Influences
Volatility of Receipts in Percentage Terms
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
65
70
75
80
85
PAGES
Source: US Department of Treasury
90
95
00
05
~
Contributing Factors: Oil
80
70
*Blue Arrow,
*Red Arrow,
eso Underestimates Inflation
eso Overestimates Inflation
Nominal WTI
60
50
40
30
20
101~
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
PAGE 9
Source: Energy Infonnation Administration (EIA)
------ -------------------
~
Contributing Factors: Supplemental Appropriations
2001
I $27,479
2002
I $45,317
2003
I $81,107
2004
2005
2006
PAGE 10
Source: Congressional Budget Office (CBO)
~
Contributing Factors: Aging Population
- Medicare Spending as a %of GOP
14
13
12
11
10
9
Forecast
~8
27
0
~6
5
4
3
2
1
0
1970
1990
1998 2002
2006
2010
2014
2030
2050
2070
PAGE 11
Source: The Board of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds
~
Contributing Factors: Tax Provisions
•
Long term borrowing needs rose substantially in the wake of the first
round of Bush Tax cuts earlier this decade.
•
OMB estimates borrowing needs will decline sharply once those tax
provisions expire in 2010.
•
Legislated tax changes since February decrease receipts 2006-2009,
then increase receipts in both 2010 and 2011.
PAGE 12
~
Forecasting Errors: By the Numbers (OMB)
350
2000's OMB Budget Surplus Projections
300
II)
II 250
200
150
00
100
01
02
03
04
05
06
07
08
09
10
OMB's 2006 Budget Projections
25
-50
-125
-200
-275
-3501~--0fl--~-=~~~--~~~--~--~------~--------
06
07
09
08
PAGE 13
Source: Office of Management Budget (OMB)
10
11
~
Forecasting Errors: By the Numbers (OMB)
What Budget Surpluses/Deficit May Look Like
100 i_Given OMB's 2000 Degree of Errors
..
-100
-300
-500
-7001~--~--~--~----~--~--~--~--~--~~~~~
00
•
01
02
03
04
05
06
07
08
09
10
Degree of forecasting errors significant, almost $600 billion in the
current fiscal year.
If the forecast errors reverse, however~ the current issuance
pattern requires heavy reliance on bills in early FY2007 (ODM,
Quarterly Refunding, October 30, 2006)
II
H
PAGE 14
Source: Office of Management Budget (OMB), Countrywide Securities
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Effectiveness of Short-Term Debt Instruments
•
Over the past several years the Treasury implemented the following
innovations in short term financing:
•
•
July 2001: Intro~uced 4-week bill program, reducing reliance on cash
management (eM) bills
•
•
2001: 52 week bill issuance suspended
••
October 2003: Launched the Term Investment Option Program (TIO)
•
•
2004: Eliminated compensating balances
•
•
In line with Treasury's mandate to maintain low cash balances they now
operate with a direct pay for services model
•
•
March 2006: Launched repurchase agreement pilot program
PAGE 16
·~
Effectiveness of Short-Term Debt Instruments: 4-Week Bills
$450
• Amount of eM Bill Issuance (Fiscal Years)
$400
$350
$300
.~ $250
$346
~ $275
$247 $268 $252
$235 $227
$$200
$150
$100
$50
$0
1996 1997 1998 1999 2000 2001
PAGE 17
Source: US Department of Treasury
2002 2003 2004 2005 2006
~
Effectiveness of Short-Term Debt Instruments:
eM Bills
140000
•
120000
Cash Balance
-+-
CM Bill Issued
100000
~
80000
.~
:i
.,.
60000
40000
20000
o
10/03 12/03 2104
4/04
7/04
9/04 11/04 2105
4/05
PAGE 18
Source: US Department of Treasury
6/05
8/05 11/05 1/06
3/06
6/06
8/06 10/06 1/07
~
Short-term debt instruments: Flexibility in Issuance
45
40
35
1;' 30
• Weighted Average Term to Maturity of eM Bills (Fiscal
j
33
33
(J)
0
'025
...
~ 20
E
~
15
10
5
0
1996
1997
1998
1999
$1.200 ~
2000
2001
2002
2003
2004
2005
2006
• 4-week Bill Issuance
$1,000
$863
.
2002
2003
2004
Fiscal Year
$800
$880
$908
S $600
m$400
$200
$0
2001
PAGE 19
Source: US Department of Treasury
2005
2006
71
• •
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Managing High Cash Balances: TT&L Accounts
•
Treasury Tax and Loan (TT&L) Accounts
•
•
The TT&L accounts earn Fed Funds less 25 basis points, a rate set by
the Treasury in 1978, not in line with current market rates.
•
•
The interest earned on TT&L accounts creates a negative funding
spread for the Treasury. It is insufficient to cover the cost of funding
short-term debt in"struments.
•
•
In the late 1990s as financing rates became more transparent, the
Treasury proposed to bring the interest rate in line with current market
rates, which would have increased the return on Treasury balances by
more than 20 basis points.
•
•
TT&L participants met the Treasury's suggestion with significant
resistance citing that the wider spread was appropriate compensation for
the transaction.
•
In response to the resistance from TT&L participants, and in an effort to
reduce the negative funding spread, the Treasury introduced the Term
Investment Option pilot program in 2002.
•
PAGE 21
~
Managing High Cash Balances: TIO Accounts
•
Term Investment Option (TIO)
-.•
The TIO pilot program proved successful and transitioned into a
permanent program in October 2003.
•
•
Over the first forty-two auctions, the difference between auction rates
and what he Treasury would have earned had it left the balances in Main
TT&L Accounts (FF less 25bp) was uniformly positive and averaged
17.3 basis pOints.1
•
•
The Treasury has continued to successfully pursue new and innovative
ways to increase the interest earned on high cash balances: most
recently launching a pilot repo program.
•
70% of high cash balances that flow through TT&L accounts are now
redirected into the TIO and Repo programs.
•
PAGE 22
I
Federal Reserve, Recent Innovations in Cash Management, Volume 10, Number 11
~
Managing High Cash Balances: Pilot Repurchase Agreement Program
•
Repurchase Agreement Pilot Program (Repo)
•
•
Repurchase Agreement Pilot Program started in March 2006.
•
•
It operates on a DVP basis only with TT&L depositories.
•
•
The pilot program currently earns a better funding rate than both the
TT&L and TIO accounts. 1
•
•
Since the Treasury launched the pilot Repurchase Agreement Program,
over $206 billion TT&L funds have been invested. 2
IGAO-06-0269
2216 th Annual Government Financial Management Conference, Department of the Treasury
PAGE 23
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Backup Funding Options: Industry Capacity and Resilience
•
The Treasury, Federal Reserve, large member banks, clearing banks, key
clearing entities and primary broker-dealers have upgraded capacity to address
business continuity issues not considered prior to 9/11, moving from cold backup
to hot backup and fully staffed, geographically diversified operating centers.
Post 9/11 the Treasury and the Federal Reserve staffed additional operational locations and
added data systems capability to increase auction resilience. In addition, they have added
locations in different geographic regions for all four critical auction functions.
BoNY operates Broker Dealer Services Division, including day-to-day securities clearing
services, in three geographically dispersed locations: NYC, NJ and FL. Each center has
capacity to process 100% of daily activity.
Pre 9/11, Chase operated clearing services out of NYC with a data-only back-up facility in NJ.
Now, in addition to NYC, Chase has fully staffed facility in Dallas, Texas, which handles
approximately 50% of its daily volume and has capacity to process 100%. In addition, Chase
has upgraded its NJ site and established a Maryland backup site.
Pre 9/11, the FICC operated a single facility from 55 Water Street. They have diversified
geographically though the addition of a full-service location in Tampa, Florida, capable of
processing 100% of activity. In addition, several members of the executive management team
operate from offices in Garden City, NY.
..
While no one can fully anticipate unforeseen events, the industry has significantly reduced the
probability of the "auction/securities grid" failing through their investment in multiple levels of
backup, with specific focus on critical business lines and functions.
PAGE 25
~
GAO's Recommendations to Congress, September 2006
•
Recommendation: examine the requirements for Treasury to establish a
line of credit.
•
•
••
•
•
•
Financial institutions, specifically large commercial banks, would have to
be willing and capable of lending money to Treasury in the appropriate
amount and time required by Treasury.
Under Basel II, banks would incur 100 % capital charges for unsecured
loans. Negotiations would have to consider how a collective capital
charge in a high stress environment would impact the banking system
and define the circumstances under which Base II could be waived.
Because the nature and impact of potential future wide-scale disruptions
are unknown, uncertainty exists regarding the ability of participating
institutions to meet their obligations.
Recommendation: examine the ability of the Treasury to issue a cash
management bill for private placement.
:
:
:
Institutions have ability and authority to purchase a CM bill that meets
Treasury's funding needs.
Federal Reserve plays large role, by providing liquidity to depository
institutions.
Clearing and settlement systems must function to complete transactions.
PAGE 26
~
GAO's Recommendations to Congress, September 2006
•
Recommendation: Congress should consider allowing the Federal
Reserve to lend directly to the Treasury during a "wide-scale"
disruption using a carefully crafted last resort funding option.
•
•
Severs the long standing independence of the Federal Reserve.
•
•
What defines a "wide-scale" disruption? War? National disaster? The
most carefully crafted bills are subject to revision.
•
•
In the event the Federal Reserve lost independence, the cost of future
funding would likely increase to compensate for political uncertainty.
The amount of risk premium the market could demand is as
ambiguous as predicting the future disruption.
••
Congress has provided the Federal Reserve with considerable scope
for independently exercising its best judgment as to what monetary
policy should be. At the end of the day, it is public confidence that is a
central bank's most precious commodity in a democracy.1
PAGE 27
1
McDonough: The Importance of Central Bank Independence in Achieving Price Stability, July 2, 2002
«
• •
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Tri-Party Repurchase Agreements: A Contingency Planning Consideration
•
Execution
•
•
Treasury raises cash by issuing securities, e.g. T-Bills,
appropriately staggering maturities.
•
•
Treasury invests in open tri-party repurchase agreements at
prevailing market rates with banks and primary dealers.
•
•
In the event of a significant market disruption, the Treasury, at its
option, may elect to close open tri-party trades and receive
proceeds. Banks may return funds directly, primary dealers may
make funds available at the clearing banks, BoNY and Chase.
•
In the event market participants require additional liquidity, the
Federal Reserve, at its option, may perform open market
operations and discount window transactions to maintain market
stability.
•
PAGE 29
~
Tri-Party Repurchase Agreements: A Contingency Planning Consideration
Treasury issues additional
securities for emergencies
(say, $25b in 4-week bills.)
4
Street and Banks need
additional liquidity in response
to market conditions.
Treasury executes
$25b of tri-party repo
with counterparties
on open
.
FRBNY adds liquidity through
open market operations and
the discount window.
PAGE 30
Market Event
..
Treasury closes
$25b of tri-party
repos
-
~
Tri-Party Repurchase Agreements: A Contingency Planning Consideration
Advantages
•
•
Disintermediation of Fed and Treasury. Maintains credibility of Federal
Reserve.
•
•
If in the event the' "auction/security grid" failed, the Treasury would still
have cash on hand to fund liabilities.
•
•
Flexibility to scale up auction size over time as social security outlays
expand.
•
•
Reduces interest expense by eliminating the negative funding spread.
Funding Costs
•
•
Financially, the proposed structure may prove attractive based on T-Bill
versus overnight tri-party financing rates.
•
Using current market rates, a 4 week bill with a bond equivalent yield of
4.98% compares favorably to the equivalent GC repo yielding 5.18%. In
this example Treasury would earn 18 basis points in positive carry.
•
PAGE 31
~
Tri-Party Repurchase Agreements: A Contingency Planning Consideration
• . Considerations
•
•
Transaction cost may outweigh potential spread advantage.
•
•
Volatility of daily financing rates may be of concern.
••
Repurchase agreements may not be adequate to cover emergency
funding needs. Explore private placement eM bills as a second tier
alternative or supplement to tri-party participation.
PAGE 32
Page 1 of2
January 29, 2007
HP-237
Secretary Paulson Holds Roundtable Discussion
on State of U.S. Economy
Secretary Henry M. Paulson will hold a roundtable with a group of economists today
at the Treasury Department to discuss the state of the U.S. economy. Meeting
participants will include:
Lewis Alexander was appointed chief economist of Citigroup and the head of the
Economic and Market Analysis (EMA) department of Citigroup Global Markets in
April 2005. Previously, he served as the global head for emerging markets within
EMA..ln that role, Alexander directed the work of economics teams covering Latin
America, Central and Eastern Europe, the Middle East, Africa, and Asia (excluding
Japan).
Dick Berner is a managing director and the chief U.S. economist at Morgan
Stanley. Berner is responsible for directing the firm's forecasting and analysis of the
U.S. economy and financial markets. Before joining Morgan Stanley in 1999, Berner
was executive vice president and chief economist at Mellon Bank Corporation and a
member of Mellon Bank's Senior Management Committee.
Gail Fosler is executive vice president and chief economist of The Conference
Board. Fosler directs The Conference Board's worldwide Economics Research
Program. Her unit now produces leading economic indicators for the United States,
United Kingdom, Australia, France, Germany, Japan, Korea, Mexico and Spain.
Fosler also directs The Conference Board's global operations in key European and
Pan-Asian markets, including China and the Middle East.
Jim Glassman is a managing director and senior economist with J.P. Morgan
Chase & Co. He works closely with the firm's chief investment officer, commercial
banking, and government relations groups. He publishes independent research on
the principal forces shaping the economy and financial markets. Glassman is a
frequent commentator on economic policy issues.
Peter Hooper joined Deutsche Bank Securities in the fall of 1999, first as chief
international economist. He shortly thereafter assumed responsibilities as chief U.S.
economist and became chief economist in 2006. Hooper frequently comments on
U.S. and global economic and financial developments in the news media.
James Meil is chief economist with Eaton Corporation, a diversified industrial
manufacturer with 2006 sales of $12.4 billion. At Eaton Corporation, Meil is
responsible for domestic and international forecasts of economic conditions. He is a
contributor to the Blue Chip Economic Indicators, Consensus Economics, USA
Today and The Wall Street Journal economic surveys and the Federal Reserve
Bank of Philadelphia's "Survey of Professional Forecasters."
Mark Zandi is chief economist and co-founder of Moody's Economy.com, Inc.,
where he directs the company's research and consulting activities. Moody's
Economy.com is an independent subsidiary of the Moody's Corporation and
provides economic research and consulting services to businesses, governments
and other institutions.
http://www.treas.govJpressireleaseslhp237.htm
2/212007
Page 1 of2
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January 29, 2007
HP-238
Making Health Insurance Affordable for More Americans
Examples under President Bush's Standard Deduction Health Insurance Plan
Example 1: An uninsured family of four
Note: All figures are for 2009, the first year the policy is in effect.
Family #1
• A family of four earns $60,000 in total compensation, but all of it comes in the form
of wages, i.e.
they do not get health insurance through their employer.
• On the non-group market, they would pay $5,100 for an average policy, and
$4,100 for a basic lowcost
policy.1
• Under current law, the family receives no tax benefit for purchasing health
insurance and is treated
unfairly relative to those workers who receive health care through their employer.
President's Proposal:
• If this family buys health insurance, they deduct $15,000, which reduces their
taxable income from
$60,000 to $45,000. This deduction lowers their taxes (income and payroll) by
$4,545.
• If this family bought an average policy ($5,100), the cost of the insurance would, in
effect, drop to
$555 ($5,100-$4,545=$555).
• If this same family bought the basic low-cost policy ($4,100), the family would get
back $445
($4,100-$4,545= -$445); they end up with $445 more than if they remain
uninsured!
1 The parents of the two children are assumed to be 35 years old in 2009.
REPORTS
http://www.treas.goy/press/releases/hp238.htm
2/212007
Page 2 of2
•
Examples under President Bush's Standard Deduction Health Insurance
Plan.
!ltl.p:llwww.treas...goY/press/releases/hp238.htm
2/2/2007
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE January 29, 2007
CONTACT
Jennifer Zuccarelli (202) 622-8657
MAKING HEALTH INSURANCE AFFORDABLE FOR MORE AMERICANS
Examples under President Bush's Standard Deduction Health Insurance Plan
Example 1: An uninsured family of four
Note: All figures are for 2009, the first year the policy is in effect.
Family #1
• A family of four earns $60,000 in total compensation, but all of it comes in the form of wages, i.e.
they do not get health insurance through their employer.
• On the non-group market, they would pay $5,100 for an average policy, and $4,100 for a basic lowcost policy.l
• Under current law, the family receives no tax benefit for purchasing health insurance and is treated
unfairly relative to those workers who receive health care through their employer.
President's Proposal:
• If this family buys health insurance, they deduct $15,000, which reduces their taxable income from
$60,000 to $45,000. This deduction lowers their taxes (income and payroll) by $4,545.
• If this family bought an average policy ($5,100), the cost of the insurance would, in effect, drop to
$555 ($5,100-$4,545=$555).
• If this same family bought the basic low-cost policy ($4,100), the family would get back $445
($4,100-$4,545= -$445); they end up with $445 more than if they remain uninsured!
I
The parents of the two children are assumed to be 35 years old in 2009.
Current law
President's Policy
$60,000
$60,000
none
$60,000
$60,000
n/a
$15,000
$60,000
$45,000
0
$4,545
Cost of health insurance (averaQe policy)
Net after-tax cost of buying the basic policy
Effect of President's policy on after-tax price
of insurance
$5,100
$5,100
$5,100
$555
-89%
Cost of health insurance (basic policy)
Net after-tax cost of buying the basic policy
$4,100
$4,100
$4,100
$-445
Total compensation
Wages
Employer-provided health insurance
New standard deduction for health
insurance
Taxable income if they buy health insurance
Tax savings if they buy health insurance
Example 2: A family of four that now gets health insurance through work
Note: All figures are for 2009, the first year the policy is in effect.
Family #2
•
•
•
Now consider a family of four with the same $60,000 in total compensation, but $14,000 of it comes
in the form of an employer-based insurance policy, of which the employer pays $10,000 and the
employee contributes $4,000 on a pre-tax basis.
This family has the same total compensation as in example 1, but their wages (and taxable income)
would be $46,000.
Under current law, if this family switched to a less expensive basic insurance policy with a $6,000
premium, they would receive $8,000 more in wages, but they would have to pay 30.3% taxes on it
(15% income + 15.3% payroll). So they would, in effect, get only $5,576 higher wages for giving
up $8,000 of insurance. This is why the family probably does not switch to a less expensive
insurance plan under current law - it's not worth it.
President's Proposal
• If the family changed nothing, their wages would still be $46,000, but their taxable income would
fall to $45,000, and they would pay $303 less in taxes after the standard deduction.
• If instead the family switched to a less expensive policy with a $6,000 premium, they would get the
same tax savings ($303), but would receive $8,000 more in wages. This family has given up $8,000
of insurance premium for $8,000 more in wages. They are much more likely to choose less
expensive health insurance and higher wages.
Current law
President's
Policy
President's policy, but
the family trades low
cost health insurance
for higher wages
Total compensation
WaQes
Employer's contribution to health
insurance premium
Worker's premium contribution
$60,000
$46,000
$10,000
$60,000
$46,000
$10,000
$60,000
$54,000
$6,000
$4,000
$4,000
$0
Taxable income before applying the
standard deduction
New standard deduction for health
insurance
$46,000
$60,000
$60,000
nfa
$15,000
$15,000
Taxable income since they have health
insurance
$46,000
$45,000
$45,000
WaQe increase
$8,000
$303
$303
0
Tax savings
Basic
Averaqe
AveraQe
Type of health insurance
1Under current law, the worker's premium contribution IS assumed to be made on a pre -tax baSIS through a
cafeteria plan.
Example 3: An Uninsured Single Mom with 2 Children
Note: All figures are for 2009, the first year the policy is in effect.
Family #3
• A single mom with two children has $20,000 of total compensation, all of it coming in the form of
wages. If she were to purchase health insurance on the non-group market, she would pay $5,100 for
an average policy, and $4,100 for a basic low-cost policy.2
President's Proposal
• Under the President's proposal, if this mom were to buy health insurance, she would deduct $15,000
from her income and payroll taxes. This reduces her taxable income from $20,000 to $5,000.
• If she bought the average policy, she would save $2,531 on her taxes. In effect, the price of the
average policy would drop to $2,569.
• Under the President's proposal, if she bought the basic low-cost policy, she would again save $2,531
on her taxes. If she buys this basic plan, the cost of insurance would be $1,569 after taxes.
Current law
President's Policy
$20,000
$20,000
none
$20,000
$20,000
New standard deduction for health
insurance
nfa
$15,000
Taxable income if they buy health
insurance
$20,000
$5,000
Tax savings if she buys health insurance
0
$2,531
Cost of health insurance (average ~olicy)
Net after-tax cost of buying the average
$5,100
$5,100
$5,100
$2,569
Total compensation
Wa~es
Em~o"yer-provided
health insurance
~oli~
-50%
Effect of President's policy on after-tax
price of average insurance
Cost of health insurance (basic Roli~
Net after-tax cost of buying the basic
policy
Effect of President's policy on after-tax
price of basic insurance
2
The mother is assumed to be 35 years old in 2009.
$4,100
$4,100
$4,100
$1,569
-62%
Example 4: A family of four that now gets health insurance through work
Note: All figures are for 2009, the first year the policy is in effect.
Family #4
• A family of four earns $100,000 of total compensation with an average employer-based insurance
policy that costs $14,000 in 2009, of which the employer contributes $10,000 and the employee pays
$4,000 on a pre-tax basis. This family's current wages (and taxable income) are $86,000.
• Under current law, if this family switched to a less expensive basic insurance policy with a $6,000
premium, they would get $8,000 in higher taxable wages, but they would have to pay about 41.3%
taxes on it (26% income + 15.3% payroll).3 So they would, in effect, get only $4,696 higher wages
after taxes for giving up $8,000 of insurance. This is why the family probably does not switch to a
less expensive plan under current law - it's not worth it.
President's Proposal
• If the family changed nothing, their wages would still be $86,000, but their taxable income would
fall to $85,000, and they would pay $413 less in taxes after the standard deduction.
• If instead the family switched to the less expensive policy with a $6,000 premium, they would get
the same tax savings ($413), and would receive $8,000 more in wages. This family has given up
$8,000 of insurance premium for $8,000 more in wages. They are much more likely to choose less
expensive health insurance and higher wages.
Current law
President's policy
Total compensation
Wages
Employer's contribution to
health insurance premium
Worker's premium contribution
$100,000
$86,000
$10,000
$100,000
$86,000
$10,000
President's policy, but the
family trades low cost health
insurance for higher wa~es
$100,00
$94,000
$6,000
$4,000 1
$4,000
$0
Taxable income before applying
the standard deduction
$86,000
$100,000
$100,000
nfa
$15,000
$15,000
$86,000
$85,000
$85,000
New standard deduction for
health insurance
Taxable income since they have
health insurance
Wage increase
$8,000
$413
$413
Tax savings
0
Average
Average
Basic
Type of health insurance
1 Under current law, the worker's premium contribution IS assumed to be made on a pre-tax baSIS through a
cafeteria plan.
This taxpayer would be subject to the 26 percent alternative minimum tax (AMT) rate.
Example 5: A family of four that now gets health insurance through work
Note: All figures are for 2009, the first year the policy is in effect.
Family #5
• Now consider another family of four with the same $100,000 of total compensation, but $20,000 of
it comes in the fonn of an employer-based insurance policy, of which the employer pays $15,000
and the employee contributes $5,000 on a pre-tax basis. This family's current taxable wages are
$80,000.
• Under current law, if this family switched to a less expensive basic insurance policy with a $6,000
premium, they would get $14,000 in higher taxable wages, but they would have to pay 40.9% taxes
on it (25.6% income + 15.3% payroll).4 So they would, in effect, get only $8,276 more in wages
after taxes for giving up $14,000 of health insurance. This is why the family probably does not
switch to a less expensive plan under current law - it's not worth it.
President's Proposal
• If the family changed nothing, their wages would still be $80,000, but their taxable income would
rise to $85,000, and they would pay $2,007 more in taxes.
• If instead the family switched to the average policy with a $14,000 premium, they would face the
same tax increase ($2,007), but they would have $6,000 higher taxable wages. This family has given
up $6,000 of health insurance premium for $6,000 of wages. They are much more likely to choose
less expensive health insurance and higher wages.
Current law
President's policy
President's policy, but the
family trades low cost health
insurance for higher wages
Total com~ensation
Wages
Employer's contribution to
health insurance premium
Worker's pre-tax premium
contribution Jcafeteria plan)
$100,000
$80,000
$15,000
$100,000
$80,000
$15,000
$100,000
$86,000
$14,000
$5,000 1
$5,000
$0
Taxable income before applying
the standard deduction
$80,000
$100,000
$100,000
nfa
$15,000
$15,000
$80,000
$85,000
$85,000
New standard deduction for
health insurance
Taxable income since they have
health insurance
$6,000
Wage increase
-$2,007
-$2,007
0
Tax savin_9s
Average
Expensive
Expensive
Tjfpe of health insurance
,
1 Under current law, the worker s premium contribution IS assumed to be made on a pre -tax basIs through a
cafeteria plan.
-30-
4
A portion of the $14,000 would be subject to the 26 percent alternative minimum tax (AMT) rate.
Page 1 of 1
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January 29, 2007
HP-239
Treasury Announces Market Financing Estimates
Treasury announced its current estimates of net marketable financing today for the
January - March 2007 and April - June 2007 quarters:
•
•
Over the January - March 2007 quarter, the Treasury expects to borrow
$141 billion of net marketable debt, assuming an end-of-March cash
balance of $10 billion. The current estimate is $35 billion lower than
announced in October 2006. Net receipts and outlays have improved by $17
billion. The remainder of the improvement comes from increased issuances
of State and Local Government Series securities and adjustments in
quarterly cash balances.
Over the April - June 2007 quarter, the Treasury expects to pay down $130
billion of net marketable debt, assuming an end-of-June cash balance of
$30 billion.
During the October - December 2006 quarter, Treasury borrowed $42 billion of net
marketable debt, finishing with a cash balance of $31 billion at the end of
December. In October 2006, Treasury announced net marketable borrowing of $63
billion, assuming an end-of-December cash balance of $30 billion. The decrease in
borrowing was primarily the result of lower outlays and higher-than-expected net
issuances of State and Local Government Series securities.
Since 1997, the average absolute forecast error in net borrowing of marketable debt
for the current quarter is $11 billion and the average absolute forecast error for the
end-of-quarter cash balance is $9 billion. Similarly, the average absolute forecast
error for the following quarter is $34 billion and the average absolute forecast error
for the end-of-quarter cash balance is $11 billion.
Additional financing details relating to Treasury's Quarterly Refunding will be
released at 9:00 A.M. on Wednesday, January 31.
REPORTS
•
Sources cmd Uses Tallie
http://www.treas.gov/press/releases/hp239.htm
2/212007
Sources and Uses Reconciliation Table
Announcement Date
Quarter
Financing
Need
(I)
Marketable
Borrowing
(2)
Financing
All Other
Sources
Total
(3)
(4) = (2) + (3)
Change in
Cash Balance
(5)=(4)-(1)
Oct - Dec
2005
---------------------------------------it············· . . . . .97
. . -.. . . . ..
Actual
93
6
Memo
End-Of-Quarter
Cash Balance
(6)
. . . . . ·········-3;;,--- .
98
Jan - Mar
2006
Actual
173
8
Apr - Jun
2006
Actual
38
46
6
52
Jul - Sep
2006
______ E~L___ ________ ?_~ ________ _
._____ J~!L ___ _________ ~L _______ _
Oct - Dec
2006
I
Jan - Mar
2007
Apr - Jun
2007
~~_'!~_I!~r~~~_~~_~?___________________
Memo: Forecast Revision
Notes: All data is reported on a cash basis.
______(!~~L___ ____ Q_~~L __ .______QL _________ il_~~L ___ _
20
30
Page 1 of 1
January 29, 2007
HP-240
Remarks by Secretary Henry M. Paulson
At Roundtable Discussion on State of U.S. Economy
Department of the Treasury
Let me thank you all for coming to Treasury. One of the very pleasant surprises I
had coming to government has been the strong economy we have today. I can't
take a lot of credit for it but I'm still very very pleased about it. One of the things
that we think is important is that a strong economy is going to make it easier to deal
with some of the very major challenges we have. It's much easier to undertake
things like entitlement reform, Social Security, and energy security from the position
of a very strong economy. Now you heard, I believe, the President talk about it at
the State of the Union. He made the major points - over 7 million new jobs since
August 2003, inflation appears to be at a very manageable level, which is key to
extending an expansion, and unemployment is at very very low levels. What is very
important to me, I know it's very important to the President, is we're starting to see
this economic growth translating itself into real wage increases for the average
worker.
So here we are in January of 2007, and it looks like we've made the transition from
an unsustainable rate of growth to something that looks very sustainable, to
something like 3% a year. You know as well as anyone there's no such thing as
certainty when talking about economic matters. We've got to have some
caution ... talking about the U.S. economy, I want to see if you see it the same way
as we see it, and more importantly what cautions do you see, and what policy
measures do you think are going to be important to sustain this growth.
Thank you very much for coming today. I look forward to having a good discussion.
~1:p://www.treas.gov/press/releases/hp240.htm
2/2/2007
Page 1 of3
January 31,2007
hp-241
Testimony of Treasury Secretary Henry M. Paulson
on the Report on International Economic and Exchange
Rate Policies
Before the Committee on Banking, HoUSing, and Urban Affairs
Mr. Chairman, Senator Shelby, and members of the committee, thank you for the
opportunity to have this dialogue with you today on an issue of vital importance to
American workers and the American economy.
As you know, the foreign exchange report recently issued by the Treasury reviews
developments in international economics and the exchange rate policies of a
number of our key trading partners.
Let me first take a few minutes to talk about the important and multi-faceted
relationship we have with China. Getting it right is vitally important to the citizens of
both our nations - and the world - and will be for many years to come. Since the
economic relationship between our two countries is an important part of the overall
relationship, I have focused intensely on China from the day I was confirmed. It is
my job to press for opportunities for American businesses and American workers.
The successful management of our economic relationship with China will benefit
the United States, and China, greatly.
The United States and China share many strategic interests. These range from
national security, to economic growth and trade, to the health of our environment.
As a growing leader on the world stage, China must be a full participant in the rulesbased world economy.
Recognizing this, the President and Chinese President Hu established the Strategic
Economic Dialogue (SED) to manage the economic relationship between our two
nations on a long-term basis. The SED should help us make progress on
fundamental long-term structural economic issues, as well as on very pressing
short-term issues. It is not a scripted ceremony. It is a serious, focused discussion
of the economic issues that matter most.
The SED provides a mechanism through which, for the first time in our relationship,
our government can speak with a single voice on economic issues to the highest
levels of the Chinese government, on a regular basis. The Dialogue is goals-based
and designed to keep both sides moving forward on the goals we establish. By
meeting regularly, we can actively monitor the progress we're making. By making
progress on critical, immediate issues such as currency reform, we will build
confidence to deal with important longer term economic issues such as the
structural challenges China faces.
China's currency policy is a key factor in our economic relationship. China does not
yet have the currency policy we want it to have and that it needs. Treasury's foreign
exchange report clearly states that China's cautious approach to exchange rate
reform exacerbates distortions in its domestic economy and impedes the
adjustment of international imbalances. I look forward to discussing the report with
you during this hearing.
We are actively pressing the Chinese to introduce greater currency flexibility and
undertake wider market reform. We are seeing some results. China abandoned Its
pegged exchange rate in July 2005, and began to introduce some flexibility. Since
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last July, the pace of appreciation has been more than three times as fast as It had
been in the first year after the initial renminbi reform. Foreign currency trading, once
conducted entirely by the Chinese government, is now conducted almost entirely by
commercial banks. China has introduced financial instruments to hedge foreign
exchange risk. And the Chinese government has begun to allow increased
fluctuations in the currency.
This is welcome progress, but we need to see much more. Although China is
moving faster, it is still not moving fast enough.
Nor is currency flexibility enough. A major objective of my two remaining years as
Treasury Secretary will be pressing the Chinese government to advance toward the
goal of a renminbi whose value is freely set in a competitive marketplace, based
upon economic fundamentals.
I will work with the Chinese government to develop the market infrastructure they
need for a freely floating currency This involves several key steps. First, the
government should progressively widen the band that limits the daily movement of
the exchange rate. Widening the band will help businesses and financial institutions
learn to operate with a fluctuating currency. Second, the central bank should
progressively reduce its intervention in the foreign exchange markets. Third, China
must develop the fundamental components of a capital market - a bond market and
a yield curve - to absorb inflows and outflows of foreign exchange and provide
ways to hedge against exchange risk. And fourth, China's central bank must set
clear policy targets to avoid inflation and thereby provide confidence in the value of
the Chinese currency.
I want to be clear: Increased flexibility in the short run is absolutely necessary, but it
is not sufficient. My goal is to make significant progress toward a fully marketdetermined, floating Chinese currency.
The message I delivered to Chinese decision-makers in the first meeting of our
Strategic Economic Dialogue in December is that they are not moving quickly
enough to make their currency more flexible. While they agree they need to
introduce currency flexibility and move to a floating exchange rate, they are not
moving quickly enough for the United States or the rest of the global community.
And they are not moving quickly enough for their own good.
The Chinese leaders believe there is risk in moving too quickly, when in fact, as I
argued to them, the greater risk is in moving too slowly. China may in some
respects be a developing country, but it is also a large and powerful country. The
international community will run out of patience with China unless the pace of its
reform accelerates.
Reform of China's currency policy is a crucial issue for China and for the United
States. And, Mr. Chairman, the need for reform in the Chinese economy goes
beyond currency. Currency movement alone will not eliminate the distortions in the
Chinese economy nor Significantly reduce China's trade surplus. China needs to
restructure its economy so that household consumption - rather than exports and
excess investment - powers growth. This is the only way China can grow without
generating huge trade surpluses.
To do this, Chinese policy must address the reasons why Chinese households feel
compelled to save so much and spend so little. Only 20 percent of the 800 million
people who live in rural areas have health insurance. The basic government
pension covered only 17 percent of Chinese workers in 2005. And only 14 percent
of the population is covered by unemployment insurance. China must invest in its
people by strengthening the health care system and the social safety net. And
Chinese households need financial products that insure against risk and finance
major expenditures. The Strategic Economic Dialogue addresses all of these
issues.
I believe that the openness of the U.S. economy to competition and our
participation in international trade are key to economic growth, higher wages, and
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increased opportunities for U.S. workers. And we are pressing China to follow our
example of openness. I am working to ensure that China's growth and expanding
market create maximum opportunities for the United States.
China must live up to its WTO commitments. It must protect and vigorously enforce
intellectual property rights. It must increasingly open its markets to foreign
competition - for its own good as well as for ours. And it must introduce greater
transparency in regulation and observe the rule of law. Through the Strategic
Economic Dialogue, and through the various economic dialogues that we have with
China, the Administration will continue to press very hard in all of these areas.
Mr. Chairman, America's economy and workers benefit significantly from our trade
with China. China is our fourth-largest export market. Our exports to China have
increased more than 350 percent over the last decade - six times the growth of our
exports to the rest of the world. And nearly half of our exports to China are capital
goods, including high-value-added goods such as civilian aircraft, electrical
machinery, and medical devices.
I believe strongly that a healthy Chinese economy, growing without large external
imbalances, is of vital interest to the people of the United States, to the people of
China, and to the global economy as a whole. More currency flexibility in the short
term and a fully market-determined, floating RMB in the intermediate term are
essential to accomplish that goal. So is restructuring the Chinese economy so that
domestic consumption demand - not exports - fuels China's growth. Broad
structural changes are necessary to have a major impact on our trade deficit with
China.
The next round of the SED will take place here in Washington in May. I understand
that your constituents are very concerned about the impact of our relationship with
China on their jobs and their livelihoods. I want to work with you as I prepare for
these discussions. China is a big and important part of the world economy. It needs
a currency whose value is determined in an open, competitive marketplace, and an
economy that supports more balanced, stable growth.
I look forward to working with the members of this distinguished committee on the
many important issues we have before us. And I now welcome your questions.
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