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Treas.
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10
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v.447
Department of the Treasury
PRESS RELEASES
HP-961 is not available. See HP-967.
HP-983, 1003 and 1019 are included, but not in the Index.
Numbers not used: HP-I027, 1028, 1029, 1039 and 1047.
HP-955: Testimony of DeplIt}! i'\~'>I,~ant Secretary for Tax Policy <br>Karen Gilbreath Sowell<br>Befor... Page 1 of8
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May 1,2008
HP-955
Testimony of Deputy Assistant Secretary for Tax Policy
Karen Gilbreath Sowell
Before the House Ways and Means Subcommittee on Select Revenue
Measures
on Tax Incentives for Higher Education
Washington --Mr. Chairman, Ranking Member English, and distinguished
Members of the Subcommittee
Introduction
Thank you for the opportunity to appear before the Subcommittee today to discuss
tax Incentives for higher education, which currently include more than a dozen
credit. deduction, exclusion, and deferral provisions. While my testimony today
focuses on tax Incentives, I note that there are numerous non-tax governmental and
other programs to help make higher education affordable and that figure into an
individual's or family's decisions regarding higher education. The principal Federal
student financial assistance programs are authorized under Title IV of the Higher
Educatton Act of 1965, as amended, and this year will provide more than $90 billion
in grant, loan and work-study assistance to students and their families The Title IV
programs include Federal Pell Grants, which serve low-income undergraduate
students, and Federal student loans, both the bank-based Federal Family
Education Loan program and the Department of Education's Direct Loan program,
which ser've undergraduate students and their parents, as well as graduate
profeSSional school students. In addition, colleges, universities, non-profit
organizations, and the private sector furnish scholarships, tuition programs, and
other assistance to students pursuing higher education, which according to the
College Board exceeds $35 billion annually.
Education IS Important to the Administration, and we recognize that there is room
for improvement in the tax benefits currently prOVided through the Internal Revenue
Code to encourage higher education. We believe that the goal of providing
incentives to make higher education affordable IS best achieved by identifying the
most effiCient ways to address student needs and effectively utilizing those
mechanisms. My testimony Will focus first on a brief review of current tax incentives
for college and other post-secondary education, and then discuss areas for
potential improvement.
Over the last several decades, various provIsions have been added to the Internal
Revenue Code to facilitate savings for, and to incentlvize the pursuit of, postsecondary education Building on these existing provisions, the Administration and
Congress have made significant progress during the past seven years to provide
tax benefits related to higher education, particularly In helping families save for
post-secondary education Notably, the Economic Growth and Tax Relief
ReconCiliation Act of 2001 (EGTRRA) expanded Qualified Tuition Programs, also
known as section 529 plans, to permit tax-free distributions from plan accounts to
be used for post-secondary education expenses, and to allow private educational
institutions (in addition to states) to create section 529 plans. The Pension
Protection Act of 2006 made these changes to section 529 of the Internal Revenue
Code permanent, which helped eliminate uncertainty With respect to this education
savings vehicle. Further. the Administration's Budget for FY 2009 includes a
proposal to extend the Saver's Credit to contributions to section 529 plans In order
to encour'age and assist lower-Income families in saving for higher education.
EGTRRA also expanded Coverdell education savings accounts (formerly known as
Education IRAs) by raising the annual contrrbution limit to Coverdell accounts from
$500 to $2,000, and increaSing the income phase-outs for joint filers In addition,
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EGTRRA eliminated the disallowance of qualified distributions from Coverdell
accounts or section 529 plans for those taxpayers who claim an education credit.
Notwithstanding these savings programs for those who have the ability and who
have sufficient time to save for higher education, students and families who are
facing immediate education-related costs must confront a patchwork of educationrelated tax incentives. Current law tax incentives may take the form of a credit
against tax liability. a deduction from gross income. an exclusion from gross
income, or a deferral of (or exemption from) tax. A detailed table of all the major tax
incentives related to post-secondary education is attached as Table 1
Set forth below is a brief overview of certain of the significant provisions under
current law. Focusing on but a few of the available incentives reveals the
complexity of these tax Incentives, all of which are aimed at post-secondary
education, but which apply to different people, in different circumstances, and for
different educational ends. It IS important to keep In mind that consideration of tax
incentives IS only one piece of the financial puzzle. Students pursuing higher
education - be they recent high school graduates, high school graduates returning
to higher educalion after entering the job market or raising a family, or professionals
interested in pursuing an advanced degree or a different career - also have
available to them the panoply of government grant and loan programs, as well as
the many forms of non-governmental assistance available from educational
institutions, non-profit organizations and the private sector.
Overview of Major Current Law Tax Incentives for Post-Secondary Education
As noted above, current law tax incentives may take the form of a credit, deduction,
exclusion, or deferral. Many of these incentives have unique eligibility
requirements, different phase-out limits. and various filing requirements. Generally,
if an expense would qualify under more than one proVision, current law allows only
one tax benefit for the particular educational expense.
Credits
In 1997, Congress enacted a pair of tax credits to help families pay for higher
education - the Hope Scholarship Credit (Hope Credit) and the Lifetime Learning
Credit. In 2008, a taxpayer may claim a Hope Credit for 100 percent of the first
$1,200 and 50 percent of the next $1,200 in qualified tuition and related expenses
(for a maximum credit of $1.800 per student) for the first two years of college for a
student enrolled at least half-time A taxpayer may claim a Lifetime Learning Credit
for 20 percent of up to $10,000 in qualified tuition and related expenses (for a
maximum credit of $2,000) per taxpayer for any post-secondary education Both
credits are subject to an adjusted gross income (AGI) phase-out. In 2008, the
credits phase out between $48,000 and $58,000 of AGI ($96,000 and $116,000 if
married filing Jointly). Only one credit may be claimed by each eligible student.
Dependent Related Deducttons and Credds
For parents supporting college students, there is an extension of the benefit
provided by the personal exemption for full-time students aged 19 through 23.
Dependent children over the age of 18 do not qualify as children for the personal
exemption unless they remain full-time students (through age 23) In 2008 the
personal exemption amount IS $3.500.
This favorable treatment of a full-time student aged 19 through 23 as a qualifying
child also applies for purposes of the Earned Income Tax Credit (EITC). The EITC
is a refundable tax credit for working families with low Incomes The EITC for
families with one eligible child phases in over the first $8,580 of earned income for a
maximum credit of $2,917 The credit phases out between $15,740 and $33,995 of
earned income ($18,740 and $36,995 for joint filers) For families with modest
Incomes, allowing dependent students to qualify as children for EITC purposes
provides the families supporting the students with a large tax benefit.
DeductIOns
A deduction may be allowed above-the-line (ie, without itemization) for up to
$2,500 of interest per year on anv OIJ<'IlifiRri Rrillr:<'Itinn In;:m c;llhiprl In ::m il(':1
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phase-out beginning at $55,000 ($115.000 if married filing JOintly). In addition,
through 2007, a taxpayer could claim an above-the-Ilne deduction for qualified
tuition and related expenses The maximum amount of the deduction was $4,000
for taxpayers with AGI below $65,000 ($136,000 if married filing jOintly), or $2,000
for taxpayers with AGI between $65,000 and $80,000 ($136,000 and $160,000 if
married filing jointly) In 2007.
Moreover, deductions may be allowed to taxpayers for work-related education
expenses An eJllployee who Itemizes deductions may deduct work-related
education expenses as one of a class of miscellaneous itemized deductions subject
to a floor of 2 percent of AGI. Similarly, if an employer pays an employee's
education expenses and the reimbursement does not take place through an
accountable plan, ttle amount reimbursed is included In the employee's gross
income, but the employee may deduct the expenses as a miscellaneous Itemized
deduction subject to the 2-percent floor.
ExclUSIOns from Income
In addition to any available credits or deductions. any student who receives a
qualified scholarship to a degree-granting program (including certain Federal
medical tralnlllg programs) may exclude from gross Income amounts used to pay
qualified tuition and related expenses, Including fees, books, supplies, and required
equipment. Under another prOVision, onglnally enacted in 1976, a student may
exclude from gross income the amount of a loan that is forgiven if the student works
for a reqUired period of time in certain professions or locations. For example, after
graduating from college, a student might have a loan forgiven if he or she were to
become a teacher In an underserved community. Additionally, there is an unlimited
exclUSion from the gift and generation-skipping transfer tax for tuition paid directly to
a school on behalf of a student, resulting In an IIlCentlve to make gifts of college
tuition
There are also incenlives for indiViduals to continue their education while
employed An employee may exclude employer-provided education expenses (up
to $5,250 since 1986) that are part of an Educational Assistance Program (EAP).
Under an EAP, there is no requirement that the education be work-related. In
addition, like other work-related expense reimbursements, an employee may
exclude from gross Income employer reimbursements for work-related education
made under an accountable plan.
Certain colleges and universities offer tuition-reduction programs to their employees
(which can include the employee's spouse or dependent child). Tuition benefits
under such programs may be excluded from gross income. Also, certain graduate
students employed in teaching or research may exclude tuition reductions from
gross income.
Savings Related Deferrals and Exclusions
Traditionally, tax deferral has been afforded to income saved for retirement in an
Individual Retirement Arrangement (IRA). Sillce 1998. an IRA distribution for
qualified higher education expenses has been permitted, with penalties waived,
although tax attnbutable to the amounts distributed IS still due. The exclUSion
covers both Traditional and Roth IRAs (effectively without Income limits on
contributors). encompasses grandchildren as beneficlanes, and extends qualified
expenses beyond tUition and reqUired fees to room and board (for students
attendlllg college at least half time), books, and supplies.
As noted above, tax deferral on income saved for college expenses has been
available since 1996 through Qualified Tuition Programs, also called section 529
plans. Individuals at all income levels may contribute to a section 529 account or
prepaid tuition plan. Contributors may use up to five years of annual gift tax
exclUSion amounts In advance for a gift-tax-free contribution to a student In a single
year (for a total of $60,000 in 2008). There is no limit on the number of permissible
student donees per year. Some states permit contributors to deduct a limited
amount of contnbutions for state IIlcome tax purposes. Not only does income
accumulate tax-free III a section 529 account, but distributions from the account,
which include a return of contributions and earnings on those contributions, are also
excluded from gross Income as long as they are used for qualified higher education
expenses.
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In 1997, an additional deferral vehicle was created In the form of an Education IRA.
Subject to an AGI phase-out, contributors were allowed to contribute in the
aggregate up to $500 per year to an Education IRA. As noted above, EGTRRA
increased contribution limits to Education IRAs, now named Coverdell Education
Savings Accounts, to $2,000 Not only does income accumulate tax-free in a
Coverdell account, but distributions from the account, which include a return of
contributions and earnings on those contributions, are also excluded from gross
income as long as they are used for qualified education expenses, including college
expenses.
Since 1988, there also has been a college saving incentive In the form of an
exclusion of interest on qualified United States Savings Bonds, provided that the
proceeds are used to pay for qualified higher education expenses, subject to an
AGI phase-out
CompleXity of Tax Incentives
As reflected in the overview above, the education tax incentives under current law
are numerous, often overlapping, and complex. The incentives vary in terms of
who may receive benefits, which expenses may be covered, and how large an
exclusion, deduction, or credit may be allowed. For example, part-time students
may be eligible for the education credits (at least half-time in the case of the Hope
Credit) and savings bond interest exclusion. Only full-time students may qualify for
the dependent deduction or EITC. Some provisions, like the Hope Credit, are
calculated per student, but others, like the Lifetime Learning Credit and the student
loan interest deduction, are calculated per taxpayer. Different expenses qualify
under different provisions. For example, books, supplies and equipment are
qualified expenses for many savings provisions but not for purposes of the credits.
Finally, phase-outs with different thresholds apply for purposes of the credits,
dependent deduction, student loan interest deduction, Coverdell account
contribution, and savings bond interest exclusion.
Consider the following examples and their disparate results. The examples show
the value of education benefits available under 2007 law to typical families facing a
wide range of circumstances regarding their education expenses.[ 11 In each
example, we calculate the tax benefits that typical families would receive from five
tax provisions that may help families with education expenses as in effect for 2007
(a) the Hope Credit, (b) the Lifetime Learning Credit, (c) the tuition deduction
(expired December 31,2007), (d) the dependent exemption, and (e) the EITC.
Savings incentives, such as Coverdell accounts and section 529 accounts are not
considered
Because the proviSions interact, and because only the EITC is refundable, some
families may not have sufficient tax liability to benefit fully from all provisions for
which they are eligible. The examples show that total tax benefits vary with the
family's specific circumstances family income, filing status, age of the student,
dependent status of the student, whether the student attends part-time, year of
study, and their expenses. The families in the examples presented are otherwise
typical of families with similar incomes. Of course, the results may vary as the facts
vary from the typical family model.
Taxpayers may often be eligible for more than one benefit and only some benefits
may be used together. Thus, in many instances, the family must choose among the
various benefits. The first example shows the optimal choice may not be obVIOUS
before computing the family's taxes.
Example 1: A Family May Need to Make Many Calculations to Determine the
Best Outcome
A family of three (Family A) has an income of $100,000 Their 19-year-old son is a
full-time freshman at the local state university. His tuition and fees for the year are
$6,000. The family knows that they are eligible for the Hope Credit, the Lifetime
Learning Credit, the tuition deduction, and the dependent exemption that the family
would not be eligible for if the son were not a full-time student. The family may use
no more than one of the following three benefits the Hope Credit, the Lifetime
Learning Credit, or the tuition deduction. The family is in the phase-out range for
the education credits.
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•
•
•
Family A could receive $2,005 - from the Hope Credit ($1,555) and the
dependent exemption ($850)
Family A could receive $1,690 - from the Lifetime Learning Credit ($840)
and the dependent exemption ($850)
Family A could receive $1,850 - from the tuition deduction ($1,000) and the
dependent exemption ($850)
Note that if this family had additional children with education expenses, the
calculation exercise would be even more complicated. For example, the Lifetime
Learning Credit provides a maximum of $2,000 per family and thus, may be limited
for families whose total tuition expenses exceed $10,000.
The remaining examples calculate the optimal education benefit for a series of
taxpayers with different incomes, filing status, and education needs to demonstrate
the potential range of results.
Example 2: Individual in Part-time Training Programs - Income Affects Tax
Benefits
A single taxpayer attends a training program that costs $1,000 He attends less
than half-time, is not in a degree program. and is not in his first two years of postsecondary study.
•
•
If Taxpayer B earns $25,000, B could receive a Lifetime Learning Credit of
$200 (the tuition deduction would be worth $150)
If Taxpayer B earns $50,000, B could receive a tuition deduction worth
$250 (the Lifetime Learning Credit would be worth only $140 due to the
phase out).
Example 3: Moderate Income Students Working Toward an Associate's
Degree - Family Structure Affects Tax Benefits
A student begins work on an associate's degree at the local community college.
The student's family has income of $25,000. The student attends at least halftime. Tuition and required fees are $4,000
•
•
•
C, a single student who is not dependent on his or her parents, could
receive the maximum Hope Credit of $1 ,650.
0, a married student who is not a dependent, could receive a Hope Credit or
a Lifetime Learning Credit for $750. (D's family does not have sufficient tax
liability to benefit from the education credit fully.)
E, the married parents of a 19-year old living at home and supported by his
or her parents, could receive benefits totaling $2,387 from the Hope Credit
($410), the dependent exemption ($340), and the EITC ($1,637)
Example 4a: Students Attending the Local State University - Income Affects
Tax Benefits
A college-age student enrolls full-time at the local state university where tuition and
fees are $6,000. The student is in his or her first year of study.
•
•
•
•
•
F, a family earning $25,000, would receive $2,387 - from the Hope Credit
($410), the dependent exemption ($340), and the EITC ($1,637)
G, a family earning $50,000, would receive $2,160 - from the Hope Credit
($1,650) and the dependent exemption ($510).
H, a family earning $100,000, would receive $2,005 - from the Hope Credit
($1,155) and the dependent exemption ($850)
I, a family earning $150,000, would receive $1,350 - from the tuition
deduction ($500) and the dependent exemption ($850).
J, a family earning $200,000, would receive $952 - from the dependent
exemption.
Example 4b: This example IS the same as Example 4a, except that the student
enrolled In his or her third year of study. As a result, the Hope Credit would no
longer be available.
•
IS
F, a family earning $25,000, would still receive $2,387 - from the Lifetime
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•
•
•
•
Learning Credit ($410), the dependent exemption ($340), and the EITC
($1,637).
G, a family earning $50,000, would receive $1,710 - from the Lifetime
Learning Credit ($1,200) and the dependent exemption ($510).
H, a family earning $100,000, would receive $1,690 - from the Lifetime
Learnll1g Credit ($840) and the dependent exemption ($850)
I, a family earning $150,000. would still receive $1,350 - from the tuition
deduction ($500) and the dependent exemption ($850).
J, a family earning $200,000, would still receive $952 - from tile dependent
exemption.
Attached as Table 2 are figures that illustrate graphically the tax value of education
benefits under 2007 law, taking into account the same five major tax provisions
The figures show the value of the education benefits for typical families by AGI. As
in the examples above. the value of these provisions depends on a student's or
family's circumstances the cost of tuition; family income (including whether the
family has any income tax liability); whether the student attends college full-time or
part-time; filing status; and for the Hope Credit, whether the student is in the first
two years of post-secondary education.
The tax savings for a student or family vary significantly with Income and tuition
level At the tuition levels paid by most full-time students whose families are eligible
for the credits, the Lifetime Learning Credit offers less assistance than the Hope
Credit. The Hope Credit, however, is only available to students in their first two
years of college. Thus, the tax value associated with a college freshman or
sophomore is larger in many cases than the tax value associated with a college
junior or senior.
In general, families with incomes under $100,000111 2007 oWing tuition expenses
would have maximized their benefits by claiming an education credit: higher income
families would have claimed a tuition deduction As income rises further, the
dependent deduction phases out. Families with no income tax liability receive no
benefit from the dependent deduction, the tuition deduction, or education credits.
However. a college student may qualify a low-income or moderate-income family
for the EITC. Large families may lose the benefit of the dependent deduction
because they are more likely to be subject to the alternative minimum tax.
Like the family filing a Joint return, higher income individuals who file single returns
would have maximized their benefits by claiming the tuition deduction, while
II1dividuals with incomes under $50,000 would have claimed a credit. A low-income
independent student may be eligible for the EITC, but there is no additional
education-related benefit from the EITC and thus, the EITC benefit would be the
same as for other low-income individuals. Because II1dependent students receive
no benefit from the dependent deduction and no education-related benefit from the
EITC, the tax value of the benefits associated with an independent student is
smaller than the corresponding tax value for a dependent student.
As illustrated in the examples above and the figures in Table 2, the value of various
tax II1centlves attributable to a student may range from a few hundred to a few
thousand dollars dependll1g on filing status and AGI. In addition, a claim of one
credit or deduction may adversely affect a taxpayer's eligibility for another credit or
deduction. From this variety of II1centives, a student or parent must discern the
optimal combination of tax benefits, which may require many taxpayers to generate
alternative complex computations. As in Example 1 above, taxpayers with
dependent students who are eligible for a tuition deduction as well as a Hope or
Lifetime Learning Credit must run multiple calculations to determine their maximum
benefits. Because a qualified expense may not be eligible for more than one
benefit, careful recordkeepll1g IS required to ensure both the optimal dlstribulion of
expenses and compliance.
Because of the complexity, it may be difficult for a student or parent to determine
the value of the tax II1centives. In addition. for incentives based on AGI, their value
is necessarily retrospective unless the student or parents can predict their Income
with preciSion. The more difficult it IS to predict the value of the tax benefit
accurately, the less effective these benefits are as incentives for the pursuit of a
college education
In addition to the challenges that students face in navigating the myriad education
tax incentives to optimize their use, the complexity of these provisions increases the
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record-keeping and reporting burden on taxpayers, while making it difficult for the
IRS to monitor compliance. For example, to claim an education credit, a taxpayer
must file a Form 1040 even if he or she otherwise qualifies to file a Form 1040EZ,
and the taxpayer must file an IRS Form 8863, a 17 -line form with two pages of
instructions
Observations on Simplification
Despite the complexity, because the tax incentives may provide significant value to
a family or individual in pursuit of higher education, It appears the various incentives
are widely utilized. Table 3 sets forth statistics on the use of the education credits
and the tuition deduction based on the most recent IRS data available (for tax year
2005). In the fall of 2005, more than 17 million students were enrolled in college in
the United States. As noted in Table 3, a substantial number of these students
claimed some combination of the deduction and credits. Overall, In 2005, more
than 11.6 million taxpayers claimed an education credit or tuition deduction. Our
data cannot capture whether students and families are utilizing the tax incentives
optimally, nor what impact, If any, the tax incentives have on decision-making
regarding post-secondary education. However, one would anticipate that the
complexity would detrimentally affect the efficient utilization and administration of
the benefits.
Because the value of a particular tax incentive may not become apparent until the
end of the tax year, which may be months after the tuition or other expense was
due, and the tax year does not coinCide with the academic year, the tax system IS
not well suited to prOVide assistance on the "front end" of funding higher education.
Generally, tax benefits become available only after year-end (especially in the case
of benefits limited by AGI, which IS determined at year-end). As a result, the
complexity of the current provisions makes it difficult for even a very sophisticated
taxpayer to adjust withholding to "advance" the benefit.
In addition, It is important to remember that recent high school graduates do not
constitute the only type of person Interested In pursuing a college education.
Prospective students also Include older persons who entered the job market after
high school as well as those who have an interest in pursuing an advanced degree
or a career different from the one In which they were originally engaged. The
prOVision of different tax Incentives for similar higher education expenses may result
In the unequal tax treatment of similarly situated taxpayers.
Suggestions have been offered regarding potential simplifications, primarily along
three themes. First, It has been suggested that uniform definitions for operative
terms such as "qualified higher education expenses" or "qualified tuition and related
expenses" and "eligible education institution" be adopted. For example, currently
only tuition may qualify for tuition reduction for college employees and gift tax
exclusions; tUition and required fees may qualify for the Hope and Lifetime Learning
Credits, tuition deduction, and savings bond interest exclUSion; tuition, fees, books,
supplies, and equipment may qualify for the scholarship exclusion, employer EAP,
and student loan Interest deduction; and tuition, fees, books, supplies, equipment
(and in the case of a student attending at least half time, room and board) may
qualify for penalty-free distnbutions from IRAs, section 529 accounts, and Coverdell
accounts.
A second suggestion has been to conform the phase-out thresholds and ranges
and index all amounts for Inflation. As noted above, different income thresholds
apply to the education credits, dependent deduction, student loan interest
deduction, and the different savings provisions.
Third, it has been suggested that the education credits be consolidated along With
certain deductions. In particular, the AGI phase-out for the credits could be
increased to eliminate the need for the tuition deduction: or a single credit could be
designed to cover the same population
While there IS clearly a need to address the compleXity concerns ariSing from the
current welter of tax inCentives, It is Important to remain cognizant that revIsions to
the tax regime may lead to unintended consequences, and any reviSion may
unsettle taxpayer expectations. RecogniZing budgetary constraints, legislative
reform of tax Incentives will almost invariably result In additional benefits for certain
taxpayers and fewer benefits for others. Because of the varying profiles of those
who seek the benefits of tax incentives for higher education, it may be challenging
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to streamline the incentives In a way that would benefit the entire target group.
Legislative reform of tax incentives would also need to address transition issues for
those students or families who may be planning to rely on relevant provisions under
current law.
In contemplating legislative reform of current tax incentives, a good starting point
would be to focus on clear, simple ways to help students and their families meet the
cost of higher education. While efforts can be made to consolidate and streamline
the education tax incentives. to be successful, those efforts should not overlook the
non-tax benefits that are available to many students. especially those In low-income
and middle-income families, either from Department of Education and other federal
and state governmental programs or from private-sector sources.
Thank you Mr. Chairman, Ranking Member English, and distinguished Members of
the Subcommittee for the opportunity to participate in today's hearing on this
Important subject. I would be pleased to respond to your questions.
-30-
[11
The families in these examples have average levels of deductible expenses
and no capital gains income. For families eligible for the EITC, all income is from
wages.
REPORTS
•
•
•
Table 1 - Summary of Tax Provisions Related to Higher Education
Table 2 - The Tax Value of a Student under 2007 Law
Table 3 - Use of Tax Incentives for Higher Education
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Table 1. Summary of Tax Provisions Related to Higher Education
-
-
-
Provision
I
Tax Benefit
Eligible Individuals
Maximum
Annual Amount
Eligible
Institution
Income Limits
I
Hope
Scholarship
Credit
(§ 25A)
Per student credit
against tax
Tuition and
required fees
Taxpayer, spouse or
dependent in I st or 2nd
year of higher
education enrolled at
least half-time
$1,800: 100% of
the first $1,200
and 50% of the
next $1,200
(indexed for
inflation)
Phase-out begins at
$48,000 ($96,000 if
joint return) and is pro
rata over $10,000
($20,000 if joint return)
(indexed for inflation)
Postsecondary
school
eligible for
Federal
student aid
2
Lifetime
Learning
Credit
(§ 25A)
Per taxpayer credit
against tax
Tuition and
required fees
Taxpayer, spouse or
dependent in postsecondary or
professional education
$2,000: 20% of
the 1st $10,000
total across all
eligible students in
household (not
indexed for
inflation)
Phase-out begins at
$48,000 ($96,000 if
joint return) and is pro
rata over $10,000
($20,000 if joint return)
(indexed for inflation)
Postsecondary
school
eligible for
Federal
student aid
3
Earned
Income Tax
Credit for
dependent
children aged
19 through 23
(§ 32)
Refundable credit
for families with
dependent children
aged 19 through 23
N/A
Dependent student
enrolled full-time for at
least 5 months of
preceding year
$2,917 for
families with a
single dependent
child
Phase-in complete at
$8,580
Phase-out begins at
$15,740 ($18,740 if
joint return)
Phase-out complete at
$33,995 ($36,995 if
joint return)
(indexed for inflation)
Educational
organization any level
4
Employerreimbursed
educational
expenses paid
through an
accountable
plan
(§ 62(c»
Exclusion from
gross Income
Tuition, required
fees, nonacademic fees,
books, supplies,
equipment, room
and board, special
needs,
transportation and
travel
Employee
None
None
Educational
organization any level
I
I
Qualifying
Expenses
--
-
-
Qualifying
Expenses
Maximum
Annual Amount
Eligible
Institution
Provision
Tax Benefit
5
Traditional
and Roth
IRAs
(§ 72(t)(7»
Exception from 10%
additional tax on
early distributions
Tuition, required
fees, nonacademic fees,
books, supplies,
equipment, room
and board, special
needs
Taxpayer, spouse,
child or grandchild
(enrolled at least halftime for room and
board)
None
None
Postsecondary
school
eligible for
Federal
student aid
6
Cancellation
of debt
(§ 108(f»
Exclusion from
gross income for
income from
cancellation of
certain student loans
N/A
Borrower who works
for a certain period of
time in certain
professions for any of a
broad class of
employers
None
None
Educational
organization any level
7
Scholarships
and
fellowships
(§ 117)
Exclusion from
gross income
Tuition, required
fees, nonacademic fees,
books, supplies,
equipment
Degree candidate
None
None
Educational
organization any level
8
Tuition
reduction
(§ 117(d»
Exclusion from
gross income
Tuition
Employee of college,
spouse or dependent;
graduate student
employed in teaching
or research
None
None
Educational
organization college or
graduate
school
9
Employer
provided
education
assistance
program
(EAP)
(§ 127)
Exclusion from
gross income
Tuition, required
fees, nonacademic fees,
books, supplies,
equipment and
special needs
Employee receiving
higher education
$5,250 (not
indexed for
inflation)
Limits on share of
benefit that can go to the
highly compensated; no
individual income limits
Educational
organization any level
Eligible Individuals
-
-
-
-
Income Limits
-
Provision
Tax Benefit
Qualifying
Expenses
Eligible Individuals
Maximum
Annual Amount
Income Limits
Eligible
Institution
Taxpayer, spouse, or
dependent
None
Phase-out $50 per
$1000, from $67, I 00$82,100 ($100,650$130,650 if joint return)
(indexed for inflation)
Postsecondary
school
eligible for
Federal
student aid
N/A
Student enrolled fulltime for at least 5
months of preceding
year
3500 (indexed)
Phase-out begins at
$159,950 ($239,950 if
joint return)
(indexed for inflation)
Educational
organization any level
Itemized deduction
Most business or
work related
education
expenses
including
transportation and
childcare
Taxpayer or spouse
None
Overall limitation on
itemized deductions
may apply to AGI over
$159,950 (indexed for
inflation)
Educational
organization any level
Student loan
interest
(§221)
Above-the-line
deduction
Tuition, required
fees, nonacademic fees,
books, supplies,
equipment, room
and board
Taxpayer paying
interest on a qualified
education loan incurred
on behalf of self,
spouse, or dependent
$2,500
Phase-out over $55,000$70,000 ($115,000$145,000 if joint return)
(indexed for inflation)
Postsecondary
school
eligible for
Federal
student aid
Education
expenses
(§ 222)
(effective
through 2007)
Above-the-line
deduction
Tuition and
required fees
Taxpayer, spouse or
dependent receiving
higher education
$4,000 or $2,000
subject to income
limits
Deduction limited to
$4,000 if AGI is less
than $65,000 ($130,000
if joint return); and to
$2,000 if AGI is less
than $80,000 ($160,000
if joint return)
Postsecondary
school
eligible for
Federal
student aid
10
Savings bond
interest
(§ 135)
Exclusion from
gross income for
U.S. savings bond
interest
II
Dependent
children aged
19 through 23
(§ 152(c)(3»
Personal exemption
deduction for
dependent children
aged 19 through 23
12
Business
expense
deduction
(§ 162)
\3
14
Tuition and
required fees
Provision
Tax Benefit
Qualifying
Expenses
Eligible Individuals
Maximum
Annual Amount
[ncome Limits
Eligible
Institution
15
Qualified
Tuition Plan
(QTP)
(§ 529)
Exclusion from
gross income for
distributions from
QTP accounts
Tuition, required
fees, nonacademic fees,
books, supplies,
equipment room
and board, and
special needs
Any post-secondary
student (enrolled at
least half-time for
room and board )
None
None
Postsecondary
school
eligible for
Federal
student aid
16
Coverdell
Education
Savings
Account
(§ 530)
Exclusion from
gross income for
distributions
Tuition, required
fees, nonacademic fees,
books, supplies,
equipment, room
and board, and
special needs
Any student, including
primary and secondary
(enrolled at least halftime for room and
board)
Contributions
limited to $2,000
per year, per
recipient
Phase-out of eligibility
for contributions from
$95,000-$110,000
($190,000-$220,000 if
joint return)
Postsecondary
school
eligible for
Federal
student aid, or
secondary or
primary
school
17
Gift tax
exclusion
(§ 2503(e»
Exclusion for tuition
paid directly to
educational
institution
Tuition
Any student
None
None
Educational
organization any level
Table 2. The Tax Value of a Student under 2007 Law
Figures A through C below illustrate the combined value of five major income tax provisions
effective in 2007 - the Hope Credit, the Lifetime Learning Credit, the tuition deduction, the
dependent exemption, and the Earned Income Tax Credit (EITC) - to families with different
levels of income and different education expenses. Families are otherwise typical of f~1I11ilies
with similar incomes. I The tax value of a student is the difference between the taxpayer's
income tax liability and what it would have been ifthe student had not enrolled in school. The
no tuition case corresponds to a full scholarship and reflects the value of the tax benefits of the
dependent exemption and the EITC.
Figure A. Tax Value ofa Full-Time College Freshman or
Sophomore under 2007 Law (Joint Filers)
3,000
CA
2,500
$IO,OO() tUition
$4,000 tuition
- - 1000 tuition
- n o tuition
C
Il.i
u
2,O()O
:::l
ClJ
t'J
<.,...
0
1,500
<lJ
:::l
t'J
1,000
'"
SOO
>;.<
f-
0
0
20
40
60
80
100
120
140
160
180
200
AGI (all from wages) ($000)
Figure B: Tax Value ofa Full-Time College Junior or Senior
under 2007 Law (Joint Filers)
3,000
~ 2,SOO
S I (J,OOO tuition
C
<U
--a
:=
+-'
$4,000 tuition
- - 1000 tuition
- n o tuition
2,000
VJ
(';l
"-
I,SOO
0
<U
:=
(';l
1,000
>
~
(';l
f-
50(J
0
(J
20
40
60
SO
100
120
140
16(J
ISO
AGI (all from wages) ($000)
I
The families have average levels of deductible expenses and all income is from wages.
200
Figure C: Tax Value of an Independent Student Eligible for the
Hope Credit under 2007 Law (Single Filers)
.1.111111
<fJ
2,5()()
~
E
<U
-0
::l
$10,000 tuition
2,11I1()
$4,000 tuition
$I,O()O tUition
Vl
OJ
'-
I.)()II
0
<U
::l
ro
>
----
1,111111
~
OJ
)D()
I-
II
-
-
21)
()
4()
1110
12()
160
1411
I XI)
21111
AGI (all from wages) ($000)
Figure D presents the same information as Figure A, but excludes the benefits of the tuition
deduction, which expired on December 31,2007.
Figure D. Tax Value of a Full-Time College Freshman or
Sophomore from Education Credits, Dependent Exemption and
EITC (2007 Law, Joint Filers)
3,000
v;
SIO.OOO tuition
$4,000 tuition
IOO() tuition
2,500
C
0..J
3
2,000
'-c'"
I,SOO
- n o tuition
if;
0..J
::J
>'"
I,()()O
/.
"
I-
SO()
0
0
2()
40
60
100
120
140
AGI (all from wages) (SOOO)
160
I SO
200
Table 3
Use of Tax Incentives for Higher Education - Tax Year 2005 SOl Data
Returns
(Thousands)
Education Incentive Claimed
Tuition Deduction Only!
Hope Credit Only!
Lifetime Learning Credit Only!
Any Combination of Above
4,416
2,554
4,011
482
Total
Department of the Treasury
Office of Tax Analysis
Dollars
(Millions)
Average
(Dollars)
10,085
2,627
2,783
2,284
1,029
694
2
2
11,463
May 1,2008
Notes:
! A Hope or Lifetime Learning Credit amount is used to offset individual income tax
liability on a dollar-for-dollar basis. In contrast, the tuition deduction is subtracted from
the income upon which tax is calculated. Therefore, the value of the deduction to the
taxpayer depends on that taxpayer's effective tax rate.
The 482,000 returns that claim more than one type of incentive claim a total of $762
million in tuition deductions and $707 million in education credits.
2
I-IP-056: Remarks by AssIstant Sccretary Clay Lowcry on Promoting Economic Growth <... Page I of 4
",~~""~il PRESS
'l.lIl u.s.
~'......~'~ • .r
ROOM
DEPARTMENT OF THE TREASURY
",
'If
ApIl1 29, 2008
HP-95(-j
Remarks by Assistant Secretary Clay Lowery on Promoting Economic Growth
and Investment Through Free Trade Before the Charlotte Economics Club
Washington, DC-- Thank you for inviting me here today to speak about thc
Importance of promoting open Investment and free trade Tile Implications of worlcl
trade policies are rn tile 11eadlrnes everyclay. The benefits of traele arc l)erng
questlonecl, tile free Uade agreement (FT A) for Colombia 11as beell held up by
Congress. alKI frnallzlng the Doha round has become more compllcatecl as 111gh
food prices are exacerbated by expol·t controls. With such vanecl news coverage of
trade, It IS easy to lose track of the big picture - free trade will lead to growth for tile
US and world economy
In simplistic tel'ms, trade IS contentious because trade is not just about the big
picture Trade poliCy affects the everyday lives of people from the cost of food to
how they earn a liVing. As a result. I do not want to talk to you Just as a policymaker
with facts, but as a realist, about how trade improves the every day lives of
Americans. And the first realistic thing to say is that we need to undelstand what
free trade can and cannot do. and trade promotion must also be accompanied With
targeted assistance to help displaced workers fincl training and new employment.
In thiS speech, I will begin by talking about the tOPIC of tracle and Investment III
general and what It means for the Unitecl States. Then I Will look more closely at
the IJeneflts of our tl'ade promotion agreements. and then closer stili at frnanclal
services because of the importance of that sector to North Carolrna Lastly, I Will
talk about programs to help With the adjustment that comes With freer trade.
Because we must face the fact. as my boss, Secretary Paulson says, that the
global economy IS here to stay.
Benefits of Trade - Exports and Investment
My former boss. former Treasury Secretary Larry Summers, wrote yesterday t~lat It
IS velS difficult to sell the benefits of tracie. which IS one reasoll free trade
agreements are not more politically popular With tile American publiC Slr1ce I am at
the Charlotte Economics Club, however. let me try to diSCUSS trade in the COl1text of
how economists and businessmen look at It and tilen in a way that I hope all North
Carolinians see It
It IS easy to understand that free trade IS the best way to maximize economic
growth, as the market for goods is no longer 1IIllIted to a country's borders but
expands across the globe, creating opportunity. Expanding markets througl1 trade
also promotes Illvestment that fuels economic dynamism and Innovatiol'. as well as
deployment of new technologies that raise productivity. and ultimately our standard
of living
Benefits to North Carolina
What I Just said has historically been the view of most econolllists. though as
Secretary Paulson observed - he was surprised that it was With economists that 11e
was haVing to argue the benefits of free trade Illore and more My view IS that we
should look at the eVidence and why not start hel'e In North Carolina Between
2001 anci 2006. North Carolina's exports to tile world grew by 30 percellt
http://w\V\ .... trea~.goy!pretJD/releascs/hp956.htm
12/8/2008
HP-956: Remarks by AssIstant Sccretary Clay Lowcry on Promoting Economic Growth < ... Page 2 of4
I guess one should ask, "what does tllat l11e;1I1 fOI' !tHe" ecollol11y ClneJ workers hele 111
North Cal'OllIla?" My answer woulci be to pOint Ollt that tilat In 1902, trade sLJppork:cj
Just over 8 percent of jobs III North Carolina Today It IS Iwarly 18 percelll Over
!tw IClst 15 yeals, trade supported over 60 perceril of Norttl Ccll'olllla's job cJrowtll
and IS responsible for Illore than 600,000 new jobs created III tile last decade
Trade Agreements
Not surprisingly, the primary method for the federal government to assist
businesses, workers, and farmers to take advalltage of greater trade IS to neootldtc
trade agreements That is what we have done under PresicJent Bush's leadership negotlatlllg ten new Free Trade Agreements (FTAs) With 15 countries - and our
exports to these partrlers are growing tWice as fast as OlJl' exports to tile rest of tile
world And our exports to the whole wOI'ld are at arl all time hlgll. lepreserltmg 12
percent of GOP, and were responsible for mOI'e than a ttmcl of US economic
growth In 2007
Exports are a key component of the economic equation, but trade agreements are
not solely export focused Tiley also help spur Investment because they set
transparent ground rules, give foreign investors rights to establish a local
commercial presence, do bUSiness, and repatriate earnings, and - let's be frank establish more of a rule of law In which arbitrary regulation and political risk IS
dimillished In the UnltecJ States, we sometimes take these rights for granted as we
are a very attractive mvestment destination, but we neecJ to secure the saille rights
for Amerrcan companies Investlllg ovel·seas.
For the United States. attracting International Investment fuels our own economic
prosperity by brillging new technology and busrness methods, and prOViding
healthy competltron that fosters Innovation, productivity gains, lower prrces, amJ
greater variety for consumers. Of course, competition and investment can also have
negative repercussions In certain Industries, as American companies face
competition from overseas firms With lower costs of dOlllg business. In the
aggregate, however, foreign rnvestment brings jobs Over 5 million Americans are
employed by foreign-owned companies, a third of these jobs are In manufactUring,
and foreign-owned companies pay on average 25 percent more than U.S
companies
Finally, FT As represent more than Just good economic policy. Their strategic
Importance IS enormous. Countries With which the United States has or IS pLirSUlllg
an FTA - Colombia, Panama, and Korea - have demonstrated a cOlllmitment to
continued US economic engagement, political support, and leadership in this
Hemisphere and in ASia. It IS very difficult to deny that failure to approve these
agreements sends the wrong Signal to our frrends In Latin America and Korea
Now, I'm Willing to believe that Imay not have convinced all of you of the merrts and
benefits of free trade. Nevertheless, even the most ardent opponent of free trade
should agree these FTAs are good for Americans. The fact is we have very low
tariffs In the United States, and in many cases give duty-free treatment to other
countries - like the Central Amerrcan countries covered by CAFTA, Colombia. and
Peru. First and foremost, a FTA makes these partners cut thell' tariffs on American
goods
Perhaps the most contentious FT A IS the agreement willl Colombia, which has met
resistance on the Hili despite ItS clear economic and pollticall)eneflts to the UnlterJ
States. First, the FTA demonstrates support for Colombia's delllocratlcally-electecJ
government, which has made Significant progress in combating violence and
instability III the face of a long-standing rebel Insurgence Second, the agreement
will remove barriers to US services and prOVide a secure and predictable legal
framework for Investors. Just as importantly, more than 9,000 US companies
export to Colombia, most of which are small and medium-sized films, ancl 80
percent of U.S exports would immediately receive duty-free status
As one of my colleagues puts it, we already have free trade with Colombia - It Just
so happens to be one-way free trade. Over 90 percent of goods frolll Colomt)la
http://www.treat).goY/pretJs/r~!.:2..;cs/hp956.htm
12/8/2008
H P-l)5(): Remarks by Assistant Secretary Clay Lo\\ery
011
Promoting Economic Growth <", Page 3 of 4
cOllles IIlto the US duty free. The pUI'pose of this agreernent is to make tilcit a
"two-way" free trade street, so American goods made by American workers enter
Colombia duty free.
I would like to return again to North Carolina to think through free trade
agreements. In the first four years (2004-2007) of the U.S.-Chile FTA. North
Carolma's exports to Chile Increased by 79 percent Since the North Arnerlcclll Free::
Tl'ade Agreement's (NAFTA) entry Into force In 1994, North Carolllla's exports to
Canada and MexIco have grown by 150 percent I have no doubt that the stdte.
which exported $181 million wOl'th of exports Irl 2007 to Colombia, not to l11elltloll
almost $550 million In goods to KOI'ea, Will equally benefit from free trade
agreements which Will reduce tariffs 011 agricultural products alld the states'
burgeoning chemical manufacturrng Industry
Financial Services Industry needs Free Trade
Of course. I cannot cOllle to Charlotte WltllOut talking about flllanClal services cilid
trade. Over a quarter of NOl1h Carolina's economic growtll of 42 percent In 2006
was attrrbutable to the financial services industry. In the United States, wilen one
thinks of the finanCial services Industry, one thinks of New York and Charlotte,
North Carolina. As the second largest finanCial city In the United States, Charlotte
stands to galll frolll trade deals tllat promote services. I can tell you that since
Treasury IS responSible for the finanCial services negotiations, we are fighting hal'c!
for a good deal Irl the Doha rOUlld - and we have already fougllt hard In the current
FTAs.
As the US economy develops its service Industry, It is crrtical tllat services are
given appl'Opriate treatment. In finanCial services alone, employment lias increased
by about a million jobs, or approximately 20 percent, over the last 10 years.
In an IncreaSingly globalized world, FTAs help keep the United States at tile cuttrng
edge in finanCial services as trade opens up new opportunities and spurs innovation
in the proviSion of cross-border services. With respect to cross-border trade, the
FTAs ensure that nationals and reSidents of our partners can purchase finanCial
services cross-border frolll prOViders Irl North Carolina, Including portfoliO
Illclilagemelit services to fund managel's
When speaking about trade, there IS often little attention on the Indusll'les where tile
United States stands to galll the most, and fillancial services IS one of them The
United States IS a world leader In finance and approving the remallling FT As Will
oilly help continue our competitive advantage
Trade Adjustment Assistance
Whlie trade Improves the health of our economy, generating income and
opportunities for advancement. the transformation of an economy from Olle Industry
to another creates dislocations and anXieties that need to be addressec!
Unfortunately, fOl' many workers trade agreements have meant tllat ttley Ileed to
filld new jobs In new Industrres For tile benefits of trade to be maXimized, tllere
needs to be a commitment to ensurrng trade works fOl' all Amerrcans, not just those
WllO live In the regions With tile next hot Industry
ThiS of course IS not easy to do, and making it work depends on the Ingenuity alld
entrepreneurstllp of the Amerrcan people. For example, Charlotte did not become a
ballklng town overnight. but the city's leadership, through a combination of
measures, saw that there was room for competition and attracted banks by
redUCing their cost of dOing business. It IS thiS kind of strategic thlnklllg that can
help mitigate the Impact of our IncreaSingly intematlonal economy.
Success also depends on support frOIll the government, allcl the Admlilistratioll IS
supporting thiS througll the Trade Adjustillelit ASSistance program ThiS progrCllll
helps workers who lose jobs due to Increaseci foreign competition 01' relocation of
work abroad The program Isn't perfect and It could do a tJetter job prOViding tile
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp9S6.htm
12/8/200S
HP-lJ56: Remarks by Assistant Secrdary Clay Lo\\cry
011
Promoting Economic Growth < ... Page.:1- of.:1-
fight IflCentlves. But It IS a way to channel resources to people In orfler to re-tr;:'lIrl
and re-tool for dislocated workers alld families
The Adllllilistration supports a reautilorrz-ation 011(1 I'efmm of traele il(ijustment
assistance so we can Ilelp displaced wOl'kers leClln 11ew skills Clild filld new jobs
But tile current design of the progl'clm makes It harder for p;clftlclpants to take flew
jobs for il Ilumber of reasons, The Income support lasts 100Iger lIliJll rcgulcH
LJIlemployment Insurance. but, III order to receive training assistance a worker mList
remain unemployed Admlnlstralive costs are high, accountlnCJ for about 15 percel)1
of total costs More of the progrilflls \)encflts should go directly to worker tralllln~J
Legislation should focus trallllrlg benefits all workers In IndustlWs Clffected by
technologlcClI chClnge or International competition. and lOW-Income and unemployed
workers without resources to finance their own training, even at relatively low-cost
community colleges.
Conclusion
Let me repeat tile single most 1I11pmtant fact from thiS speech: \tle global economy
IS here to stay. It IS up to us to find a way forward that Ilelps all of us prospel, ami
to aVOid making a scapegoat out of trade or to demagogue the Issue. Economic
isolationism \tlat would potentially cut the United States off from exporting goods
and services would mean fewer jobs, lower incomes, and a lower standard of
liVing. Were we to take the plotectlonlst road, we would filld ourselves alone willie
all the other majol' world eCOllomles cOlltinue to grow
I Will close by reaffll'llling the Adminlstratloll'S Con1l111tment to tile trade agenda
t)eC3USe It IS wllat IS i)est for the United States, and it IS what IS best for the
eCOllOll1lC prospects of Nortll Carolina The \wnefits of ttl8se agreements to
exports 31ld Irwestment. Illcluding our services Industry are high and we collectively
Ileed to become more vocal to ensure tilelr realization As I see Illore and more
protectionism In the news I am worried 1\)031 we are alJout to lose an histOriC
opportunity to reap the econOllllC and political benefits of trade tllrougll tile passage
of the remaining trade promotion agreements. ThiS Administration IS deeilcateei to
pursUlllg that course while also entlanclng adjustment services and assistance to
help bUild 3 workforce for the 21st century
-30-
12/8/2008
HP-957: Paulson Meets wIth French Delegation
Page 1 of 1
May 1,2008
HP-957
Paulson Meets with French Delegation
Washington - Treasury Secretary Henry M Paulson, Jr. will welcome French
Prime Minister Francois Filion, Minister of Economy, Industry and Employment
Christine Lagarde, and Minister of Agriculture Michel Barnier to the U.S Treasury
Department on Friday, May 2,2008. This meeting continues Treasury's regular
engagement With France on a range of issues, including global and regional
economic and financial developments and efforts to combat money laundering and
terrorist finance
http://www.treas.gov/prcss/rclcfl3e3/hp9§7.htm
6/2/2008
HP-958: Assistant secretary ot the U.S. Treasury Anthony Ryan<br>Remarks at SIFMA "Wall Street to... Page 1 of 6
May 1,2008
HP-958
Assistant secretary of the U.S. Treasury Anthony Ryan
Remarks at SIFMA "Wall Street to Washington" Conference
Washington - Good afternoon Thank you for inviting me to JOin you today. It's a
pleasure to be here.
The title of thiS conference is Wall Street to Washington. It sounds like a one way
triP, but I imagine that most of you are only visiting our nation's capital, and plan on
returning to New York later this evening. Your trip reflects that it is a two way street,
and recognizes that the relationship must be as well. The reality is, not only does
Wall Street go to Washlllgton, but as we have also witnessed in recent weeks,
Washington goes to Wall Street.
This two-way relationship goes back to the founding of our Republic. In fact, our
first Secretary of the Treasury, Alexander Hamilton brought Wall Street ideas to
Washington. These ideas continue to affect how we finance the Federal
government's operations to this day.
The relationship between Wall Street and Washington is critically Important
because it influences what ultimately is experienced on Main Street. Our policies
and regulations, coupled With how efficiently and effectively capital is created and
transmitted, affects every American. ThiS is true for citizens who seek to borrow
money to purchase a car, parents looking to finance their children's education,
Illarrled couples looking to buy their first home. and entrepreneurs hoping to secure
a small busilless loan. It is equally true for providers of capital, whether they are
indiViduals investing their savings, or a pension official overseeing a retirement
plan.
How should we define this relationship? What forces affect it? What are the
mechanisms for change? Fortunately, nature provides alternative models.
One IS competition We embrace competition and the efficiency it brings to our
markets. Competition is a force that is critically important in our capital markets.
Competition spurs IIlnovation. As market participants seek better ways to meet
consumer and investor demands, more choices are created, and the cost of capital
IS reduced.
A second model is predation. While predation is the law of the Jungle in nature, as
civilized society, we need to have laws in place to protect investors and consumers
Market Integrity IS Critical for a sound and robust market. Market participants must
know the playing field is level and the rules are fair. There is a real benefit to the
existence and enforcement of broad anti-fraud and anti-manipulation authorities.
Predatory lenders, rumor mongers, market manipulators, Insider traders and others
who seek to galll an unfair advantage must be identified and prosecuted It is
important that regulators have broad authority to investigate and prosecute these
actions. These measures instill confidence in market partiCipants that the market is
operating in a fair and transparent fashion where rules matter.
Other types of relationships also come to mind. For example, commensalism IS one
relationship III which one entity gains some benefit while the other is neither helped
nor harmed. Another relationship that we all know IS paraSitism, whereby one entity
gains some benefit at the expense of another.
Each of these types of relationships exists and playa role as the natural world
continually evolves. The capital markets are no different. Well before the days of
Hamilton, financial systems had been evolving. They will continue to evolve, and
remain influenced by various types of relationships.
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Successful capital markets and effective regulatory policy do not happen
independently: quite the contrary. The fact is, success IS inter-dependent: hence the
need for the relationship to be two way. How it evolves is up to both the private and
public sectors.
Evolution is not only driven simply by competition, but also by cooperation,
interaction, and some level of mutual dependence. As we look forward, we must
recognize how much we have to gain or lose. individually and collectively, if the
relationship is not more symbiotic.
We need to ensure that our capital markets remalll the most efficient in the world.
have great confidence in our markets, but private sector calls for more voluntary
IIldustry efforts Will ring hollow if they are not followed with proactive and tangible
actions that result in changed behavior. The objective is not to study issues, write
reports. or propose protocols that Sit on a shelf. We need to see constructive Ideas
not Just developed, but Illlplemented We need to see Changes in market practices.
It is that Simple
Meanlllgful change often requires leadership. It IS not surprising that it is difficult to
ensure unanimous support for strengthening practices or that suggestlllg change
attracts antagonism.
Make no Illistake about it. change will occur, one way or the other, and there is a
great deal to be said when it origillates within the private sector. PoliCY makers will
welcome such constructive developments by the private sector, but regulatory
practices will have to change as well. The question, which time will ultimately
answer, is what IS the appropriate balance? If private sector market practices do not
change, and market diSCipline is not significantly strengthened, legislators and
regulators Will certalilly move to address the weaknesses in the private sector's
contribution to market discipline.
So, let me highlight four areas where Washington is looking to partner with you, and
where we need to work together to strengthen our capital markets.
Market Turmoil
Our first priority must be to confront the current challenges in our capital markets,
and to seek to minimize the spillover effects on our real economy A great deal of
de-leveraglllg IS occurring, which has created liquidity challenges and compromised
our credit markets' ability to facilitate economic actiVities.
Working closely through the President's Working Group on Financial Markets
(PWG), we recently completed a rigorous review of the underlying causes of the
turmoil, and released a poliCY statement that Included speCifiC recommendations to
address the underlying weaknesses that caused, facilitated, and exacerbated the
challenges In our capital markets.
The PWG recommendations cover the practices of a broad array of market
participants, as well as supervisors. The partiCipants include originators of credit
such as mortgage brokers, financial firms that securitize credit, rating agencies, and
investors.
At the Treasury Department, we look forward to seeing the recommendations
implemented. Everybody has a role to play, and efforts must be made to strengthen
practices III
Transparency and disclosure. The effect of many of the weaknesses in the market
and the resulting challenges In addressing them were exacerbated by compleXity
and opacity. The best antidote to opacity is transparency and better and more
useful disclosure.
2. Risk awareness. Regulators and all market partiCipants must be more aware of,
and better able to respond, to risks. Credit rating agency practices must Improve,
and the users of their services must rely less on, and appreciate more, the
limitations of ratings products.
3. Risk management. We need improved risk management practices by investors
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HP-958: Assistant secretary otthe U.S. Treasury Anthony Ryan<br>Remarks at SIFMA "Wall Street to ... Page 3 of 6
and financial Institutions, and continued review and gUidance from regulators. Risk
management is everyone's business.
4 Capital management. Well-capitalized Institutions are better prepared to deal with
challenges, foster econonllC growth and enhance market confidence.
As Chairman Bernanke recently remarked, "We do not have the luxury of waiting
for markets to stabilize before we think about the future. Indeed, many of the
necessary changes that have been identified, including increasing transparency,
improving risk management, and attaining better coordination among regulators,
could provide important support to the process of normalizing our financial
markets."
Hedge Funds
Another area In which the private sector must continue to move forward is hedge
funds Over a year ago, the PWG released principles and guidelines regarding
private pools of capital. While private pools of capital bring many advantages to our
capital markets, they also pose challenges, including systemic risk and investor
protection. We must rely on a combination of strong market discipline and
regulatory policies to address these risks.
In September 2007, the PWG tasked two private-sector committees, comprised of
well-known and well-respected asset managers and investors, to develop best
practices for their respecllve groups. Their reports were released for public
comment two weeks ago. and after a period of public comment. the groups will
release final reports this summer.
The "Best Practices for Asset Managers" calls on hedge funds to adopt
comprehenSive best practices in all aspects of their business. including the Critical
areas of disclosure, valuation of assets, risk management, business operations,
compliance and conflicts of interest. They recommend Innovative and far-reaching
practices that exceed existing industry standards, and called for increased
accountability for hedge fund managers.
The "Best Practices for Investors" includes both a FidUCiary's Guide and an
Investor's Guide The Fiduciary's Guide provides recommendations to individuals
charged With evaluating the appropriateness of hedge funds as a component of an
investment portfolio. The Investor's GUide prOVides recommendations to those
charged with executing and administering a hedge fund program once a hedge fund
has been added to an investment portfolio Their best practices offer a guide for
responsible Investment in hedge funds. In the months ahead, we believe that it is
critical to see these implemented.
There IS also need to move forward on a longer term, strategic baSIS. Treasury
recently released a Blueprint for Financial Regulatory Reform. Our current
regulatory structure is not optimally positioned to address the modern financial
system with its diversity of market partiCipants, innovation, complexity of financial
instruments, convergence of financial intermediaries and trading platforms, and
global integration and interconnectedness.
We suggested in the Blueprint a new framework, one that includes a market
stability regulator with broad powers focusing on the overall financial system The
market stability regulator would have the ability to evaluate the capital, liquidity, and
marglll practices across the entire financial system and their potential impact on
overall finanCial stability.
To do this effectively, the market stability regulator would collect information from
commerCial banks, investment banks, insurance companies, hedge funds, and
commodity pool operators Rather than focus on the health of a particular
organization, the market stability regulator would focus on whether a firm's or
industry's practices threaten overall financial stability. It would have broad powers
and the necessary corrective authorities to deal with defiCiencies that pose threats
to our financial stability.
Our ambition IS to frame the debate and put forth a model that can guide all
stakeholders as we seek to modernize our financial regulatory structure.
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KP-958: Assistant secretary ofthe U.S. Treasury Anthony Ryan<br>Remarks at SIFMA "Wall Street to... Page 4 of 6
Market Infrastructure
A third area where we need to see further progress by the private sector is market
Infrastructure. It includes market-making capacity and systems for processing,
settling, and clearing financial transactions. Comprehensive and dependable
market infrastructure Inspires Investor confidence and plays an important role in the
integrity of our marketplace. Market Infrastructure is critical as It ultimately affects
the ability to transfer risk and facilitate liquidity. For this reason, the financial
Industry must continue its efforts to enhance its strong system of clearance and
settlement, including secure custodial arrangements.
Over the past ten months, despite dislocations in our financial markets, our market
infrastructure has proven quite resilient. Payments were made, transaction
processmg continued, and exchanges handled massive surges in volume across
the globe.
While these signs are encouraging, we constantly must seek to improve our
position and ensure business continuity. Over the past decade there has been a
tremendous expansion in the scale, diversity, and impact of over-the-counter (OTC)
derivatives, which have become important vehicles for hedging and transferring
fisk. But as with most financial products, infl'astructure development has lagged
Innovation. Market volume and instrument complexity call for a clear, functional,
well-designed infrastructure that can meet the needs of the OTC derivatives
markets in the years ahead.
Asset managers, IIlvestors, counterpartles, and creditors must promptly set
ambitious standards for trade data submission and resolution; promptly amend
standard credit derivative trade documentation to incorporate the cash settlement
protocol, and develop a longer-term plan for an integrated operational Infrastructure
supporting OTC derivatives. The Industry needs to take further steps to limit the
domino effect of lagging and uncertain post-trade processes in the event of a
counterparty default or failure.
We need to remain focused and complete the work already underway. The Federal
Reserve Bank of New York (FRBNY) and an industry group (the "Operations
Management Group" or OMG) have been working collaboratlvely to address the
OTC processing and infrastructure Issues. ISDA has developed a cash settlement
protocol and is exploring incorporating the auction mechanism into its
documentation The private-sector committee on risk management recommended
by the PWG statement will look at strengthening the operational infrastructure of
financial markets, including settlement protocols, close-outs in defaults, and
processing of OTC derivatives. On all of these issues, the industry has an
opportunity to improve market practices, and must do so.
U,S. Treasury Market
The final area that I Will highlight thiS afternoon concerns an Issue that is core to the
miSSion of my Department - the U.S Treasury marketplace. We value the
symbiotic relationship that we have with the participants In the Treasury market.
Because our operating prinCiples of transparency and predictability are well
established, buyers of Treasury securilies come to us In greater numbers and bid
with more confidence and in larger amounts, Our predictability, coupled with our
unitary financing approach, Increases the depth and liquidity of the Treasury
marketplace and results In lower cost borrowing for the government.
We appreciate the principles-based framework outlined by the Treasury Markets
Practices Group (TMPG). The principles and guidelines they put forth provide a
strong foundation for how all stakeholders should enhance their current practices,
fulfill their responsibilities, and support actions that facilitate liquidity in the US.
Treasury market. As debt managers, we constantly encourage the implementation
and evolution of these principles In our discussions with major inslitutional
Investors, reserve managers, and central banks.
When these prinCiples were laid out almost a year ago, I remarked that success will
be determined by how market participants interpret and implement these practices,
and how market practices evolve from this pOint forward. I also pointed out that
SIFMA is engaging its membership on negative repo rate trading, improved buy-in
procedures, and the margining of fails.
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HP~958: Assistant secretary of the U.S. Treasury Anthony Ryan<br>Remarks at SIFMA "Wall Street to ...
Page 5 of 6
At the February 20U8 Quarterly Refunding, we discussed settlement failures In the
Treasury market with our Treasury Borrowing Advisory Committee (TBAC), a
committee sponsored by SIFMA and comprised of some of the finest, most
experienced professionals In the financial market place. As you know, settlement
failures, or fails, occur when a party seiling a security fails to deliver the security to
the buyer on the agreed upon settlement date. Settlement failures, occur for a
variety of reasons Including errors In the back office and miscommunications, and
are genel'ally small and resolved qUickly.
Larger, more chronic fails can occur due to wide-scale operational disruptions or
financial market conditions, such as when Interest rates reach low levels.
Treasury and the TBAC discussed the potential risk of chronic falls in a lower
Interest rate environment, a risk that we believe impairs liquidity and threatens to
raise our cost of borrowing In addition, we asked market participants to pursue
market-Oriented solutions, adapt and implement practices for such a situation, and
report back to us regarding their progress.
Over the past twelve weeks, we have seen rates drop qUickly, the demand for
Treasury seCUrities skyrocket, and a rapid Increase in fails to deliver in the Treasury
market. In a short time period, we entered an Interest rate regime in which the cost
associated With fails declined Significantly - and, perversely, weakened the financial
incentive to rec\ify a fail. While the cost of failing to deliver may be low for a single
market participant, the aggregate cost can be high when it potentially Impairs the
overall system, and such behavior is certainly not consistent with profeSSional best
practices.
ThiS week, at the May 2008 Quarterly Refunding, we asked the TBAC for their view
on actions taken by market participants to date. Committee members were
encouraged by the collaborative efforts undertaken by the private sector industry
groups to formulate viable solutions to address chronic fails, and members broadly
accepted that the initiatives outlined by SIFMA and TMPG would improve market
practices for fails monitoring and remediation in the near-term
Implementation of the potential steps outlined and recommended by SIFMA and the
TMPG, such as encouraging cash settlement of fails before the 30th day after the
fail had occurred. "Fails Best Practices" which define such parameters as margining
of fails, cash settlement procedures, and initiatives related to pair-offs and securitydelivery, and the enactment of a Falls MonitOring Committee, were broadly agreed
upon The TBAC emphasized the need for industry groups to quickly execute
recommended practice gUidance and urged both groups to employ measures that
would collectively help prevent chronic fails Situations.
Treasury agrees that now IS the time to act. We believe that private sector action
now regarding the implementation of these mitigating Initiatives is optimal, and we
will continue to monitor progress closely.
Conclusion
As financial Industry profeSSionals and policy leaders, you know first hand the
benefits of dynamic economic growth, and thus have a vested interest in capital
markets that enhance Investor confidence and market liqUidity - both of which have
been challenged significantly in recent months.
These are important issues, and we need to see material steps taken towards our
goals. Both market and regulatory practices will evolve from here. All stakeholders,
including regulators, must remain on top of tilese issues. We must not Just define
solutions, but Implement them, and continually seek to strengthen both our market
and regulatory practices.
By POSitively changing market practices, you Will help strengthen market discipline,
mitigate systemic risk, restore Investor confidence, and facilitate stable economic
growth.
The health of our capital markets reflects the collective efforts of both the publiC and
private sectors. To reap the benefits, both sectors must share responSibility and be
actively engaged. So, as you return to Wall Street, know that there is much work to
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HP-958: Assistant secretary ofthe U.S. Treasury Anthony Ryan<br>Remarks at SIFMA "Wal1 Street to ... Page 6 of 6
do, and that each of you has an important responsibility to strengthen the vitality,
stability, and integrity of our capital markets.
Thank you very much.
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HP-959: U.S., New Zealand to Negotiate Protocol to Income Tax Treaty
Page 1 of 1
May 1. 2008
HP-959
U.S., New Zealand to Negotiate Protocol to Income Tax Treaty
Washington, DC--The United States and New Zealand announced today that they
plan to begin negotiation of a protocol to amend the bilateral income tax treaty,
which entered Into force in 1983. The first round of negotiations is expected to take
place beginlling June 16 in Washlngtoll, D.C
The Treasury Department welcomes written comments from the public regarding
the upcoming negotiations. Comments should be sent to John Harrington,
International Tax Counsel, Room 3054 Maill Treasury Building. 1500 Pennsylvania
Ave., NW, Washington. DC 20220.
Comments also may be sent by fax to (202) 622-0646, or bye-mail to
John. Harrington@do.treas.gov.
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6/2/2008
HP-960: Week I Wrap-Up: <br>Treasury Sent 7.7()~ Million Stimulus Payments This Week
Page 1 of2
May 2,2008
hp-960
Week 1 Wrap-Up:
Treasury Sent 7.708 Million Stimulus Payments This Week
This week the Treasury Department sent out 7708 million economic stimulus
payments to American households totaling $7091 billion.
Week One (April 28-May 2)
•
•
Total Number of Payments: 7.708 million
Total Amount of Payments $7091 billion
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households, and the total amount of payments
sent. Payments began April 28 th and will continue via direct deposit or paper check
through mid-July. For a single filer, the minimum payment IS generally $300 and
the maximum payment is $600. For jOint filers, the minimum is generally $600 and
the maximum $1,200 There IS also an additional $300 payment for each qualifying
child.
For tax returns processed by the Internal Revenue Service by April 15 households
will receive their payments according to the last two digits of the Social Security
number on the tax form On a Joint return, the first number listed will determine
when a slimulus payment will be sent.
Direct Deposit Payments
If the last two digits of your Social
Security number are
Your economic stimulus payment deposit
should be transmitted to your bank
account by·
00 - 20
21 - 75
76 - 99
May 2
May 9
May 16
Paper Check
If the last two digits of your Social
Security number are
00 - 09
10- 18
19 - 25
26 - 38
39 - 51
52 - 63
64 - 75
76 - 87
88 - 99
Your check should be in the mail by
May 16
May 23
May 30
June 6
June 13
June 20
June 27
July 4
July 11
A small percent of tax returns will require additional time to process and to compute
a stimulus payment amount. For these returns, stimulus payments may not be
Issued in accordance With the schedule above, even if the tax return was processed
by April 15. In these cases, the stimulus payment will be Issued approximately 2
weeks after the tax return IS ultimately processed
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6/2/2008
HP-962: Treasurer Cabral To Visit Treasury Printing Facility in San Francisco <br>Next Week to Obser...
Page 1 of 1
May 2,2008
HP-962
Treasurer Cabral To Visit Treasury Printing Facility in San Francisco
Next Week to Observe Stimulus Checks Rolling off the Presses
Washington, DC--U.S. Treasurer Anna Escobedo Cabral will tour a Treasury
Department printing facility in San Francisco next Thursday to observe the first
mass produclion printing and packaging of the 2008 stimulus checks.
The following event
IS
open to the press
Who
Treasurer Anna Escobedo Cabral
What
Facility Tour and Press Availability
When
Thursday, May 8, 1100 a.m PDT
Where
San Francisco Regional Financial Center
1650 65th St, Suite A
Emeryville, CA 94608
Note
All media should RSVP to Abbie Loftus at (510) 594-7100, or Fay Rurup (510) 5947330 with the following information full name, Social Security number, date of birth,
position, and organization
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6/2/2008
HP-963: Treasury Economic Update 5.2.08
Page 1 of 1
May 2. 2008
HP-963
Treasury Economic Update 5.2.08
"Today's employment report indicates that the U.S. economy continues to
work through substantial challenges from the housing adjustment, high
energy and food prices, and financial market conditions. The Treasury
Department sent out 7.7 million economic stimulus payments to American
households this week, and the payments will continue through mid-July.
These payments, combined with the business investment incentives also
included in the stimulus package, will provide significant support to
household and business spending in the middle of the year."
Assistant Secretary Phillip Swagel. May 2. 2008
Employment Fell in April:
Job Growth: Payroll employment fell by 20.000 in April. following a decrease of
81.000 in March. The United States has added 8.0 million jobs since August 2003.
Employment Increased in 39 states and the District of Columbia over the year
ending III March. (Last updated May 2. 2008)
Low Unemployment: The unemployment rate was 5.0 percent in Apnl. down from
5.1 percent in March. (Last updated: May 2. 2008)
Signs of Economic Strength Include Exports and Low Inflation:
Exports: Strong global growth is boosting US. exports. which grew by 9.5 percent
over the past 4 quarters (Last updated April 30. 2008)
Inflation: Core Inflation remains contained. The consumer price Irldex excluding
food and energy rose 2.4 percent over the 12 months ending in March. (Last
updated: April 16.2008)
The Economic Stimulus Package Will Provide a Temporary Boost to Our
Economy:
The package will help our economy weather the housing correction and other
challenges. The Economic Stimulus Act of 2008. signed into law by PreSident
Bush has two main elements--temporary individual tax relief so that working
Americans have more money to spend and temporary tax incentives for businesses
to invest and grow. Together. the legislation will provide about $150 billion of tax
relief for the economy In 2008. leading to the creallon of over half a million
additional Jobs by the end of thiS year. (Last updated February 29. 2008)
Pro-Growth Policies Will Enhance Long-Term U.S. Economic Strength:
We are on track to make significant further progress on the deficit. The FY07
budget defiCit was down to 1.2 percent of GOP. from 1.9 percent In FY06. Much of
the improvement In the deficit reflects strong revenue growth. which Irl turn reflects
strong economic growth. Looking ahead. higher spending on entitlement programs
dominates the future fiscal situation; we must squarely face up to the challenge of
reforming these programs
: : I,
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I
I
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;'
I :I
6/2/2008
HP-964 Statement by Assistant Secretary for International Atbirs Clay Lowery<br>before the 41st Ann ... Page I of2
May 5, 2008
HP-964
Statement by Assistant Secretary for International Affairs Clay Lowery
before the 41st Annual Meeting of the Asian Development Bank
Madrid, Spain -- It is delightful to be here in Madrid for these meetings, and I would
like to thank our gracious hosts, the Government of Spain and the City of Madrid,
for their warm hospitality. We want to thank them for hosting the successful
replenishment of the Asian Development Fund - which like Real Madrid's triumph
last night - needed the final minutes for a result. Let me begin on a sad note and
say that our hearts go out to the Victims of the cyclone that hit Burma over the
weekend
In the United States, we are going through a difficult housing correction that has
impacted our capital markets. We are taking a number of aggressive measures to
mlnirnlze the downturn's effect We believe our long-run fundamentals remain
sound and we have confidence that we Will work through this period.
Much of the rest of the world IS suffering from large increase In global food prices,
and the response requires both immediate and medium-term actions. We applaud
the ADB's announced Intention to take both kinds of action consistent with Its
comparative advantage and strategic vision. Structurally and strategically, we
believe the most meaningful manner in which the ADB can contribute is by
strengthening agricultural productivity through building rural infrastructure and
providing appropriately scaled financing initiatives for farmers and rural
organizations.
ASia is the world's fastest growing region, and despite the sharp rise in commodity
and food prices and the recent slowdown in the United States, the ADB is
forecasting growth In Asian developing economies of 7.6 percent In 2008. As the
ADB Itself forecasts, by 2020 ASia and the Pacific will account for more than 25
percent of global GOP In nominal dollar terms, have 90 percent of its population
living III middle Income countries and have only 2 percent of the population living on
less than $1 per day
While some countries have roared ahead, however, others have lagged behilld and
too many are still among the world's poorest countries. They need the institutional
and poliCY reforms that create opportunities for prrvate sector Job creation,
sustained growth and Improved living standards. Infrastructure gaps prevent the
connections to markets and products that drive essential private-sector commerce,
both withlll and across borders. And where incomes have grown Significantly, rapid
growth is putting strains on the environment and natural resources.
To address these challenges, the ADB should put ItS efforts into three areas
bUilding on the replenishment. adapting to changes in middle income countries, and
strengthening institutional reforms.
First, we applaud the agreement's clear focus on the Bank's comparative
advantage, focuslllg on four key areas - Infrastructure finance, the enabling
environment for private sector development. basic education, and preventing
environmental degradation On thiS last point, we look forward to close cooperation
With ADB as the United States and other bilateral donors launch the Clean
Technology Fund to help developing countries finance advanced technologies to
cut greenhouse gas emiSSions.
Second, the ADB's role In middle-income countries has been a matter of rich
debate among shareholders and we urge continued dialogue as we try to determine
the optimal mode of engagement with countries that still face crUCial development
challenges even as they succeed and gain access to private finanCial markets. In
some countries, this Will mean shifting from finanCial assistance to fee-based poliCY
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H P~964: Statement by AssIstant Secretary for International A ft~lirs Clay Lowery<br>before the 41 st Ann... Page 2 of 2
guidance of the kind that the Bank is uniquely qualified to provide. Adaptation to
change is a challenge, but it also presents a tremendous opportunity for the Bank to
use its knowledge to help countries in new ways, and we look forward to helping the
Bank stay true to its Charter
Third, my boss Secretary Paulson likes to say that private entities that do not reform
with the times go bankrupt, whereas public entities become irrelevant. At the ADB,
we think a number of changes are needed to avoid being irrelevant. The ADB
needs to ensure that it measures and manages for development results and its
evaluation Unit remains Independent
And, some have asked me why the United States cares so much about the human
resources department My answer is that the most valuable asset of the ADB is its
people. The recruitment, retention, and career development of the kind of
dedicated, qualified professionals needed by the Bank to fulfill its mission are
central to the ADB's success It IS Imperative that the management take concrete
steps to professionalize human resources management. One place to start is
scrapping the anachronism at many levels of the organization for a bias toward
nationality as opposed to merit.
We think with efforts In these three areas - combined with the solid work in such
countries as Afghanistan - the Bank will truly have a long-term strategy.
I would like to close by thanking President Kuroda and the entire bank staff for their
work in preparing for our meetings here in Madrid, and my government looks
forward to continUing our work with the Bank and fellow shareholders as we pursue
our common vIsion of a region of growth and prosperity for all its citizens. Thank
you very much.
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6/2/2008
HP-965: Secretary Paulson Names Leadership for President's Advisory Council <br>on Financial Literacy
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May 5,2008
hp-965
Secretary Paulson Names Leadership for President's Advisory Council
on Financial Literacy
Washington- Secretary Henry M. Paulson, Jr., and Charles Schwab, Chairman of
the President's AdVisory Council on Financial Literacy, announced the appointment
of several key Council officers today as the group conducted its second public
meeting.
Secretary Paulson designated Deputy ASSistant Secretary for Financial Education
Dan lannicola, Jr, as Executive Director of the President's Advisory Council on
Financial Literacy. On behalf of Secretary Paulson, Mr. lannicola will manage the
council's activities and support Chairman Schwab's agenda to raise the nation's
level of financial literacy.
"Dan lannicola has been a true leader in financial literacy for many years, and he
will make an excellent Executive Director," said Chairman Schwab. "With Dan's
appointment and our committee chairs in place, the Council is well positioned to
carry out Its work of making financial literacy a national priority, and ensuring
that people of all ages and backgrounds have the skills to understand and manage
their finances."
President Bush established the advisory counCil to focus on expanding Americans'
access to financial services and increasing financial education for youth in school
and for adults In the workplace
In addition, Chairman Schwab selected the leaders for the committees that will set
the Council's goals for the upcoming months, including:
•
•
•
•
•
Ted Beck, Committee on Outreach;
Tahlra Hira, Committee on FinanCial Education Research;
John Bryant, Committee on Underserved Populations;
Janet Parker, Committee on Financial Education in the Workplace
Laura LeVine, Committee on Financial Education for Youth.
Chairman Scllwab named CounCil member Cutler Dawson to serve as a liaison to
the Financial Literacy and Education Commission, and Council member Ted
Daniels to serve as alternate liaison. Established by the Fair and Accurate Credit
Transactions Act of 2003, the Commission is comprised of 20 federal agencies and
led by the Treasury Department.
"The 20 agencies on the CommiSSion make a critically important contribution to the
effort to raise the nation's financial literacy level," said Chairman Schwab. "The
Council's new liaison to the Commission will help maintain open hnes of
communication between the private sector and the federal government. and ensure
that the two panels are working together toward a common goa\."
The President and the Secretary of the Treasury have tasked the Council with
advising them on how to raise the level of finanCial literacy for all Americans. The
Council has turned to the American public for help with that task and IS soliciting
public comments at
<http://www .treas u ry. gov loffices/domestic-fi na nce/fi na nCla I-i nstitutio n/fi neducation/colincil/032008 _ SolicitationofPublicComments. pdf>.
It will meet next in person on June 18 in Washington, D.C. Council meetings are
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp96~.htm
6/2/2008
HP-965: Secretary Paulson Names Leadership for President's Advisory Council <br>on Financial Literacy
Page 2 of2
open to the public.
-30-
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hpQh.).htl11
6/212008
HP-966:
TreasLlry Targets
FARC Money Exchange
HOLlse
Page
1 of2
May 7, 2008
HP-966
Treasury Targets FARe Money Exchange House
Washington - The U.S Department of the Treasury's Office of Foreign Assets
Control (OFAC) today designated a Colombian money exchange house for acting
on behalf of and materially assisting the narcotics trafficking activities of the
Revolutionary Armed Forces of Colombia, a narco-terrorist group also known as the
FARC. This is OFAC's fourth action against the FARC In the past SIX months.
"Today's action targets the FARC's drug trafficking and terror activities by
undermining ItS financial network," said OFAC Director Adam J Szubin "ThiS deals
another blow to the FARC's ability to fund its operations by laundering crimillal
proceeds through the International fillancial system"
Today's designation targets Mercurio Internac/onal SA, a Colombian money
exchange house headquartered in Bogota, Colombia, with several branches
throughout Colombia. The FARC used thiS Colombian money eXChange house--or
"casa de cambio" as they are commonly known in Colombia--to launder narcotics
proceeds from ItS Eastern Bloc and, more speCifically, the 27th Front. The FARC
sells its Illicit foreign currency to domestic money exchange busillesses or
profeslOnales del cambio. These profesionales del cambio then sell the foreign
currency to casas de cambio that. like a bank, can export the foreign currency from
Colombia.
Mercurio Internacional accepted foreign currency from the FARC via a number of
profeslOnales del cambio. The FARC derived this foreign currency from drug sales.
MerCU(fO Internacional would then convert the foreign currency back into pesos for
the FARC to use In Colombia to fund its activities. For example, Cambios EI Trebol.
a professional del cambio that was designated by OFAC on April 22, 2008, is one
customer of Mercurio InternaCional that would sell the FARC's illicit foreign currency
to Mercurio Internacional in return for Colombian pesos
The Eastern Bloc is the strongest military faction of the FARC and uses murder,
extortion, kidnapping, and drug trafficklllg to further the fillancial and political goals
of the FARC. Luis Eduardo Lopez Mendez (alias "Efren Arboleda") leads the 27th
Front and ultimately reports to FARC Secretariat Member Victor Julio Suarez ROjas
(alias "Mono JOJoy"). Suarez ROjas is the FARC's Chief of Military Operations and
formerly served as the commander of the Eastern Bloc.
.' ,I,. ,11.'
I.::
and .. , '. , .:, .::. :{...
.:' .. were deSignated by OFAC in February 2004 and
November 2007, respectively.
On May 29. 2003, President George W Bush identified the FARC as a Significant
foreign narcotics trafficker pursuant to the Foreign Narcotics Kingpin Designation
Act. Previously, III 2001. OFAC designated the FARC as a Specially DeSignated
Global Terrorist pursuant to Executive Order 13224. and in 1997 the FARC was
designated as a Foreign Terrorist Organization by the Secretary of State
Today's action continues ongoing efforts under the Foreign Narcotics Kingpin
DesignatJon Act to apply financial measures against significant foreign narcotics
traffickers worldWide. In addition to the 68 drug kingpins that have been designated
by the PreSident, 393 businesses and individuals have been designated pursuant to
the Kingpin Act since June 2000. Today's designation would not have been
possible without support from the Drug Enforcement Administration
Today's action freezes any assets Mercu(fo Internacional may have under U.S.
jurisdiction and prohibits U.S. persons from conducting financial or commercial
transactions With this entity. Penalties for violations of the Kingpin Act range from
civil penalties of up to $1,075,000 per violation to more severe Criminal penalties
Criminal penalties for corporate officers may include up to 30 years III prison and
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp966.htl11
6/212008
Page 2 of2
H P-966: Treasury Targets FARe Money Exchange House
fines of up to $5,000,000. Criminal fines for corporations may reach $10,000,000.
Other individuals face up to 10 years in prison for criminal violations of the Kingpin
Act and fines pursuant to Title 18 of the United States Code
REPORTS
For a complete list of the individuals and entities designated today, please VISit
http/fwww.treasury.govfofficesfenfo rcement/ofacfaction sfindex. s html
To view previous OFAC actions directed against the FARC, please visit
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6/2/2008
HP-967: Reminder: Treasury Secretary to Visit Printing Facility in Kansas City<br>Thursday to Observ...
Page 1 of
May 7, 2008
HP-967
Reminder: Treasury Secretary to Visit Printing Facility in Kansas City
Thursday to Observe Stimulus Checks Rolling off the Presses
Washington, DC--Treasury Secretary Henry M. Paulson, Jr. will tour a Treasury
Department printing facility In Kansas City Thursday to observe the first mass
production printing and packaging of the 2008 stimulus checks. He will also deliver
remarks on the economic stlnlulus payments at the Kansas City Central Library.
"By the end of June nearly 130 million stimulus payments should be In the hands of
Americans, providing an Immediate boost to the economy and helping to create
more than 500,000 new Jobs by the end of the year," said Paulson
The following events are open to the press
What
Facility Tour with Treasury Secretary Henry M. Paulson, Jr.
When
Thursday, May 8, 800 a.m COT
Where
Kansas City Regional Fillancial Center
4241 NE 34th Street
Kansas City, MO
Note
All media should RSVP to Francie Abbott at (816) 414-2151, or Lauren Ray (816)
414-2113 with the following information full name, Social Security number and date
of birth, pOSition, and organization.
What
Remarks by Treasury Secretary Henry M Paulson, Jr. on Economic Stimulus
When
Thursday, May 8, 930 a.m COT
Where
Kansas City Central Library
Helzberg Auditorium
14 West 10th Street
Kansas City, MO
Note
Media will need to show 10 at the door; RSVPs not necessary
http://www.treas.gov/pr~h>;/r.i:l~ai>es/hp967.htm
6/2/2008
Page 1 of 4
May 7, 2008
2008-5-7 -15-21-43-3509
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 $73,918 million as of the end of that week, compared to $74,541 million as of the end of the
prior week.
I Official reserve assets and other foreign currency assets (approximate market value,
I
I
IA Official reserve assets (in US millions unless otherwise specified)
1(1) Foreign currency reserves (in convertible foreign currencies)
I(a) Securities
lof which : issuer headquartered
III
reporting country but located abroad
I(b) total currency and deposits with
In
US millions)
II
IIMay 2.2008
IIEuro
II
11 15.399
II
I(i) other national central banks, BIS and IMF
II
11 15 ,354
Iii) banks headquartered in the reporting country
1
IIYen
IITotal
II
11 73 ,9 18
11 11,609
1127 ,008
II
II
11
II
6,519
11 21 ,873
11
lof which loca ted abroad
11
0
0
11 0
11 0
I(iii ) banks headquartered outside the reporting country
lof which : located in the reporting country
1(2) IMF reserve position
11 4 ,245
1(3 ) SDRs
11 9 ,750
1(4) gold (including gold depOSits and, if appropriate , gold swapped)
11 11,041
I--volume in millions of fine troy ounces
11 261 .499
1(5) other reserve assets (specify)
0
0
I--financial derivatives
I--Ioa ns to nonbank nonresidents
I--other
I
IS Other foreign currency assets (specify)
I--securities not included in official reserve assets
I--deposits not included in official reserve assets
I--Ioans not included in official reserve assets
"II
I--financial derivatives not included in official reserve assets
1--gOld not included in official reserve assets
I --other
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
I~p============="====~!~!====~!r!====~II======~II====~!I
http://www.treas.suv/press/rclca3c312008571521433509.htm
6/2/2008
Page 2 of 4
I
II
I
I 1. Foreign currency loans, securities, and deposits
IIMaturity breakdown (residual maturity)
IITotal
I
II
II
II
II
II
I--outflows (-)
IIPrinclpal
I
I--Inflows (+)
IIlnterest
II Principal
II
II
II
I
Illnterest
II
I
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I (a) Short positions ( - )
I (b) Long positions (+)
3. Other (specify)
--outflows related to repos (-)
--inflows related to reverse repos (+)
--trade credit (-)
--trade credit (+)
--other accounts payable (-)
--other accounts receivable (+)
II
II
II
II
II
II
II
II
II
More than 1 and
up to 3 months
Up to 1 month
II
II
I
More than 3
months and up to
1 year
II
I
I
II
/I
/I
II
II
/I
/I
II
I
I
II
II
II
I
II
II
/I
II
I
I
II
II
II
II
II
II
/I
/I
/I
/I
/I
II
II
II
/I
II
I
II
II
II
II
II
I
I
II
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
I
II
IITotal
I
11. Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falling due within 1
year
I(b) Other contingent liabilities
/I
II
II
II
I Maturity breakdown (residual maturity, where
applicable)
I
I
II
II
I
II
II
I
2. Foreign currency securities issued with embedded
options (puttable bonds)
II
13. Undrawn, unconditional credit lines provided by:
I--other national monetary authorities (+)
I--BIS (+)
I--IMF (+)
(b) with banks and other financial institutions
headquartered In the reporting country (+)
(c) with banks and other financial institutions
headquartered outside the reporting country (+)
II
I
I
Undrawn, unconditional credit lines prOVided to:
I
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
[--other national monetary authorities (-)
t-
r
II
II
BIS (-)
II
II
Ii
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/2008571521433509.htm
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 monIC
I
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
I
II
I
II
I
II
II
II
II
II
II
II
II
II
I
I
II
II
I
II
I
I
I
I
I
II
II
II
II
II
II
Ii
I
II
II
"
6/2/2008
Page 3 of ~
I--IMF (-)
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
II
II
II
II
II
II
II
II
I
I
II
I
"
I
"
I(a) Short positions
I
I(i) Bought puts
I(ii) Written calls
I(b) Long positions
I
I(i) Bought calls
II
/I
I
II
I
II
II
I
II
I(ii) Written puts
I
I
IPRO MEMORIA: In-the-moneyoptions I:
I( 1) At current exchange rate
I(a) Short position
I
I(b) Long position
1(2) + 5 % (depreciation of 5%)
I
I(a) Short position
II
I(b) Long position
I
II
1(6) Other (specify)
I
I
I(a) Short position
II
II
1(3) - 5 % (appreciation of 5%)
I
I(a) Short position
I(b) Long position
1(4) +10 % (depreciation of 10%)
hal Short position
I(b) Long position
1(5) - 10 % (appreciation of 10%)
\
I(a) Short position
I(b) Long pOSition
I(b) Long position
II
/I
II
II
IV. Memo items
I
I
I
1(1) To be reported With standard periodicity and timeliness
hal short-term domestic currency debt indexed to the exchange rate
(b) financial Instruments denominated in foreign currency and settled by other means (e.g., in domestic
currency)
I--nondeliverable forwards
I
1
I
1
[ --short positions
[ --long positions
[--other instruments
((C) pledged assets
[-inCluded in reserve assets
I
t-inCluded in other foreign currency assets
II
~d) securities lent and
on repo
E-Ient or repoed and included in Section I
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/200~.)71521433509.htm
II
II
6/2/2008
Page 4 of 4
I--Ient or repoed but not included in Section I
II
I
I
I
I
I--borrowed or acquired and included in Section I
"
"
"
"
II"
"
I--borrowed or acquired but not included in Section I
I(e) financial derivative assets (net. marked to market)
I--forwards
I--futures
I--swaps
I--options
I--other
I
I
I
I
I
(f) derivatives (forward. futures. or options contracts) that have a residual maturity greater than one year.
which are subject to margin calls.
I
I
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I
I(a) short positions
I(i) bought puts
I(ii) written calls
I(b) long positions
I(i) bought calls
1(li) written puts
1(2) To be disclosed less frequently:
I
I(a) currency composition of reserves (by groups of currencies)
11 73 .918
I--currencies in SDR basket
11 73 .918
I--currencies not
II
II
II
In
SDR basket
I--by individual currencies (optional)
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 markedto-market values, and deposits reflect carrying values.
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.treatl.gov/pr~h>;/r.i:l~ai>es/200~571521433509.htl11
6/2/2008
HP_l)GX: Treasury, OECD Co-Host International Conference on Financial Education
",~~""~il PRESS
'l.II1" u.s.
......~'~.'/
~'
ROOM
Page I of 1
",
DEPARTMENT OF THE TREASURY
'If
May 7. 2008
HP-968
Treasury, OECD Co-Host International Conference on Financial Education
Washington - The Tleasury Department and the Organization for Economic
Cooperation and Development (OECD) welcomed offiCials from more than 40
COUll tries today at the Intematlonal Conference on Fillancial Education The twoday conference Will allow ~]overnment offiCials, researchers. and non-profit and
liuslncss leade[ s to sr'C1re best practices 311(1 eclucatlonal tools [[1 tlw CYOWII[C] f[eld
of f[11a[1Clal edl[Catlon Secretal'y Paulson Will del[ver closrn<] ['elll;1rks ThurscJC1Y.
May 8
"Wrlen It comes to flnarlclal educatlol1 effol'ts around tile world, the tide IS rising,"
said Dan lannicola, Jr . Deputy ASSistant Secretary for Frnallclal Education.
"Although OUI econOlllles each have unique chal'actenstlcs, thele are a numbel' of
common problems that arise In part because our populations lack the financ[al skills
they need. By working together, beyond our national borders, we can move qUickly
and more effectively to find cOlllmon solutions to these shared prOblems."
"In a world where finanCial risks are increaslllgly transferred to householcls.
fillancial education has becoille an essential poliCy tool," said Andre Laboul, head
of OECD's FinanCial Affairs DIVISion "There IS an urgent need to develop a flew
culture of finanCial responSibility and to help Citizens to become financlilily
educated"
The conference Will be available for viewing via webcast at
Treasury Co-hosted the conference on behalf of the FinanCial Literacy and
Education COlllllllssion, which published a National Strategy for Frnanclal
Educatlol1 In 2006. One of the National Strategy's Calls to Action outlined the need
for an IIlternational conference to shal'e best practices and Increase cooperation on
finanCial education efforts The National Strategy and other finanCial education
resources are aVClilable at
-30-
http://wwvv·.trca~.gov/rre~l~;irelei:lt.es/h p')()X. hIm
12/X/200g
HP-969: Treasury Issues General License to Speed the Flow of Aid to Bunna
Page I of I
10 view or pl/nt tne /-'Ur content 011 IIlIS page. ClownloaCitne Tree ACloOe® Acro08t® He8rJer®.
May 7, 2008
HP-969
Treasury Issues General License to Speed the Flow of Aid to Burma
Washington - The U.S Department of the Treasury's Office of Foreign Assets
Control (OFAC), in consultation with the Department of State, issued a general
license to help facilitate the flow of funds for humanitarian assistance to the
Burmese people in the wake of Cyclone Nargls
"The American people continue to demonstrate their concern for the people of
Burma, particularly as they reel from the devastation of Cyclone Nargis," said
OFAC Director Adam J. Szubill. "ThiS license Will help to clear the way for
additional humanitarian aid to make it to the Burmese people swiftly and efficiently."
This general license is particularly needed in the wake of Cyclone Nargis and the
resulting devastation. The issuance of this general license will ease the work of
U.S and third-country nongovernmental organizations (NGOs), as most will no
longer need to apply to OFAC for specific licenses or registration numbers in order
to transfer funds to Burma to support their humanitarian activities. The general
license authorizes the export and reexport of financial services, including the flow of
humanitarian funds, to Burma in support of the not-for-profit humanitarian or
religious activities in Burma of US or third-country NGOs.
Prior to the issuance of the general license, sending funds to Burma, which is
generally prohibited under the Burma sanctions program, would have reqUired the
issuance of a specific license by OFAC. NGOs may contillue to rely upon
outstandlllg specific licenses and may apply for specific licenses to engage in funds
transfers in support of humanitarian activities beyond the scope of the general
license.
EXisting general licenses already authorize the exportation or reexportation of
financial services ordillarily Incident to the exportation of goods, technology, or
services, other than financial services, to Burma. This action will allow U.S
individuals and entities to send, and U.S. financial institutions to transfer, funds to
Burma to be used to support the humanitarian activities of U.S. or third-country
NGOs in Burma. Third-country Individuals and entities also will be able to transfer
dollar-denominated funds through the United States to be used to provide
humanitarian assistance by NGOs In Burma. This general license does not
authOrize the provision of fillancial services directly or indirectly to the Government
of Burma or to persons blocked under the Burma sanctions and such services
remalll prohibited
All transfers autllorlzed by thiS general license may be made utilizing the services of
blocked financial Institutions In Burma, provided the transfers are made through
third-country banks (no debits or credits may be made to any blocked account on
the books of a U.S fillancialinstitutlon).
Please viSit the following link to access the general license
I. 'j' .. 1' /<,1:',\.:
r;(
1::1'· .. ·, \-1,1\ '(,l 1:1'
.:
(lf~j,
;'I['-)Jr.-i~11(-::' !!l;11'1.1'(li·~ '~I:~I:l,l') I: ~"I~'
OFAC also will be sending a corresponding regulatory amendment to the Federal
Register for publication.
-30-
http://www.treas.gov/pr~h>;/r.i:l~ai>es/hp969.htm
6/2/2008
HP-970: Secretary Henry M. Paulson, 1r. Remarks on the Economic Stimulus
Page 1 of 3
May 8,2008
HP-970
Secretary Henry M. Paulson, Jr. Remarks on the Economic Stimulus
Kansas City, Mo.--Thank you: it is great to be back in Kansas City I have just
come from one of Treasury's bureaus here, the Financial Management Service
Regional Financial Center, where they are printing the economic stimulus checks
that will put money in the hands of American families and boost our economy this
year. It's fitting that I see this economic stimulus become a reality In Kansas City,
because my visit here last December was among the events that convinced me that
we needed to boost the US. economy, and do it early so it could make a difference
in 2008.
In December, I was at the Bruce Watkins Cultural Heritage Center and Museum for
a town hall meeting. I met with and heard from many homeowners about mortgage
and other housing difficulties. They also talked of their concerns about the broader
economy in Kansas City and Missouri. During that week, I also spent time in
Florida and California, where I heard Similar concerns And when I got back to
Washington, I talked to people in a variety of Industries; I asked them what their
busmess was telling them about where the economy was headed. My travels, my
discussions with industry leaders and a review of the economic data with the rest of
the PreSident's economic team convinced me in mid-December that the economy
had taken a sharp turn for the worse and the risks were to the downside going
forward.
The President recognized the downturn early, and took decisive action. At the
beginning of January, President Bush told the nation we were conSidering an
economic stimulus package. Congressional leaders also saw the weakening
economy and the need for action. The President directed me to work with
Congress to craft legislation that would put cash In the hands of American
consumers and help American businesses invest and create jobs. And the
President directed me to get thiS job done quickly, because we needed to bolster
both consumer spending and business investment to protect the health of our
economy.
And tOday, we are seeing that our action couldn't Ilave been more timely. We didn't
wait for the twenty-twenty hindsight of economic data to confirm a Slow economy,
we knew it was happening. And because we didn't wait, the bipartisan stimulus
package the President and the Congress enacted is injecting dollars Into the
economy now, when It can make a real difference.
It was a pleasure to work in a bipartisan spirit With House and Senate leaders.
Together, we crafted a stimulus package that is big enough to have an impact, easy
to Implement, provides targeted payments and is temporary. We acted quickly to
support our economy and help create Jobs this year.
The package includes stimulus payments to households, and tax incentives for
businesses to invest and create jobs. For households, single filers generally will
receive a minimum of $300 and as much as $600, and JOint filers will generally
receive at least $600 and up to $1,200 There is also an additional $300 payment
for each qualifYing child. Total cash to households will be over $100 billion.
In 2001 and 2003, tax relief payments to IndiViduals and families stimulated the
broader economy by Increasing consumer spending Evidence suggests that
households spent one-third to two-thirds of their 2001 and 2003 payments, and the
current stimulus package is almost three times as large as what was enacted in
2001 --- $38 billion then, versus $100 billion now.
For bUSinesses, there IS a temporary change to the tax code that will allow them to
buy new equipment thiS year and deduct an additional 50 percent of that investment
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp97D.htm
6/2/2008
Hp.970: Secretary Henry M. Paulson, Jr. Remarks on the Economic Stimulus
Page 2 of 3
cost in 2008. In addition. the package expanded the current expensing limits for
small businesses. allowing up to $250.000 of qualifying purchases to be deducted
for tax years beginning in 2008. Businesses will save approximately $50 billion in
near-term taxes and lower taxes will help create new jobs this year
At $150 billion - or around 1 percent of GOP --- these business and household
measures are large enough to make a real difference as we weather the current
economic slowdown and. by the end of this year. will lead to the creation of over
500.000 new Jobs that would not have been created otherwise. And Just as
important. these initiatives are temporary - so as not to impact our long-term fiscal
position. The cooperation between the Administration and the Congress
demonstrated to the nation and to the world that we can come together to address
the needs of the American people.
On February 13th the President signed the Economic Stimulus Act of 2008. the
bipartisan bill that set this stimulus process in motion. Just 75 days later. on April
28th. the first electronic direct deposits were sent into Americans' bank accounts.
Last week. the first week of payments. 7.7 million individual direct deposits
averaging $920 were sent. amounting to more than $7 billion. And we are
contilluing this process every week. until about 44 million stimulus payments have
been made through direct deposits.
This mornlllg at the FMS center I saw employees printing checks non-stop on high
speed printers. There are machines manufacturing envelopes and wrapping the
envelopes around the checks. Checks are being sorted by zip code and loaded
onto trays for pickup by the U.S. Postal Service Today is the first day that
economic stimulus checks are being mass produced --- more than two million
checks are being printed at FMS centers across the country. and this IS just the first
big batch. During the rest of May. Kansas City will print 2.5 million checks a week.
In June and July. once the regular tax filing season is finished. we expect Kansas
City will send 3.75 million stimulus checks per week. FMS centers in Philadelphia.
Austin and San Francisco are also preparing checks that will be. without a doubt. in
the mail soon In total. we will send an estimated 88 million stimulus payments as
paper checks through the mail
By the end of May. we will have pumped almost $50 billion into the economy and
another $50 billion will follow --- by early July. about 130 million households will
have almost $100 billion of payments In-hand.
We expect that these payments will help right away --- help IIldividuals. families and
our economy. Giving people cash means they can decide how best to use it.
Seniors. veterans. moms. dads and grandparents can each put their payments
toward what is important to them --- whether it's gas for a summer vacation. clothes
for back to school. or a trip to see the grandkids.
And these payments will provide a boost to the US. economy as we go through a
difficult patch. Our economy had been growing for more than six straight years
when growth started to slow last winter. And it has remained slow in the first part of
2008. Wages have risen. but so have the costs of food. gasoline. and health care.
In addition. after years of unsustainable home price appreciation. we are
experiencing an inevitable and necessary housing correction. We are working to
minimize the impact of the housing correction on the rest of the economy. but we do
not want to impede its progress --- because the sooner the correction is completed.
the sooner we will see home values stabilize. the sooner we will see more people
buying homes. and the sooner housing will again contribute to economic growth.
The ongoing housing correction and volatility In the financial markets are causing
many Americans to feel uncertain. That is understandable and reasonable. and It'S
also true that the long-term economic prospects of the United States remain solid. I
never tire of repeating that we have the most resilient economy in the world --because it IS true --- and that we will emerge from this period as we have emerged
from past periods of difficulty and move on to new heights.
These stimulus payments will reduce the impact of the downturn on households
across the nation. I am pleased to be here and have seen the eVidence that when
we say the check will be in the mail. we mean it. Thank you
http://www.treas.gov!pn~h>;/r.i:l.i:ai>cs/hp970.htm
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HP-97 1: Prepared Remarks of Treasurer Anna Escobedo Cabral on the Economic Stimulus Package
Page 1 of2
May 8, 2008
HP-971
Prepared Remarks of Treasurer Anna Escobedo Cabral on the Economic
Stimulus Package
San Francisco, CA-- I'm pleased to be here at the San Francisco Regional
Financial Center today. Thank you for having me.
There is going to be a lot of anticipation around mailboxes in the coming days and
weeks. And I'm pleased to report to many Americans, "Your check is in the mail I"
Your economic stimulus check that is.
I have just toured the San Francisco facility. It is a wonderful sight to see these
checks rolling off the high-speed printers, very soon to be loaded into United States
Postal Service trucks and making their way into the mailboxes and the hands of
hardworking Americans across our nation.
Earlier this year, the President, Treasury Secretary Paulson, and members of
Congress recognized that our economy was experienClllg a slowdown. Our
nation's top leaders and economic advisors joined together in a bipartisan effort to
help Americans.
They acted sWiftly by enacting an economic stimulus package that would put money
in the hands of American consumers and businesses. This bipartisan plan, which
was signed into law by the President in February, willlllJect needed money into our
economy We expect to see a meaningful boost in the economy in this quarter and
through the remalilder of the year.
Of course individuals will benefit. Single filers will generally receive a minimum of
$300 and as much as $600. Married couples will generally receive $600 and up to
$1200. There IS also an additional $300 payment for every qualifying child.
This money is for families and individuals to spend as they choose. Some
Americans will use it to make a new purchase for their home, take a vacation, pay
down debt, or to buy everyday items like food or gas. By trusting people with their
own money President Bush believes we can help family budgets, we can help local
communities. and we can help the economy
We've followed this approach
saw that some Americans did
their checks. And we did see
package to give the economy
before - with the 2001 and 2003 rebates. While we
choose to save the money, others went out and spent
a boost in our economy We fully expect this growth
a boost and create new jobs this year
The plan also includes incentives for businesses, Including a temporary change to
the tax code, nearly doubllllg the amount small businesses can expense and
allowing firms to deduct an additional 50 percent of the value of new investments
from their taxes this year.
Small bUSiness owners across the nation have begun to take advantage of these
incentives
Bob McCutcheon, the PreSident of a family-owned apple products company is in
the middle of a major retail expansion and is planning to purchase at least $150,000
III ovens, demonstration products, furniture, and cash registers. Bob had planned
this expansion for years, but is said he wants to proceed this year as a result of the
incentives provided in the stimulus package
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HP-971: Prepared Remarks of Treasurer Anna Escobedo Cabral on the Economic Stimulus Package
Page 2 of2
Dan Glier owns a meat company In Northern KY, and when the stimulus package
passed, he began installing a new processing facility, an investment he would not
have made without the incentives in the stimulus legislation.
And there's Ray Pinard, President and CEO of an online supplier of customized
printing products, who responded to the bonus depreciation in the stimulus package
by purchasing a $2 million off-set press. The incentives provided by the stimulus
package made his purchase possible a year earlier than planned
All around the US, there are stories like these. I'm sure there are plenty of small
business owners taking advantage of these initiatives right here in San FranCISco.
At $150 billion--or around 1 percent of GDP--these business and household
measures are large enough to make a real difference as we weather the current
economic slowdown, and by the end of this year will lead to the creation of more
than 500,000 new jobs.
In the state of California, approximately 14.7 million households will receive about
$12.4 billion in payments.
If you are stili waiting on your stimulus payment, you won't be waiting much longer.
I assure you that Treasury is working hard to ensure the checks will be In the mali
as quickly as possible to more than 130 million households.
Last week, 7.7 million Americans received more than $7 billion in stimulus
payments electronically. And we will continue this process every week, until about
44 million stimulus payments have been made through direct deposit.
This week mass production of paper checks will begin and will be largely completed
in early July. San Francisco is Just one of four distributions centers across our
nation where paper checks are being printed today. The other centers are In
Kansas City, Missouri: Philadelphia, Pennsylvania: and Austin, Texas. All told, the
Treasury Department expects to send about 88 million stimulus paper checks
through the mail by the end of the year.
Here in San Francisco, the staff operates high-speed laser printers capable of
printing more than 60,000 checks per hour. During the month of May, on a weekly
basis, the San Francisco center will disburse approximately 1 million economic
stimulus checks. During June and July, this will increase to approximately 1.9
million checks per week.
I would like to take a moment to thank all the hardworking employees here at the
San Francisco Regional Financial Center, including Director Philip Belisle and
Deputy Director Abbie Loftus. I also send thanks to our regional centers across the
country for all their hard work. Americans across our nation thank you for ensuring
they get their checks ahead of schedule.
So keep up the good work, and keep those checks comingl
Thank you.
-30-
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/hp97l.htm
6/2/2008
I-IP-{)7:!: IreasLiry Under Secretary for International
",~~""~il PRESS
'l.lIl u.s.
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i\n~lirs
ROOM
DEPARTMENT OF THE TREASURY
David McCormick <br>Rell1...
Page I of6
",
'If
May 9. 2U08
HP-972
Treasury Under Secretary for International Affairs David McCormick
Remarks on Global Financial Turmoil and its Implications for China
Shanghai - Til clrl k you, Vice Ct,alrman Zilu, for your kind Introductloll I would like
to thank tile co-chairmen of the fmum. Govemor Zilou and MayOI' Han, as well as
tile co-hosts of the forum at the CBRC, the CSRC, and the CIRC for IllVltlrlg me to
deliver remarks today. It is my distinct Ilollor to participate In tillS Illau~Jural seSSICHl
of tile LUJlazul Frnancial Forurll. I arltlclpC1te tillS year's event wllll)e the first of
IllClny lively clild InforlllCltlve seSSIOllS
Today I'd like to talk about the recent financial tUlmol1 in tile United States - wily It
happened, how we have responded, and what lessons we have drawn for financial
regulation and poliCY for tile longer term I Will also suggest some of the lessons
that I hope China Will draw from thiS episode alld why recent events should be seen
as all the more reason for China to push ahead witll financial sector reform.
I will make the case tllat contirlued financial sector I-eform alld development IS
critical to China's own future growtll alld prosperrty_ Foreign partlclpatloll - anel the
critical technology and knowhow that foreign Investors brlllg - Will help accelerate
Cllllla's fillalicial sector developmellt
Responses to the Financial Market Turmoil
In tile Umte(/ States
Why did tillS financial turmOil OCCLlI-? A long period of benign credit conditions relatively stable asset markets, low Interest rates, and low inflation - encouraged
many Irlvestms to seek higher returns. Responding to thiS demand. ttle finanCial
services sector created a varrety of complicated new products that diversified risk
and lowered borrowrng costs FinanCial Innovation bl'Ought enormous benefits.
helping many people to move rnto homes, others to start or expallCl bUSinesses.
and Investors to diversify their rrsk and enhance returns. Complacency alJout risk.
however. ellcouraged a loosening of credit standards and an el'OSlon of market
diSCipline amollg Investors. regulators, and credit rating agencies alike
Last summel-. ttlese new vulnerabilities in our finanCial system I)ecame clear.
Loosel- credit standards In the housing market, combined with an end to rapid
home-price appreciation, led to a Significant rise In delinquent mortgages TillS irl
turn COlltributed to Immediate and unexpected losses for investors and a
reconSideration of the risk-reward relatlonsilip - first In hOUSing. and SOOll after.
across all asset classes. The shaken Investor confidence In hOUSing assets had a
dOilllno effecl thl'Oughout wOl'ld Illarkets. ratchetlllg up demand for cash anci
liqUidity and curtailing the pace of the new lendrng allCl Investment necessary for
stroncj growth to contillue.
In shol-t. those III tile United States and arOLllld the worlcl were relnlndecl of Lill clqeaiel lesson finanCial lilnovatlon for all ItS advantages. SOllletlmes produces
unexpected cOllsequences to WtllCI1 pollcYlllakers mllst qUickly alld creatively
react
Policy Responses
Domestic and International
POlicymakers in the United States have responded qUickly and aggreSSively to
http://\V\V\v,treas.gov/prc:33/releu~'~s/h p97:2. h tm
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stabilize markets. reduce tile Impact of the turmoil on the redl economy, and
address undedylng regulatory allel poliCY weaknesses At tile same lime, we Ilave:
sought to aVOid overreacting wltll regulallorls or poliCy responses tilal woulei stifle
Innovation m distort the natural self-corr'ectln9 forces of IllClrkets
Treaslll'y Secretary Hemy Paulsoll has led the US goverllment effort to ensurc: a
cOmf,lrellenslve, timely and appropriate respOllse to the tUlmoil He anLi other
autilOrltles have urged banks to promptly recognize and report losses, ariel raiSe:
additional capital. Many global finanCial InstltutlollS ilave done Just that - reporting
subf,ll'lme-related losses of over $300 IJlliion alld ralsllig additional capital of Inol e
than S200 billion,
The U S govelnment has acteci deCISively to help soften the negative IIll[)act of
these events Oil tile real economy, througll fiscal poliCY allel a serres of Illltldtlves to
Ilelp families stay In tllelr hOllies Tile S150 iJllllon eCOIlOllllC stlillulus Pdckacje will
SUppOI't consulTler and iJuslness speilcIII19 as Wee weatiler !tle current econOllilC
sloweiown, "mel wlilleael to tile creation of over 500,000 new Jol)s tllat woulcj not
have beell Cleated otherwise
The U S Fecleral Reserve and other central banks have takell focused, allel
sometimes coordinated, actions to protect the frnanclal system from severe
disruption by ensuring !tlat markets have access to finanCing
There are already some early Indicators that thiS combination of actions IS
beginning to have the deSired effect, as markets appear to be galiling confldellce
and the availability of credit has Improved modestly.
As the Illlmedlate remedies take effect, we Ilave also begun to focus on the
weaknesses III busilless practices of finanCial Institutions tilat thiS experience has
revealed, and on fragmented US and European regulatory structures tilat hacl
difficulties guarellng against or respondrng to modern challenges
The PreSident's Wmking Group on FinanCial Markets recently recommended
challges to mitigate systemic risk and restore IIlvestor confidence to faCilitate stable
eCOnOlTllC growth, The Presielent and Secretary Paulson Ilave welcomed tllese
recommendations, and we are now implementing them
At Treasury, we have also worked closely With counterparts III major eCOllomlCS
around the wmld, Includlllg China, to address mal'ket Instability. The FinanCial
Stability Forum (FSF), which brings together the supervisors. central banks, and
finance Ililnistlles of major finanCial centers, has been critical to thiS effort. Tile
FSF has produced a series of recoillmendations that echo and cOlllplelllPnt effrxts
underway in the United States. These proposals Include
•
•
•
•
•
Strengthening prudential overSight of capital adequacy, Ilqulcilly and risk
management,
EnhanCing transparency and Improved valuation, particularly for structured
products:
ReVISing and clarrfylng the role and use of credit ratings:
ImprOVing the responsiveness of authorrtles to risks: and,
Creating robust arrangements for dealing With stress In the finanCial system
There is no silver bullet to place finanCial markets on a sound footing or [)revent
past excesses from recurring, but each of these speCific proposals represents an
Important step toward addreSSing the challenges we face. Taken together, they
constitute a clear and Significant response to the underlying weaknesses that
contrrbuted to the turmoil in global financial markets.
A Look Aheacl
While our first prrority IS working through the current turmoil in the capital markets
and the hOUSing downturn, we are also conSidering longer term cllanges to our
financial regulatory system to maintain efficient. safe, and sound US capital
http://w\v'v .trc(13.gov/pre~~/relt:latcs/h p972. h1m
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HP-lJ72: Treasury Under Secretary for International ;\thirs David McCormick <br>Rel11...
Page 3 of 6
markets. This dynarnlc process requires balancing approllrlate regulation With tile
need for an environment that fosters Innovation
Specifically. Treasury has consiciered flOW to modernize our financIAl reglllZltOly
structure. which resembles a llatci1work of over'la pplIlg agenClf;s <'lllCj
responsibilities cot)bled tocJether avel' the past 75 years. Secretary PclLilsorl's
recently releasecJ B/ue/)lIIlt fOf CI Mo(/ell I/Lec/ Filldllt:/dl Relju/dtw y SllLIclwe
plOposes an optimal flllanCial reguli1tory model that ensures mar'ket stability, safety
and soullciness for federal guarantees, ami COllsurner and II!Vestor protcctloll It
calls for a market stability regulator', a prudcmtlal financial re~Julator. and a t)USIW;~)S
conciuct regulator. We believe that thiS approach Will foster Inrlovatlon, Illltigate
fisk. anci enllance tile competitiveness of ArnerrcCl's capltClI markets
Effects
011
the US a/1(i G/O/J3/ ECOIlOIllIOS
Although we have taken major poliCY steps to cushion the consequellces of ClllTellt
market events on the I'eal econorny, they are uncioubtedly haVing all Impact.
Growth ilas already slowed Significantly to 0.6 percent In the last quarter of 2007
and the first quarter of this year The combination of stress In finanCial markets, the
houslllg correction, and high energy prices Will weigh on growth througil 2008,
though fiscal stimulus will support the economy while corrections take place in the
housing and financial rnarkets. Despite these near-term challenges, our longerterrn growttl prospects rernain sound because of the underlying strength of our
institutions, the fleXibility of our markets, and our capacity to absol'b technological
change
Recent events ilave also made clear that emerglllg markets are not decoupled from
events In tile United States. As US growth has slowed. so too ilas our demand for
Imports, affecting exporters in a variety of nations. Includlllg China At the same
tlllle, eillerglllg market growth has silown resilicilce In tile face of a U S
showdown Most elllerglll~J market countries Ilave followed prucJent
maCl'oeconomlc poliCies, giving them room to respond to slOWing external demancJ
Strollger domestic demand growth In emerging markets like Chilla IS plaYllHJ an
ImpOl1allt role In cushioning the impact of tile U S slowdown
Financial Market Turmoil and China
China tlas weathered the recent turmoil relatively well Stronger growth III domestic
consumption has offset rnuch of the weakness In external demand Moreover. a
slOWing of overall Chinese econornlc growth from last year's pace Illay In fact be
welcome In addreSSing concerns about excessive growth rn investrnent and rislllg
ciomestlc Inflation The sharp fall In Ctllnese equity prices since last Octoi)er
appears more due to domestic factors than to linkages WI til global stock rnarkets.
FlllanCid/ Reform allci Future GIOWt/1
Despite its relatively benign effects thus far. I fear the recent bout of turbulence In
global frnanclal rnarkets IS being Viewed by some in China as a reason to slow or
pause fillancial sector reform I hope Chinese pollcymakers Will ask the more
pertinent question What lessons should China's leaders draw from recent events
as they conSider the pace and potential benefits of finanCial sector reform?
ThiS morning's presentations highlighted the giant leaps Chlll8 has macJe In
finanCial sector reform In tile past decade, from the banking sector to the stock.
forelgll excllallCje, and bond markets These reforms have been Importanl for
laying the foundation to address the key ctlallcnges ahead III Ctllna's filiancl31
sector developmellt These cilallenges include
•
•
•
•
Increasing access to direct financlllg tllrough the equity ancJ bOlld Illarkc-:ts.
Developing a Yield curve for governmellt bonds that can be used as the
baseline for pricing other flnarlClal products:
Introducing a variety of fillancial products to Iledge risk, and.
Fosterrng the growth of instltutlonailnvestors.
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I,) P-\);.2: I rea:;ury Under Secretary for International ;\ fbirs David McCormick <br>Rem...
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These are the baSIC building blocks of financial sector developmelit. not exotic
products on the cutting edge of fillallcialinnovation There are risks. to 1)8 SUle, III
carrying out these reforms Fillancial regulation alld supervIsion mList 1)(:;
developed In tandem But pollcymakers In Ctlilla mList also rccOCJnlze lIiat thcrc Will
be significant costs If China slows Hie development and reform of Its flnelilclal
sector, Important galiis for Chilla and Its people would be left umeallzed An
ambitiOUS reform agellCla Will advance China's economic goals In four Important
ways by
•
•
•
•
Rebalanclllg the sources of China's growHi to ensure that It IS more
harmonious. more energy and environmentally effiCient. and prOVides
greater welfare for Chinese households:
Creatrng effective macroeconomic policy tools to ensure stable, nonInflationary growth.
Supporting China's tranSition to a market-driven and Innovatloll-based
economy: and.
ASSisting In dealing With demographic cllallenges
First, as Ctllna's economy becomes more soprllstlcated. an effiCient. welldeveloped financial sector IS essential to channeling cClpltal to tlie Ilew Ideas,
bUSinesses, and entrepreneurs that will power future growth As China's economy
becomes more complex. so too Will Its need for finanCial services. A more
cleveloped finanCial sector IS necessary to fund the Industries of tomorrow
A more developed finanCial sector IS also essential In shifting to a growth model that
can be sustained In the future, one less dependent on industrial activity and
exports. and Olle mme oriented towards services and household demand Key to
thiS is redUCing the need fOl' very high saving rates. A greater diverSity of flllalicial
Instruments for saving. risk diverSification. and consumer bOITowlng would relieve
some of the need for precautionary saving
A higher risk adjusted return from a broader array of finanCial assets would allow
Chinese households to achieve their financial goals - such as bUYing a house.
educating their ctliidren, or achieVing a secure retirement - without tiavlng to set
aSide large portions of their current Income A more developed financial sector Will
also prOVide Chinese enterprises with options beyond reinvesting earnings prrmarlly
in expanding their own capacity ThiS will enhance the effiCiency of capital
allocation and dampen the volatility of Investment cycles
Third, more developed finanCial markets Will help bring greater stability to China's
economy by giVing the authorities the mauoeconomlc tools - fiexllJle and more
powerful monetary poliCY In particular - to assure stable growth and prrces.
Deeper. Interconnected bond markets would give the central ballk greater ability to
gUide market Interest rates and credit throughout the economy to ensure contillued
strong. stable. and non-inflationary growth
Finally, a robust financial sector Will help to enable China to deal With the
demographiC challenges that lie ahead. Includlf1g population aging and the
prOVision of tlealthcare. A deep and sophisticated finanCial sector Will be critical to
strengthenlf1g the SOCial safety net and prOViding tools such as health care
insurance and retirement Investment vehicles necessary to cope With growing
demographiC pressures
The Role of Foreign Pa/71cipallOIJ
Greater foreign partiCipation Will contribute substantially to finanCial sector reform.
and for that reason. It has been a top priority for the Strategic Economic Dialogue
(SED) launched by Presidents Hu and Bush.
We recognize the concerns of some In China who t)elleve that opening the doors to
foreign financial firms could Jeopardize the position of domestic flrrns. On the
contrary, we believe that Increased foreign partiCipation expands the breadth and
depth of opportunities for all firms In tile market, Including domestic Chinese firms
ThiS IS not a zero-sum game Clearly. fOl'elgn firms stand to benefit from expandecJ
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I-IP-972: lreasury Under Secretary tor International Athirs David McConnick <br>Rcll1...
Page 5 of 6
opportunities In Chllla But they will <'llso enhal1ce the diversity of fll1<'H1CI<11 produch
Ifl Ctlina. improve allocation of capital. and spur IrlIlOvatlon. all of Wilich will tJCnefil
Chllla's economy anc1 its people.
Foreign Investment Irl Chlrlese flllcHlCiallrlstltutlollS has. ill fact. turned Il1stltutlons
that wel·e a dralll 011 fiscal resources Illto engilles of growth - creatlllCJ jobs amj
strengthening financial sector Soulldlless Take for example. Sllen?hen (SIIllIl-jUII)
Development Bank. which was one of the fll-St banks to be controlled by a forelurl
IIlvestor Over the past several years. plofitability Clnd capital adequacy at tile uOllk
have Increased significantly. willie Iloll-perfolllllrlg loans have declined sllarply
The t)ank IS lelldlllg illore to flrlanu: Ilouseholds and mecilulll-sizeci enterprrses.
We have heard from financial IIlstltutlons across China that meeting tile strong
demand for experienced personnel IS a challenge In thiS perrod of raplcl expansion
Incleased foreign participation In the financial sector will expecllte the developlll8nl
of world class flllanClal sector talent Within China. benefiting Chinese workers.
bUSinesses. and financial centers like ShanghaI.
Looking forward. the current approach of offering limited scope for foreign
Investment In Chinese financial firms hinders the growtll opportunities of Chlna's
entire financial sector. It leads to unWieldy managerial and ownership
arr·angements that reduce operational fleXibility and tile transfer of finallcial
technology We believe that higher ownership thresholds for foreign firms would
benefit the financial sector overall and ttle Chinese businesses that depend 011 It to
grow their companies and create jobs China achieved great success by opening
ItS manufacturrng sector to foreign Ilwestment. ThiS has fostered - not IIlhlbited growth of Chinese manufacturers. Greater opening III fillancial services Will do tile
same
Just as openness to foreign IIlvestment is Important for strorlg growth In China.
openness to foreign IIlvestment IS fundamental to the United States. The United
States IS committed to ensuring a stable and opell Illternational finanCial system In
hiS Statement on Open Economies last May. President Bush reaffirmed the United
States' long-standing poliCy of welcoming IIlternatiollal IIlvestment.
Foreign Investment cl·eates good jobs. spurs Innovation. Improves productiVity. and
results In lower prrces and greater variety for consumers in tile United States
Foreign direct Investment flows IIltO the United States were $204 billion III 2007,
which IS nearly double the level of a decade earlier. Research shows that forelgnowned firms in the United States directly employ over 5 million Americans - 4.5
percent of all private sector employment. These are good Jobs. paying more than
25 percent higher compensation on average than othel· private sector Jobs. Foreign
firms also IIldirectly employ about the same number of Americans. Foreign-owned
firms contrrbute almost SIX percent of US output. 14 percent of US R&D
spending. and 19 percent of U.S. exports.
Despite the benefits of foreign Investment. there is rrslllg protectionist sentiment
around the world that poses a dangerous threat to the global economy. We
unfortunately see some of these same protectionist forces In our own country. A
number of countrres are considering new or reVised investment review
mechanisms. some of which have the potential to impose broad barrrers. We are
engaging our counterparts bilaterally. and through multilateral Illstitutions to
emphaSize the Importance of crafting policies that are predictable for Investors ann
ensure proportional responses to genuine national security COllcel·ns Investmr:nt
reviews must not be used to promote protectionist poliCies.
I know some of you may have concerns about the Investment review pl·ocess III the
United States. known as CFIUS. or the COlllllllttee on Foreign Irwestmont In tile
United States. a committee that IS cllalred by ttle U S Treasul·y However. I wClnt
to make clear that the legal autllorlty of CFIUS IS nan·owly targeted to CldcJless only
acquIsitions that raise genuine national security concerns. not broader econonllC
Interests or industrial poliCY factors
Moreover. we al·e committed to living up to both the letter and the spirit of the new
http://www.treas.gov/prc~3/releutJ~s/hp972.htl11
12/8/2008
111>-')72: Treasury Under Secretary for International A!birs David McCormick <br>Rel1l ...
law and the President's open Investment statement Last monti" Tl'easul'y Issued
proposed CFIUS legulatlolls to Implement our new Foreign Investmellt IClW WillCll
passed our Congress c:md was signed by the Presldellt last year. The new
regulatlolls clcHify and IlIlprove our eXlstlrlg pr'ocess, reinforce strorlg open
IIlvestment prrrlcipies and pl"OcecJural pl'otectlons for foreign Investors, anci ensure
more timely and effiCient review process Our focus in thiS area reflects Secretary
Paulson's strong commitment to maintallllllg arl open Investment climate III tlw
United States.
;1
Sustd/llll)(J elJIII, I 's Growth
For elll tile redsons I have cJcscrlbeeJ, flllLlllCIClI market deveiopilicilt IS key to
assurllig that Stl"Ollg Ctllnese growth IS sustained III tlie futul'e. TillS IS vltdl to Chiliel
and the global economy But finanCial malket development alone IS not enougll
China also Ileeds to rebalallCe the sources of ItS glOWtll away frOIll !leavy 111liustly
~lIId expolts towards products amI services for Chll1ese 11Ouseilolcls ThiS IS
esserltlallf Cl,lIla IS to reduce Inequality, assure environmentally harmonious
growtll, ami trim its huge anel growrng current 3ccount sUl'plus Aclllevll1g tileS(;
goals will lequire Chilla to take stlucturalmeasur'es to bUild a strong SOCial silfety
Ilet and channel the gr'owll1g profits of Chinese entel-prlses to tilelr owners.
Also critical to sustained growth for China is greater excl,ange rate fleXibility A
more fleXible RMB would give China's poliCY makers greater scope to adjust
monetary poliCy as needed to maintain prrce stability and to address the risks of
excessive Investment alld credit growth Just as It was Important for tile Federal
Reserve to have a monetary poliCy framework that allowed It to move qUickly to
maintain finanCial stability, the People's Bank needs to be able to move rapidly to
contam Inflation today and safeguard fmanclal stability.
Exchange rate fleXibility IS also needed to provide the price Signals that Will ensure
a more market-driven allocation of resources and Investment RMB appreciation
would proVide greater rncentlves for domestic firms to direct IIwestmerlt towards the
ciomestlc market and produce goods and services for Cilmese consumers In tillS
regald, the Increased pace of RMB appreCiation since last October IS welcome We
urge China's leaders to maintain tillS accelerated pace
Conclusion
There are many reasons to believe that the appetite for economic reform In ChlllJ
may be walllllg, after year's of elemandlng refonns. Each successful reform brings
calls frOIll around the world for yet more Global volatility In fmanclal markets may
give C!lIna's leadel's pause as they chart the course ahead However, I urge our
frrends In China to use the lessons of the cunent turmoil to sharpen their focus ,mel
strengtilell their commitment to the bold path of finanCial sector reform on wilich
they have eml)arked, It IS a critical component of Chrna's future, economic growth,
and stability.
As I reflect 011 recent events, I am confident tllat the United States Will pass through
thiS current phase of turmoil and I'eturn to the path of sustall1ed growth I alll also
conVinced that China Will successfully overcome ti,e challenges that It faces III
achieving sllstalned long ternl growth ami stability in an Increasrng complex
economy. We must not forget that our economies al'e Illore interconnected and
Illore dependent on each oliler than ever before Together, we can brrng prosperity
to our own countrres and the world economy
http://w\\W.ll eas.gov/prC33/rclcn:le':i/hp972.htIll
12/8/2008
HP-973: Week 2 Wrap-Up: Treasury Sent 22.1 gO Million Stimulus Payments This Week
Page 1 of 1
/0 view or print me !-'Ur content on tllIS page. aown/oaa the free AClOIJe0j AcrotJat('3J KeaCle((l').
May 9. 2008
HP-973
Week 2 Wrap-Up: Treasury Sent 22.180 Million Stimulus Payments This Week
This week the Treasury Department sent out 22.180 million economic stimulus
payments to American households totaling $20 138 billion. So far. Treasury has
sent out 29888 million total economic stimulus payments totaling $27.230 billion
Week Two (May 5-May9)
Total Number of Payments 22 180 million
Total Amount of Payments $20.138 billion
Week One (April 28-May 2)
Total Number of Payments: 7.708 million
Total Amount of Payments $7.091 billion
Cumulative Total
Total Number of Payments 29.888 million
Total Amount of Payments: $27.230 billion
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households, and the total amount of payments
sent. Payments began April 28th and will continue via direct deposit or paper check
through mid-July. For a single filer, the minimum payment is generally $300 and
the maximum payment IS $600 For jOint filers, the mlilimum is generally $600 and
the maximum $1,200 There is also an additional $300 payment for each qualifying
child.
For tax returns processed by the Internal Revenue Service by April 15, households
Will receive their payments accordlllg to the last two digits of the Social Security
number on the tax form. On a Joint return, the first number listed will determine
when a stimulus payment will be sent.
REPORTS
•
Direct Deposit Payments
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp973.htm
6/2/2008
Direct Deposit Payments
If the last two digits of your Social Security
number are:
Your economic stimulus payment deposit
should be transmitted to your bank account
by:
00-20
21-75
76-99
May 2
May 9
May 16
Paper Check
If the last two digits of your Social Security
number are:
Your check should be in the mail by:
00-09
10-18
19-25
26-38
39-51
52-63
64-75
76-87
88-99
May 16
May 23
May 30
June 6
June 13
June 20
June 27
July 4
July 11
A small percent of tax returns will require additional time to process and to compute a stimulus payment
amount. For these returns, stimulus payments may not be issued in accordance with the schedule above,
even if the tax return was processed by April 15. In these cases, the stimulus payment will be issued
approximately 2 weeks after the tax return is ultimately processed.
-30-
HP-974: Treasury Authorizes Unlimited Personal Rcmittanccs to Bum1a
Page 1 of 1
May 12,2008
HP-974
Treasury Authorizes Unlimited Personal Remittances to Burma
Washington· The U.S Department of the Treasury's Office of Foreign Assets
Control (OFAC), in consultation with the Department of State, has moved to ease
the humanitarian crisis in Burma by removing the limit on funds that U.S. individuals
are allowed to send to family and friends in Burma
"The people of Burma need all the help we can provide durlllg this crisis," said
OFAC Director Adam J. Szubin. "This action will speed the flow of aid to the
Burmese people by allowing Americans to send an unlimited amount of funds to
their relatives and friends who are in need"
This action, made effective by the issuance of General License No. 15, authorizes
U.S financial institutions to process transfers of funds, unlimited in amount, for
noncommercial, personal remittances to or from Burma, or for or on behalf of an
individual ordinarily resident in Burma. Prior to the issuance of this general license,
noncommercial, personal remittances to Burma were only permitted if the total
remittances did not exceed $300 per Burmese household in any consecutive threemonth period.
General License No. 15 does not allow transfers by, to, or through persons blocked
under the Burma sanctions program. This license, however, does allow transfers to
be made utilizing the services of blocked financial institutions in Burma, provided
the transfers are made through third-country banks and that debits or credits are
not made to any blocked account that is on the books of a U.S. financial institution.
In addition, OFAC has amended General License No. 14. The previously issued
General License No. 14 authorized the transfer of funds in support of not-for-profit
humanitarian or religious activities in Burma only if they involved U.S. or thirdcountry nongovernmental organizations (NGOs). The Amended General License
No. 14 expands that authorization, for a period of 120 days, to allow funding to any
organization or individual engaged III not-for-profit humanitarian or religious
activities III Burma, with the exception of the Government of Burma itself or any
person blocked under the Burma sanctions program.
OFAC expects to re-issue the original General License No. 14, allowlllg transfers
consistent with its terms to continue upon the expiration in 120 days of the
Amended General License No. 14. U.S. persons also may continue to make
charitable donations to NGOs in Burma that are authorized to operate pursuant to
specific licenses that have been Issued by OFAC.
Please visit the following link to access the new and amended general licenses:
http://www .treasury .gov/offi ces/enforcem entiofac/actions/20080509. shtml
OFAC also will send a corresponding regulatory amendment to the Federal
Register for publication.
-30-
http://www, treas.gov !pr~h>;/r'i:l~ai>es/h p071\..ht1l1
6/2/2008
Page 1 of-+
May 13. 2008
2008-5-13-12-54-0-28692
U.S. International Reserve Position
The Treasury Department today released U.S . reserve assets data for the latest v/eek. As indicated in this table, U.S.
reserve assets totaled 574,424 million as of the end of that week, compared to 573,918 million as of the end of the
prior week.
I. Official reser/e assets anc otr.er foreign currencJ asse:s (approXimate market value. in US millions)
I
I
IA. Official reser,e assets (ir US millions unless otner.'/ise specified)
I
II
IIMay 9. 2008
I
I/Yen
IITotal
I
I
1/15489
1/
1/11.878
1/74.424
I
1/27 .367
I
lof Nhich issuer headquarterec :r: reporting courtrj but ;ocated abroad
1/
II
11 0
lib) total currency anc deposi!s,'/ith :
IIi) other national central ::>a:lKs . SIS ar.d Ir.1F
II
1/15.358
1/
1/6666
1/22024
liii banks headquarteredr. the report ir.g countr!
1/
1/
11 0
lof which: ioca ted abroad
1/
II
I/O
(i; , ba'1ks headquarterec vu:s ice :"e 'e:)0':,n9 cOJn:rj
I
II
of .'It-.lcn :ocated w, tr,e re:)ortir:g COV-Irj
1(2!1~.'F reser;e pOSition
I
114244
11 0
11 0
1(3) SDRs
11 9 .748
1(4 ) gold (including gold deposits and. if appropriate. gold swapped)
1111 .041
-volume in millions of fine traj Ounces
1261 .499
liS)other reserve asse:s i specifj J
0
(1)
Foreign currency reser/es fin con'lwtlble foreign currenCies)
Ila! Securities
IIEuro
II
II
I
I
I-finanCial derivatives
I-loans to nonbank nonresidents
l-other
lB. Other foreign currency assets {specify}
-securities not included in official reserle assets
\I
-deposits not in cluded in official reser/e assets
-loans not included in official reserve assets
-financial derivatives not included in officia l reser Ie assets
-gold not included in offic ial reser;e assets
l-other
II
II
II
II. Predetermined short-term net drains on fore ign currenCj assets (nominal value)
~~~============~II====~!I~====~!lr====~II====~II====~!1
6 2 2008
Page 2 of 4
I
I
II
IIMaturity breakdown (residual maturity)
IITota,
I
1. Foreign currency loans, securities, and deposits
I
IIprincipal
I--outflows (-)
[
IIlnterest
[--inflows (+)
IIprincipal
I
II Interest
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (includinq the forward leg of currency swaps)
(a) Short positions ( - )
1\
I
II
II
II
II
I --other accounts payable (-)
I
II
II
I
"
I
II
II
II
II"
"IIII
II
I --other accounts receivable (+)
I
I
I
"
II
II
II
II
II
I
[ --trade credit (-)
I --trade credit (+)
II
\
3. Other (specify)
--inflows related to reverse repos (+)
II
"
(b) Long positions (+)
--outflows related to repos (-)
More than 1 and
up to 3 months
Up to 1 month
I
More than 3
months and up to
1 year
"
"
"
"
1\
"
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
I
11.
II
\I
IMaturity breakdown (residual maturity, where
II
II
I
"
Tota
,
I
13. Undrawn,
II
II
II
II
I
II
I
II
II
I
II
unconditional credit lines provided by:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
II
II
I--other national monetary authorities (+)
I--BIS (+)
I
(e) with banks and other financial institutions
headquartered outside the reporting country (+)
11
Undrawn, unconditional credit lines provided to:
I
(a) other national monetary authorities, BIS, IMF, and
other international organizations
--other national monetary authorities (-)
"
II"
II
I--IMF (+)
(b) with banks and other financial institutions
headquartered in the reporting country (+)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 month
I(b) Other contingent liabilities
2. Foreign currency securities Issued with embedded
options (puttable bonds)
I
applicable)
Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falling due within 1
year
I
I
I
[BIS (-)
r
ttP://www.trea~.gov/press!releasesI20085131254028692.htm
\
I
II
\
I
I
II
Ii
"
II
"II
Ii
1\..
6/2/2008
Page 3 of 4
I--IMF (-)
II
II:b ) banks and other financial institutions headquartered JI
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
JI
II
\I
I(a) Short positions
II
II
I
1/
II
I
II
II
II
I
II
II
II
II
II
II
II
II
II
II
II
I
"II
\I
I(i) Bought puts
I
1(11) Written calls
"
I(b) Long positions
II
I
I(i) Bought calls
I
I(ii) Written puts
IpRO MEMORIA In-the-moneyoptions
I I
II
1(1) At current exchange rate
I(a) Short position
"IIII
I
II
I(a) Short position
\I
II
I(b) Long position
1/
II
II
II
1(3) - 5 % (appreciation of 5%)
I(a) Short position
I(b) Long position
II
1(4) +10 % (depreciation of 10%)
II
II
I(a) Short position
I(b) Long position
I
II
II
I
II
II
II
I
II
II
II
II
II
II
I(a) Short position
Itb) Long position
1\
II
II
I
II
II
1/
II
II
II
II
I
I
I
II
II
I(a) Short position
1(6) Other (specify)
I
I
\I
\I
i(5) - 10% (appreciation of 10%)
I(b) Long position
I
II
II
1(2) + 5 % (depreciation of 5%)
I(b) Long position
I
I
I
I
"II
I
II
I
I
II
II
I
IV. Memo items
I
1(1) To be reported with standard periodicity and timeliness
II
II
((a) short-term domestic currency debt indexed to the exchange rate
1\
I
I
I
11
I
(b) financial Instruments denominated in foreign currency and settled by other means (e.g, in domestic
currency)
[--nondeliverable forwards
II
[ --short positions
II
[ --long positions
II
[--other instruments
II
[(C) pledged assets
II
t-included in reserve assets
II
--included In other foreign currency assets
I
II
Ud) securities lent and on repo
II
[-lent or repoed and included in Section I
II
tP://Www.treas.guv/presslIeIeases/2008') 131254028692.htm
I
I
I
6/2/2008
Page 4 of 4
I--Ient or repoed but not included in Section I
II
I
I--borrowed or acquired and included in Section I
II
I
t-bOrrowed or acquired but not included in Section I
"II
[(e) financial derivative assets (net, marked to market)
II
[--forwards
[futures
[-swaps
"
II
t-optlons
[other
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one year,
which are subject to margin calls.
II_-aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
Ita) short positions ( - )
@) long positions (+)
"IIII
I
I
I
I
I
I
I
I
I
I
II
I
II
I
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
II
I
I(a) short positions
II
I
lei) bought puts
II
I
I(ii) written calls
II
I
I(b) long positions
II
I
I(i) bought calls
II
I
I(ii) written puts
II
1(2) To be disclosed less frequently
II
I(a) currency composition of reserves (by groups of currencies)
1174.424
1174.424
I
I--currencies in SDR basket
I--currencies not in SDR basket
II
I
I--by individual currencies (optional)
II
I
I
II
I
I
I
I
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 markedto-market values, and deposits reflect carrying values.
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:llwww.treas.suv/pless/relca3cJ/J0{)~.)131254028692.htm
6/2/2008
hp-lY75: Treasury, IRS Issue 2009 Indexed Amounts for I Icalth Savings Accounts
",~~""~il PRESS
'l.lIl u.s.
~'......~'~ • .r
ROOM
Page I of2
",
DEPARTMENT OF THE TREASURY
'If
10 view or ponl Ine /-,ut- con lent on tnlS page. aOwn/oea tne Tree AaotJe® AcrotJal® Heaaer®.
May 13. 2008
tlp-<:J75
Treasury, IRS Issue 2009 Indexed Amounts for Health Savings Accounts
Washington, DC--The TI'easury Department and Internal Revenue Service today
Issued new gUidance on the maximum contribution levels for Health Savll1gs
ACCOLlI1ts (HSAs) cll1d out-of-pocket Spel1(llllcJ limits for HllJll Deductible H(;Clltll
Plans (HDHPs) that must IJe used in cOI1Junction Wltil HSAs, These Clrnoullls Ilave
LJeell lI1uexecJ for cost-of-IIVIIlC] adJustmellts for 2009 and are Illclucied In Revenue
Pmceeiure 2008-29. Wilich clnnounces cllanges III sevelal Indexed al1l0ullts for
purposes of tile feeleral income tax
Tile new levels are as follows
New A IlrlU a I Contribution Levels for HSAs:
•
•
•
•
For 2009, the maxImum annual HSA contributIon for an 811gl11le IndIVIdual
WllIl self-only coverage IS S3,000
For family coverage, tile IllaXlillUI1l zlIlrlual HSA conlrlilutloll IS S5,950
Ciltch up contributIon for II1dlvlcJual who are 55 or older IS 1I1Cl'easeei by
statute to S 1.000 for 2009 alld all yeals gOlllg forwcliU
IndIVIduals who are elIgIble 1I1cJlvleluais on the first day of 1110 last III 011 ti I of
tile taxable year (DecemlJer for IllOst taxpayers) are allowed tile full ZIIHluc11
contllbutlon (plus catch up contl'lbutloll, If 55 01 oldel by year end),
regardless of the number of Illonths tile IndiVidual was elil elIgible IIlCJlvlclual
III the year For Inellvlduals who are no longer eligible IndiViduals on lila 1
date. both the HSA cOlltrrbutlon and catch up contrrbution apply pro I'ata
baserJ 011 the Ilumber of montils of the year a taxpayer IS all eligible
Individual
New Amounts fOI Out-of-Pocket Spending
•
011
HSA-Compatlble HDHPs
For 2009, the lllaXlmUITl allnual out-of-pockel amoullts for HDHP selfcoverage IIlcrease to $5,800 and the maximum allilual out-of-pocket
amount for HDHP family coverage is tWice that. $11.600
MlllllTllrrrl Deductl!)le Amounts for HSA-Compatlble HDHPs
•
For 2009. the millimllill deductible fOI HDHPs Increases to S 1.150 for selfoilly coverage and S2,300 for family coverage
III ariciltlOil. a flSCClI year plall that sCltlsfles the reqllrrernellts for an HDHP 011 the
fllst (1<1Y of the fll'st montil of its fiscal year may apply 1I13t eieciuctlIJle for lIw ellille
fl sea I Y0a r
Revellue ProCF~clure 2008-29 IS attachecl
-30-
http://www.rreas.guv/press/rclca3c.)/hplY75.htm
12/8/2008
I1p-(7): Treasury. IRS Issue
20()()
Indexed Amoun(s /()r Ilealth Savings Accounts
Page 201'2
REPORTS
•
Revenue Procedure 2008-29
http://W\\\v.(leas.gov/prC3J/re!~8C.~S/I1p975.I1(m
12/8/20m~
Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.602: Tax forms and instructions.
(Also: Part 1, §§ 1, 223.)
Rev. Proc. 2008-29
SECTION 1. PURPOSE
This revenue procedure provides the 2009 inflation adjusted amounts determined
under § 223(g) of the Internal Revenue Code for Health Savings Accounts (HSAs).
SECTION 2. 2009 INFLATION ADJUSTED ITEMS
Annual contribution limitation. For calendar year 2009, the annual limitation on
deductions under § 223(b )(2)(A) for an individual with self-only coverage under a high
deductible health plan is $3,000. For calendar year 2009, the annual limitation on
deductions under § 223(b)(2)(B) for an individual with family coverage under a high
deductible health plan is $5,950.
High deductible health plan. For calendar year 2009, a "high deductible health
plan" is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is
2
not less than $1,150 for self-only coverage or $2,300 for family coverage, and the
annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not
premiums) do not exceed $5,800 for self-only coverage or $11,600 for family coverage.
SECTION 3. EFFECTIVE DATE
This revenue procedure is effective for calendar year 2009.
SECTION 4. DRAFTING INFORMATION
The principal author of this revenue procedure is Marnette M. Myers of the Office
of Associate Chief Counsel (Income Tax & Accounting). For further information
regarding § 223 and HSAs, contact Elizabeth Purcell at (202) 622-6080 (not a toll free
call). For further information regarding the calculation of the inflation adjustments in this
revenue procedure contact Ms. Myers at (202) 622-4920 (not a toll free call).
HP-976: Statement by Deputy Secretary Kimmitt,<BR>
011
U.S. -EU Open Investment Statement
Page I of I
May 14,2008
HP-976
Statement by Deputy Secretary Kimmitt,
on U,S. -EU Open Investment Statement
Washington, DC-- Treasury Deputy Secretary Robert M. Klmmitt welcomed the
issuance of the U.S.--EU Open Investment Statement by the United States and the
European Commission The statement echoes f'll',II!"II! 1;'1,11':, ILl; :'()lli
~;I, ill"'" 'II ' .,, ' 11" 'I t ' , ,11, , ' " ,
and signals the continued commitment of the
world's two largest economies to promoting open investment policies both at home
and abroad The statement was announced at a meeting this week of the
Transatlantic Economic Council In Brussels, Belgium, which Deputy Secretary
Kimmitt attended, and was developed by the U.S.-EU Investment Dialogue, which
works to reduce transatlantic and global investment barriers.
"Trade and foreign investment create jobs, bring healthy competition, encourage
companies to innovate and improve, and give consumers a wider variety of choices
and lower prices on everythlllg from food to clothes to cars," said Kimmitt "By
maintaining open economies and Increasing investment opportunities, the United
States and the European Union will enhance transatlanllc economic ties and
strengthen efforts to IIlcrease openness around the world that will deliver economic
growth and job creation."
-30-
REPORTS
•
U,S.-EU Open Investment Statement
http://www.treas.gov!pn~h>;/r.i:l.i:ai>es/hp971).htm
6/2/2008
HP-977: Treasury International Capital (TIC) Data for March
Page 1 of 3
FROM THE OFFICE OF PUBLIC AFFAIRS
We recommend pnntmg this release [/SIIJU the PDF file IJelow
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May 15, 2008
HP-977
Treasury International Capital (TIC) Data for March
Treasury International Capital (TIC) data for March 2008 are released today and posted on the US. Treasury website ( .
which will report on data for April, IS scheduled for June 16, 2008.
Net foreign purchases of long-term securities were $80.4 billion.
•
Net foreign purchases of long-term US. securities were $80.2 billion. Of this, net purchases by foreign official institutions were ~
purchases by private foreign investors were $32.1 billion .
•
US residents sold a net $0.3 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking Into account adjustments, IS estimated to have been $54.2 billion.
Foreign holdings of dollar-denominated short-term U.S securities, including Treasury bills, and other custody liabilities increased $135
holdings of Treasury bills increased $278 billion.
Banks' own net dollar-denominated liabilities to foreign residents declined $115.9 billion.
Monthly net TIC flows were negative $482 billion. Of tillS, net foreign private flows were negative $57.6 billion, and net foreign offiCial fir
-30-
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars, not seasonally adjusted)
2006
2007
12 Months Through
Mar-07
Mar-08
Dec-07
Jan-I
Foreigners' Acquisitions of Long-term Securities
I
2
3
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line I less line 2) II
4
5
6
7
8
Private, net /2
9
10
1I
12
13
Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/hp077.htm
\.
21077.1 29729.8
19933.9 28725.1
22645.7
21478.8
32265.1
31337.4
2314.1
2244.7
3131
3061
1143.2
1004.6
1166.9
927.7
69.4
7tJ
946.6
816.9
964.9
677.8
33.6
125.9
193.8
482.2
144.6
198,2
107.0
331.3
180.4
175,9
156.0
508.3
124.8
183.5
144.5
202.3
147.5
-9.1
-7.4
29.1
21.0
23
C
IS
196.6
187.7
202.0
249.9
35.8
52
69.6
92.6
28.6
5.8
3.0
119.1
50.6
15.1
54.9
112.4
30.7
4.0
64.8
99.5
52.2
33,5
11.0
4.1
8.2
12.5
31:
-c
3
-(
3
13
6/2/2008
HP-977: Treasury International Capital (TIC) Data for March
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 IS) 14
14
IS
16
Foreign Bonds Purchased, net
Foreign Equities Purchased, net
17
18
19
Net Long-Term Securities Transactions (line 3 plus line
20
Other Acquisitions of Long-term Securities, net 15
21
22
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
nc
5515.9
5766.8
-250.9
8188.1
8411.3
-223.2
6031.9
6308.9
-277.1
8559.9
8741.1
-181.2
600.2
612.6
-12.4
-144.5
-106.5
-127.9
-95.3
-169.4
-107.7
-98.3
-82.9
-12.4
0.0
-Ii
892.3
781.5
889.9
746.5
57.0
5()
-174.6
-234.2
-)95.4
-236.2
-13.8
-)j
717.7
547.2
694.5
510.2
43.2
3~
)46.2
-9.0
16.1
-25.0
226.1
48.8
29.3
19.5
197.1
-0.6
19.5
-20.0
257.7
76.1
69.9
6.2
43.9
15.1
4.0
11.1
7()
155.1
174.9
-19.8
177.3
101.2
76.1
197.6
194.0
3.7
181.6
64
5i
70.2
28.8
27.7
1.0
198.0
-108.6
-53.1
-281.9
-4.6
-8(]
1061.8
664.7
838.4
485.9
82.4
34
923.0
138.9
377.8
286.8
645.0
193.4
206.8
279.2
31.6
50.8
-42
7t
79C
-19
-.;
Increase in Foreign Holdings of Dollar-denominated ShortU.S. Securities and Other Custody Liabilities: 16
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
Official, net
23
24
25
26
27
28
29
Page 2 of 3
Change in Banks' Own Net Dollar-Denominated Liabilities
30 Monthly Net TIC Flows (lines 21,22,29) /8
of which
31
Private, net
32
Official, net
II
12
/3
14
/5
/6
/7
/8
IlIA
11
C
IC
(
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 r
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 10.a.4 on tl
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign sec
Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United State5
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securitie:
estimated foreign acquisitions of U.S. equity through stock swaps estimated 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 C
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are
quarterly and published in the Treasury Bulletin and the TIC website.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or brd
TIC data cover most components of international financial flows, but do not include data on direct investment flows, whi
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data sumr
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on tl
describes the scope of TIC data collection.
REPORTS
• (PDF) TIC Monthly Reports on Cross-Border Financial Flows (Billions of dollars, not seasonally adjusted)
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp077.htm
6/2/2008
HP-977: Treasury Intemational Capital (TIC) Data for March
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp977.htm
Page 3 of 3
6/2/2008
DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
May 15,2008
EMBARGOED UNTIL 9:00 AM
Contact: Rob Saliterman
(202) 622-2960
TREASURY INTERNA TIONAL CAPITAL DATA FOR MARCH
Treasury International Capital (TIC) data for March 2008 are released today and posted on the U.S.
Treasury website (www.treas.gov/tic).Thenextrelease.whichwillreportondataforApril.is
scheduled for June 16, 2008.
Net foreign purchases of long-tenn securities were $80.4 billion.
•
Net foreign purchases of long-term U.S. securities were $80.2 billion. Of this, net purchases
by foreign official institutions were $48.1 billion, and net purchases by private foreign
investors were $32.1 billion.
•
U.S. residents sold a net $0.3 billion of long-tenn foreign securities.
Net foreign acquisition oflong-tenn securities, taking into account adjustments, is estimated to have
been $54.2 billion.
Foreign holdings of dollar-denominated short-tenn U.S. securities, including Treasury bills, and
other custody liabilities increased $13.5 billion. Foreign holdings of Treasury bills increased $27.8
billion.
Banks' own net dollar-denominated liabilities to foreign residents declined $115.9 billion.
Monthly net TIC flows were negative $48.2 billion. Of this, net foreign private flows were negative
$57.6 billion, and net foreign official flows were $9.3 billion.
TIC Monthly Reports on Cross-Border Financial Flows
(Billions
of dollars
nOI s~asonally adiuSled)
12 Months Throu 'h
21HJ(,
2007
Mar-IJ7
Mar-08
Dec-07
Jan-08
Feb-08
Mar-08
22645.7
21478.8
1166.9
322(,5.1
31337.4
927.7
2314.1
22447
69.4
3137.9
30(, IS
76.4
29226
28447
77.9
.1075.4
2995.2
80.2
71.1
24.2
35 7
14.9
·37
32.1
270
2.7
-8 7
II I
Foreigners' Acquisitions of Long-term Securities
I
2
J
4
5
6
7
8
<)
I()
II
12
\3
14
15
16
17
18
Gross Purchases of Domestic U.S. SeCUrltles
Gross Sales of Domestic U S. SecuritIes
Domestic Securities Purchased, net (hnc I less llllc 2) II
Private, net 12
Treasury Bonds & Notes, net
Gov', Agency Bonds, nct
Corporate Bonds. net
Equlllcs, nct
946.6
125.9
193 8
4822
144.6
816.9
198.2
107.0
33 \.3
1804
964.9
175.9
156.0
508 3
124.8
677.8
183.5
144.5
202.3
147.5
33.6
-9.1
-7.4
29.1
2UI
23.6
04
Official, net 13
Treasury Bonds & Notes, net
Gov't Agency Bonds. net
Corporate Bonds. net
196.6
696
286
5.8
187.7
3.0
119.1
50.6
15.1
202.0
54.9
1124
31J.7
4.0
249.9
(>4.8
99.5
52.2
33.5
35.8
11.0
41
8.2
12.5
52.8
16.1
-IJ 6
3.')
13.3
6.7
-3.&
1.2
4.4
4.8
48.1
28 ()
15.5
4.1
OA
5S15.9
576(,8
-250.9
8188 I
841 \.3
-223.2
6031.9
63089
-277.1
8559.9
8741.1
-181.2
600.2
612.6
-12.4
770.5
790.1
-19.7
683.0
696.0
-12.9
7SI.9
751.6
0.3
-144.5
-106.5
-1279
-9S.3
-169.4
-107.7
-98.3
-82.9
-12.4
11.11
-17.3
-2.3
5.3
-18.3
4.2
-4.11
892.3
781.5
889.9
746.5
57.0
56.7
64.9
80.4
-174.6
-234.2
-195.4
-236.2
-13.8
-17.9
-15.4
-26.3
717.7
547.2
694.5
510.2
43.2
38.8
49.6
54.2
-0.7
14.6
17.4
-2.8
13.5
27.8
309
-3.0
Equities, nct
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 (Ime J plus line 16):
20
Other Acquisitions of long-term Securities. net 15
21
21077 I 2')729.8
19933.9 28725.1
1143.2
1004.6
Net Foreign AcquisiOon of Long-Term Securities
(Imes 19 and 20):
926
19.1)
·O.e,
3.8
146.2
-9.0
16.1
-2S.0
226.1
48.8
29.3
19.5
197.1
-0.6
19.5
-20.0
257.7
76.1
69.9
62
43.9
15.1
III
76.3
11.6
11.8
1(J.8
27
28
Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody liabilities: 16
U.S. Treasury Bills
Private. net
Offlcla\. net
Other Negotiable Instruments
and Selected Other liabilities: 17
Pnvate. net
Officla\. net
155.1
174.9
-19.8
177.3
1012
76 I
197.6
194.0
37
181.6
lilA
70.2
28.8
27.7
1.0
64.8
57.9
69
-15.4
-9.8
-5.6
-10
-7.1
-72
2()
Change in Banks' Own Net Dollar-Denominated liabilities
198.0
-108.6
-53.1
-281.9
-4.6
-80.3
0.1
-115.9
1061.8
664.7
838.4
485.9
82.4
34.8
48_9
-48.2
923.0
138.9
377.8
286.8
6450
193.4
2068
279.2
11.6
SO.8
-42.0
76.7
58.4
-9 S
-57.6
9.3
22
23
24
25
26
30 Monthly Net TIC Flows (Imes 21.22.29) 18
of "hich
11
Private, nct
32
OffiCial. net
4.0
II
12
Net foreign purchases of U.S. seCUrities (+)
Includes InternatIOnal and regional organl/.ations
13
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 O.a.4 on the TIC webSIte.
Net transact lOllS In foreign sccuntlCS by U S. reSidents Foreign purchases of foreign securltlcs = U S sales of foreign seCUrities to foreigners
Thus negative entries mdlCate net U S purchases of foreIgn SeCUrities, or an outflow of capital from the Umted States. positive entnes
mdlcate net U.S. sates of foreIgn seCUrltlcs
Mmus estimated unrecorded prinCipal repayments to foreigners on domestIc corporatc and agency asset-backed secunlles +
eStimated foreign acquIsitions of U.S. equity through stock swapsestimated U S. acquIsitIons of foreign equity through stock swaps +
IIlcrcase In nonmarketable Treasury Bonds and Notes Issued to OffiCial Institutions and Other ReSidents of Forclgn Countries
These are pnmarlly data on monthly changes III banks' and broker/dealcrs' custody liabilItIes. Data on custody claims are collected
qual1crly and pubiJshed In 'he Treasury Bullet," and 'he TIC webSite.
"Selected Other Liabilities" arc pnmaflly the foreign liabllltics of U.S customers that are managed by U,S banks or broker/dealers
TIC data cover most components of IIltcmatlOnal finanCial flows, but do not 1I1clude data on direct Investment flov.s, which <.Irc collected
and publJshed by the Department of Commcrce's Bureau of EconomIc AnalYSIS. In addltton to the monthly data summarized here, the
TIC coHcels quarterly data on some bankmg and nonbankmg i.Issets and lJabl\itlcs Frequently Asked Question I on the TIC Wcbslte
14
/5
/6
17
/8
descflbes the scope of TIC dala coJlCCllon
2
HP-97(): Statement by Deputy Secretary Killllllitt,- HI\. 'on U,S. -EU Open Investment St ... Page I of I
fV1Zly 14. 2008
HP-976
Statement by Deputy Secretary Kimmitt,
on U.S. -EU Open Investment Statement
Washington, DC-- Treasury Deputy Secretary Robert M Klmmilt welcol1led ttl\;
Issuance of tt,e U S--EU Open Investment Statement by the United States and tile
Europeclll COl11mlSSIOn The stateillent echoes
ami SI~JI1,lls Ille COlltlflued C0l11111ltl1l811t of 1118
worlcl's two largest eCOI10l1112S to PlOf1IOtlllg opell Investmellt policies both at Ilolm:
ami alxoZlci The statement was alliloullcerJ at a rneetlllg Hils week of tilE:
Tr,lllsatialltic Economic Coulicil III Brussels. Belgium, which Deputy Secl'etal'y
Klllll11itt attended. and was developed by the U.S.-EU Ilwestmelit Dialogue. which
works to reduce trallsatiantlC and global Investrnellt barrrers
"Trade and foreign rnvestillelit create Jobs. bring healttly competltloll. encolll'age
companies to Innovate and improve. alld give consumers a wider variety of cllOlces
and lower prices on every tiling from food to clothes to cars," said Kllllmitt. "By
maintaining open economies and rncreasing investment opportunities, tile United
States and the European Union Will enhance transatlantiC ecollOmic ties and
strengthen efforts to Increase openness arouncl the world that Will deliver econOllllC
growtll alld Joh creation"
-30REPORTS
•
U.S.-EU Open Investment Statement
http://www.ll.eas.guv/press/rclc[13;·sihp97(1.htlll
12/8/2008
,I
DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
May 15,2008
EMBARGOED UNTIL 9:00 AM
Contact: Rob Saliterman
(202) 622-2960
TREASURY INTERNATIONAL CAPITAL DATA FOR MARCH
Treasury International Capital (TIC) data for March 2008 are released today and posted on the U.S.
Treasury website (w\\'\\'.treas.gov/tic). The next release, which will report on data for April, is
scheduled for June 16, 2008.
Net foreign purchases of long-term securities were $80.4 billion.
•
Net foreign purchases oflong-ternl U.S. securities were $80.2 billion. Of this, net purchases
by foreign official institutions were $48.1 billion, and net purchases by private foreign
investors were $32.1 billion.
•
U.S. residents sold a net $0.3 billion oflong-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been $54.2 billion.
Foreign holdings of dollar-denominated short-ternl U.S. securities, including Treasury bills, and
other custody liabilities increased $13.5 billion. Foreign holdings of Treasury bills increased $27.8
billion.
Banks' own net dollar-denominated liabilities to foreign residents declined $115.9 billion.
Monthly net TIC flows were negative $48.2 billion. Of this, net foreign private flows were negative
$57.6 billion, and net foreign official flows were $9.3 billion.
II P --- 971
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars not seasonally adiusted)
2006
2007
12 Months Through
Mar-07
Mar-O&
Dec-07
Jan-08
Feb-O&
Mar-O&
Foreigners' Acquisitions of long-term Securities
I
2
3
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Oomestic Securities Purchased, net (line I less line 2) II
21077.1 29729.&
19933.9 2&725.1
1143.2
1004.6
22645.7
2147&.&
1166.9
32265.1
31337.4
927.7
2314.1
2244.7
69.4
3137.9
3061.5
76.4
2922.6
2844.7
77.9
3075.4
2995.2
80.2
4
5
6
7
&
Private, net 12
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
946.6
125.9
193.&
4&2.2
144.6
816.9
198.2
107.0
331.3
180.4
964.9
175.9
156.0
508.3
124.8
677.8
1&3.5
144.5
202.3
147.5
33.6
-9.1
-7.4
29.1
21.0
23.6
0.4
19.9
-0.6
3.&
71.1
24.2
35.7
14.9
-3.7
32.1
27.0
2.7
-&.7
11.1
9
10
II
12
13
Oflicial, net 13
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
196.6
69.6
92.6
2&.6
5.8
187,7
3.0
119.1
50.6
15.1
202.0
54.9
112.4
30.7
4.0
249.9
64.&
99.5
52.2
33.5
35.8
11.0
4.1
8.2
12.5
52.8
36.1
-0.6
3.9
13.3
6.7
-3.6
1.2
4.4
4.&
48.1
28.0
15.5
4.1
0.4
5515.9
5766.8
-250.9
8188.1
8411.3
-223.2
6031.9
6308.9
-277.1
8559.9
8741.1
-181.2
600.2
612.6
-12.4
770.5
790.1
-19.7
683.0
696.0
-12.9
751.9
751.6
0.3
-144.5
-106.5
-127.9
-95.3
-169.4
-107.7
-98.3
-82.9
-12.4
0.0
-17.3
-2.3
5.3
-1&.3
4.2
-4.0
892.3
781.5
889.9
746.5
57.0
56.7
64.9
80.4
-174.6
-234.2
-195.4
-236.2
-13.8
-17.9
-15.4
-26.3
717.7
547.2
694.5
510.2
43.2
38.8
49.6
54.2
146.2
-9.0
16.1
-25.0
226.1
48.8
29.3
19.5
197.1
-0.6
19.5
-20.0
257.7
76.1
69.9
6.2
43.9
15.1
4.0
11.1
76.3
11.6
0.8
10.8
-0.7
14.6
17.4
-2.8
13.5
27.8
30.9
-3.0
155.1
174.9
-19.8
177.3
101.2
76.1
197.6
194.0
3.7
181.6
111.4
70.2
28.8
27.7
1.0
64.8
57.9
6.9
-15.4
-9.8
-5.6
-14.3
-7.1
-7.2
198.0
-108.6
-53.1
-281.9
-4.6
-80.3
0.1
-115.9
1061.8
664.7
838.4
485.9
82.4
34.8
48.9
-48.2
923.0
138.9
377.&
286.8
645.0
193.4
206.8
279.2
31.6
50.8
-42.0
76.7
58.4
-9.5
-57.6
9.3
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):
20
Other Acquisitions of long-term Securities, net 15
21
22
23
24
25
26
27
28
29
Net Foreign AcqUisition of Long-Term Securities
(lines 19 and 20):
Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody Liabilities: 16
U.S. Treasury Bills
Prjvate~
net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Pnvate, net
Official, net
Change in Banks' Own Net Oollar-Denominated Liabilities
30 Monthly Net TIC Flows (lines 21,22,29) /8
of which
31
Private, net
32
Official, net
/1
/2
13
14
15
16
17
18
Net foreign purchases of U.S. securities (+)
Includes international and regional organizations
The reported division of net purchases oflong-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 10.a.4 on the TIC website.
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 securities, 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 swaps estimated 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 brokerldealers' custody liabilities. Data on custody claims are collected
quarterly and published in the Treasury Bulletin and the TIC website.
"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, but 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 website
describes the scope of TIC data collection.
2
HP-978: Treasury Designates Three Entities of Major Petrochemicals Conglomerate in Belarus
Page 1 of 1
May 15,2008
hp-978
Treasury Designates Three Entities of Major Petrochemicals Conglomerate in
Belarus
Washington - The U.S Department of the Treasury's Office of Foreign Assets
Control (OFAC) today designated three enterprises of Belneftekhlm Concern.
Today's action builds on the November 13, 2007, designallon of Belneftekhim
Concern
The Belarusian enterprises designated today are Lakokraska OAO, Polotsk
Steklovolokno OAO, and the Belarusian Oil Trade House. Lakokraska OAO is a
subsidiary of Belneftekhlm Concern and manufactures varnishes and paints.
Polotsk Steklovolokno OAO, also a subSidiary of Belneftekhim Concern,
manufactures glass, silica fibers, and other related products. The Belarusian Oil
Trade House is an enterprise of Belneftekhim Concern and acts as a clearinghouse
for financial, contractual, and web-based transactions on behalf of Belneftekhim
Concern and its subsidiaries. The Belarusian Oil Trade House also operates an
online auction trading system called United Trading Site.
Today's designations were made pursuant to Execullve Order 13405, which
authorizes the Secretary of the Treasury to designate indiViduals or enlltles that are
responsible for undermining, or have participated In actions that undermine,
democratic processes or inslitutlons in Belarus; that are responsible for, or have
participated In, human rights abuses related to political oppression in Belarus; that
are senior officials, family members of such officials, or persons closely linked to
such officials, who are responSible for or have engaged in public corruption related
to Belarus; have materially assisted, sponsored, or provided finanCial, material, or
technological support for, or goods or services In support of, the activities described
above, or any person listed In or designated pursuant to Executive Order 13405; or
that are owned or controlled by, or acting or purporting to act for or on behalf of,
directly or Indirectly, any person listed in or designated pursuant to Executive Order
13405
As a result of Treasury's deSignations, any assets of these entities that are within
U.S. Jurisdiction must be frozen. Additionally, U.S persons are prohibited from
conducting finanCial or commercial transactions with these entities.
Please viSit the following link for more information about the November 13, 2007,
designation of Belneftekhim Concern:
http://www.trea$.gov/press/releases/hp676.htrn
-30-
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp..)7R.htm
6/2/2008
HP-676: Treasury Targets Lukashenko-controlled Pctrochcmical Conglomerate
Page 1 of 1
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November 13, 2007
HP-676
Treasury Targets LUkashenko-contro/led Petrochemical Conglomerate
Washington, D.C.--The US, Department of the Treasury today designated
Belarus' largest petrochemical conglomerate under Executive Order 13405 as
being controlled by oppressive Belarusian president Alexander Lukashenko,
"Today's action tightens our sanctions against Lukashenko and his crontes by
imposing financial sanctions against a massive conglomerate under the regime's
control," said Adam Szubin, Director of Treasury's Office of Foreign Assets Control
(OFAC),
Belarusian State Concern for Oil and Chemistry, a.ka, Belneftekhim, along with Its
representative offices in Germany, Latvia, the Ukraine. Russia. and China, and its
wholly-owned U.s, subsidiary Belneftekhim USA. Inc, were added to Treasury's list
of Specially Designated Nationals and Blocked Persons, with the result that any
assets the entities hold under U,S JurisdiclJon must be frozen and U,S, persons are
prohibited from transacting or doing business with the designated entities,
Today's action follows the 2006 blocking of the assets of Lukashenko and nine
other senior officials of his administration, In February 2007. Treasury blocked the
assets of another 6 high-ranking Belarusian officials. bringing the total number of
designated officials to 16.
Today's designations are made pursuant to Executive Order (E,O.) 1 ',eil !! , which
was issued In 2006 in light of the oppression by Lukashenko and key members of
his administration E,O. ::1, authorizes the Secretary of the Treasury. after
consultation with the Secretary of State. to block the assets of individuals or entities
determined to be responsible for, or to have participated in, actions or policies that
undermine democratic processes or Institutions in Belarus; to be responsible for, or
have participated In, human fights abuses related to political repression In Belarus;
to be senior officials, family members of such officials, or persons closely linked to
such officials who are responsible for. or have engaged In. public corruption related
to Belarus; to have materially assisted, sponsored. or provided financial, material,
or technological support for, or goods or services in support of. the activities
described above or any person listed In or designated pursuant to E.O, 111''; or to
be owned or controlled by. or acting or purporting to act for or on behalf of. directly
or Indirectly, any person listed in or designated pursuant to E,O 1".·;1/: .
-30-
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp67{..htm
6/2/2008
HP-979: Paulson to Moderate Panel in Chicago Next Week on Global Competitiveness
Page 1 of 1
May 15, 2008
HP-979
Paulson to Moderate Panel in Chicago Next Week on Global Competitiveness
Secretary Henry M. Paulson, Jr. will moderate a panel next week at the Commerce
Department's 2008 National Summit on American Competitiveness in Chicago.
The summit brings together business, government and academic leaders to ensure
America's economy remains the most competitive In the world.
Paulson will moderate a panel on successful economiC transformations in an era of
global competitiveness. Panel participants include Mississippi Governor Haley
Barbour, Arizona Governor Janet NapOlitano, South Carolina Governor Mark
Sanford, Mayor Richard Daley of Chicago and Mark Drabenstott, Director of the
National Center for Regional Competitiveness at the University of MissouriColumbia.
More information on the conference IS available at
http://www.americancompetitiveness.com/
Who
Secretary Henry M. Paulson, Jr.
What
Moderating Panel at National Summit on American Competitiveness
When
2:45-3:45 p.m (CDT), Thursday, May 22
Where
Fairmont Hotel
200 North Columbus Drive
Chicago, III.
Note
Press must register In advance at
http://www.americancompetitiveness.com/press.reg
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hplJ?9.htm
6/2/2008
HP-980: Treasury Releases Semiannual Report on International Economic and Exchange Rate Policies
Page 1 of 1
May 15,2008
HP-980
Treasury Releases Semiannual Report on International Economic and
Exchange Rate Policies
Washington, DC--The Treasury Depal1ment today released its Semiannual Report
on International Economic and Exchange Rate Policies
LINKS
•
Semiannual Report on International Economic and Exchange Rate Policies
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp980.htm
6/2/2008
J's, Treasury - Office of International Affairs - Semiannual Report on International Economic and Exch .. , Page 1 of 1
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< 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 [B
May 2008
Report [B
Appendix Sovereign Wealth Funds IE
December 2007
Report [B
Appendix I Cross Border Capital Flows and Foreign Exchange Market Activity LEI
Appendix II: Sovereign Wealth Funds [B
June 2007
Report [B
Appendix I: Patterns of Indicators [B
Appendix II: China's Trade Data [B
Appendix III Sovereign Wealth Funds IE
December 2006
Report lEI
Appendix I: Patterns of Indicators lEI
Appendix II: Exchange Rate Misalignment: What the Models Tell Us and Methodological
Considerations [B
Appendix /II: The Adequacy of Foreign Exchange Reserves [B
May 2006
Report [B
Appendix I: Patterns of Indicators [B
Appendix II: Fixed vs Flexible Exchange Rates lEI
Fact Sheet Commitments by Chinese Officials lEI
Fact Sheet: Chinese Actions on Exchange Rate Flexibility, Financial Reform and Balanced
Growth lEI
November 2005
Report lEI
Appendix Analysis of Exchange Rates Pursuant to the Act
"TOP
Last Updated: May 15, 2008
http://WWw.trea~ry.gov/offices/intettIatNnal-affairs/economic-exchange-ratesl
6/2/2008
HP-981: Remarks by Secretary Henry M. Paulson, Jr.<br> on the U.S. Economy, Housing and Capital ...
Page 1 of 5
May 16.2008
HP-981
Remarks by Secretary Henry M. Paulson, Jr.
on the U.S. Economy, Housing and Capital Markets
before the Washington Post 200 Lunch
Washington - Thank you. Len Over the last forty years. Washington has
transformed into a diverse corporate center. Congratulations to the Post for
recognizing this through their annual list of 200. And I am pleased 10 JOin you and
represent the "old" Washington. the less than ten percent of the region's workers
who work for the federal government
While the Post 200 companies may be headquartered here. your operations span
the nation and the world and so I Will prOVide an update on the housing and credit
markets and the US. economy. and look forward to learning your views of the
same
Housing Markets
The housing correction began In 2006, and most forecasters expect a prolonged
period of adjustment. Four points sum up my current view of the progress of that
correction and our efforts to minimize ItS spillover into the rest of the economy.
First. our focus since last summer - to help homeowners aVOid preventable
foreclosures - IS the right focus and It has been successful We encouraged the
creation of the HOPE NOW Alliance of mortgage lenders, servicers and counselors.
to streamlille efforts to help struggllllg borrowers. The Alliance reports that, since
July, the Industry has helped 1.4 million homeowners with loan workouts that
allowed them to stay In their homes. The rate of workouts has now Increased to
about 2 million per year. In addition, we've taken administrative steps to expand
access to FHA programs and enabled almost 200,000 borrowers to refillance Into
affordable FHA mortgages since August. These are significant numbers, and a
significant achievement, particularly when you conSider that 2 million is also the
estimated number of homes that Will go IIlto foreclosure this year
Second. there is no sliver bullet to undo the lax underwriting practices of recent
years. Because of these past excesses. foreclosures will remain elevated even if
we aVOid every single preventable foreclosure.
Third. we know the correction has further to go, and so we should not be surprised
at headlilles that note rising foreclosures and failing home prices. But the correction
IS progressing We are worklllg through the excess IIlventory --- the Inventory of
new slligle-famliy homes for sale is down 18 percent from its 2006 peak. As of April,
single-family housing starts are down to a 692.000 annual rate, off 62 percent from
their January 2006 peak. We didn't get here qUickly. There were years of excesses
And this won't be resolved qUickly.
Fourttl. our work IS not complete Houslllg IS the biggest risk to our economy: we
are constantly monitoring the situation and examlnlllg approaches to address the
problem We are particularly focused on monitoring and continuously improVing the
execution of the HOPE NOW Alliance efforts, and working with Congress to
complete work that IS crUCial to mortgage financlllg - creating a world-class
regulator for Fannie Mae. Freddie Mac and the Federal Home Loan Banks. and
moderniZing the programs of the FHA so it can assist more homeowners without
Imposing additional burden on taxpayers. The miSSion of Fannie and Freddie. the
two largest publiC companies on the Post 200 list. is more Critical now than ever
Together. they touch 80 percent of current mortgage originations, and a regulator
on par with other fillancial regulators will bring confidence to all mortgage market
partiCipants
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/hp981.ht!1l
6/2/200~
HP-98l: Remarks by Secretary Henry M. Paulson, Jr.<br> on the U.S. Economy, Housing and Capital ...
Page 2 of 5
I will elaborate on these pOints and start by putting the Amencan housing market
and the size of the problem tn perspective. Although I am going to talk numbers and
statistics, I know that beneath these numbers are many who are struggling and their
situation is bolll real and difficult As of the end of 2007, there were 55 million
mortgages outstanding and 92 percent were being paid on time, every month.
About 6 percent had missed one or more payments and the remaining 2 percent,
about 1 million, were tn the foreclosure process
There were 1.5 million foreclosures started in all of 2007. Between 2001 and 2005,
a time of solid U.S. economic growth and high home price appreciation, about
650.000 foreclosure starts occurred, likely due to financial setbacks and unforeseen
life events In this correction. we see additional foreclosures because some people
bought more home than they could ever hope to afford Many of these people are
becoming renters again. Foreclosures are also up due to an Increased number of
speculators who bought homes on the assumption that housing prices would
endlessly appreciate.
As housing pnces decline some homeowners find they have negative equity in their
homes. Negative equity is not a trigger for foreclosure and It doesn't alter your
monthly payment. When you are tn your home for the long run, to raise a family and
be part of a community, pnces will fluctuate throughout the years.
Homeowners who can afford their payment should honor their obligations --- and
we know that the vast majonty do. If someone can't afford their home and must
move. it IS painful. If someone walks away from a mortgage they can afford, It is
Irresponsible In bOltl these cases, however, there is little government or industry
should do to prevent foreclosure.
We are focused on those homeowners who both want to stay In their home and,
with a little fleXibility, can afford to do so. We encouraged the formation of HOPE
NOW in order to avoid a market failure. As mortgages have been securitized and
those securities spread around the world, this complexity reduced the ability of
Investors to quickly respond to help struggling homeowners who both wanted to
keep their homes and were financially able to do so. The Alliance has worked to
overcome legal, technical and accounting complexities, and to speed up and
Simplify the refinancing and modification process so that more people can be
helped
Avoiding Preventable Foreclosures
HOPE NOW has made enormous progress. I have met With Alliance members. and
am pleased that they are focused on continuously learning from their experience,
adapting their practices and improving execution across the industry.
Subprtme adjustable rate mortgages account for about 40 percent of all
foreclosures, and we have focused much of our efforts on preventing foreclosures
here, when pOSSible. Our objective IS not to maXimize modifications; it IS to
minimize foreclosures for those who could afford the starter rate. Because lower
interest rates have Significantly reduced the reset problem, and because industry
has acted to fast-track eligible borrowers, we are achieving our ObJective. Of the
more than 400.000 subprime mortgage resets originally scheduled for the first
quarter of 2008, only 553 loans that were current at reset have entered foreclosure
We will continue tracking that number closely to monitor progress.
Of course homeowners have responsibility as well. HOPE NOW members send
over 200,000 letters a month to at-risk homeowners. While the response rate has
Increased from less than 3 percent to 20 percent, that still means that 80 percent of
at-nsk borrowers do not respond to offers of assistance. We can't help those who
aren't willing to help themselves, and we must continue to urge struggling
borrowers that If they haven't already, they need to reach out for help.
We will continue to look for additional tools to reach and help homeowners and to
make eXisting programs work more smoothly.
Mortgage Finance
As you all know, the availability of mortgage finance has been an enormous
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/hp.)el.htm
6/2/2008
HP-981: Remarks by Secretary Henry M. Paulson, lr.<br> on the U.S. Economy, Housing and Capital ...
Page 3 of 5
challenge in recent months. Subprime loan originations are virtually non-existent
today. The Administration has stepped up to that challenge by making FHA
mortgages available to a broader group of borrowers. FHA originations are on pace
to more than double in FY 2008. And this is occurring without significantly
increasing taxpayer risk.
The new FHASecure program has refinanced over 200,000 borrowers into
affordable mortgages in the past eight months and HUD is examining means of
expanding access further. We are also working with Congress to complete work on
FHA modernization legislation proposed by President Bush last year, which would
increase the number of affordable FHA mortgages without imposing new costs on
taxpayers. This legislation would reach another 250,000 potential FHA borrowers.
Fannie Mae and Freddie Mac are guaranteeing a greater share of mortgages than
ever before. It's never been more critical that markets have confidence in how these
companies are overseen and regulated. Given their size, compleXity and Important
role, we need to ensure that they have a regulatory structure on par With other
financial institutions. I believe there is a renewed commitment in the Congress to
completing meaningful GSE reform legislation The House has passed a bill that
makes good progress towards this goal and I am pleased to see the Senate
Banking Committee working hard to reach agreement on its version. The time has
come to get this done.
Capital Markets
The excesses in the mortgage market were Just one of numerous examples of
excesses in the broader capital markets as investors reached for yield. This
translated Into undue leverage in financial instruments and institutions, which was
not adequately recognized by market participants and regulators, and in Increased
compleXity of financial products. It will also take time for markets to work through
these excesses
That being said, we are seeing signs of progress as capital and credit markets
stabilize. The markets are considerably calmer now than they were in March. The
de-leveraging and re-prlcing of risk continue, as does the capital-raising that is so
essential for our financial institutions to continue to support the broader economy
Market liquidity and investor confidence are gradually improving, not across the
board, but in several sectors including corporate bonds, leveraged loans and high
yield debt. Credit default swap, or CDS, spreads on major bank, brokerage firm,
and Fannie Mae and Freddie Mac debt have declined appreciably since March.
Broader CDS indexes of investment grade and high yield bonds have fallen as well,
and while spreads generally are still elevated and significant parts of the market,
Including securitized credit and interbank lending, are not functioning as normal, the
trends indicate on-going Improvement. likeWise, we are seeing Issuance gradually
grow in certain credit sectors.
We meet often with market partiCipants and investors, to understand the remaining
obstacles. They routinely report that time IS the critical factor --- it Simply takes time
to reassess and re-price risk, and regain confidence. We should not expect to work
through thiS process quickly and we should expect some bumps in the road ahead.
But in my Judgment we are closer to the end of the market turmOil than the
beginning. Looking forward, I expect that financial markets will be driven less by the
recent turmoil and more by broader economic conditions and, specifically, by the
recovery of the hOUSing sector
President's Working Group Recommendations
Our highest priority these past several months has been to address the short term
Issues ariSing from market turmoil, so as to reduce its impact on the rest of the
economy. At the same time, the President's Working Group on Financial Markets,
the PWG, reviewed the causes of the recent turmoil and has made
recommendations to address them.
Our review found that the turmoil was fueled by an abundant supply of easy credit,
a decline In mortgage and other credit lending standards, increasingly complex and
opaque financial instruments and structures, excessive leverage in our financial
system, and investor and credit ratings agency issues.
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/hp98~.htm
f)/)/?nn~
H P-98 1: Remarks by Secretary Henry M. Paulson, Jr. <br> on the U.S. Economy, Housing and Capital ...
Page 4 of 5
The PWG presented specific near-term steps to address underlYing weaknesses,
steps that should be implemented by regulators, investors, financial institutions and
credit ratings agencies. Among these, we identified improvements to be made in
every step of the mortgage originate-to-distribute model, including stronger
oversight of mortgage origination, national licensing standards for mortgage
brokers, more disclosure from ratings agencies, improved due diligence by
investors and safeguards in mortgage securitization.
We also outlined specific steps that credit rating agencies should take to proVide
information investors need to make more fully-informed deciSions about risk. This
will require reforming structured credit product rating processes and implementing
changes suggested by the SEC review of conflict of interest issues. Regulators
must also review how they encourage the use of ratings in rules and guidance.
In recent years, credit default swaps and over-the-counter (OTC) derivatives have
become Integral for hedging credit and default risk. Due to innovation and demand,
we have seen tremendous expansion in the scale, diversity and impact of these
instruments and markets. As trading volumes have surged, so has price volatility,
but market infrastructure has not sufficiently evolved to support this expansion. We
need a functional, well-designed industry cooperative that can meet the needs of
the OTC derivatives markets in the years ahead. Such an industry cooperative must
capture all significant processing events, and accommodate all major asset classes
and product types over the entire lifecycle of trades. It must be operationally reliable
and scalable, and enhance counterparty risk management through netting and
collateral agreements by promoting portfolio reconciliation and accurate valuation of
trades.
We are working to implement these PWG recommendations, and will report on our
progress later thiS year.
Another Issue that has been raised in recent weeks is investment bank access to
the Federal Reserve's liquidity facilities. The Federal Reserve has made these
available for a temporary period Pollcymakers are considering the difficult issues
associated With this extension of credit to non-banks.
Blueprint for a Modernized Financial Regulatory Structure
We are also focused on the long-term. In March, we released a Blueprint for
financial regulatory reform to frame the needed diSCUSSion that should lead to
moderniZing our regulatory structure to keep pace with our financial system. The
ultimate beneficiaries from improved financial market regulation are America's
workers, families and businesses - both small and large. Our current regulatory
system has largely evolved from early 20th century financial models; it's a system
that has been patched together over time in response to the issues of the day.
Regulators have adapted to keep pace With innovation, but they do so within a rigid
structure that can not readily adapt as the financial services industry evolves.
The Blueprint Included several immediate steps that we are already working to
implement. One IS a new executive order to clarify the PWG miSSion and increase
the PWG membership to Include additional financial regulators. Through this, we
will formalize current coordination and communication. This will support the PWG's
efforts to enhance financial market integrity and promote consumer and investor
protection.
Second, we recommended crealing a federal Mortgage Origination Commission.
The MOC would establish minimum conduct and competency standards for
mortgage originators and require IIlfOrmatlon to evaluate each state's mortgage
compliance standards for improved transparency in the securitization process. ThiS
Commission, coupled With the Federal Reserve's strong regulatory proposal
regarding the Horne Ownership and Equity Protection Act (HOEPA) rules, should
go a long way In preventing recent Issues from recurring
Third, we recommended that the Federal Reserve and the SEC enter into a
formalized IIlformation-sharlllg agreement. I am pleased to see this process
underway.
Fourth, we recommended the creation of an office of insurance oversight housed at
the Department of Treasury, and legislation has been introduced that is consistent
http://www, treas.gov !pr~h>;/r'i:l~ai>es/h p98lhtm
6/2/2008
HP-981: Remarks by Secretary Henry M. Paulson, Jr.<br> on the U.S. Economy, Housing and Capital ...
Page 5 of 5
with our recommendation.
Beyond these steps, the Blueprint's recommendations are intended to provoke
thoughtful discussion that will ultimately lead to change. And we must begin that
discussion now, because these changes are Important to the long-term strength
and effectiveness of ollr capital markets.
U.S. Economy and Stimulus Package
Although we are still working through housing and capital markets issues, and
expect to be doing so for some time, we also expect to see a faster pace of
economic growth before the end of the year. This is in part because the
Administration and Congress worked together and worked quickly to pass the
Economic Stimulus Act of 2008, a robust, broad-based and temporary package that
will put money into our economy thiS year, when it's needed.
By the middle of July, about 130 million households will have received nearly $100
biliiOIl These payments, along With the Incentives for business Investment included
in the Act, will provide a boost to our economy in the coming months and add over
500,000 Jobs this year that wouldn't have been created otherwise.
ThiS fiscal stimulus will prOVide support to the economy as we weather the housing
correction, capital markets turmoil and higher energy and food prices.
Unemployment remains low and increased exports are partially offsetting other less
positive factors Overall, I believe we are on the right path to resolving market
disruptions and bUilding a stronger financial system. We are working through this
period and our long term prospects remain strong. One thing is very clear to me whatever our current difficulties, I wouldn't bet against the US worker or the U.S.
economy.
Conclusion
America's workers have benefited from six years of strong economic growth. We
know that now, they are also feeling the current strain. The PreSident and his entire
economic team are vigilant We are working to help Americans get through today's
difficulties And while we do this, I remind all of us that our economy is structurally
sound. With long-term fundamentals that compare favorably to any other place in
the world Thank you.
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http://www.treatl.gov!pr~h>;/r.i:l~ai>es/hp981.htm
6/2/2008
HP-982: Week 3 Wrap-Up: Treasury Sent 15.575 Million Stimulus Payments This Week
Page 1 of2
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May 16. 2008
HP-982
Week 3 Wrap-Up: Treasury Sent 15.575 Million Stimulus Payments This Week
ThiS week the Treasul'y Department sent out 15.575 million economic stimulus
payments to American households totaling $13562 billion. So far. Treasury has
sent out 45.463 Illlilion total economic slimulus payments totaling $40793 billion
Week Three (May 12-16)
Total Number of Payments: 15.575 million
Total Amount of Payments $13562 billion
Week Two (May 5-9)
Total Number of Payments 22 180 million
Total Amount of Payments $20.138 billion
Week One (April 28-May 2)
Total Number of Payments 7.708 million
Total Amount of Payments: $7.091 billion
Cumulative Total
Total Number of Payments: 45.463 million
Total Amount of Payments: $40793 billion
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households, and the total amount of payments
sent. Payments began April 28 t11 and Will continue via direct deposit or paper check
through mid-July. For a Single filer, the minimum payment is generally $300 and
the maximum payment IS $600 For Joint filers, the minimum is generally $600 and
the maximum $1.200 There is also an additional $300 payment for each qualifYing
child.
For tax returns processed by the Internal Revenue Service by April 15 households
will receive their payments according to the last two digits of the SOCial Security
number on the tax form. On a Joint return, the first number listed will determine
when a stimulus payment will be sent.
REPORTS
•
Direct Deposit Payments
http://www,treatl.gov!pr~h>;/r'i:l~ai>es/hp982 htm
6/2/2008
Direct Deposit Payments
[fthe last two digits of your Social Security Your economic stimulus payment deposit
number are:
should be transmitted to your bank account
by:
00-20
21-75
76-99
May2
May9
May 16
Paper Check
If the last two digits of your Social Security
number are:
00-09
10-18
19-25
26-38
39-51
52-63
64-75
76-87
88-99
Your check should be in the mail by:
May 16
May 23
May 30
June 6
June 13
June 20
June 27
July 4
July II
A small percent of tax returns will require additional time to process and to compute a
stimulus payment amount. For these returns, stimulus payments may not be issued in
accordance with the schedule above, even if the tax return was processed by April 15. In
these cases, the stimulus payment will be issued approximately 2 weeks after the tax
return is ultimately processed.
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HP-0R3: -Upuated-<br>Trcasury Secrdary Paulson to Travel to the Middle East
Page I of 1
MiJy 2S, 200S
HP-9S:)
-UpdatedTreasury Secretary Paulson to Travel to the Middle East
Treasury SecretZlry Hemy M Paulson, Jr will travel to the Middle East tillS week to
reiterate the Uilited States cornmltn18nt to open investment and diSCUSS the
economic benefits of nations around the world remaining open for Investment
Paulson will VISit Saudi Aral)ia, Oatar, allCi the Uilited Arab Emirates
Meetings Will cover a broad range of regional and global eCOnOlTllC iJnd flnanClerl
Issues Paulson Will also diSCUSS continued efforts In the region to stem the flow of
money to terrorist groups and efforts to protect the global financial system frolll
abuse, particularly by Iran.
Paulson Will be in the region May 30-June 2 He Will flleet With government offiCials
and representatives fl'om the local business and investor community In Abu D113bl,
Paulson Will deliver a speech on the Importance of open Investl1lerlt
Who
Treasury Secretary Henry M PaulsOll, Jr
What
Speech
When
Monday, June 2,12 pm (LOCAL TIME)
Where
Emirates Palace
Ballroom 1
Abu Dhabi
Note
Reporters can R.S.v.P. to rsvp@usuaebusiness.org
http://w\\'v; .treas.guv /])1 ess/rc IcrlJc'i/hp0XJ. h till
12/812008
HP-984: Under Secretary for Intemational Amlirs<br>David H. McCormick<br>Statement at the Annua ... Page 1 of 2
May 19, 2008
HP-984
Under Secretary for International Affairs
David H. McCormick
Statement at the Annual Meeting of the European Bank
for Reconstruction and Development
Kiev, Ukraine - I am happy to be in Kiev for the 17th Annual General Meeting of the
European Bank for Reconstruction and Development. On behalf of Secretary
Paulson, I wish to thank our Ukrainian hosts, President Yushchenko and Prime
Minister Tymoshenko, and the EBRD staff for all their work in organizing this
meeting. I also Join others In thanking President Lemierre for his dedicated service
to the Bank.
In addition, I would like to extend a warm welcome to incoming EBRD President
Thomas Mirow. With the region and the Bank at a crossroads, the EBRO requires
thoughtful and effective leadership and the US government IS committed to
working with you in a positive and constructive way
Ukratne reflects much of the change that is occurring in the region. Since the EBRO
met 10 years ago in Kiev, the Ukrainian people have seen their per capita incomes
rise four-fold to over $3,000 as a result of economic reforms, and the country has
made significant strides in budding a democratic political system. To support these
endeavours, the United States has provided Ukraine $3.9 billion in bilateral
assistance. And we will continue to be a partner to Ukraine in the years ahead In
addition, Governors Will approve an additional €135 million in shareholder funding
out of the Bank's profit to support essential nuclear safety Initiatives at Chernobyl
Ukraine's progress illustrates the success in promoting the transition from
command to market-driven economies. Since its inception, the Bank has committed
almost $57 billion of finanCing. The EBRO finances over 300 projects per year that
support private enterprises and foster Infrastructure development. In taking on risks
prrvate IIlvestors would not accept on their own, the Bank has profited enormously,
with cumulative realized profits of roughly €4 billion over the past three years The
number of blossoming market economies across the region, the growth of the
prrvate sector, and the InstJtution's own financial vitality highlight the EBRO's
achievements
As a consequence of \llis success, the Bank is rapidly approaching an important
deCision about its future strategic direction. The United States believes that, with
the leadership of a new president, it is timely to address some of the questions
faCing the EBRD. One of the first questions we should contemplate IS the
geographiC scope of the EBRD's operations. We must consider this Issue within the
context of the Bank's mandate or, if shareholders desire, within the context of
changing the mandate.
Turkey's application to be a country of operation makes this Issue all the more
pertinent. Turkey IS a successful democracy in Europe that might benefit greatly
from the EBRD's support and assistance. We Will work with other shareholders to
give Turkey's application a serious and thorough review In the coming months.
Discussion of the EBRO's geographiC scope and mandate go to the core of the
institution and these Issues should be conSidered in an open and transparent way
that involves all shareholders
We must also recognize the remaining challenges in the EBRO's existing countries
of operation that Will not graduate III 2010. In particular, we support the Bank's shift
of resources to provide greater assistance to those post-communist countries that
have yet to reap the full benefits of transition.
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp.JP.1.htm
hI? noos<
HP-984: Under Secretary for Intemational Afbirs<br>David H. McConnick<br>Statement at the Al1llUa ... Page 2 of 2
•
In the Western Balkans, the Bank must continue assisting the process of
economic Integration. And we look forward to welcoming Kosovo as an
independent country of operation
• In the Early Transition Countries, the challenges are significant, but we note
the considerable expanSion in the number of operations in recent years We
hope effeclive ulilization of the new Shareholder Special Fund will create
further opportunities for growth.
• In Russia, where we have supported much of the Bank's activities. we are
increasingly concerned about whether some projects are consistent with the
Bank's mandate. Going forward, we encourage the Bank to focus on those
projects that Will contribute the most to transition and lead to genuinely
private ownership and control of assets in Russia.
• In all countries, we believe the EBRD should work with local micro, small
and medium enterprises to foster an entrepreneur-based economy It should
do so while continuing to respect core operating principles of sound banking
and transition impact, while supplementing rather than replacing finanCing
from pl'ivate investors or other public institutions.
Another Important strategic issue IS EBRD's net income allocation. The EBRD's
success has resulted In a comfortable reserve position and net income numbers
that private sector firms would envy. While we support the Governor's net Income
allocation resolution. we continue to believe that a small distribution would provide a
strong and posllive signal to Investors of the opportunities for profit In this region
We expect that a dividend Will be considered again next year.
The EBRD itself must also reflect best practices for governance and accountability
We look forward to working With others to review and improve the Bank's anticorruption practices, both in the region and with respect to the Bank's own
activities. We also welcome the Bank's new Environmental and Social Policy and
continued improvements to its disclosure poliCies. And, we continue to believe the
operations of the Board of Directors should be in line with best corporate practices.
The United States has been and remains a strong supporter of the EBRD. It is an
effective institulion - thanks largely to its highly dedicated and capable staff. We
eagerly anticipate Mr. Mirow's leadership and vision of a Bank that retains a truly
multilateral character, bringing together European and non-European shareholders
The United States will be an engaged and constructive partner with the Bank as It
continues delivering results for the emerging economies of post-communist
Eurasia.
http://www.treatl.gov!pn~h>;/r.i:l.i:ai>es/hp984.htl11
HP-985: Deputy Secretary Kimmitt to Hold Briefing on Palestine Investment Conference
Page I of I
May 19,2008
HP-985
Deputy Secretary Kimmitt to Hold Briefing on Palestine Investment
Conference
Deputy Secretary Robert M Kimmltt will hold an on-camera briefing Tuesday on the
Palestine Investment Conference Deputy Secretary Kimmltt is leading a
Presidential Delegation to the conference, which will take place In Bethlehem May
21-23,2008. More information on the Palestine Investment Conference is available
at http://www.pic-palestine.ps/.
Who
Robert M. Klmmltt, Deputy Secretary, Department of the Treasury
Robert Mosbacher, Jr., President and Chief Executive Officer, Overseas Private
Investment Corporalion
Larry W. Walther, Director, US. Trade and Development Agency
Walter Isaacson, President and Chief Executive Officer, Aspen Institute
Chair, US.-Palestinlan Partnership
Dr. Ziad Asali, President and Founder, American Task Force on Palestine
Co-Chair, U,S-Palestlnian Partnership
What
Briefing on Palestine Investment Conference
When
Tuesday, May 20, 11 :00 a.m. EDT
Where
Briefing Room, Washington Foreign Press Center
National Press BUilding
529 14th Street NW, Suite 800
Washington, D.C
Note
RSVP to Christopher Teal at TeaICL@state,gov.
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp955.htm
6/2/200R
HP-986: Treasury Further Exposes Financial Empire of Colombian Trafficker
Page I of2
10 view or pnnr the /-'Ur colllent ot) I/liS page. aOWllloaa tile free AOolJe® AcroIJat0;) KeaOert"J.
May 20, 2008
HP-986
Treasury Further Exposes Financial Empire of Colombian Trafficker
Washington - The US. Department of the Treasury's Office of Foreign Assets
Control (OFAC) today added 12 companies to its list of Specially Designated
Narcotics Traffickers. The companies designated today are controlled by individuals
previously exposed as front persons for Juan Carlos Ramirez Abadia (a k.a.
Chupeta), who remains III Brazilian custody following his capture in August 2007.
"Although Chupeta has been captured, fragments of his organization remain intact
in Colombia and Spain," said OFAC Director Adam J. Szubin. "OFAC is committed
to exposing the last vestiges of Chupeta's financial empire."
Ramirez Abadia was named by OFAC as a Specially Designated Narcotics
Trafficker III August 2000. He was indicted on federal drug trafficking charges in
Colorado III 1994 and In the Eastern District of New York in 1995 and 2004. In
2004, Colombia's North Valle drug cartel was indicted in the Distnct of Columbia
under the federal Racketeer Influenced and Corrupt Organizations Act. Ramirez
Abadla was Identified III this US. Indictment as one of the cartel's leaders. OFAC
worked closely with the Drug Enforcement Administration and the U.S. Attorney's
Office for the Eastern District of New York in the investigation leading up to today's
action.
Each of the companies deSignated today is controlled by persons previously
designated on August 15, 2007 because they are front persons for Ramirez Abadia.
Ten of the companies designated today are located III Colombia Among these
companies IS A K Dffuslon SA Publicidad y Mercadeo, a consultlllg company in
Call controlled by Alfonso Barrera Rlos. Alvaro Ennque Barrera Rios, and Victona
Eugenia Barrera Rios. Arturo Quinonez Ltda, which does business In Call as
Restaurante Santa Colombia, IS controlled by Benedicto QUlllones, a long-time
accountant for Ramirez Abadia. La Holanda SA IS a veterinary products company
in Cali controlled by German Rosero Angulo, a key lieutenant for Ramirez Abadia
Two of the companies designated today are located in Spain. Valero y Asociados
Gabinete Jundlco S.L. is a legal services company in Valencia controlled by Luis
Hernan Valero Jimenez, a long-time attorney and front person for Ramirez Abadia.
Grupo Inversor PnflClpe de Vergara SL is a real estate company III Madnd
controlled by one of Ramirez Abadia's closest aSSOCiates, Mauricio Arturo Espitia
Ortiz
Today's announcement marks OFAC's fourth action since 2006 that targets the
assets of Ramirez Abadla. In August 2006, OFAC deSignated the Colombian
pharmaceutical dlstnbutlon company Disdrogas Ltda. and Ramirez Abadia's
parents, who were managing the company on his behalf. In August 2007 and
OClober 2007, OF AC deSignated several of Ramirez Abadia's key lieutenants along
With a variety of Colombian companies, Including a paso fmo horse breeding farm
(Criadero Santa Gertrudis SA) and a major currency exchange and money
remittance company (CamblOs y Capi(ales SA)
A detailed look at the program against Colombian drug organizations is provided in
OFAC's March 2007 Impact Rep 011 on EconofDlc Sanctions Agamst Colombian
Drug Cartels.
http://www .treasury. gov/offices/enforcementlofac/reports/narco_i mpact_report_ 05042007. pdf
-30-
http://www, treas.gov !pn~h>;/r'i:l'i:ai>es/h p'986.htll1
6/2/200R
HP-986: Treasury Further Exposes Financial Empire of Colombian Trafficker
Page 2 of2
REPORTS
•
North Valle Cartel Financial Network, May 2008
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hpI9861.htm
6/2/2008
U.S. Department of the Treasury
Office of Foreign Assets Control
SON! porincipal
since 2000
North Valle Cartel
Financial Network
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May 2008
Specially Designated
Narcotics Traffickers
("SDNTs")
. 'J"O' , ,I
Captured on
August 7, 2007;
In Brazilian Custody
,
~
i
Juan Carlos
RAMIREZ ABADIA
(a.k.a. "Chupeta")
t
Previously-Designated "Chupeta" Associates
.
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Victoria Eugenia
BARRERA RIOS
CC 66818996
(Colombia)
Alvaro Enrique
BARRERA RIOS
CC 16758185
(Colombia)
Alfonso
BARRERA RIOS
CC 79648943
(Colombia)
,_.
:~
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Mauricio Arturo
ESpmA ORTIZ
CC 16634827
(Colombia)
Benedicto
QUINONES
CC 14934266
(Colombia)
-
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German
ROSERO ANGULO
CC 16708846
(Colombia)
Luis Hernan
VALERO JIMENEZ
CC 16723237
(Colombia)
Alejandro
VALERO JIMENEZ
CC 16746340
(Colombia)
1
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Colombia
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Cali, Colombia
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Cali, Colombia
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Cali, Colombia
A K EDUCAL S.A.
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Cali, Colombia
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HP-987: Prepared Statement By Deputy Secretary Kimmitt <br>at Foreign Press Center Briefing
Page 1 of 1
May 20, 2008
HP-987
Prepared Statement By Deputy Secretary Kimmitt
at Foreign Press Center Briefing
Washington - I thank President Bush for the opportunity to lead the Presidential
Delegation to Bethlehem to attend the Palestine Investment Conference. The
conference will take place May 21-23, 2008 and Will feature an outstanding program
that will bring together government officials and business leaders from all over the
world to collaborate on how best to join forces to revive the Palestinian economy.
I will be Joined at the conference by several other distinguished members of the
delegation
•
•
•
•
•
John Sullivan, Deputy Secretary of the Department of Commerce
Robert Mosbacher, Jr, President and Chief Executive Officer, Overseas
Private Investment Corporation
Larry W. Walther, Director, U.S Trade and Development Agency
Walter Isaacson, President and Chief Executive Officer, Aspen Institute,
Chair,
U. S .-Palestlnian Partnership
Or. Ziad Asall, President & Founder, American Task Force on Palestine, CoChair,
U.S.-Palestinian Partnership
The Annapolis process envisioned several tracks. There is a political track, the goal
of which IS to create a Palestinian state living side-by-side In peace with Israel.
Those political negotiations are underway. There is another track that calls for the
fulfillment of Roadmap obligallons.
And, there IS also an economic track, which is the one we are trying to advance
through the Paiestille Investment Conference. It is very Important--and President
Bus!, and Secretary Rice have focused significantly on this--to improve economiC
prospects for the Palestinian people to give the political process a chance to unfold.
The Conference IS Intended to spur investor Interest in the Palestinian Territories by
showcaSing business opportunities and projects ready to be launched. The
Palestinian Authority Will educate and inform investors about the local business
climate and demonstrate the growing potential for profitable business in the
Palestinian territories
At this conference, we will showcase Palestinian Prime Minister Fayyad's excellent
economic management, as demonstrated through his timely implementation of the
Palestinian Reform and Development Plan. We will also highlight the US.
Government's commitment to catalyzing private sector growth in the West Bank
and underscore the link between economic prosperity and political stability.
-30-
http://www.treas.gov!pr~h>;/nd~ai>es/hp~P7.htm
6/2/200R
HP-988: Paulson to Meet with Greek Minister of Economy and Finance
Page I of I
May 20,2008
HP-988
Paulson to Meet with Greek Minister of Economy and Finance
Washington - Treasury Secretary Henry M. Paulson, Jr will welcome Greek
Minister of Economy and Finance George Alogoskoufls to the U.S. Department of
the Treasury on Wednesday, May 21. They will discuss global economic and
finanCial developments, open Investment, the effort to relieve Iraq debt and
safeguarding the global financial system from abuse.
http://www.treas.gov!pr~h>;/nd~ai>es/hp.]~~.htm
6/2/2008
HP -l)~Y: paulson Statement on Senate Housing Legislation
Page 1 of 1
May 20,2008
HP-989
Paulson Statement on Senate Housing Legislation
Washington- Secretary Henry M Paulson, Jr. made the fol!owlIlg statement today
upon the passage of hOllSll1g legislation by the Senate Committee on Banklllg,
Housll1Q and Urban Affairs. which included reform of the housll1Q government
sponsored enterpnses.
"We have long called for strong, comprehensive GSE reform. This is the most
significant component of the legislation passed today, creating a world class
financial regulator with appropnate authorities to oversee the GSEs' operations.
Fannie Mae and Freddie Mac are guaranteeing a greater share of mortgages than
ever before. It's never been more critical that markets have confidence in how these
companies are overseen and regulated.
"As we all know, one element cntical to reaching the end of this correction will be
the cost of mortgage finance - the price of a mortgage will impact how many buyers
come into the market and when they do so. Investor confidence in the secondary
mortgage market IS vital to the contmued flow of affordable mortgage capital for
American homebuyers And a strengthened regulator for the two largest sources of
mortgage finance is vital to the confidence of all mortgage market participants and
regulators."
-30-
http://www.treas.gov!pn~h>;/r.i:l.i:ai>es/hp9?9.htm
6/2/2008
HP-990: PWG
PrIvate
Sector COI1lI11Ittee Selects New Leadership
Page 1 of 1
May 20, 2008
hp-990
PWG Private Sector Committee Selects New Leadership
Washington- The private sector Investors' Committee on Private Pools of Capital,
established by the President's Working Group on Financial Markets, announced
today the selection of Gary Bruebaker, Chief Investment Officer of the Washington
State Investment Board, to serve as the Committee Chair. Russell Read, the
current Chair, will step down from the Committee upon his resignation from the
California Public Employees Retirement System on June 30.
"This Committee plays an important role in strengthening market disciplille through
improved IIlvestor practices. Gary's participation from IIlception, coupled with his
broad experience as a public penSion plan sponsor, will serve the committee well,"
said Treasury Assistant Secretary for Financial Markets Anthony Ryan "I am also
grateful to Russell Read for his contributions and leadership and wish him well with
his new venture."
The PWG created the Investors' Committee and a separate Asset Managers'
Committee in September 2007 to collaborate on issues surrounding the private
pools of capital industry and to develop a set of best practices for their respective
groups of stakeholders. The work of the two groups was based on the PWG's
Principles and Guidelines Regarding Private Pools of Capital issued in February
:'01;:, which sought to enhance investor protections and systemic risk safeguards.
The best practices, released in April 2008, may be viewed at the committees'
website, http://www.amaicmte.org.
Bruebaker has served the Washington State Investment Board since 2001, where
he received the award for Public Plan Sponsor of the Year and was selected for the
2006 Award for Excellence in Investment Management by Institutional Investor. The
board is one of the largest in the country and manages more than $81.9 billion III 38
separate funds. Among other IIlvestment responsibilities, the WSIB manages the
financial future of more than 400,000 public servants through the management of
defined benefit and defined contribution retirement plans.
Sandra Urle of Cambridge Associates will continue to serve as the Committee ViceChair.
-30-
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp(1)f).htm
6/2/2008
Page 1 of2
/0 view or punt the I-'U~ content on tillS page. Gown/oaa the free AGoOe® Acrobat® Heaaerv3).
September 25, 2007
HP-575
PWG Announces Private Sector Groups
to Address Market Issues for Private Pools of Capital
Washington - The President's Working Group on Financial Markets announced the
chairs, members and mission statements for two private sector committees, one
comprised of investors and the ottler comprised of asset managers These private
sector committees Will assess and foster a private sector dialogue on Issues of
significance to their industry and the market. The first task of the committees will be
to develop best practices using the PWG's principles-based guidance released in
February. The committees Will create and publicly release the best practices so
market partiCipants may enhance Investor protection and systemic risk safeguards
consistent with the PWG principles and gUidelines.
"These groups are drawn from among the industry's finest in their respective
areas," said Treasury Secretary and PWG Chairman Henry M. Paulson, Jr "The
market will benefit if experienced partiCipants develop and implement best
practices"
The PreSident's Working Group is encouraging market participants to move beyond
the status quo as they work to strengthen market diSCipline The committees
represent a milestone toward a more competitive US. marketplace with the world's
highest standards for protecting investors and safeguarding agamst systemic risks.
Russell Read. Chief Investment Officer of the CaliforJ1\a Public Employees
Retirement System, Will serve as the chair of the Investors' Committee Enc
Mindich, CEO of Eton Park Capital Management, will serve as the chair of the
Asset Managers' Committee
The PWG and the committee chairmen sought a broad range of experienced
members, listed below, to partiCipate on the Committees. The Investors' Committee
includes representatives from labor organizations, endowments, foundations,
corporate and public pension funds, investment consultants, and non-U.S.
investors. The Asset Managers' Committee Includes representatives from a diverse
group of hedge fund managers representing many different strategies.
The groups will make the best practices available for public comment before they
are finalized.
The PWG first discussed the establishment of these groups in June, With the
announcement of the second stage of Treasury's capital markets competitiveness
plan. The PWG created the groups to complement the work underway between the
global regulators and the financial Institutions they regulate that serve as creditors,
lenders and counterparties to these private pools of capital.
Asset Managers' Committee
Mission Statement 0
Investors' Committee
Mission Statement 0
Eric Mindich, Chair
Eton Park Capital Management
Russell Read, Chair
CalPERS
Anne Casscells
Sandra Urie, Vice-Chair
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp57.;.htm
6/2/2008
Page 2 of2
AETOS Capital, LLC
Cambridge Associates, LLC
James S. Chanos
Kynikos Associates LP
Gary Bruebaker
Washington State Investment Board
Anne Dinning
D. E. Shaw & Co, LP
Myra Drucker
Common fund
Jonathon S. Jacobson
Highfields Capital Management
Tom Dunn
New Holland Capital
Marc Lasry
Avenue Capital Group
Peter Gilbert
Lehigh University Endowment Fund
Edward A. Mule
Silver Point Capital
Andrew Golden
Princeton University Investment
Company
Daniel S. Och
Och-Ziff Capital Management
George Main
DiverSified Global Asset
Management Corporation
Daniel H. Stern
ReservOir Capital Group
Ellen Shuman
Carnegie Corporation of New York
William Von Mueffling
Cantil Ion Capital
Michael Vranos
Ellington Management Group LLC
Damon Silvers
AFL-CIO
Greg Williamson
BP Amenca Inc.
-30-
http://www. treas.gov !pr~h>;/r'i:l~ai>es/h p5 7 :;:htm
6/2/2008
Hp-~l) 1: Statement by Secretary Henry M. Paulson, Jr.
10 View or pl/Ilt the
~ut-
011
Page 1 of 1
Resignation of Jan Boyer
cOll1ell1 on (ills page. (fown/oarl tile free A (JolJe® AcroIJat®
Kea(Je~.
May 20,2008
hp-991
Statement by Secretary Henry M. Paulson, Jr. on Resignation of Jan Boyer
Washington, DC-- Treasury Secretary Henry M. Paulson, Jr. issued a statement
today on the departure of the US Alternate Executive Director of the InterAmerican Development Bank Jan E. Boyer:
"I greatly appreciate Jan Boyer's distinguished service to the Bush Administration
and the Board of Executive Directors of the Inter-American Development Bank. Jan
worked with great commitment and energy to expand the presence and improve the
results of the lOB while also undertaking his fidUCiary duties with the utmost
integrity. Jan is leaving the Administration to pursue opportunities in the private
sector and 1 wish him and his family well," said Paulson
Boyer assumed his duties on October 18, 2005, bringing considerable experience
in developed and emerging markets. His outstanding work at the lOB ranged from
supporting entrepreneurship to the development of infrastructure. In 2008, he took
on the duties of Executive Director during the lead up to the 2008 lOB Annual
Meeting hosted by the United States In Miami.
-30REPORTS
•
Resignation Letter
http://www.treatl.gov!pr~h>;/nd~ai>es/hpoOl.htm
6/2/2008
May 20, 2008
President George W. Bush
The White House
Washington, D.C.
I am writing to submit my resignation as United States Alternate Executive Director of
the Inter-American Development Bank (IDB) effective June 6th, 2008.
It has been a unique and great honor to serve our Nation as a senior member of your
Administration. I want to thank you for this opportunity. My current service at the IDB
and prior service at the Overseas Private Investment Corporation add up to four years to
promote your international economic policies.
My goa! in coming to government was simple. Bring my international experience as an
entrepreneur to the public sector for the benefit of economic development in the US and
abroad. Once here, I also chose to focus on the very important issues of accountability,
transparency and the responsible use of public resources.
As 1 promised during my confirmation hearing before the US Senate, I intend to return to
the private sector and from there continue to pursue these goals. So\ange, Sophia,
Francesca and I wish you and your recently expanded family all the best in the future.
Jan E. Boyer
cc:
The Honorable
Henry M. Paulson, .Ir.
Secretary of the Treasury
HP-992: Remarks by Special Envoy for China and the Strategic Economic Dialogue<br>Alan Holmer <...
Page 1 of 7
May 21,2008
HP-992
Remarks by Special Envoy for China and the Strategic Economic Dialogue
Alan Holmer
on the U.S.-China Strategic Economic Dialogue:
Sustaining Economic Growth
at Wuhan University
Wuhan, China - Thank you President Liu and Vice President Zhou for your
inVitation and for yOUl' hospitality. It is a privilege and honor to be with you today at
Wuhan University.
Before I beglll, I want to extend my condolences to those injured and to the families
of the victims of the earthquake in Sichuan Province. I am particularly saddened by
the number of students and children affected by this tragedy. The thoughts and
prayers of the American people are with the Chinese people at this time, especially
those directly affected. Both the American people and the United States
government have provided assistance and remain ready to help in any way
possible.
I would also like to recognize Wendy Lyle, United States Consul General for the
newly established U.S. Consulate General here III Wuhan. We are proud to have
this offiCial presence III Wuhan and believe it will strengthen the U.S.-China
relationship in the years and decades to come.
When I became Special Envoy for China and the Strategic Economic Dialogue III
February of 2007, Vice Premier Wu Yi. a native of your great city, encouraged me
to viSit the parts of China beyond Beijing and ShanghaI. I have happily followed her
advice. In the past 15 months, I have been privileged to visit Shenyang, Qinghai,
Xi'an, Chengdu, Guangzhou, Shenzhen, Hong Kong, and Ningbo Uust yesterday).
My trips have included viSits to rural villages to see both the opportunities and the
challenges you face In promoting balanced, harmonious growth.
I've learned that China is a country of contrasts as it develops rapidly: contrasts
between eastern, central and western regions; urban and rural areas; contrasts
between one province and another. There are also large contrasts with III provinces,
and your province Hubei IS no exception.
Hubei Province and Wuhan
I have been Impressed by Wuhan's strategic geographic location in Chilla and your
strong traditions of trade and intellectual advancement that date back to the Han
Dynasty. I learned that nearly 2,000 years ago one of the critical battles of the
Romance of the Three Kingdoms occurred right here in this area. You are both an
ancient and a modern city, a city rooted In tradition but at the heart of an
economically rising central Chilla.
An increaslllg amount of China's - and the world's - economy passes through
Wuhan Your city IS a transport nexus for central China, located where the mighty
Han and Yangtze Rivers meet, and is Critically important for shipping, rail, and
highways - as Wuhan sits at the crossroads of one of China's main North-to-South
and East-to-West national highways
I applaud your country's and your province's initiative to promote the rise of Central
China Vice Premier Wang Qishan's speech here in Wuhan less than one month
ago was Impressive, as he encouraged your region to speed reform and opening.
Your efforts to promote the development of Central China through increased trade
and IIlvestment are significant and worthwhile.
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I am here today. in part, to tell you that my colleagues and I in the United States
government believe that closer U.S.-China economic cooperation benefits the
development of all regions of China and the United States, not just our political and
economic centers. Broad-based, high-quality economic growth that benefits the
people of our countries is of utmost Importance to all of us.
U.S.-China Economic Relations: A Paradox of Optimism and Apprehension
As part of my responsibilities. I also travel widely throughout the United States and
meet With business, economiC, and academic groups, along With government
leaders at all levels. I explain the consequential nature and positive impact of our
economic relationship, and the importance of the U.S-China Strategic Economic
Dialogue.
We have a deep reservoir of good will between the people of our two countries. And
yet while our growing economic interdependence was once a source of stability in
our bilateral relations, it is now increasingly also a source of tension, in both of our
countries.
A 2008 survey that simultaneously conducted public polling both here in China and
in the United States characterized these mutual perceptions between our countries'
two peoples as a "paradox of hope and fear." This survey, published by an
influential group of Chinese Americans called the Committee of 100, shows that, on
the one hand, a majority of citizens in the United States and China generally hold
positive views of each other and broadly recognize the importance of U.S-China
relations and our Increasing economic interdependence. On the other hand, a
strong majority of Americans view China's growing economic and military power as
a serious or potential threat, and nearly half of the Chinese feel that the United
States is trying to prevent their country from becoming a great world power.
Both sides recognize that our most common interests lie in trade. Among
Americans, trade is regarded as the most likely area of shared interests, yet it also
ranks as the most likely source of conflict. There it is again, a mix of hope and fear.
These concerns are straining the domestic consensus in both the United States and
China on the benefits of economic engagement, leading to the rise of economic
nationalism and Isolationism among some sectors in both our nations. These
sentiments may constrain leaders from adopting policies that are in the long-term
Interests of the citizens and economies of your country and mine.
Recognizing that this paradox of optimism and apprehension is real, I have come to
Wuhan to speak with you about a reality that is central to the well-being of the
people of our two great nations that is, free trade and investment between our two
countries are in our fundamental mutual Interests. One only needs to consider how
far our relationship has developed since we normalized relations nearly thirty years
ago to appreciate the rapid growth of our mutual benefit.
I will also desCribe three essential steps we must take together as we look to the
future that will sustain and enhance our mutual, growing economic prosperity
China and the United States: Beneficiaries of Free Trade, Open Markets, and
Foreign Direct Investment
I have been deeply involved with international economic issues for over 25 years.
One of the clearest lessons I have learned is that those countnes that open
themselves to compelltion, reform their economies, and welcome foreign
investment benefit their citizens greatly. Direct investment in another country, such
as manufactUring plants or service companies, is the Ultimate vote of confidence in
that country's economy.
Such openness is the most reliable path to economic growth and reduction of
poverty: it prOVides better Jobs and opportunities, improved living standards, greater
consumer choice and lower prices and inflation Openness is not a zero-sum game;
it enhances effiCiency, productivity, and competitiveness.
Benefits for China
China's reform and opening over the past three decades have arguably produced
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the most dramatic economic transformation in world history. China has transformed
itself from a poor, mostly agrarian, and almost completely closed economy, Into an
integral driver of the global economy. In the process, China has achieved economic
growth of nearly 10 percent per year that has lifted hundreds of millions of Chinese
citizens out of poverty. In 2007, China became the world's second-largest exporter,
and its trade volume for the first time exceeded the combined trade of Japan and
South Korea. Free trade and foreign direct investment have been central to China's
extraordinary economic achievements.
While China Ilas benefited greatly from Inward Investment over the past three
decades, it is now becoming a large supplier of capital to other nations as well.
According to China's Ministry of Commerce, China's total overseas investment In
2007 was over $18 billion Chinese investors viSit the United States with Increasing
regularity to consider foreign investments: we welcome their Investments and their
confidence In the American economy
Benefits for the United States
US. exports to the world now account for 12 percent of our GOP, the highest level
In our history. Exports supplied more than 40 percent of U.S economic growth in
2007. In the United States, the Peterson Institute for International Economics
estimates that the integration of the global economy generates an economic gain of
$1 trillion to the U.S economy every year.
With respect to China specifically, China is now the United States' third largest
export market, with our exports including goods ranging from aircraft, to soybeans
to electrical machinery. In the past decade, our exports to China have increased six
limes faster than our exports to the rest of the world. A recent study by the U.S.China Business Council found that over 90 percent of U.S. congressional districts
had triple-digit export growth to China in the past 8 years.
In a speech In Shanghai two weeks ago, my COlleague DaVid McCormick, Treasury
Undersecretary for International Affairs, noted that foreign direct investment flows
into the United States were $204 billion in 2007, nearly double the level of a decade
earlier. Foreign-owned firms in the United States directly employ over 5 million
Americans - 4.5 percent of all private sector employment. These are good jobs with
good wages, paying more than 25 percent higher compensation on average than
other private sector jobs Foreign-owned firms contribute almost six percent of US.
output, 14 percent of US. R&D spending. and 19 percent of US. exports.
Yet the Consensus for Open Economies is Eroding
Despite these compelling facts, the longstanding consensus in support of open
economies shows signs of eroding, in both our countries.
Any dynamic economy that is constantly creating new, higher-value jobs inevitably
faces factory closings and job losses that are real and painful. The benefits of free
trade are often spread across an entire country, while the lost jobs are more
focused and immediately Visible. But succumbing to the temptation to make trade
and foreign Investment a scapegoat only breeds support for isolationist policies that
will make us worse off, redUCing the losses of the present by sacrificing the job
opportunities and higher standards of living of the future.
Some Specific Concerns
With respect to Investment, we often hear concerns from Chilla about the U.S
investment review process and whether the United States truly welcomes Chinese
investment. US. legal authority In this area is narrowly targeted to address
acquisitions that raise genuine national security concerns, not broader economic
interests or industrial policy factors. Last year, for instance, less than 10 percent of
all foreign direct investments were reviewed by the Committee on Foreign
Investment in the United States (CFIUS), and the vast majority of those were
resolved without controversy, including those by state-owned enterprises.
Last month, the Treasury Department Issued proposed regulations on investment to
clarify and improve our existing review process, reinforce strong open investment
principles and procedural protections for foreign investors, and ensure a more
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timely and effiCient review process We welcome your comment on these proposed
regulations.
The United States is strongly committed to maintaining an open investment climate,
including for investments from China.
In addition, Chillese officials have expressed frustration that the United States has
filed cases in the World Trade Organization (WTO) against Chillese practices. But
we should not regard such actions as a failure of our bilateral economic
relationship. Rather, the WTO provides neutral, legal mechanisms to address
issues that cannot be resolved through negotiation As US. Trade Representative
Susan Schwab has said, "WTO dispute settlement is designed to prevent trade
wars rather than fuel them."
From American companies investing in China. we often hear concerns that China's
interest in foreign investment is no longer as robust as before, that foreign
investment regulations are opaque and seem to be designed to favor Chinese
"national champions" These concerns include implementation of the new AntiMonopoly Law; protection of specific Chinese competitors rather than competition In
general. technical standards that appear to be diSCriminatory; treatment of foreign
firms more harshly tllall Chinese firms; and other steps Inconsistent with China's
Impressive move toward market-based economic prinCiples.
The Role of the SED
Fortunately, the Strategic Economic Dialogue prOVides a forum and a mechanism to
address these and other issues. At our most recent Cabinet-level meeting in
December 2007, the United States and China agreed to create a high-level
exchange on Investment and to intenSify ongoing discussions about a Bilateral
Investment Treaty to provide meaningful investor protections
Each twice-yearly, Cabillet-level SED meeting presents multiple opportunities to
share perspectives and clarify misunderstandings. We can never do too much
communicating.
The "Three Essentials": Keys to the Future of U.S.-China Economic
Cooperation
I have been privileged to support and participate in our semi-annual discussions
between the economic leaders of our two countries, led on the U.S side by
Secretary of the Treasury Henry Paulson and on the Chillese side by Vice Premier
Wang Qishan (formerly by Vice Premier Wu Yi) Through the SED, we are
strengthening the foundations of the U.S.-China economic relationship, and we are
pursuing solutions to the big, strategic economic issues that face our two countries.
As we do so, there are essential behaviors we must strengthen If we are to continue
to enhance our economic strength and mutual interests. I will name three.
Essential Number One: Keep Relationship on an Even Keel
When President Bush and President Hu Jintao established the SED in 2006, they
enviSioned a forum and a mechanism to allow both governments to communicate at
the highest levels and With one vOice on issues of critical, long-term importance to
ensure bilateral economic stability and prosperity. And that's what direct
engagement does it keeps the relationship on an even keel by lessening
miscommunication and dispelling misperceptions so common in the history of the
U.S.-Chilla relationship.
This kind of enhanced dialogue and engagement means we must confront
problems frankly and honestly - and often rapidly. One example is product safety
In the spring of 2007, many Americans were alarmed about a wave of reports of
unsafe food and product imports from China. The credibility of the "China brand" In
the United States was at risk. Fortunately, at the Cabinet-level SED meetlllgs in
May, 2007, our governments were able to begin intenSive work together to address
this problem. And at the SED meetings in December 2007, we achieved two
landmark agreements on food, feed, drugs, and medical deVices.
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While there have been bumps along the way, those agreements and related
interactions have fostered a culture of collaboration But thiS IS Just the beginning.
These Issues are deep-seated, complicated, and will not be resolved immediately;
this is why we need to contlilue to work together to build sCience-based quality II1to
each stage of the manufacturing process. Our efforts will be further enhanced by
progress on other related and fundamental Issues. such as rule of law,
transparency. and intellectual property protection
In fact, the effectiveness with which the Chlilese government continues to manage
these safety issues will have long-term Implications for U.S.-Chlila trade relations,
the Iiltegration of China into the global trading system, and the sustainability of
Chlila's economic growth trajectory.
(2) Essential Number Two: Address Forward-LoOking, Strategic
Areas of Critical Mutual Interest
Looking to the future of our relationship, we cannot afford to succumb to the
problem of "short-term Ism" where we primarily consider the issues Just in front of
our eyes. We also need visionary leaders, supported by understanding citizens.
who look out at the horizon, Identify the transformational issues of our times, and
address them now with policies and actions that Will help us realize a sustainable
and even more prosperous future in the next generation and beyond. Through the
SED mechalllsm, the leaders of our two countries work diligently to Identify and
address those critical Issues - including the need to address our respective
macroeconomic Imbalances, flilancial sector liberalization and currency reform,
Iilnovation and intellectual property rights. Investment, transportation, rule of law,
and transparency, among other issues.
One example I would like to elaborate upon is our jOint work on energy security and
enVIronmental cooperation The United States and China are shaping, and being
shaped by, global energy and enVIronmental trends that have strong economic
consequences. Our countries are the world's largest energy consumers and the
largest emitters of greenhouse gases.
We share the challenge of achieving balanced economic growth along with energy
security and environmental sustainability. It Will take resourcefulness. creativity,
determination and a long-term commitment to achieve the results we seek.
At last December's SED meeting, the United States and China announced a tenyear cooperative effort on energy and environmental issues. Our ten-year energy
and environment cooperative framework is part of that commitment. We will focus
on shared objectives, including energy security, lower greenhouse gas emissions,
clean water. clean air. clean and efficient transportation, and the preservation of
wild and beautiful places
This effort will challenge our governments, Industries, universities, research
institutions, thought leaders, and non-governmental organizations to find answers to
these and many other questions How do we reduce dependency on oil and
Increase energy security? How do we better preserve the natural environment and
prevent greenhouse gas release due to deforestation? How do we meet our energy
goals? How do we ensure that our water IS clean and safe?
These questions may be answered differently In the United States than In Chlila.
Yet our approaches to finding answers may be similar - to implement proven,
effective poliCies, to educate individuals to make environmentally sound decisions,
to ensure that companies follow regulations designed to protect human health.
Other solutions will require technological breakthroughs and making existing or new
technology affordable by reduclilg market access barriers.
Since December, we have been hard at work developing action plans for JOint
projects that Will bUild upon and accelerate existlilg efforts. We are placing a priority
on shared goals, such as reducing dependency on oil. We are defining specific
energy targets. such as Increasing vehicle fleet fuel efficiency and creating
incentives for the development and use of alternative fuels. We want to build clean
and efficient transportalion systems and protect the wetlands and forests of our two
countries These action plans will help each country identify policy solutions to
improve implementation of eXisting regulations and Incentives, and challenge us to
develop even more Iilnovatlve approaches and answers.
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(3) Essential Number Three: Develop a Culture of Collaboration
and Trust
The US.-China economic relationship IS complex and managing complexity is
daunting. It begins with speaking to the right people, at the right time, on the right
issues, and in the right way The Strategic EconomiC Dialogue - as a new and
leading institution in U.S.-China relations - has created these useful channels
aillong policymakers in Washington and BeiJing. Our approach engages multiple
and diverse government officials in both countries to facilitate more inclusive
interactions. It breaks down classIC bureaucratic stove-pipes that hinder effeclive
communication and impede results.
And, as important as any contribution, it helps develop and expand trust between
leaders. Trust among leaders IS a strategic asset In any economic relationship.
Views are respected, Ideas are shared candidly, and mutual Interests are pursued.
Just as there have been challenges along the way since normalization of U.S.China relations in 1979, there will undoubtedly be challenges in the decades to
come Eliminating challenge IS not the primary goal - that would be impossible rather, the goal is to create deeper foundations of trust and communication to better
manage those challenges.
The deepening of trust and communication is not solely the role of government
leaders. It IS also the responsibility of bUSinesspersons, workers, farmers,
professors. students, and others. And In August, thousands of athletes from over
100 countries, including athletes from the United States and China, will have the
opportunity to deepen communication and trust when they participate in the 2008
Beijing Olympics.
Information about each other, accessible through the internet, is exploding. But
there is an understanding deficIt. We do not know each other as well as we should.
The best way to close this understanding gap is through strengthening the
exchange of people and our interaction. That's another major benefit of a U.S.
Consulate General now here in Wuhan.
We Will also advance our understanding and communication because of the new
U.S.-China TOUrism Agreement and Civil Aviation Agreement, signed at the SED
meetings In May and December, 2007. New nonstop flights between Atlanta and
Shanghai. San Francisco and Guangzhou, Philadelphia and Beijing, and the other
flights that follow, Will strengthen the bonds between us.
These interactions provide the opportunity for Americans to underscore that we
welcome the rise of a confident, peaceful and prosperous China. A weak and
insecure China is not in America's economiC or security interests.
Conclusion
One of the most important economic questions of this century is whether we get the
economic relationship between our two countries "right." That means stable,
groWing, mutually benefiCial, and supportive bilateral relations. If you question that
statement, consider two different viSions of the future of the U.S.-China relationship.
The first is a vISion that IS dark and problematic. It's a future of a superpower and a
rising power on a collision course, increasingly suspiCIOUS of the other's Intentions,
scrambling In a zero-sum competition for resources and Influence -- oblivious to the
possibilities for cooperation that serve our mutual interest. It's a future In which we
see each other through caricatures. This future portends a fragile relalionship,
which is cracked easily by unavoidable misunderstanding and aCCident.
The second vision is one in which our ability to work together matches the degree
to which our economies are already so deeply Integrated. In this future, I see the
leaders in each nation communicating well, growing in their trust for one another,
working through misunderstandings and crises. and expanding -- where possible -common interests, while recognizing distinct national goals. In this vision, I also see
people in each nation that recognize our commonalities -- that we mutually benefit
from trade, Investment, and all forms of communication and exchange.
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It's this second vision that we are promoting through the Strategic Economic
Dialogue. It's a vision that I hope you share, of a strong and lasting relationship we
will continue to develop, expand, and help flourish.
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May 21,2008
HP-993
Remarks by Treasury Deputy Secretary Robert M. Kimmitt
at the Palestine Investment Conference
Bethlehem-- On behalf of the US delegation, I would like to thank President
Abbas and Prime Minister Fayyad for inviting us to this conference. We also would
like to express our appreciation to the chair of the Steering Committee, National
Economy Minister Hassouneh, Conference CEO Hassan Abu Llbdeh, and the many
conference sponsors and partners who worked hard to put together such an
historic, groundbreaking event.
I was in Jerusalem last November when the idea for this conference was just being
explored. It IS very exciting to return now, and gratifying to see such a large and
diverse crowd of business representatives from so many sectors and regions. This
evening, our delegation will have the pleasure of dining with a few of the Palestinian
private sector leaders with whom I met in Jerusalem last fall -- and we look forward
to talking with them and others about the progress that has been made over the last
six months and the new business opportunities that this conference is certain to
generate.
The Annapolis process, initiated last November by President Bush, comprises
several tracks being pursued concurrently, as Israel and the Palestinians work
together toward a peace agreement. A crucial track--and one all of us attending this
conference can Influence positlveIY--lnvolveslmproving the s'ltuation on the ground
In the Paiestillian Territories. Here. Tony Blair's efforts deserve particular mention
HIs commitment to supporting and publicizing this conference, and to advancing
several high profile prOjects, reflects a deep understanding of the link between
peace and economiC opportunity.
President Abbas and Prime Minister Fayyad understand thiS crucial connection as
well Often when US Treasury offiCials have the opportunity to speak at an
investment or business conference, our remarks focus on the benefits of Investment
flows and urge public sector leaders to establish open investment regimes.
Fortunately, we do not have to convince the Palestinian leadership of the
importance of the private sector and the need to open their markets to the world
economy
I have had the honor of meeting Prime Minister Fayyad dUring his trips to
Washington, D.C , and can attest to his personal commitment to creatlllg an
economy underpinned by a robust private sector. Even those of you who do not
know him personally can find ample evidence of the Prime Minister's free market
credentials in his well-crafted Palestinian Reform and Development Plan.
Appropriately, the plan focuses on improving governance, particularly as It pertains
to public financial management, the security services, and the Justice system.
We all know that there are some unique challenges to dOlllg business In the
Palestinian Territories. This IS where close cooperation between government and
industry can make a real difference.
The United States already has a robust bilateral economic and development
assistance program In the Palestinian Territories, and this program will continue to
grow In 2008, we plan to provide $550 million to the Palestinians for aclivities to
support economic growth and good governance, provide food assistance, improve
education, and Increase access to healthcare and water. We have already
transferred $150 million of thiS assistance as budget support to the Palestinian
Authority. We have also pledged to provide the UN Refugee and Works Agency
with $148 million and are requesting significant levels of assistance from Congress
for next year.
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Much of this funding will be channeled through the US Agency for International
Development to help encourage private sector development. Agribusiness
partnerships, microfinance assistance, modernizing financial institutions, and a new
trade facilitation program are only a few of the several Important 1IlIIIatives that
USAID is undertaking. Over the past fifteen years the United States has provided
$1.9 billion ill such assistance to the Palestinians througtl USAID alone.
However, our mld- to long-term goal is to catalyze private Investment flows, which
are the lifeblood of broad-based, sustainable growth. We have several new
initiatives Wlttl this objective in mind.
First, the Overseas Private Investment Corporation, OPIC, in partnership with the
World Bank's International Finance Corporation, the United Kingdom's Department
for International Development, the Paiestille Investment Fund, and the Bank of
Palestine, IS creatlllg a $500 11lI1i10n mortgage lending facility in the West Bank. This
facility will inject necessary liquidity IIllo the Palestinian mortgage industry and
convey the economic benefits of home ownership to many who would have been
unable to realize them otherwise. The mortgage facility complements ongOing
Palestinian efforts to develop much-needed affordable housing units in the West
Bank over the next five years. And, during this conference. OPIC, under the
leadership of PreSident Rob Mosbacher and in conjunction with the National
Insurance Company, will announce an eXCiting new political risk Insurance program
Second, under the leadership of Deputy Secretary John Sullivan, the U.S
Department of Commerce Commercial Service is providing ongoing support to the
Paiestilllan-American Chamber of Commerce to promote Palestinian business
linkages. The CommerCial Service is also facilitating multillnk digital
videoconferences among Palestinian, Israeli, and U.S. bUSinesses and recently
organized a trade finance conference in Ramallah that attracted over two hundred
Palestinian businesspeople. Additionally, at thiS conference, the US Trade and
Development Agency, under the leadership of Director Larry Walther, is signing a
grant agreement with a Palestinian private sector company to spur development of
a next generation WiMax internet accessibility network in ten cities in the West
Bank.
Third is the US.-Palestinlan Public Private Partnership, which is led by my friend
and colleague Walter Isaacson, who heads the Aspen Institute. The Partnership,
which is co-led by Dr. Ziad Asail. was launched last December by President Bush
and Secretary Rice and has been instrumental in bringing this conference to
frUition. It is also developing quick-impact projects to promote job creation in the
West Bank. including establishing an Arabic-language call center and five youth
development and resource centers designed to prepare youth for full and
productive participation in the Palestinian society and economy.
Finally, the Middle East Investment Initiative, chaired by Berl Bernhard, IS a
Palestinian, American, and European-funded $228 million loan guarantee facility. It
offers financial institutions substantial loan guarantees as an incentive to lend to
small and medium Palestinian enterprises. Such enterprises now comprise up to 90
percent of registered Palestinian bUSinesses, but they face many challenges,
including a lack of access to credit. These small and medium sized businesses, if
properly stimulated, could create tens of thousands of sustainable jobs--a critical
requirement for fostering stability. OPIC and the Palestine Investment Fund are
providing the loan guarantees to commercial banks, microfinance institutions. and
non-governmental organizations who participate In the Investment Initiative
Before concluding, I also want to commend Jake Walles - our Consul General in
Jerusalem - and his team. It is they who have done the tremendous work needed
to coordinate and Implement all these different components of U.S support. thereby
ensuring that our government's efforts provide maximum benefit to the Paiestillian
people To assist in this effort gOing forward, I am pleased to announce that the
U.S. Treasury is aSSigning a senior officer, Ben DaVIS, to be a part of the strong
consulate team in Jerusalem
Today's conference is another important step toward developing economic selfsuffiCiency In the Palestinian Temtories. Our task at this conference and in the
weeks and months ahead IS to work together to combine and leverage the expertise
and bUSiness experience of those In this room with the assistance and political
support of our governments. By building a vibrant economy led by the private sector
in the Palestinian TerritOries, we will help improve the lives of the Palestinian
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people, enhance stability, and bolster prospects for lasting peace. There is no
higher calling or more important goal for our common efforts.
Thank you for your kllrd attention
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HP-994
Statement by Deputy Assistant Secretary Kenneth Peel
At the 2008 African Development Bank Annual Meetings
Maputo, Mozambique - I am honored to represent the United States at thiS 43 rd
Annual Meetrng of the African Development Bank. On behalf of Secretary Paulson,
I convey greetrngs to fellow Governors and would like to extend our gratitude to our
gracIous Mozambiquan hosts for their warm hospitality and to President Kaberuka
and Bank staff for their hard work preparing for our meetings
As we come to Maputo, I cannot help but be encouraged by Africa's continued
robust economic performance. Although the global economic slowdown and higher
food and fuel prices pose significant challenges to growth and inflation outlooks,
Africa is better prepared to meet these challenges than at any time in its recent
history. Africa's ability to meet these challenges is partly a result of exogenous
factors. High commodity prices and expansive debt relief are widely acknowledged
factors In Africa's current economic upswing. But I believe that even more Important
factors are the stronger political and economic leadership across the continent and
the improved policies that have accompanied that leadership
That leadership IS transforming Africa from a contrnent shunned by investors into a
land of new opportunities. Better macroeconomic policies, increasing transparency,
and more open investment climates have begun to create an environment rn which
the private sector can grow. One Indicator of this transformation is that private
capital flows to Africa now exceed official development assistance flows.
Nonetheless, the obstacles to sustained economic growth and poverty reduction in
the continent's poorest countries are formidable. A weak infrastructure base,
shallow and underdeveloped financial sectors, and further reforms of the business
climate must all be addressed if the private sector is to truly take hold and help
drive the levels of sustainable economic growth needed to significantly reduce
poverty in Africa. The Bank can playa critical supporting role in this work.
As we meet here today, much of the region and the world are suffering from large
Increases In food prices. Ttle Crisis requires a coordinated internalional response
conSisting of both Immediate and medium-term actions and reflecting the respective
missions of the many organizations involved. Like many countries, the United
States has proVided Immediate additional assistance to the World Food Program
and IS In process of providing additional emergency assistance to those In need.
We applaud the African Development Bank's intention to take actions consistent
With Its comparative advantage and strategic Vision. We believe the most
meaningful manner In which the Bank can contribute over the medium term is by
strengthening agricultural productiVity through building rural infrastructure and
otherwise Illlproving phySical access to markets for rural farmers.
Under PreSident Kaberuka's leadership over the last few years, the African
Development Bank and Fund have taken Important steps to Improve their
Institutional capacity to help African countries meet the core development
challenges they face The region needs and deserves an Institution that is focused
on its comparative advantages, dedicated to achieving concrete results and
organized and staffed to deliver assistance effiCiently and responsively. We
commend the Bank for the genuine progress It has made toward these broad goals
in recent years and urge management to continue to implement the key institutional
initiatives necessary to fulfill the Bank's mission
Development Impact - measurrng the results of its assistance - is the prtmary
criterion by which we Judge the Bank's quality and effectiveness We are pleased
that the Bank has committed to becoming a truly results-based institution, as
eVidenced most clearly by the overarching results measurement framework agreed
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp.994.htm
6/2/2008
HP-994: Statement by Deputy Assistant Secretary Kenneth Peel <br> At the 2008 African Development... Page 2 of 2
in the African Development Fund replenishment negotiations late last year The
challenge now of course IS to fully Implement it. This rneans collecting, measuring
and reporting data that demonstrate the effectiveness of the Bank's work. But it also
means making the difficult but necessary cultural change to an institution whose
staff Incentives, corporate philosophy and ground operations are anchored In the
fundamental principle that quality matters more than quantity and that, at the end of
the day, demonstrable results are the only true measure of success We applaud
the steps the Bank has taken and encourage the continuing process to
institutionalize this framework and carry through on institutional reforms to make the
irrevocable transition to a genuine results culture
Two years ago In Ouagadougou we and other shareholders called on President
Kaberuka to focus the Bank's activities on a Ilnllted number of priorities In which It
has, or can develop, a comparative advantage We believed it was essential that
the Bank not try to be all things to all people, but instead focus on haVing a real
impact on a manageable number of the region's core development needs. The
Bank's response has been impreSSive We are pleased to see Management's
commitment In the Medium Term Strategy to focus its energies on the private
sector, governance, regional Integration and Infrastructure (specifically water,
energy and transportation.) By focLlslllg its efforts In these areas, the Bank can
leverage its limited resources and help African countries reach the higher levels of
private sector-led economic growth needed to achieve development results. The
ongolllg challenge is to resist the understandable temptation to respond to needs
and requests beyond the strategic comparative advantages the Bank has identified
for itself. We urge management to be resolute and offer our strong support to
maintain its focus.
The Bank's commitment to governance and fighting corruption was demonstrated
by the recent adoption of the new governance strategy. Good governance is
essential for sustainable growth throughout Africa. ExpanSion of private sector
operations, while adhering to fundamental principles of additionality, is welcome
and essential Effeclively engaging the private sector through catalytic transactions
and improvements to the investment climate is the most powerful path to sustained
growth and poverty reduction. We have been particularly pleased With some of the
Bank's private sector operations in AfDF countries. We also welcome the Bank's
work toward greater analYSIS of development impact ratings at the deSign stage of
private sector operations.
As we look ahead, we see much to encourage us about the direction the Bank is
taking to improve its operations and fulfill its promise as a vital institution for Africa's
development. But I thlilk we can all agree that the Job is not yet done and we pledge
our continued cooperation with PreSident Kaberuka, Bank staff and other
shareholders to help realize our shared vision for the Bank and for Africa. Thank
you very much.
- 30 -
http://www.trem•. gov!pr~h>;/r.i:l~ai>es/hp994.htm
6/2/2008
HP-995: Week 4 Wrap-Up: Treasury Sent 6.211 Million Stimulus Payments This Week
10 vIew
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Page I of2
content on tnlS page, C1ownloaC1 tne tree AClooe® Acrooat® HeaCler<!!).
May 23,2008
hp-995
Week 4 Wrap-Up: Treasury Sent 6.211 Million Stimulus Payments This Week
This week the Treasury Department sent out 6.211 million economic stimulus
payments to American households totaling $4.927 billion. So far, Treasury has sent
out 51.675 million total economic stimulus payments totaling $45.720 billion
ThiS week's numbers represent the near completion of all direct depOSits, with the
continued mailing of paper checks. Treasury facilities are still also working on
completing the mailing of regular tax refund checks, and thus are not at full capacity
for printing and mailing stimulus checks. In June, once the regular tax refund
mailings are complete, Treasury will print and mail stimulus checks at full capacity
and weekly volumes will increase.
Week Four (May 19-23)
Total Number of Payments 6.211 million
Total Amount of Payments: $4927 billion
Week Three (May 12-16)
Total Number of Payments: 15575 million
Total Amount of Payments $13.562 billion
Week Two (May 5-9)
Total Number of Payments' 22.180 million
Total Amount of Payments: $20.138 billion
Week One (April 28-May 2)
Total Number of Payments: 7.708 million
Total Amount of Payments $7091 billion
Cumulative Total
Total Number of Payments 51.675 million
Total Amount of Payments $45.720 billion
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households, and the total amount of payments
sent Payments began April 28 th and will continue via direct deposit or paper check
through mid-July. For a single filer. the minimum payment is generally $300 and
the maximum payment IS $600 For Joint filers, the minimum IS generally $600 and
the maximum $1.200. There IS also an additional $300 payment for each qualifying
child
For tax returns processed by the Internal Revenue Service by April 15 households
Will receive their payments according to the last two digits of the Social Security
number on the tax form On a JOint return, the first number listed will determine
when a stimulus payment will be sent.
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp995.htm
6/2/2008
HP-995: Week 4 Wrap-Up: Treasury Sent 6.211 Million Stimulus Payments This Week
Page 2 of2
REPORTS
•
Direct Deposit Payments
http://www.treatl.gov!pn~h>;/r.i:l.i:ai>es/hpo05.htm
6/2/2008
Direct Deposit Payments
If the last two digits of your Social Security Your economic stimulus payment deposit
number are:
should be transmitted to your bank account
by:
00-20
21-75
76-99
May 2
May 9
May 16
Paper Check
If the last two digits of your Social Security Your check should be in the mail by:
number are:
00-09
10-18
19-25
26-38
39-51
52-63
64-75
76-87
88-99
May 16
May 23
May 30
June 6
June 13
June 20
June 27
July 4
July 11
A small percent of tax retums will require additional time to process and to compute a
stimulus payment amount. For these retums, stimulus payments may not be issued in
accordance with the schedule above, even if the tax retum was processed by April 15. In
these cases, the stimulus payment will be issued approximately 2 weeks after the tax
retum is ultimately processed.
-30-
Page I of 4
May 23, 2008
2008-5-23-13-20-23-18756
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 $74,486 million as of the end of that week, compared to $74,424 million as of the end of the
prior week.
I. OffiCial reserve assets and other foreign currency assets (approximate market value,
I
I
IA OffiCial reserve assets (in US millions unless otherwise specified)
In
US millions)
I
II
IIMay 16, 2008
I
IIEuro
IIYen
IlTotal
I
1(1) Foreign currency reserves (in convertible foreign currencies)
II
II
11 74 ,486
I
Ira) Securities
11 15,829
1111.760
11 27 ,589
I
I
I
lof which Issuer headquartered in reporting country but located abroad
II
II
11 0
I(b) total currency and deposits with
II
II
II
11 15 ,273
11 6,617
11 21 ,890
I
II
II
11 0
11 0
I
I
II
11 0
I
II
0
11
I
I(i) other national central banks, BIS and IMF
Iii) banks headquartered in the reporting country
II
lof which: located abroad
II
II
I(iii) banks headquartered outSide the reporting country
lof which: located in the reporting country
II
1(2) IMF reserve pOSition
11 4 ,236
I
1(3) SDRs
11 9 ,729
I
1(4) gold (including gold depOSits and, if appropriate, gold swapped)
11 11 ,041
I
I--volume In millions of fine troy ounces
11261.499
I
1(5) other reserve assets (specify)
10
I
I--financial derivatives
I--Ioans to nonbank nonresidents
I--other
Is Other foreign currency assets (specify)
I
--securities not included in official reserve assets
I
--deposits not included in official reserve assets
I
--loans not included In official reserve assets
1
--fmancial derlvalives not included In official reserve assets
I
--gold not included in offiCial reserve assets
I
[~.. other
II. Predetermined short-term net drains on foreign currency assets (nominal value)
I
II
II
"
~============~II====~!!~====~Ir!====~II======±II====~!I
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6/2/2008
Page 2 of 4
I
I
[ 1. Foreign currency loans, securities, and deposits
II
IIMaturity breakdown (residual maturity)
IITotal
I
II
I--outflows (-)
IIPrinclpal
II
I
IIlnterest
II
[--inflOWS (+)
IIPrinclpal
I
IIlnterest
II
II
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (includinq the forward leq of currency swaps)
More than 1 and
up to 3 months
Up to 1 month
II
I
II
II
II
II
I
I
II
II
I
II
II
I
II
II
I
II
I
II
I (a) Short positions ( - )
I
I
11- 52 ,000
11- 52 ,000
I (b) Long positions (+)
II
I
More than 3
months and up to
1 year
I
II
I
I
I 3. Other (specify)
II
II
II
I --outflows related to repos (-)
1\
II
II
I
I --inflows related to reverse repos (+)
II
II
II
II
I
I --trade credit (-)
II
II
I --trade credit (+)
I --other accounts payable (-)
I --other accounts receivable (+)
II
II
II
II
II
I
II
I
II
I
II
I
I
I
II
II
II
II
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
I
II
I
IITotai
I
II
II
II
I
1\
II
\I
I MatUrity breakdown (residual
applicable)
1\
11 Contingent liabilities
In
foreign currency
(a) Collateral guarantees on debt falling due Within 1
year
JI
I(b) Other contingent liabilities
\I
2. Foreign currency securities issued with embedded
options (puttable bonds)
I
(a) other national monetary authorities, 81S. IMF. and
other international organizations
I
],
I
II
J:
II
(c) with banks and other financial institutions
headquartered outside the reporting country (+)
Ii
II
Undrawn. unconditional credit lines prOVided to:
I
II
(a) other national monetary authorities, 81S. IMF. and
other international organizations
II
1/
--other national monetary authorities (-)
II
II
~BIS(-)
;:::::
II
E-BIS (+)
[~-IMF
(+)
(b) with banks and other financial institutions
headquartered In the reporting country (+)
Ii
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/~(){\Q:.i2313202318756.htm
I
1/
II
I
I
I
II
II
II
I--other national monetary authorities (+)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 month
II
13. Undrawn. unconditional credit lines provided by:
I
II
maturity, where
I
I
I
I
II
I
"
II
II
II
I
I
"
I
I
I
.I
6/2/2008
Page 3 of 4
I--IMF (-)
II
(b) banks and other financial institutions headquartered
in reporting country (- )
11
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
11
4. Aggregate short and long positions of options in
II
foreign currencies vis-a-vis the domestic currency
II
II
II
II
II
II
II
II
II
II
II
"II
II
II
II
I(a) Short positions
l(i) Bought puts
II
"
II
II
I
I
I
I
I
I
II
/I
II
1/
I
I(b) Long positions
II
1/
/I
I
II
II
II
Ei) Bought calls
Eli) Written puts
II
I
/I
(PRO MEMORIA In-the-moneyoptions : I
I(ii) Written calls
It
/I
[(1) At current exchange rate
I(a) Short position
II
II
II
II
I(a) Short position
II
I(b) Long position
"
"II
II
II
II
1(3) - 5 % (appreciation of 5%)
II
II
II
I(a) Short position
II
II
II
II
II
II
I
I(b) Long position
1(4) +10 % (depreciation of 10%)
I(a) Short position
I(b) Long position
1(5) -10 % (appreciation of 10%)
I(a) Short position
I(b) Long position
1(6) Other (specify)
"
II
II
II
II
II
II
II
I(a) Short position
I(b) Long posiliOn
"!/I
II
II
II
II
II
II
II
II
"
II
II
I
I
I
I
II
j(b) Long position
1(2) + 5 % (depreciation of 5%)
I
II
I
/I
II
II
I
II
I
I
I
"IIII
II
II
II
II
II
II
II
/I
II
II
II
II
I
I
I
I
I
I
II
I
II
I
IV. Memo items
I
1(1) To be reported with standard periodicity and timeliness
II
I
II
I
(a) short-term domestic currency debt indexed to the exchange rate
I
I
(b) financial instruments denomtnated in foreign currency and settled by other means (e.g,. in domestic
currency)
11
I
t-nondellverable forwards
[--short positions
[ --long positions
tother instruments
~) pledged
assets
I
bnc1uded in reserve assets
--included in other foreign currency assets
1
@) securities lent and on repo
II--Ient or repoed and tncluded in Section I
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/200~.)2313202318756.htm
II
I
I
I
6/2/2008
Page 4 of 4
II
I--Ient or repoed but not included in Section I
--borrowed or acquired and mcluded in Section I
II
--borrowed or acquired but not included in Section I
II
II
II
he) financial derivative assets (net, marked to market)
I--forwards
I--futures
I
II
II
I--swaps
I--optlons
I--other
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one year,
which are subject to margin calls.
--aggregate short and long positions in forwards and futures in foreign currenCies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I
II
I
II
I
I
I
I
I
I
II
I(a) short positions ( - )
II
II
II
II
II
I
I(b) long positions
II
I
1(1) bought calls
II
I(b) long positions (+)
I--aggregate short and long pOSitions of options in foreign currencies vis-a-vis the domestic currency
I(a) short positions
hI) bought puts
I(ii) written calls
I
!
II
I(ii) written puts
1(2) To be disclosed less frequently:
1/
I(a) currency composition of reserves (by groups of currencies)
11 74 ,486
I--currencies in SDR basket
11 74 ,486
I--currencies not in SDR basket
II
I--by individual currencies (optional)
II
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 reflect markedto-market values, and deposits reflect carrying values,
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.
4/ The short positions reflect foreign exchange acquired under reciprocal currency arrangements with certain foreign central banks
The foreign exchange acqUIred is not included in Section I, "official reserve assets and other foreign currency assets," of the template
for reporting international reserves. However, it is Included in the broader balance of payments presentation as "U.S. Government
assets, other than official reserve assets/US. foreign currency holdings and U.S. short-term assets."
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/:r0~)2313202318756.htm
6/2/2008
HP-996: Treasury Targets LET Leadership
Page I of 3
May 27, 2008
HP-996
Treasury Targets LET Leadership
Washington - The U.S Department of the Treasury today designated four
individuals that hold leadership positions In Lashkar-e-TaYYlba (LET), a Paklstanbased terrorist group With llilks to Usama bin Ladin and the al Qaida network.
"LET is a dangerous al Qa\da affiliate that has demonstrated its Willingness to
murder Innocent civilians," said Stuart Levey, Under Secretary for Terrorism and
Financial Intelligence (TFI) "LET's transnational nature makes it crucial for
governments worldwide to do all they can to stifle LET's fundralsing and
operations"
LET has conducted numerous attacks against Indian military and Civilian targets
since 1993 The Government of India Implicated LET in the July 2006 attack on
multiple Mumbai commuter trains, and in the December 2001 attack against the
Indian Parliament LET IS also suspected of IIlvolvement in attacks in New Oelhi In
October 2005, and in Bangalore in December 2005. In March 2002, senior al Qalda
leader Abu Zubaydah was captured at an LET safe house in Faisalabad, Pakistan.
LET arose in the early 1990s as the armed wing of the Sunni missionary movement
Markaz-ud Dawa-wal-Irshad. Despite belllg banned by the Government of Pakistan
in January 2002, LET continues to operate III Kashmir and engage in or support
terrorist actiVities worldWide. LET was designated pursuant to U.S Executive Order
13224 on December 20, 2001, and under UN Security Council Resolution 1267 on
May 2, 2005 The US Department of State named LET a Foreign Terrorist
Organization (FTO) on December 26,2001.
Today's action was taken pursuant to Executive Order 13224, which targets
terrorists and those prOViding financial, technological, or material support to
terrorists or acts of terrOrism. Any assets these designees have under U.S
jurisdiction will be frozen and US. persons are prohibited from engaging in any
transactions with the designees. Identifying Information
Muhammad Saeed
AKAs: Hafiz Muhammad Saeed
Hafiz Saeed
Hafiz Sahib
HafiZ Mohammad Saeed
Hafez Mohammad Sayeed
Hafiz Mohammad Sayid
Hafiz Mohammad Syeed
Tata JI
Hafiz Mohammad Sayed
Address: House No. 116E, Mohalla Johar, Town: Lahore, Tehsil
Lahore City, Lahore District, Pakistan
DOB: 5 June 1950
POB Sargodha, Punjab, Pakistan
Father's Name Kamal-ud-Din
National 10# 3520025509842-7
Muhammad Saeed is LET's overall leader and chief and plays a key role In LET's
operatIOnal and fundralslng actiVities worldwide. Saeed oversaw the management
of a terrorist training camp in Pakistan in 2006, includlllg funding of the camp, which
prepared militants to fight against Coalition forces In Afghanistan.
Saeed, in 2005, determilled where graduates of an LET camp in Pakistan should
be sent to fight. and personally organized the IIlfiltration of LET militants Into Iraq
dUring a triP to Saudi Arabia That same year, Saeed arranged for an LET operative
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hp996.htm
6/2/2008
HP-996: Treasury Targets LET Leadership
Page 2 of 3
to be sent to Europe as LET's European fundraising coordinator.
Zaki-ur-Rehman Lakhvi
AKAs Zakir Rehman Lakvi
Zakl Ur-Rehman Lakvl
Zakl Ur-Rehman
Zakir Rehman
Abu Walleed Irshad Ahmad Arshad
Chachajee
Address 1. Barahkoh, PO. DO, Tehsil and District Islamabad, Pakistan
Address 2 Chak No. 18/IL, Rlnala Khurd, Tehsil Rinala Khurd, District
Okara, Pakistan
DOB: 30 December 1960
POB: Okara, Pakistan
Father's Name HafiZ Aziz-ur-Rehman
National 10# 61101-9618232-1
Zaki-ur-Rehman Lakhvi is LET's chief of operations. In this capacity, Lakhvi has
directed LET military operations, IIlcluding In Chechnya, Bosnia, Iraq, and
Southeast Asia. Lakhvi instructed
LET associates III 2006 to train operatives for suicide bombings. Prior to that,
Lakhvi instructed
LET operatives to conduct attacks in well-populated areas.
Lakhvi, in 2004, sent operatives and funds to attack US forces in Iraq. Lakhvi also
directed an LET operative to travel to Iraq in 2003 to assess the jihad situation
there.
In past years, Lakhvi has also played an important role in LET fundraising activities,
reportedly receiving al Qalda-affiliated donations on behalf of LET.
Haji Muhammad Ashraf
AKA Haji M Ashraf
DOB. 1 March 1965
PPN. A-374184. Pakistam
Haji Muhammad Ashraf is LET's chief of finance, a position he has held sillce at
least 2003 Ashraf traveled to the Middle East in 2003 and 2004, where he
personally collected donations on behalf of LET. Ashraf assisted Saudi Arabiabased LET leadership in 2003 with expanding its organization and increasing ItS
fundraising activities
Mahmoud Mohammad Ahmed Bahaziq
AKAs: Mahmoud Bahaziq
Abu Abd al-'Azlz
Abu Abdul Aziz
Shaykh Sahib
DOB 17 August 1943
Alt DOB 1943
Alt DOB. 1944
POB India
Nationality Saudi Arabian
Saudi Registration Number 4-6032-0048-1
Mahmoud Mohammad Ahmed Bahaziq is an LET financier and is credited with
being the main financier behind the establishment of the LET and its activities In the
1980s and 1990s. He has also served as the leader of LET In Saudi Arabia. In
2003, Bahazlq coordinated LET's fundraising activities with Saudi nongovernmental
organizations and Saudi businessmen, and encouraged LET operatives to continue
and accelerate fundraislng and organizing activities. As of mld-2005, Bahazlq
played a key role in LET's propaganda and media operations.
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/hp996.htm
6/2/2008
HP-997: Under Sec Steel to Speak at Meeting on Subprime Lending
Page I of I
May 27,2008
HP-997
Under Sec Steel to Speak at Meeting on Subprime Lending
Under Secretary for Domestic Finance Roben K. Steel will deliver remarks at the
Treasury Department Wednesday during the President's Council on Financial
Literacy Subcommittee Meeting on the Future of Responsible Subprime Lending.
The meeting's opening session will feature remarks from Under Secretary Steel,
Comptroller John Dugan from the Office of the Comptroller of the Currency, and
Commissioner Paul Atkins of the Securities and Exchange Commission
President George W. Bush created the President's Council on Financial Literacy on
January 22 The purpose of the Council IS to assist the American people in
understanding and addressing financial matters.
Members of the media may attend the opening session.
Who
Robert K. Steel, Under Secretary for Domestic Finance, Treasury Depanment
John Dugan, Comptroller, Office of the Comptroller of the Currency
Paul Atkins, Commissioner, Securities and Exchange Commission
What
Remarks at the President's Council on Financial Literacy Subcommittee Meeting on
the Future of Responsible Sub prime Lending
When
Wednesday, May 28, 900 a.m. - 930 a.m EDT
Where
Treasury Department
Cash Room
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or Frances.Anderson@do.treas.gov with the following Information
full name, Social Secunty Number and date of birth.
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/hp997.htm
6/2/2008
HP-998: Under Secretary for Domestic Fll1ance Robert K. Steel<br>Remarks Before the<br>President's... Page 1 of 2
May 28. 2008
HP-998
Under Secretary for Domestic Finance Robert K. Steel
Remarks Before the
President's Advisory Council on Financial Literacy
Subcommittee on the Underserved
Washington- Thank you and good morning Let me first congratulate you on a
timely and important meeting I especially want to thank the President's Advisory
Council on Financial Literacy and the Subcommittee on the Underserved for
organizing this meeting.
In particular I want to thank the subcommittee chair, John Hope Bryant, as well as
Council members Sharon Lechter and Ignacio Salazar for their efforts to cast more
attention on the underserved, and subcommittee member Rev. Dr. Robert Lee, who
could not be with us today, for his efforts in this area. And I also want to thank you,
our meeting participants, for agreeing to focus on this important work.
When John called me about the Subcommittee's plans for today, he spoke about
how today's mortgage problems are a clear example of the need for financial
literacy. I wholeheartedly agree But what I especially liked about today's meeting is
your focus on the underserved and encouraging access to finanCial services to
continue for credit-worthy Americans, even as we work through these challenging
times In our finanCial markets.
Now let me turn to the main themes of today. We have seen financial innovation in
the mortgage market. We have seen how that innovation benefits the U.S economy
and U.S. homeowners. Many Americans became homeowners because of these
financial Innovations.
Unfortunately many Americans do not have access to mainstream financial
services. They lack the requisite understanding to utilize financial tools and
products to manage their financial affairs properly. Additionally, as financial
institutions revise their lending standards, some credit-worthy borrowers could find
it more difficult to access the credit needed to finance their futures. As our markets
move forward, they will need to find the right balance of improving their own lending
practices, while not cutting off responsible, credit-worthy borrowers.
There are more financial products available now than ever, but these products have
become more complex and challenging for all of us to understand. And as
consumers. we need to know more than our parents or grandparents did, if we me
gOing to employ these financial products successfully.
For the underserved, who by definition are not using many mainstream finanCial
services, the barriers to understanding complex financial products are high Many
lenders do not clearly explain the terms of their complex loans and borrowers have
infrequent or no experience With these products. These combined factors lead to a
lack of participation, which continues a downward cycle for the underserved
ThiS creates an ongoing responsibility for us. We can see the true value of finanCial
education by observing what happens when It is absent. In the last few years too
many Americans either chose or were put into mortgages that were not appropriate
for their finanCial positions And Without an adequate base of financial knowledge,
too many consumers entered Into loans that were difficult to understand These
trends were especially pronounced among subprime borrowers.
Avoiding preventable foreclosures is In the interest of all homeowners We must
reach homeowners who are struggling, reach them early, and reach them With
information and hope. Although many mortgage Industry leaders have stepped up
tp://www.treas.guv/press/rclcaJC..":lhrQQ8.htm
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HP-998: Under Secretary for Domestic Finance Robert K. Steel<br>Remarks Before the<br>President's ... Page 2 of2
their efforts to reach delinquent borrowers, too many distressed borrowers are stili
uncomfortable speaking to their lenders. This stems in large part from lack of
financial education. In fact. we learned that 50 percent of foreclosures occur without
borrowers ever talking to their lender or to a mortgage counselor.
We want distressed borrowers and lenders to work together and find a way to keep
people in their homes. To do so we forged a coalition of mortgage servicers,
counselors and investors that are working to avoid preventable foreclosures and to
improve the functioning of the mortgage markets.
This, as you know, is our HOPE NOW initiative. Through thiS effort we are helping
distressed borrowers by connecting them with mortgage counselors. To reach more
Americans, HOPE NOW continues to broaden a public service announcement
campaign, to spread the word that hope is only a phone call away.
We are also looking to the promise of finanCial education over the long-term
FinanCial education is preventative in nature. The best approach is to help people
aVOid difficult situations from the start.
By working with the type of private sector groups like the ones we have assembled
here today, we can help Americans help themselves. More Americans can and
should learn more about their money, and, in turn more about financial products.
A more financially literate consumer base - across all income levels and in prime
and subprime markets alike - could Ilave mitigated at least some of our current
housing difficulties. Financial knowledge makes people better informed consumers.
And when they understand the terms of a mortgage loan, they are better able to
compare the costs and benefits of different products and they are better positioned
to make long-term deCisions that advance their financial goals.
With that in mind, and with an eye on the long-term view, the subcommittee will ask
you today to consider what policy recommendations it should present to the
President's Council to address some of these challenges In particular, the
subcommittee will ask you to think about potential solutions to questions such as:
How can we better identify and differentiate responsible and irresponsible subprlme
mortgage lending? What types of financial literacy initiatives are needed now to
lessen the possibility of another round of turmoil in the subprime mortgage market?
How can the private and public sectors deliver financial education programs directly
to the subprlme borrower? What should more effective disclosure from lenders look
like? And what are some of the best ways we can capitalize on "teachable
moments" to make sure this and other important lessons are taught? And, just as
important, how can we measure success?
Through better disclosure from lenders, Improved products for consumers, and
Increased financial education for borrowers, we can encourage a vibrant,
mainstream marketplace for credit-worthy borrowers looking to finance an
education, to experience the dream of responSible homeownership, and to have the
opportunity to turn other lifetime goals into reality.
When It comes to educating the subprlme borrower, there are Ideal roles for
lenders, serVlcers, regulators and other organizations to play. The questions you
discuss today are important to the President. This discussion complements other
work happening within the federal government, such as the Federal Deposit
Insurance Corporation's upcoming conference on lending for low and moderate
income families
We recognize that financial literacy cannot immediately fix all our problems. But as I
mentioned, It IS part of the long-term solution. It IS the preventative medicine that
will help today's underserved avoid tomorrow's financial problems
Thank you for lending the counCil subcommittee your time and your energy. You
are part of a growing movement to create a more financially literate nation Thank
you
-30-
http://www.treas.gov!pr~h>;/r.i:l~ai>es/hpQQ~.htm
6/2/2008
HP-999: Treasury Releases Papers on
ADm versary
of President's 2003 Tax Relief
Page 1 of2
10 view or punt l/1e I-'UI- content on tillS page, ClownJoaCi tile free AClolJe'J'J AcrOlJat{f!) KeaClerLj,
May 28,2008
hp-999
Treasury Releases Papers on Anniversary of President's 2003 Tax Relief
Washington, DC-- The Treasury Department released today two papers illustrating
the benefits to American families and businesses from the tax relief enacted over
the last seven years.
The papers were released on the five-year anniversary of President Bush's signing
the Jobs and Growth Tax Relief Reconciliation Act of 2003, which lowered rates on
capital gains and dividends, helping individuals and businesses save and invest.
In "TopICS Related to the President's Tax Relief," Treasury analyzes how the 2001
and 2003 tax relief, along with other tax relief passed over the last several years,
has allowed more Americans to keep more money In their pockets, Some of the
primary findings In this paper Include:
•
•
The individual Income tax is highly progressive
In 2005, the top 5 percent of taxpayers paid more than one half (597
percent) of all Individual Income taxes, and the top 1 percent paid 39.4
percent. and
• Taxpayers who rank in the top 50 percent of taxpayers by Income pay
virtually all individual Income taxes, In 2005, they paid 96,9 percent of all
individual income taxes.
• In total, the President's tax relief reduces marriage penalties by $228 billion
in 2008, With 69 million fewer couples suffering marriage penalties
• About 70 percent (1 million) of the 1.4 million tax returns that benefit from
lowering the top two tax brackets from 39.6 percent to 35 percent and from
36 percent to 33 percent are flow-through business owners,
• The President's tax relief has also reduced the marginal effective tax rate on
new investment, which encourages additional Investment, capital
accumulation, and in the long-term, higher living standards for workers,
In "Tax Relief in 2001 through 2011," Treasury analyzes how the President's tax
relief benefited Americans both In the aggregate and through several illustrative
examples of how the tax relief has benefited certain types of taxpayers. If the
PreSident's tax relief is not extended, in 2011:
•
•
•
•
A four-person, one-earner family with wage Income each year of $40,000 in
2007 dollars would see a tax Increase of $2,345;
A four-person, one-earner family With wage income each year of $80,000 in
2007 dollars would see a tax increase of $2,000:
A three-person, one-earner family with wage income each year of $40,000
in 2007 dollars would see a tax Increase of $1 ,655: and
A head of household with two children and wage income each year of
$30,000 In 2007 dollars would see a tax increase of $1,615,
The analYSIS of the benefit of tax relief on American families and the economy
includes tax legislation enacted from 2001 through 2008, notably
• The
• The
• The
• The
• The
• The
• The
Economic Growth and Tax Relief Reconciliation Act of 2001,
Jobs and Growth Tax Relief Reconciliation Act of 2003,
Working Families Tax Relief Act of 2004,
American Jobs Creation Act of 2004,
Tax Increase Prevention and Reconciliation Act of 2005,
Pension Protection Act of 2006, and
Economic Stimulus Act of 2008,
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HP-999: Treasury Releases Papers on Anni versary of President's 2003 Tax Relief
Page 2 of2
Copies of both papers are attached.
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REPORTS
•
•
Topics Related to the President's Tax Relief
Tax Relief 2001 through 2011
http://www.treatl.gov!pn~h>;/r.i:l.i:ai>es/hp999.htm
6/2/2008
Topics Related to the
President's Tax Relief
Department of the Treasury
May 2008
Topics Related to the President's Tax Relief
The President's tax relief, enacted principally in the Economic Growth and Tax Relief
Reconciliation Act of 200 I, the Jobs and Growth Tax Relief Reconciliation Act of 2003, the Working
Families Tax Relief Act of 2004, the American Jobs Creation Act of 2004, the Tax Increase Prevention
and Reconciliation Act of 2005, and the Economic Stimulus Act of 2008, reduced taxes for everyone
who pays income taxes. This document provides discussions and estimates on several topics related to
the President's tax relief.
Topics
Recent Trends in Federal Tax Receipts as a Percentage of GOP ................................................................. I
Who Pays Most Individual Income Taxes? .................................................................................................. 2
Income Mobility ........................................................................................................................................... 3
How Has the President's Tax Relief Reduced the Marriage Penalty? ......................................................... 5
Effect of Lowering the Top Individual Tax Rates on Flow-through Businesses ......................................... 6
Encouraging Investment ............................................................................................................................... 7
How Might Taxpayers Respond to Higher Tax Rates? ................................................................................ 8
Recent Trends in Federal Tax Receipts as a Percentage of GDP
Over the past 40 years, the ratio of total federal receipts to GOP has been relatively stable, averaging 18.3
percent. Recently there have been significant swings in the share: receipts first rose dramatically to a
post-war high of 20.9 percent of GOP in 2000, then fell precipitously as the economy slowed to a low of
16.3 percent in 2004, before rising again to a tax-to-GOP ratio of 18.8 percent in 2007.
Growth in Receipts: 1995 - 2000
Much of the growth during the late 1990s
can be attributed to the extraordinary
perfonnance of the stock market and its
effects on individual income tax receipts.
Capital gains income, which is not
captured in GOP, more than quadrupled
between 1994 and 2000. Tax receipts
from capital gains realizations more than
tripled during this period, even though the
tax rate on capital gains was reduced
beginning in 1997.
Federal Tax Receipts as a Percentage of GDP
Total Receipts/GOP
22%
21%
/ActualS
20%
19%
18%
------------1-------------------.
17%
16% 40 yr. average
=
18.3%
15%
1995
1997
1999
2001
2003
2005
2007
Taxable personal income grew faster than
Fiscal Years
GOP during this period. Wages as a share
of GOP grew from 45.7 percent in 1994 to 49.2 percent in 2000. Much of the rise in wages was related
to the exercise of stock options and bonus income.
Fall in the Receipts to GDP Share: 2000 - 2004
The trend began to reverse after 2000. The decline in the stock market, the economic downturn, and the
tax relief enacted in 2001 and 2003 are all explanations. Both corporate profits and wages as shares of
GOP fell after 2000. Individual income taxes paid on capital gains realizations declined sharply, by 48
percent in 2001 and 25 percent in 2002. Both the share and level of wages reported on tax returns by
high-income individuals fell in 2001 and 2002.
Recent Increases in Receipts: 2004 - 2007
After 2004, tax revenues again grew faster than the economy. Despite the tax relief enacted earlier in the
decade, the ratio of receipts to GOP was 18.8 percent in 2007, above the 40 year average. Between 2004
and 2006, capital gains realizations grew by approximately 60 percent. Growth in corporate income tax
receipts was especially strong recently, nearly doubling in levels between 2004 and 2007, and
contributing a full percentage point to the increase in the total federal receipts-to-GOP share.
Looking Forward
After the recent increase, corporate receipts have dropped off considerably this year. This reversal,
coupled with the cost of the Economic Stimulus Act rebates, is expected to pull the receipts-to-GOP ratio
back below the historical average in 2008. However, with the tax relief of 200 1 and 2003 scheduled to
expire under current law, the forecast is for future revenue growth to outpace GOP, bringing the tax-toGOP ratio well above 18.3 in the years beyond 2010.
Who Pays Most Individual Income Taxes?
The individual income tax is highly progressive - a small group of high-income taxpayers pay most of
the individual income taxes each year.
• In 2005, the latest year of
available data, the top 5 percent
of taxpayers paid more than onehalf(59.7 percent) of all
individual income taxes, but
reported about one-third (35.7
percent) of income.
Share of Individual Income Taxes and Income, 1990-2005
Share of Individual Income Taxes
[Share of Adjusted Gross Income]
2005
2000
Top 1%
Top
5%
Top
10%
Top
25%
Top
50%
Bottom
50%
39.4
[21.2]
37.4
[20.8]
30.3
[14.6]
25.1
[ 14.0]
59.7
[35.7]
56.5
[35.3]
48.9
[28.8]
43.6
[27.6]
70.3
[46.4 ]
67.3
[46.0]
60.8
[40.2]
55.4
[38.8]
86.0
[67.5]
84.0
[67.2]
80.4
[63.3]
77.0
[62.1]
96.9
[87.2]
96.1
[87.0]
95.4
[85.5]
94.2
[85.0]
3.1
[ 12.8]
3.9
[13.0]
4.6
[ 14.5]
5.8
[15.0]
• In 2005, the top I percent of
1995
taxpayers paid 39.4 percent of all
individual income taxes. This
1990
group of taxpayers has paid more
than 30 percent of individual
Source: U.S. Department of Treasury, Office of Tax Analysis.
income taxes since 1995.
Moreover, since 1990 this group's tax share has grown faster than their income share.
• Taxpayers who rank in the top 50 percent of taxpayers by income pay virtually all individual income
taxes. In all years since 1990, taxpayers in this group have paid over 90 percent of all individual
income taxes. Since 2000, this group paid over 96 percent of the total. In fact, in 2005 they were
paying 96.9 percent of all individual income taxes.
The President's tax relief has shifted a larger share of the individual income taxes paid to higher income
taxpayers. In 2008, with nearly all of the tax relief provisions fully in effect (e.g., lower tax rates, the
$1,000 child credit, marriage penalty relief), the projected tax share for lower-income taxpayers willfall,
while the tax share for high-income taxpayers will rise.
• As a result of the President's tax
relief, the share of taxes paid in
2008 by the bottom 50 percent of
taxpayers is reduced from 3.4 to
3.1 percent.
• As a result of the President's tax
relief, the share of taxes paid in
2008 by the top 1 percent of
taxpayers increases from 38.4
percent to 39.1 percent.
Projected Share of Individual Income Taxes and Income in 2008
Share of Individual Income Taxes I
[Share of Adjusted Gross Income]
Top
1%
Top
5%
Top
10%
Top
25%
Top
50%
Bottom
50%
With Tax
Relief
39.1
[21.5]
59.4
[36.2]
70.1
[46.9]
85.8
[67.7]
96.9
[87.3 ]
3.1
[12.7]
Without
Tax Relief
38.4
[21.5]
57.8
[36.2]
68.7
[46.9]
85.0
[67.7]
96.6
[87.3]
3.4
[12.7]
Source: U.S. Treasury, Office of Tax Analysis.
[IJEstimates of tax paid do not take into account any behavioral responses to
the tax relief.
NOTE: Percentile groups begin at income of: Top 50% $35,134; Top 25%
$69,687; Top 10% $ 117,241; Top 5% $ 164,594; Top 1% $425,036.
2
Income Mobility
Many studies have documented the long-term trend of increasing income inequality. An important
dimension of the distribution of income, however, is income mobility as households move up and down
through the income distribution over time. One-time snapshots of the income distribution and
comparisons of such snapshots in different years can be misleading.
A recent Treasury Department analysis shows there is a significant amount of income mobility in the
U.S. economy. This analysis examined how the incomes of the same set of taxpayers changed between
1996 and 2005. Similar to other research, the study showed the movement of households across
population quintiles (lowest 20 percent, etc.) over time. The table below shows the income quintiles of
taxpayers in 1996 and where they end up in the overall income distribution of the tax filing population in
2005. Entries on the diagonal (in bold) indicate the percentages of taxpayers who remained in the same
group ten years later, while entries off of the diagonal indicate those who moved up or down in the
income distribution.
Income Mobility Relative to the Total Tax Filing Population, 1996 to 2005
2005 Income Quintile
1996 Income
Highest
Total
Top 1%
Lowest
Second
Middle
Fourth
Quintile
Percent
0.2
100.0
5.3
42.4
28.6
13.9
9.9
Lowest
7.9
100.0
0.1
26.7
15.1
17.0
33.3
Second
0.3
100.0
12.5
33.3
29.6
7.1
17.5
Middle
100.0
0.3
30.2
40.2
18.3
4.1
7.3
Fourth
100.0
4.4
69.4
7.1
17.8
2.6
3.2
Highest
Top 1%
All Income
Groups
3.2
1.3
2.2
4.9
88.4
100.0
42.6
13.2
16.8
19.6
23.3
27.1
100.0
1.2
Notes: Tabulations by the U.S. Department of the Treasury using data from IRS Statistics of Income, Individual Income
Tax files for 1996 and 2005 for taxpayers age 25 and over in 1996.
Key findings from the table include:
•
Substantial income mobility: More than half(56 percent in the table!) of households moved to a
higher or lower income quintile between 1996 and 2005.
•
Substantial movement out of the bottom quintile: Roughly half(58 percent (57.6 = 100 - 42.4)) by
the measure used in the table and 45 percent by another measure reported in the study) of the
households initially in the bottom 20 percent of the population moved to a higher quintile by 2005.
•
The very high income are an ever changing group: The very high income - the top 1 percent - is a
group whose composition changes substantially over time, rather than a fixed group of individuals
who receive a larger share of income over time. More than half(57 percent, (57.4 = 100 - 42.6» of
those in the top 1 percent in 1996 had moved to a lower income group by 2005.
I This number is computed by adding the percentages in the non-diagonal cells for each income quintile and dividing by SOO.
The diagonal cells are those that have remained in the same income quintile, while dividing by SOO adjusts for the fact that
each of the rows sums to 100 for a total of 500 for all cells in the table.
3
These results, which are consistent with prior studies, demonstrate significant income mobility and
illustrate how one-time snapshots of the income distribution provide only a partial picture of the
economic situation of households by ignoring the effects of income mobility on the well-being of
households over time. Moreover, the Treasury analysis shows that income mobility over the 1996 to
2005 period was virtually the same as income mobility over the prior comparable period from 1987 to
1996.
Another aspect of mobility is the extent to which the real incomes of households rose or fell over time
and by how much. As the table below shows, the study also found that median after-tax incomes rose for
taxpayers in all but the highest income group, with the largest percentage increases received by those
initially in the lowest income groups.
•
Over two-thirds of households (70.1 percent) increased their real incomes between 1996 and 2005,
and median household after-tax income increased by 28.6 percent.
•
Increases in real income were the largest for households with the lowest incomes in 1987.
o
o
•
Among households in the lowest income quintile in 1996, median income increased by just over
90 percent by 2005.
Real incomes increased over the period for nearly 82 percent of these low-income households and
at least doubled for almost half of this group.
The effects of the tax relief enacted in 2001 and 2003 and later extended through 2010 are shown by
the fact that median after-tax income increased more than median before-tax income (28.6 percent
versus 24.2 percent)
o
1996
Income
Quintile
Median after-tax incomes increased by at least 3 percentage points more than before-tax income
in all but the lowest income quintile (in which few taxpayers owe income tax and many receive
earned income tax credits that more than offset any income tax liability).
Decreased
more than
50%
Decreased
25 to 50%
Decreased
uE to 25%
Lowest
Second
Middle
Fourth
Highest
6.9
6.4
5.8
6.8
12.0
4.7
7.2
9.0
9.4
12.1
6.7
11.5
14.0
16.1
17.1
Top 1%
37.3
13.9
11.9
9.4
6.9
7.7
8.7
13.5
18.1
15.2
Increased
100% or
more
Total
49.8
25.0
14.8
9.0
8.7
100.0
100.0
100.0
100.0
100.0
90.3
38.3
26.2
20.7
14.8
90.5
34.8
23.3
16.6
10.0
7.2
13.4
100.0
-23.0
-25.8
16.8
20.0
100.0
28.6
24.2
Increased Increased Increased
uE to 25% 25 to 50% 50 to 100%
Percent
9.0
14.7
8.3
14.7
18.6
16.6
16.6
19.6
20.4
17.5
18.7
22.4
13.5
15.9
20.7
after-tax
income
before-tax
income
All
Income
Groups
Notes: Tabulations by the U.S. Department of the Treasury using data from I RS Statistics of I nco me, I ndividual Income Tax fi les for
1996 and 2005 for taxpayers age 25 and over in 1996. Income is cash income less federal income tax.
4
How Has the President's Tax Relief Reduced the Marriage Penalty?
A couple suffers a "marriage penalty" if they owe more income tax when filing their tax return jointly
than if they were unmarried and each spouse filed a separate return. The President's tax relief
significantly reduced marriage penalties. As more taxpayers become subject to the alternative
minimum tax (AMT) over the next decade, however, marriage penalties will rise.
Effect of the President's Tax Relief
Without the President's tax relief, 27 million married couples would have incurred $49 billion in
marriage penalties in 2008. The 2001 tax relief reduced marriage penalties in three specific ways.
The standard deduction and the width of the 15-percent rate bracket for joint filers were increased,
eventually phasing up to twice the levels for single filers. The 2003 and 2004 tax relief accelerated
implementation of these two provisions. The 2001 tax relief also lengthened the phase-out of the
earned income tax credit (EITe) for married couples. These three provisions reduce marriage
penalties by $11.1 billion in 2008 (the analysis here assumes extension of the AMT patch through
2008).
The President's tax
relief also lowered
marginal income tax
rates. Flattening the
tax rate structure and
other changes will
further reduce
marriage penalties by
$11.7 billion in 2008.
In total, the President's
tax relief reduces
marriage penalties by
$22.8 billion in 2008,
with 6.9 million fewer
couples suffering
marriage penalties.
Marriage Penalties in 2008
• Pre-EGTRRA
~ Current
50
Law with
AMT Patch
45
40
35
30
25
20
15 i
10 .
5
o.
•
Returns with Marriage Penalties (mil)
I
Amount of Marriage Penalties ($ bil)
Although marriage penalties have been substantially reduced, more than $26 billion in marriage
penalties remain for over 20 million couples. Marriage penalties persist due to other provisions in the
tax code. For example, the widths of the higher tax rate brackets for joint filers are less than double
the widths for unmarried filers, thereby generating marriage penalties. In fact, the top tax bracket
starts at the same level for both single individuals and married couples. Similarly, other provisions,
such as the AMT, give rise to marriage penalties because the income thresholds for joint filers are less
than twice the corresponding amounts for unmarried filers.
Over the next decade, ifno changes are made to the AMT, it will erode the marriage penalty relief
provided by the 2001 and 2003 tax acts if the tax relief provided in those acts is made permanent.
Joint (and other filers) will increasingly become subject to the AMT, largely because the regular tax is
indexed for inflation, but the AMT is not. As more taxpayers become subject to the AMT, marriage
penalties will rise.
5
Effect of Lowering the Top Individual Tax Rates on Flow-through Businesses
Changes in the individual income tax affect most
businesses in the United States. That is because taxes
on business earnings are often paid through the
individual income tax when "passed-through" to
business owners. The business income from sole
proprietorships, farm proprietorships, partnerships, S
corporations, etc., is all taxed at the owners' individual
income tax rates. This year 34 million business owners
are expected to receive this type of income and pay tax
on this income through the individual income tax (see
table to the right).
Owners of Pass-through Businesses in 200S
Type of Business
Owners of pass-through businesses:
Returns
(millions)
S Corporations
Partnerships
Sole Proprietorships
Farm Propri etorships
Individuals with rental activities
21.6
Total pass-through owners 1/
34.4
4.2
4.5
2.2
9.8
These businesses are typically small and often
entrepreneurial in nature, and a source of innovation and
Source: US Treasury Department, Office of Tax
risk-taking in the economy. Moreover, these business
Analysis
owners are frequently subject to the highest individual
1/ Total is not the sum of components because some
income tax rates. The reduction in the top two tax rates
individuals
are owners of more than one type of
enacted in 2001 and 2003 has important consequences
business.
for these businesses and the overall economy because a
disproportionate share of the tax relief provided by lowering the top tax rates goes to owners of passthrough businesses.
Reduction in the top tax bracket
•
About 74 percent (about 585,000) of the 790,000 tax returns that will benefit this year from lowering
the top tax rate from 39.6 percent to 35 percent are flow-through business owners.
o
Nearly 325,000 of these taxpayers receive more than 30 percent of their income from flowthrough businesses.
•
About 82 percent (about $23.4 billion) of the $29.2 billion in tax relief this year from lowering the
top tax rate will be received by flow-through business owners.
o
Individuals with at least 30 percent of their AGI from pass-through businesses will receive 45
percent (or about $13.1 billion) of the total relief from lowering the top tax bracket.
Reductions in the top 2 tax brackets
•
About 70 percent (about 1 million) of the 1.4 million tax returns that benefit from lowering the top
two tax brackets from 39.6 percent to 35 percent, and from 36 percent to 33 percent, are flow-through
business owners.
o
Nearly 540,000 of these taxpayers receive more than 30 percent of their income from flow-though
businesses.
•
About 81 percent (about $27.3 billion) of the total $33.8 billion in tax relief this year from lowering
the top two tax rates will be received by flow-through business owners.
o Individuals with more than 30 percent of their income from flow-through businesses receive 44
percent (or about $15.0 billion) of the total tax relief from lowering the top two tax rates.
6
Encouraging Investment
The President's tax relief has reduced the marginal effective tax rate (METR) on new investment, which
is measured as the share of an investment's economic income needed to cover taxes over its lifetime.
Lower METRs encourage additional investment, capital accumulation and, in the long-term, higher living
standards.
•
As shown in the table below, reductions in personal income tax rates (including the tax rates on
dividends and capital gains) enacted in 200 I and 2003 have reduced the METR in the corporate
sector by 17 percent, and in the overall economy by 16 percent.
Effect of President's tax relief on the marginal effective tax rate on new investment
Business Sector
Economywide
Corporate
Non-corporate
Total
Owner-Occupied
Housing
Without Tax Relief
31.9%
20.8%
27.6%
4.0%
19.4%
With Tax Relief II
26.3%
18.9%
23.4%
3.5%
16.2%
% Reduction
-17%
-9%
-15%
-13%
-16%
1/ Includes effects of lower regular income tax rates and lower tax rates on dividends and capital gains income, but not the
temporary bonus depreciation provisions and not the manufacturing tax deduction.
•
The temporary bonus depreciation provision enacted in 2002, expanded in 2003 to 50 percent,
and re-enacted for 2008, provides a short-term investment stimulus. This provision lowered the
METR on new equipment investment from 24.8 percent to 13.0 percent in 2002, and reduced it
even further in 2003, 2004 and 2008.
Leveling the Playing Field
Taxing income from alternative investments at a more uniform METR - "leveling the playing field" promotes efficient allocation of resources within the economy by allowing market fundamentals,
rather than taxes, to guide financing and investment decisions.
•
By lowering the tax rate on dividends and capital gains, the Jobs and Growth Tax Relief
Reconciliation Act of 2003 increased tax uniformity by substantially reducing the METR on
income from corporate equity financed investment, relative to other sources of capital income,
such as debt and non-corporate income.
7
How Might Taxpayers Respond to Higher Tax Rates?
The reductions in individual income tax rates enacted in 200 I and accelerated in 2003 are scheduled to
expire in 2010. How might taxpayers be expected to respond to higher tax rates in 20 II? The responses
to the large increases in top individual income tax rates enacted in 1993 serve as a useful guide.
One way taxpayers respond to
The 1993 tax increases caused taxpayers to change the timing
higher tax rates is to change the
of their income
timing of income and deductions.
$ in billions
As illustrated in the chart to the
3,000
right, high-income taxpayers
accelerated the receipt of wages and
2,800
year-end bonuses from 1993 to
1992 - over $15 billion - in order
2,600
to avoid the effects of the
2,400
anticipated increase in the top rate
from 31 percent to 39.6 percent. At
2,200
the end of 1993, taxpayers shifted
wages and bonuses yet again to
2,000
1992
1994
1993
avoid the increase in Medicare
taxes that went into effect
Note: Private indu.stry wuge and salary disbul'l'ement.\', seasonally adjusted
beginning in 1994. Taxpayers also
shifted other income and delayed their charitable donations and other deductions in anticipation of higher
tax rates.
High tax rates also have longerterm effects on taxpayers'
Higher tax rates caused taxpayers to alter their portfolios
Percent
decisions, such as the composition
by shifting to tax-exempt bonds
of their investment portfolios. The
70
1993 tax rate increases, for
60
example, caused high-income
taxpayers to shift their investment
50
portfolios toward tax-exempt
40
investments. As shown in the
chart to the right, the tax-exempt
30
interest of high-income taxpayers
increased from about 30 percent to
20
about 50 percent of total interest
10
income. These taxpayers also
likely shifted from taxable
oL--------------------------------------------1991
1992
1993
1994
1995
1996
investments to non-dividendTax-exempt interest as percent of total interest income
paying stocks and tax-preferred
for taxpayers with 1991-96 average AGI HOO,OOO and over
retirement accounts. High tax rates
thus cause taxpayers to engage in otherwise unnecessary tax reduction activity. Increasing tax rates can
also affect how much taxpayers save and invest, when they retire, and how much labor they supply.
8
Tax Relief in 200 1 through 20 11
Department of the Treasury
May 2008
Tax Relief in 2001 through 2011
The tax relief enacted during the President's tenn in office, principally in the Economic Growth and Tax
Relief Reconciliation Act of 200 1, the Jobs and Growth Tax Relief Reconciliation Act of 2003, the
Working Families Tax Relief Act of2004, the American Jobs Creation Act of2004, the Tax Increase
Prevention and Reconciliation Act of 2005, and the Economic Stimulus Act of 2008, reduced taxes for
everyone who pays income taxes as well as for business taxpayers. This document provides estimates of
the aggregate tax reduction provided by the tax relief as well as estimates of the tax reduction received by
representative taxpayers over the period 2001 through 2011.
Aggregate Tax Relief
The table below provides estimates of the aggregate reduction in taxes for both individuals and businesses
resulting from legislation enacted during the President's tenn in office. The total tax relief is over $2
trillion. The tax relief initially peaked in 2004 due to the effects of the temporary 30-percent bonus
depreciation enacted in 2001 and expanded to 50 percent in 2003. The tax relief again peaks in 2008 due
to the economic stimulus payments and temporary 50-percent bonus depreciation enacted in the Economic
Stimulus Act of 2008. While the main provisions of the tax relief are currently scheduled to expire at the
end of 2010, tax revenue effects continue into 2011 because some provisions enacted during the period do
not tenninate, I because of assumed income shifting effects (e.g., taxpayers shifting capital gains and other
taxable income from 20 II into 2010 to take advantage of the lower tax rates), and because some of the
benefits of tax relief in 2010 will be reflected on returns filed in 2011. 2
Aggregate Tax Relief in 2001 through 2011
200 I
2002
2003
2004
2005
2006
2007
2008
2009
20 I 0
20 II
205
162
38
2001-20 II
Calendar Years in Billions of Dollars
85
134
219
265
179
184
234
312
2017
Note: Includes the impact of all tax legislation enacted from 200 I through 2008, notably:
The Economic Growth and Tax Relief Reconciliation Act of2001
The Jobs and Growth Tax Relief Reconciliation Act of2003
The Working Families Tax Relief Act of2004
The American Jobs Creation Act of2004
The Tax Increase Prevention and Reconciliation Act of2005
The Pension Protection Act of2006
The Economic Stimulus Act of2008
1 For example, the Pension Protection Act of 2006 made permanent the pension and IRA provisions of the Economic Growth
and Tax Relief Reconciliation Act of 200 I.
2 The estimates in the table include only enacted legislation. Hence, the figures do not include the effect of extending the 50called "AMT patch" through 2008, which would add an additional $58 billion of tax relief in that year.
Tax Relief for Example Taxpayers
The tables on the foHowing pages show estimates of the tax reduction from the President's tax relief
received by representative taxpayers over the period 200 I through 20 II. The estimates take into account
the effects of the new 10-percent tax bracket (including the 2001 rate-reduction credit), the lower tax rates,
the larger standard deduction for joint returns, the marriage penalty relief, the larger child credit and
additional refundable child tax credit, the higher phase-out floor in the earned income tax credit for joint
returns, the higher alternative minimum tax (AMT) exemption levels, the allowance of personal tax credits
to be taken against the AMT, and the 2008 economic stimulus payments.
The first table, for example, shows the tax relief received by a four-person, one earner family with two
children and real (inflation adjusted) wages equivalent to $40,000 in 2007. Over the entire period, the
family receives tax relief aggregating to $19,016. The tax reliefis highest in 2008 because of the
economic stimulus payments enacted in the Economic Stimulus Act of 2008. When the tax relief ends
after 2010, this taxpayer would experience a tax increase of $2,345 in 20 II compared to the effects if the
tax relief had continued.
The additional tables can be interpreted similarly for the other example taxpayers.
Tax Relief 2001 through 2011
Four-Person, One Earner Family with Wage Income
Each Year of $40,000 in 2007 Dollars
Income
($)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
TOTAL
2011
34,200
34,700
35,500
36,400
37,700
38,900
40,000
41,100
41,900
42,900
43,900
Income
($)
43,900
Federal Income Tax ($)
Pre-EGTRRA or
Actual
Post-2010
under
Sunset
Tax Relief
1,250
1,228
1,303
1,378
1,490
1,565
1,625
1,700
1,715
1,805
450
428
503
-570
-495
-445
-428
-2,283
-599
-519
Tax
Reduction
($)
800
800
800
1,948
1,985
2,010
2,053
3,983
2,314
2,324
U5.8
U5.8
Q
16,915
-2,101
19,016
Tax Increase
Without Extension
2,345
Assumptions: All income is from wages and salaries. Itemized deductions are 18% of
income, and the taxpayer takes the larger of itemized deductions or the standard
deduction. Beginning for 2009, the alternative minimum tax (AMT) exemptions revert
to their permanent levels of $33,750 for unmarried taxpayers and $45,000 for married
taxpayers filing jointly. The tax and the tax reduction shown for 2008 reflect the economic
stimulus payment provided under the Economic Stimulus Act of 2008.
Tax Relief 2001 through 2011
Four-Person, One Earner Family with Wage Income
Each Year of $80,000 in 2007 Dollars
Income
($)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
TOTAL
2011
68,300
69,400
71,000
72,900
75,400
77,800
80,000
82,100
83,800
85,800
87,700
Income
($)
87,700
Federal Income Tax ($)
Pre-EGTRRA or
Actual
Post-2010
under
Sunset
Tax Relief
5,661
5,736
5,903
6,107
6,354
6,589
6,854
7,341
7,735
8,199
4,861
4,936
5,103
4,392
4,624
4,834
5,018
3,396
5,735
6,199
~
~
75,118
57,737
Tax
Reduction
($)
800
800
800
1,715
1,730
1,755
1,836
3,945
2,000
2,000
Q
17,381
Tax Increase
Wtthout Extension
2,000
Assumptions: All income is from wages and salaries. Itemized deductions are 18% of
income, and the taxpayer takes the larger of itemized deductions or the standard
deduction. Beginning for 2009, the alternative minimum tax (AMT) exemptions revert
to their permanent levels of $33,750 for unmarried taxpayers and $45,000 for married
taxpayers filing jointly. The tax and the tax reduction shown for 2008 reflect the economic
stimulus payment provided under the Economic Stimulus Act of 2008.
Tax Relief 2001 through 2011
Three-Person, One Earner Family with Wage Income
Each Year of $40,000 in 2007 Dollars
Income
($)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
TOTAL
2011
34,200
34,700
35,500
36,400
37,700
38,900
40,000
41,100
41,900
42,900
43,900
Income
($)
43,900
Federal Income Tax ($)
Pre-EGTRRA or
Actual
Post-2010
under
Sunset
Tax Relief
2,185
2,178
2,260
2,343
2,470
2,560
2,635
2,725
2,755
2,853
2...92.Q
27,883
Tax
Reduction
($)
1,485
1,478
1,560
895
985
1,050
1,083
-348
1,143
1,223
2...92.Q
13,473
700
700
700
1,448
1,485
1,510
1,553
3,073
1,613
1,630
Q
14,410
Tax Increase
Extension
1,655
W~hout
Assumptions: All income is from wages and salaries. Itemized deductions are 18% of
income, and the taxpayer takes the larger of itemized deductions or the standard
deduction. Beginning for 2009, the alternative minimum tax (AMT) exemptions revert
to their permanent levels of $33,750 for unmarried taxpayers and $45,000 for married
taxpayers filing jointly. The tax and the tax reduction shown for 2008 reflect the economic
stimulus payment provided under the Economic Stimulus Act of 2008.
Tax Relief 2001 through 2011
Head of Household with Two Children and Wage Income
Each Year of $30,000 in 2007 Dollars
Income
($)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
TOTAL
2011
25,600
26,000
26,600
27,300
28,300
29,200
30,000
30,800
31,400
32,200
32,900
Income
($)
32,900
Federal Income Tax ($)
Pre-EGTRRA or
Actual
Post-2010
under
Sunset
Tax Relief
-836
-997
-926
-880
-756
-743
-841
-803
-934
-866
Tax
Reduction
($)
-1,536
-1,697
-1,626
-2,390
-2,279
-2,280
-2,401
-3,576
-2,524
-2,469
700
700
700
1,510
1,523
1,538
1,560
2,773
1,590
1,603
:Jlli3
:Jlli3
Q
-9,465
-23,660
14,195
Tax Increase
Extension
1,615
W~hout
Assumptions: All income is from wages and salaries. Itemized deductions are 18% of
income, and the taxpayer takes the larger of itemized deductions or the standard
deduction. Beginning for 2009, the alternative minimum tax (AMT) exemptions revert
to their permanent levels of $33,750 for unmarried taxpayers and $45,000 for married
taxpayers filing jointly. The tax and the tax reduction shown for 2008 reflect the economic
stimulus payment provided under the Economic Stimulus Act of 2008.
Page I of 4
May 29,2008
2008-5-29-10-51-3-9600
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.s.
reserve assets totaled $75,116 million as of the end of that week, compared to $74,486 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
I
IA Official reserve assets (in US millions unless otherwise specified)
II
IIMay 23. 2008
IIEuro
1
1
IIYen
IITotal
I
I
I
1(1 l Foreign currency reserves (in convertible foreign currencies)
II
II
11 7 5116
I(a) Secunties
11 16 ,030
11 12,387
11 28 ,417
lof which: issuer headquartered in reporting country but located abroad
II
I(b) total currency and depOSits witiy
II
I(il other national central banks, BIS and IMF
11 15.449
Iii) banks headquartered in the reporting country
II
II
II
lof which: located abroad
l(iil) banks headquartered outside the reporting country
lof which: located In the reporting country
II
1(2) IMF reserve position
11 4 ,278
1(3) SDRs
119,824
1(4) gold (Including
gold deposits and, If appropriate, gold swapped)
11 0
1
II
I
11 6 ,107
11 21 ,556
I
II
11 0
II
0
11
I
I
11 0
I
11 0
I
"
"
""
I
I
I
I
11 11 ,041
I--volume In millions of fine troy ounces
11 261 .499
1(5) other reserve assets (specify)
11 0
I
t-financial derivatives
II
\
t-lo3ns to nonbank nonresidents
II
~-other
~. Other foreign
II
currency assets (specify)
II
--securities not included In official reserve assets
I
--depOSits not included in official reserve assets
I
--loans not Included
1
In
official reserve assets
--financial derivatives not included
In
official reserve assets
I
--gold not included in official reserve assets
I
[-other
II
II
II
I
I
II. Predetermined short-term net drains on foreign currency assets (nominal value)
~============~II====~I!~====~lr!======~II======~II====~11
http://www.treas.gov/preSS/rel~a~e~/:GnP.:;29I05139600.htm
6/2/2008
Page 2 of 4
I
I
11. Foreign currency loans, securities, and deposits
II
IIMaturity breakdown (residual maturity)
IIrolal
I
Up 10 1
More than 1 and
up to 3 months
man"
I
More than 3
months and up to
1 year
II
II
1--outfIOws (-)
IIPrincipal
II
II
II
II
I
t-Inflows (+)
IIlnterest
II
II
II
IIPrincipal
[
II lnterest
II
II
II
II
I
I
I
I
I
I
I
II
"
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (includinq the forward leq of currency swaps)
II
-62,000
(b) Long positions (+)
I
3. Other (specify)
--outflows related to repos (-)
--inflows related to reverse repos (+)
--trade credit (-)
--trade credit (+)
II
II
II
II
II
II
II
II
II
I --other accounts receivable (+)
II
I
II
II
II
II
I
I
"IIII
II
II
--other accounts payable (-)
II
II
II
II
11-62,000
I
I
II
I
(a) Short positions ( - )
II
1\
I
I
III. Contingent short-term net drains on foreign currency assets (nominal value)
1\
II
II
IMaturity breakdown (residual maturity, where
I
I
1\
I
II
I
IIrolal
I
I
II
II
I
I
I
II
I
II
I
II
I
1. Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falling due Within 1
year
~b) Other contingent liabilities
applicable)
Up 10 I
2. Foreign currency securities issued with embedded
options (puttable bonds)
I
3. Undrawn, unconditional credit lines provided by:
(a) other national monetary authorities, 81S, IMF, and
other international organizations
--other national monetary authorities (+)
[81S (+)
lIMF(+)
I
II
II
II
I
I
1/
II
II
II
"
(a) other national monetary authorities, 81S, IMF, and
other international organizations
I
--other nationa I monetary authorities (-)
I
II
1\
1\
~IS(-)
.......
Ii
http://www.treas.gov/prcss/rclc113c3/20~H~ .. 29I05139600.htl11
II
"
II
(e) with banks and other financial institutions
headquartered outside the reporting country (+)
Undrawn, unconditional credit lines provided to:
1\
II
I
(b) with banks and other financial institutions
headquartered in the reporting country (+)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
monlh
I
II
II
II
1/
Ii
I
II
"1\
Ii
II
II
11
I
i
6/2/2008
Page 3 of 4
I--IMF(-)
II
(b) banks and other financial institutions headquartered
in reporting country (- )
11
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
11
4. Aggregate short and long positions of options in
l!foreign currencies vis-a-vis the domestic currency
1\
II
11
11
I
I
II
I
II
II
!
I
!(i) Bought puts
II
II
II
II
((ii) Written calls
II
II
II
I
I
I
I
~a) Short positions
1\
@) Long positions
UI) Bought calls
~RO MEMORIA
1
1/
1(11) Written puts
In-the-money options: •
II
"II
II
II
II
II
II
II
II
II
II
I
II
II
II
I
II
II
II
II
II
II
II
I
1/
II
[1) At current exchange rate
\I
[a) Short position
II
II
I(b) Long position
1/
/(2) + 5 % (depreciation of 5%)
1/
II
I(a) Short position
II
II
I(b) Long position
II
11
/(3) - 5 % (appreciation of 5%)
II
I
\I
\I
/(a) Short position
I(b) Long position
11
II
1(4) +10 % (depreciation of 10%)
\I
I(a) Short position
II
II
I(b) Long position
1(5) - 10 % (appreciation of 10%)
I(a) Short position
I(b) Long position
1(6) Other (specify)
II
II
II
II
II
1\
II
1/
II
\I
1\
II
I
II
I(a) Short position
II
I(b) Long position
II
I
I
II
II
\\
II
II
II
II
II
I(
II
II
II
II
II
I
I
II
I
II
I
II
I
II
II
I
I
II
I
II
1\
I
II
II
I
II
II
II
II
II
I
IV. Memo items
I
]1
(1) To be reported with standard periodicity and timeliness
I
(a) short-term domestic currency debt indexed to the exchange rate
I
(b) financial instruments denominated in foreign currency and settled by other means (e.g., In domestic
currency)
~-nondeliverable forwards
I
II
[ --short positions
1/
[ --long positions
II
~-other Instruments
lie) pledged assets
II
II
[inclUded in reserve assets
II
ILincluded in other foreign currency assets
I
@) securities lent and on repo
II
--lent or repoed and included in Section I
I
http://www.treas.sov/presslJeieases/200gS2910S139600.htm
6/2/2008
Page 4 of 4
--lent or repoed but not included
In
Section I
I
J
J
--borrowed or acquired and included in Section I
--borrowed or acquired but not included in Section I
J
I
(e) financial derivative assets (net, marked to market)
I--forwards
II
I--futures
I--swaps
I--optlons
I--other
(f) derivatives (forward, futures. or options contracts) that have a residual maturity greater than one year.
which are subject to margin calls.
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vIs the domestic
currency (including the forward leg of currency swaps)
II
!
II
I
II
I
II
I
II
II
I
I
II
II
I(a) short positions ( - )
I(b) long positions (+)
[aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I
I
I
II
II
II
II
I(a) short positions
I(i) bought puts
[(Ii) written calls
[(b) long positions
I
I
I
1
I
I
I
1(1) bought calls
[(Ii) written puts
I
1(2) To be disclosed less frequently
I(a) currency composition of reserves (by groups of currencies)
1175.116
[--currencies in SDR basket
11 75 ,116
I--currencies not in SDR basket
II
I--by individual currencies (optional)
II
II
I
I
I
I
I
I
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 markedto-market values, and deposits reflect carrying values.
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.
4/ The short positions reflect foreign exchange acquired under reciprocal currency arrangements with certain foreign central banks.
The foreign exchange acquired is not Included in Section I, "official reserve assets and other foreign currency assets," of the template
for reporting international reserves. However, it IS included in the broader balance of payments presentation as "u .S. Government
assets, other than official reserve assets/U.S foreign currency holdings and U.S. short-term assets."
http://w ww .treas.gvv/f..Hesslreleascs/2008529I05139600.htm
6/2/2008
HP-IOOO: Week::' Wrap-Up: Treasury Sent 5.757 Million Stimulus Payments This Week
10 view or pl/n( (nE' /-'Ur content on (IllS
pa~,e.
Page lof2
aown/oaC1tnc lree AClobe'J'J A crotJa tll') HeaOer®.
May 30. 2008
HP-1000
Week 5 Wrap-Up: Treasury Sent 5.757 Million Stimulus Payments This Week
This week the Treasury Department sent out 5757 million economic stimulus
payments to American households totaling $4.320 billion. So far. Treasury has sent
out 57433 million total economic stimulus payments totaling $50041 billion
This week's numbers represent the near completion of all direct deposits. with the
continued mailing of paper checks. Treasury facilities are also still working on
completing the mailing of regular tax refund checks. and thus are not at full capacity
for printing and mailing stimulus checks. In June. once the regular tax refund
mailings are complete. Treasury will print and mail stimulus checks at full capacity
and weekly volumes wltl Increase.
Week Five (May 26-30)
Total Number of Payments 5.757 million
Total Amount of Payments $4.320 billion
Week Four (May 19-23)
Total Number of Payments 6.211 million
Total Amount of Payments $4.927 billion
Week Three (May 12-16)
Total Number of Payments 15.575 million
Total Amount of Payments $13.562 billion
Week Two (May 5-9)
Total Number of Payments 22 180 million
Total Amount of Payments $20 138 billion
Week One (April 28-May 2)
Total Number of Payments 7.708 million
Total Amount of Payments: $7.091 billion
Cumulative Total
Total Number of Payments: 57433 million
Total Amount of Payments $50041 billion
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households. and the total amount of payments
th
sent. Payments began April 28 and will conlinue via direct deposit or paper check
through mid-July. For a Single filer, the minimum payment is generally $300 and
the maximum payment IS $600 For JOint filers. the minimum is generally $600 and
the maximum $1.200. There IS also an additional $300 payment for each qualifYing
child.
For tax returns processed by the Internal Revenue Service by April 15 households
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will receive their payments according to the last two digits of the Social Security
number on the tax form. On a joint return. the first number listed will determine
when a stimulus payment will be sent.
REPORTS
•
Direct Deposit Payments
http://www. treas.gov !pr~h>;/r'i:l~ai>es/h p10 fl O.htJl1
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Direct Deposit Payments
If the last two digits of your Social Security Your economic stimulus payment deposit
number are:
should be transmitted to your bank account
by:
00-20
21-75
76-99
May 2
May9
May 16
Paper Check
If the last two digits of your Social Security
number are:
00-09
10-18
19-25
26-38
39-51
52-63
64-75
76-87
88-99
Your check should be in the mail by:
May 16
May 23
May 30
June 6
June 13
June 20
June 27
July 4
July 11
A small percent of tax returns will require additional time to process and to compute a
stimulus payment amount. For these returns, stimulus payments may not be issued in
accordance with the schedule above, even if the tax return was processed by April 15. In
these cases, the stimulus payment will be issued approximately 2 weeks after the tax
return is ultimately processed.
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Page 1 of 4
June 2,2008
HP-1001
Remarks by U.S. Treasury Secretary Henry M. Paulson, Jr.
on Open Investment Before the U.S.-UAE Business Council
Abu Dhabi, UAE -Thank you, it is a pleasure to be with you here in Abu Dhabi.
The UAE has a long history of economic engagement with other lands, dating back
to the great pearl trade and the legendary 15th Century explorer and trader known
as the "Lion of the Sea."
It is appropriate, then, that I am here today to discuss the benefits of open
investment and trade policies and to reaffirm the United States' commitment to an
open economy.
Oil Markets
However, I will start with a most pressing issue -- the reality and implications of
record-high oil prices in this region and around the world.
Surging oil revenues have led to a massive accumulation of capital in the Gulf in a
very short time. To put this in context, GCC countries will provide about 18 percent
of global capital exports in 2008 -- more than double their share just five years ago.
The upside of this oil wealth is that the Gulf countries have an historic opportunity to
shore up their economic fundamentals, diversify their economies and make needed
investments in human capital -- steps that should help avoid the boom and bust
cycles of the past and support broad based growth. Many of the region's leaders
are embracing this opportunity by paying down debt, setting aside wealth for future
generations, increasing health and education spending, and improving the
environment for foreign and domestic private investment.
Nowhere is this more evident than here in the UAE, where a vibrant, diversified
economy is reflected in an innovative and extraordinary construction and services
boom. Examples of remarkable projects abound -- designs for a carbon neutral city,
a new, dynamic financial center and a new university. These projects are evidence
of the benefits of adopting outward-oriented policies, and I hope they encourage
other countries to follow suit.
The downside of increased oil revenues is that the Gulf is experiencing new
challenges - such as inflation -- that are, in some instances, being addressed with
measures like price controls and wage hikes that are likely to exacerbate the
problem. And beyond this region, record high oil prices are putting a large burden
on the world economy and creating hardships for families, households and
industries everywhere. This threatens to exacerbate economic volatility in the Gulf
and abroad.
There are no simple or quick remedies for this, and let me be clear in stating that
the Gulf region alone cannot alleviate the pressures in global oil markets. High oil
prices are the result of supply and demand factors that are likely to persist for some
time. Supplies have been affected by low capacity expansion and declining yields,
while demand has surged largely due to growth in emerging markets. Speculation
and the depreciation of the dollar are likely only small factors behind oil price
increases.
Successfully alleviating the pressures in oil markets will require matching supply to
demand. On the demand side, we need to allow market forces to work, to avoid
subsidies and other potentially distorting policies. We also need to invest in
renewable fuels and alternative technologies, and to reduce oil dependency through
improved energy efficiency. As I saw this morning when I visited the massive
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alternative energy program at the Masdar project, the UAE is already leading the
way in this critically important field.
On the supply side, we are urging all oil producing countries to open oil markets to
foreign investment, which would support faster and more efficient growth. The UAE
is a case in point. As an important first step, Abu Dhabi is financing massive
investments in upstream production and domestic refining capacity through
partnerships with foreign companies. More liberalization along these lines would
benefit all oil producing countries. In the case of the UAE, the United States is
benefitting too; U.S. suppliers of oil and gas field equipment and services are 45
percent of the UAE's total imports.
Open Investment
Investment flows to the region are growing rapidly: there has been a three-fold
increase in foreign direct investment over the past decade, and U.S. foreign direct
investment grew by 120 percent between 2001 and 2006, in part due to
liberalization of investment policies in the Gulf. However, the potential is much
greater and, in many Gulf countries, investment barriers persist in key sectors, such
as energy and real estate.
Further investment in the Gulf will bring innovation, technology, create new jobs,
improve services and contribute to a widening economic base. I understand that as
economies change, uncertainty can create resistance to openness. It is critical to
understand, however, that in the long run, openness to trade and investment will
not only bring prosperity, but will also improve stability by better enabling
economies to manage external shocks and smooth out business cycles. Remaining
closed to investment will have the opposite effect, by inhibiting growth and
magnifying domestic economic vulnerabilities. The Gulfs past is a reminder of this
lesson -- when oil prices were low the region endured years of lackluster growth
and declining living standards.
Open economies also introduce greater competition, and many U.S. companies
have become industry leaders in part because of this competition. If our companies
weren't investing in markets overseas, they would lose that global presence and
their leadership position. If multinational companies can't grow in markets around
the world, they will shrivel up at home too. And U.S. companies that invest abroad
create at least one job at home for every job they create overseas.
Countering Protectionism
I have met with many leaders from the Middle East who ask if the United States
really continues to welcome foreign investment. Some here worry about growing
protectionist sentiment in the United States, and they also worry specifically that
U.S. sentiment toward Middle East investment has been permanently affected by
the Dubai Ports World case. My response is the same as that expressed by
President Bush during his Middle East visit two weeks ago -- as we seek to open
new markets abroad, America will keep our markets open at home to investment
from private firms and from sovereign wealth funds. We reject measures that would
isolate us from the world economy.
Since coming to Treasury, and in the aftermath of Dubai Ports World, I have
actively worked to ensure that the United States continues to benefit from open
investment. In fact, in the two years following DP World, the number of U.S.
acquisitions by Gulf country investors rose by more than 100 percent and the
combined value of those deals rose by more than 400 percent. Despite what the
headlines may say, our investment review process has looked at just over 10
percent of the publicly announced acquisitions by Gulf investors, and all of those
transactions were allowed to proceed.
We have reaffirmed, at every opportunity, the longstanding U.S. commitment to
open economies. One of my highest priorities remains challenging the mistaken
notions that underlie protectionism -- with facts, figures and a firm belief in a future
that holds more promise, not less.
We also worked with our Congress to ensure that our framework for reviewing
investments is fully consistent with this posture. Congress passed a new law to
codify improvements to the review process, which is done through our Committee
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on Foreign Investment in the United States, CFIUS, which reviews certain
investments that raise legitimate national security concerns. This new law, and the
resulting administrative changes, signal recognition by both Congress and the
Administration that while we must safeguard national security, we can do so while
continuing to welcome foreign investment. Most notably, the law ensured that the
CFIUS process remains narrowly focused on investments that raise legitimate
national security concerns, and treats all foreign investments equally, regardless of
their source. These reforms provide investors with greater clarity and predictability.
We are continuing to make improvements, as the process is still far from perfect.
And when the inevitable challenges arise in the future, we will meet and overcome
them without swaying from our commitment to safeguard national security while
keeping America open to investment.
And, in order to continue to benefit from sovereign wealth fund investment, we
proposed that the International Monetary Fund develop a set of credible, best
practices for these funds. The lMF expects to produce these recommendations this
fall. I will expand on this issue for a moment because our objectives are not always
fully understood. Among some sovereign wealth fund managers, our initiative has
raised concerns that we are trying to limit the scope of their activities or release
privileged information. In fact, our purpose is just the opposite. We are trying to
quell calls for restrictions by urging sovereign wealth funds to endorse best
practices to create a dynamiC rise to the top and help allay concerns about opacity
and systemic risks. Thank you to the leaders at the Abu Dhabi Investment Authority
for your constructive role on this important issue.
As the United States has reformed our investment review regime, we have been
careful to not reach beyond national security to broader industrial or economic
interests. Other nations are also reviewing their international investment policies, as
safeguarding security interests is legitimate and necessary. Yet no economy or
people are served well in the long run by hiding protectionism under the cloak of
such safeguards.
The U.S. Economy
Maintaining open investment and free trade policies is especially crucial now, as the
world economic landscape changes. As you know, the U.S. economy is going
through a rough period - after six straight years of almost 3 percent average annual
growth, our growth rate slowed significantly late last year. We are facing a trio of
headwinds - a housing correction, capital markets turmoil and high and rising
energy prices.
We have acted quickly to respond to the housing downturn through a series of
public and private initiatives to help financially-able homeowners stay in their homes
and to keep mortgage finance available. President Bush and the U.S. Congress
also came together in February to enact a $150 billion fiscal stimulus package that
is providing support to individuals and businesses this year, when it's needed.
This fiscal stimulus will provide support to the economy as we weather this period.
Unemployment remains low and increased exports are partially offsetting other less
positive factors. Overall, I believe that the United States is on the right path to
resolving market disruptions and building a stronger financial system. Our long term
prospects remain strong. One thing is very clear to me - whatever our current
difficulties, I wouldn't bet against the U.S. worker or the U.S. economy.
Although we expect to be working through housing and capital markets issues for
some time, we also expect to see a faster pace of economic growth before the end
of the year. The capital and credit markets are calmer now than earlier in the year.
The de-leveraging and re-pricing of risk continue, as does the capital-raising that is
so essential for U.S. financial institutions to continue to support the broader
economy. Although I believe we are on the right path, a number of our important
credit markets are still not functioning as normal and we should expect some
bumps in the road ahead.
As we work through this period, we have also developed the necessary policy
responses. The private sector and financial regulators are working to implement a
series of recommendations from the President's Working Group on Financial
Markets, including in the areas of mortgage origination, securitization, risk
management, credit ratings agencies, and over-the-counter derivatives.
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Many of these issues are as global as our markets, and we have worked closely
with the Financial Stability Forum (FSF), to bring an internationally coordinated
response. The FSF has produced a series of recommendations that complement
efforts underway in the United States. Although the FSF recommendations are in
response to recent financial turmoil, they are instructive for all markets, even those
less affected by recent events.
Currency Markets
The forces I have discussed .- the changing global economic landscape, our
response to the current financial turmoil, the growing role of sovereign wealth funds,
and international efforts to promote openness to trade and investment in the face of
growing protectionist pressures -- are shaping today's and tomorrow's international
financial system. I want to be clear -- the United States is committed to a strong and
stable international financial system, and I fully recognize my country's special
responsibility in this regard. I also recognize that well-functioning and orderly
currency markets are an essential part of this responsibility.
A great deal of attention, and rightly so, has been paid to our current economic
challenges in the United States, particularly the housing correction and the stresses
in the financial markets. I don't want to make light of these challenges. They are
very real. And, when we have a problem in our markets, we don't minimize it, but
we shine a light on it and move quickly to clean it up. As I discussed earlier, we are
responding aggressively and comprehensively to address our challenges and
minimize the impact on the U.S. and global economies. But we also take
confidence from the fact that the performance of the U.S. economy for the past five
decades is unmatched and its long-term fundamentals compare favorably today to
any advanced economy in the world.
I have repeatedly stated that a strong dollar is in our nation's interest. The U.S.
dollar has been the world's reserve currency since World War II and there is a good
reason for that. The United States has the largest, most open economy in the world,
and our capital markets are the deepest and most liquid. The long-term health and
strong underlying fundamentals of the U.S. economy will shine through and be
reflected in currency values.
I am committed to promoting policies that enhance the underlying competitiveness
of the U.S. economy and ensure that the dollar remains the world's reserve
currency. And, as I have emphasized today, these include being a strong advocate
for open investment and trade, and working to address the current challenges in our
economy, including the housing correction and stress in our capital markets.
Thank you.
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Aplll 29, 20CJS
l'p·l002
Minutes of the Meeting of the
Treasury Borrowing Advisory Committee
of the Securities Industry and Financial Markets Association
April 29, 2008
The Committee cOIIVened II, closed session at tI,e Hay-Adams Hotel at 1035 a m
All Committee members were present. Undersecretary for Domestic Finance
Robert Steel, Assistant Secretary for Financial Markets Anthony Ryan, Deputy
Assistant Secretary fOI Federal Finance MatUlew Abbott, and Office of Dellt
Management Director Karthlk Ramanatilan welcomed the Committee and gave
them the charge,
Dllector Ramanathan lilltlated tile discussion by addreSSing the first Item on tI,e
charge related to the fiscal outlook and the Committee's thoughts on debt Issuance
given current and medium-term trends In the economiC outlook. In particular,
Treasury sought tile COlllmlttee's views on the potelltlal Introduction of new
SeCUrities, IliCludillg the 52-week bill
Director Raillanatilan (Jellvered a presentation to the Comlllittee WlllCl, higilllgilted
various factors to conslrler IIlcludlng tI,e flat growth of IndlvldUcll and corporate
111COille taxes year-over-year, tile Increase In outlays by nearly to 5'}'D yeClr-overyear, alld tile Illlpact of the stimulus program enacted III February 2008 Hlese
factors have led to a substalltlal Increase III defiCit estimates by Illal'ket partlclpanto"
Wltrl the average defiCit estlillate rising Ilearly $156 billion to S414 bllllOI1
Moreovel', accordmg to Director Raillanathan, marketable borrowlllg - I,e
borrowing from tile publiC - has increased frOill $134 billion III fiscal year 2007 to
nearly $300 billion fiscal year to date In 2008, and thiS lal'ge Iflcrease warranted tile
Committee's focus.
Director Ramanathan Iloted tilat tile redemptions and outrrght sales by tile Federal
Reserve since August for liqUidity purposes have resulted Ifl tile Treasury's need to
Issue an adclltlonal $200 iJllllon In bills and coupons tillS fiscal year Moreover, stale
alld local government Issuance, which tOlaled $58 billion III fiscal year 2007, IS -S10
billion (I e. a nel redempllon) fiscal year to date. ThiS Issuallce IS IlOt expected 10
reverse Ifl tile near term These factors, as well as volatility In receipts and outlays,
have resulted In less preclictable casil balances maklllg cash management an
ongoing challenge. In addition, Director- Ramanathan stated lilat the rapid
processing of tax lefunds from February to April combined With the tax rebates to
be transmitted tillS week have resulted In the IIIcreased use of cash managemelll
bills
Treasury has Iflcreased bills and nominal coupons III accordance With prevIous
periods of increaSing defiCits, accor-ding to Director RamanClthall, wilo then
displayed a comparison of the 2001-2002 Issuance period versus tile 2007 -2008
period. At the saille time, Treasury has moderated tile growth of Treasury Illflation
Protected Securities (TIPS) In oldel' to furlher balance the overall portfoliO Director
Ramanathan Iloted that willie tile par growtll of TIPS has exceeded 20% OV(ji' til(;
past seven years 011 a compounded ClllllUClI CJrowth rate, tile IllflatlOI) (lccrual POIIIOI)
- which IS much less predlctat)le frolll Treasury's pel'spectlve - 11ClS growil elt I1f:c,rly
27''1., over the same period ThiS moderation In the growth of tile progralll, Cllol1g
with the near term challenges assOCiated wltil matullng coupons, leads to addltlollal
finanCing needs III the Ilear to medium terlll Moreover, enllarlclng tools fOl' cash
and debt management purposes, such as increased repo authority and LJSIIlg
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excess cash balances In a highly transpal'ent manner to repurchase debt srlOlIl(J
considered and potentially Implel1lented
[J'::
With this backglOLlIlCL and given current trends, Director Ramanathan asked trle
Con1ll11ltee its views Oil debt Issuance. Clnd In partlculClI' tile Introciuctlon of tile 52week bill
One Committee member framed the discussion by stating lilal there are two
perspectives tilat need to I)e considered a shortel·-telm perspective and a longerterlll perspective. The member discussed the current Issue sizes for all current
offerings and enumerated the responses that Treasury could undertake to meet Hle
gap In the funding needs. Including Increasillg Issuance Sizes, Increasing tile
frequency of offerings. and addtrlg new instruments.
Another membel' slaled lilat a propel' response to the ql1eSlioll Involverl rlOW
Treasul"y viewed Ule balance of risk gOing forward III respOllse. Dllector
R3ill3nath3n stated that maintarnlllfj tile status quo at currell! Is"uance levels wltil
the current offerrng menu would leave Tl"easury wltil a finanCing gap approachlnC)
S150 bllllOIl fOl' tile reminder of FY08 In addition the rrsks to the deficit were
potentially to lhe upSide based on the assessmellt on the econOllllC outlook I)y
market participants
Director Ramanathan also affirmed that Treasury ilad Issued over $200 bllllOll Ir1
cash management bills fiscal year to date In 2008 versus S267 billion In all of fiscal
year 2007 anel S247 billion for all of fiscal year 2006 While tile dramatic shift III Ule
defiCit necesSitated such short term issuance. Director Ramanathan stateel that
altematlve funding sources should be considered to lessen or moderate thiS
reliance on short dated financlllg
One member Iloted that Hle Yield curve was steep, and that demand for TI'easury
bills was very high. particularly from non-traditional sources As a result. bills were
the optimal Instrument for finanCing the current fiscal outlook. Several members
countered by stating that such demand could reverse if economic or finanCial
market conditions revert
A few members also noted that 13-week and 26-week bill auctions could be
increased from current offerrng amounts without market diSlocations. Members
generally agreed that shortdated debt, including 52-week bills to address currellt
funding needs. would be potentially be less costly then adding more frequent 10nQer
Issues and/or adding new maturity pOints
A diSCUSSion then ensued regarding the rrsks of Increased borrOWing In Hle short
end of the curve, pal'llcularly regarding rollover risk and exogellOUs events that may
raise debt service costs In the future Members noted that more Hlall forty percent
of Treasury's debt rolls over In two years or less. and that Treasury already has a
bias toward the short-end of tile curve Another member stated that Treasury may
want to conSider an avel'age maturrty target to better rlone ItS deCISion-making
process on how to adjust the maturity structure. ThiS member noted tilat fOCUSing
on the short-end of the curve for finanCing because It was currently cheap was
short-Sighted and may not minimize costs over the longer-term
Some members pOinted out that the recent demand for short-dated Treasury papel
reflected a re-prrclng of risk that could unWind at some pain\. raising borrOWing
costs. Another member noted that that the swap markets were alrearJy prrClrlg III
higher future rates for Treasury as measured by spreads to L1BOR A Inernber
suggested that shifts in foreign demand could create pressure In the short end of
the curve, while another member suggested lhat pressures on fund rnanagers to
outperform the Treasury market were already cauSing some accounts to start
considerlllg riskier assets
Several members agreed that Treasury debt managers should remain extremely
fleXible given the uncertainty in the economic outlook and given the Significant
Increase In marketable borrOWing needs. A Committee member stated that cJebt
managers generally had an extremely complex miSSion In the CUITent environment
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given the uncertainly present In the economy and the fiscal outlook. According to
this member, Treasury should be fOlward looking despite the large volatility of
deficit estlnlates, and keep In sight structural chan<Jes Wilich may emer~JC relatecl to
entitlement programs and tax policy. Such a forward looking posture could result In
a longer dated pOitfollo Wltll Issuance focused Ifl the note and bond sector. Seve(cil
members cOllclmed. and noted t11at TreiO)sury SllOUlci ellsurc It had suffiCient tools to
address medium term cil:lllenQcs, Incilldlflg E:mtlancecl repo JlItllollty al1(1 iJ cJet)!
repurctlase program
Melllt)elS generally agreed t11at Treasury SllOUlej reintroduce tile 52-week t)1111I1
June and auction the security as It was pl-evlously Issued - on a 4-week roilinu
baSIS. Auctioning the 52-week III conjunction With the 4-week bill on Tuesdays With
settlement on Thursdays woulcl be better received by the markets, and also leave
room In the auction calendar If other cllallges were necessary. such as additional
re-openings or Issuances of an eXisting security such as the 1O-year. or the
Introduction of a new security
While members agreed tllat the 52-week I)ill was necessary to adcll-ess Sl1011 term
filiancing needs, there was mOle debate about how to address Intermediate telill
funding needs Some members felt that the 3-year note could be relntmduced
without much difficulty Several ottler members suggested that Introducing a longerdated Irlstrument such as the 7 -year Ilote or moving to monthly 1O-year note
Issuance were better altematlves These members Iloted that there was significant
clemancJ for 7 - to 10 year paper, In pan, because of shifts In the mOl1gage market
and tile neecl to hedge fixed rate loans and demand for deliverable paper IIltO the Sand 10-yeal- futures contracts, Several members also felt that Issue sizes In longerdated secunties could be IIlcreased fUI-ther.
The Committee agreed that Treasury needed to be very transparent about wllat
steps Illlgl1t be needed to address rntermedlate-term funding needs. and prepare
the m;:Hket for flnallclng changes that are needed, Including adjustlnC) Issue sizes of
tonger-Illaturrty Ilistruments_ Increasing the frequency of Issuance of securities.
anej/or adding new offerings. The COlllmlttee felt \tlat as early as tile AUC)IISt 2008
refunding, Treasury may conSider making statements about their Intentions If tile
economic or fiscal outlook deteriorate and/or become c1eal-er
The Committee then focused ItS attention on second Item on the charge related to
recent actions l)y market participants to address falls to deliver In the Treasury
repurchase market. At the February Refunding. Treasury had discussed the
potential for an environment in which lower IIlterest rates raised the potential risk of
systemic falls, a risk that potentially Impairs liqUidity and lalses the cost of
borrOWing Treasury at that time askecl market participants to pursue the
Identification and Implementation of market onented solutions to help mitigate sucrl
a development
Treaslll-y specifically asked for tile Committee's view on actions taken by market
partiCipants, what other steps should be undertaken and what type of tlilleline ami
benchmarks would I)e IllOSt effective
A series of char1s related to thiS matter were presented by a Committee member
Including a chart of tile relatron of low rates to Treasury falls to deliver, as well as
lecent actions III the market Wilich have Improved overall Ilqlllcllty. The pl'esentlncJ
member, along wltll DAS Abbott. outlined efforts Initiated by groups sucll as tile
Securities Industry amJ Fiflancial MClrkets ASSOCiation (SIFMA) and tile Treaslll-y
Markets Practice Group (TMPG)
In the serres of cllal-ts, 3 list of action Items to be taken/)y SIFMA was Iisteel These
steps, such as negative rate trClcllng, a mlllHCpo closeout clause. a strengthening of
the bUy-In rule, closer fails Illonitorillg. compliance officer tl-Cllnlng. and best
practices, would IIlcrernentally assist In tile reduction of falls In a low rate
environment. SIFMA and the TMPG noted that these actions, to be taken by prrvate
market partiCipants, could Illitigate the next serious emergence of falls
According the presenting member, SIFMA and tile TMPG supported tile erlactmellt
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of these Initiallves to prevent another set of systemic fails The Illember 11lade <l
distinction between systemic filiis ttlat wele difficult to control - such as trlOse
related to Investms not lending secuntles at the end of tilelr flSCdl ycars for flT1anCidl
repmting reasons - and fails willch nlelY result from deliberate pOSltlOlllrlg actlollS t)y
market pal-tlclpants III low-relte ellVlrOlllllCll1 The presentlllg member also outlilled
the initiatives and role of the TMPG III greater eletiJl1
A diSCUSSion followed ttle presentation
COlllmittee members were encouraged by the collaborative efforts 1I1ldertelken i)y
ttle Industry groups to formulate Viable solutions to address chroniC fails Mernbel-s
discussed otilCr plNate and publiC sector measures tilat could more effectively
address chroniC falls including negative rate trading, broacJer netting mcchanlsms
for bUy-Side and sell-Side partiCipants, and talgeted increases to supply throU~Jtl
schecluled anci unscllecluled re-openlngs The Committee agreed that tile TMPG, III
COI1JUIlction With SIFMA and othel- private sector entities, should give further
conslderalioll to these ami otiler 1I1ltlatlves.
One member asked wily Treasury does Ilot tap Issues to deal With fails. DAS
AI)bott explalilcd that tapping an ISSU8 for SUCll a pLilpose woulc! reduce tile
certainty of supply at 1I1ltiai auction, and IIItroduce a conceSSIOll into prices received
at auctions
One mem/)er cautloneel that "boundary" rules, such as the bUY-III rule, could be
gamed and warned that sLich COllstralilts could create unilltended pro/Jlellis
Members thought that moral suasion amJ ambigUity were better tools for addresslllg
problems than rigid regulatory structures. Members felt that falls lal-gely were a
problem at low Interest rate levels because the cost of fails declilles dramatically.
Many members felt that if the cost of faillllg could be decoupled from the Interest
rate levels, the economic irlcentives would be suffiCient to prevent most systemic
fails episodes
One member noted that the model for many of the proposals for dealing With falls
came from equity markets, and equity market rules may not be appropriate for tile
Treasury market. The member noted that unlike the equity markets where
partiCipants generally hold long POSitions, the Treasury market is characterized by
illuch more short sellln~J In markets were there are more short POSitions than long
POSitions, fleXibility is needed
Another membel- noted that systemic fails tend to occur In lOW-Interest rate
environments wilen financial markets are belllg stressed, and that rigid rules Will
exacerbate market dislocations. Furthermore, evel-y event that created systemic
falls IS different and the fleXibility assOCiated With mor-al suaSIOll IS most cffiClE::rlt emd
will not iJurciell market par-tlclpants Wltil adelltlonal regulator-y reqUirements. TillS
meml)er stated that self-poliCing was necessary, and that compllarlce and
supervisory authorities needeli to be reminded of tile Importance of monltorJllg falls
The Committee agreed, however, that that private sector lilaC/lOll would potentially
lead to less preferable outcomes 1I1ClUdJllg potentialillcreaseci legulatlon, capltill
charges, or other responses. Implementation of the steps outilileel and
recommended by the TMPG and SIFMA In an Incremental manner, anclln a short
lime frame, would negate such potential responses If allotiler- lalge fails episode
occurred
Finally, the COlllmrttee briefly addressed the final item on the cllar-ge concerning
recent and potentral measures to address Issues III the hOllslng market Tr-easury
sought tile COlTlmittee's views on recent initiatives taken by the private S8ctOI-.
Treasury, and other sectors of the federal government to address challenges In the
tlOUSlIlg sector, and asked what other potential fiscal poliCY measures Sllould be
COllsldered and evaluated in light of the prOjected borrowing needs of the Treasury
Members discussed several pending legislative effmts III Congress A few members
noted that prOViding economic IIlcentlves to both /lome ownel-s and lenders to
renegotiate the terms of tile defaulted mortgages may be a worthy effort These
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Page 5 of 6
members suggested that the lack of Cl "flam" Ofl 110USIIlg prices IS adversely
affecting the price and liquidity 01 rnortgLlge debt, clild until Cl Iloor is estatJllsllecl on
the underlying collateral. mortgage paper associLlted Willi Ihe collateral Will COlltlillj(~
to be IlliqUid and Illlpalr credit 1l1al'kets
Other menlbers suggested that a lot 01 details stili needed to be addressed
regaldlllQ the various proposals. Lltl~Jation risks assoclatecJ With the renegotlotlon ()I
defaulted loans would be a potential 1l1aJor hurdle accoldlng to some mCI1lI)crs
Allothel' member asked IlOW secolld liens would be dealt wllil. and 110W allY
PloposClI could be structured to prevellt currenlly compliant mortgagees from
fOlCIng renegotlatloll of their loalls
Some members then questioned of the Wisdom of suell proposals to the degree
that It created a moral hazcll"Cl for borrowers to default. Some Illembels sUQuestccJ
tilat the risk assOCiated With the moral Ilazard may I)e less than the systemic risk of
dOlllg notiling Mmeovcr, tlwsc members stdted tl1at a temporary Iloor 011 pnces
was not a good option. and that the malket should wOIk ItS way Ollt of thiS mess
Without government IIltelvention Otller members questlol18dllle lorlger-term
wisdom of uSing taxpayer" money to rescue risk-takers tllat speculCited III an asset
butJble.
The Committee agreed Itlat most of the proposals under conslcJelCition wer'e frilugllt
With Issues. and that seeking a "best fit" would be difficult.
The meeting adjourned at 1158 a m
Tile COlllnllttee reconvened at the Hay-Adaills Hotel at 600 p Ill. All tile COlnrlllltee
membels except Gal"y Cohn and Mohammed El-Erian were present. The Chairman
presenteel the COlllmiltee report to Under Secretary Steel
The Committee then reviewed the finanCing for the remalilder of tile April tilrougll
Jur18 quarter and the July through September quarter (see attached).
A brief diSCUSSion followed the Chairman's presentation but did not raise Significant
questions regarding the report's content
The meeting adJoumed at 615 pm
Karthlk Ramanathan, Director
Office of Debt Management, Unlleel States Department of the TI"easur"y
April 29. 2008
Certified IJY
Keith T Anderson, Chairman
Treasury BorrOWing AdVisory Committee
of The Securities Industry and Flllancial Markets ASSOCiation
Aplll 29, 2008
Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge - April 29, 2008
Fiscal Outlook
Glvell current and medium-term trends III tile ecollomlC outlook. wilat are the
TBAC's thoughts on Treasury's debt Issuance? In pal"tlculal·. TreasulY would like
tile COl1lllllttee's views 011 the potential IIltrocluctlon of new securities, Irlclucllng tile;
52-week bill
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Recellt Actions by Market Paltlclp;1Ilts to Address Filils to Deliver Irl tile Trl~;lsllry
Repurcr,ase Markel
At tile Fel)ruary Refllmilrllj, Wf" dlsclJSSf:rl ti1e potclill;'i1 fOI ;111 eIIVIIOrllll(:111 III wllII:11
lower' Ilitcresl r:lles r;,llsecJ tllP polerill;i1llsk of syslelllic f:llls, <J risk ti1dl Wf-', 1J1;lllcvl;
Impairs Ilqllldlty arid rellses OlJr cost of l)urroWIII(I In <lddltlorl W(~ ;Jsked Illilrkr;1
partlclpclillS to pursuc tile Iclentlflc;ltloll dIH.llrllplr:IIl(;litcltlull of rrldrkf:t orll;lifccj
solutions to hclp Illltlljdte such d ci(;vI"loplll(;lll
What IS the COlllmlttee's view Oil ~lctiorls l<lkf;11 I)y rn;lrket Pdl'tICIP;IIIIS') Wlle]1 olIH;1
steps would YOlJ sUljgest be undertaken? What type of tlllleline dllci i)t~llci1lllarks
would be most effective?
Recent (Jllcl Potential Measures to Address Issues In the HOUSIIl\j Menket
Treasury would like the Committee's views orl recent lIlitlatlves taken by tile priv:1le
sector, Treasury, and other sectors of the federal governlllerit to address
dlallenges In the hOUSing sector',
What other potential fiscal poliCy measures should i)e conslderecl. alld I,OW should
they be evaluated In light of the plOJectecl horlOwlng needs of ti,e Treasury')
FlIlanclng tillS Quarter
We would like the Cormnlttee's adVice on the followlIlg
•
•
•
Tile composition of Treasury notes anel bonds to mfund approxlll1cllely
S740 hilliorl of privately held IlOtes 1l1clturlng on May 15, 2008
Tr,e composition of Treasury malketable flnanclllCj for the rellliJlnUpr of tile
Aplll-Jufle quarter, including casll management bills,
Ttle compOSition of Treasur'y markelable financlllg for the July-September
quarter'
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HP-1UUj: 1 reasury
AssIstant Secretary Nason to DisclIss Regulatory Reform
Page 1 of 1
June 3, 2008
HP-1003
Treasury Assistant Secretary Nason to Discuss Regulatory Reform
U.S. Treasury Assistant Secretary for Financial Institutions David G. Nason will give
remarks on financial markets and regulatory reform on Wednesday, June 4, in New
York City. The following event is open to media:
Who
U. S. Treasury Assistant Secretary for Financial Institutions David
G. Nason
What
Remarks on Financial Regulatory Reform
When
Wednesday, June 4,8:15 a.m. (EDT)
Securities Industry and Financial Markets Association Fixed Income
Legal and Compliance Conference
Marriott Marquis
1535 Broadway
New York City, N.Y.
Press who want to register for the event may contact Katrina
Cavalli at kcavalli@SIFMAorg or 212313 1181.
Where
NOTE
-30-
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June 3,2008
hp1004
Under Secretary David H. McCormick Remarks to the World Affairs Council in
Pittsburgh
"Looking Past Today: Staying Competitive in a Changing Global Economy"
Pittsburgh - These are clearly challenging times for the United States economy. In
recent months, we've seen the housing market falter, with an increasing number of
foreclosures over the past year. We've seen credit markets tighten, making it harder
for companies and individuals to borrow. And we've seen commodity and energy
prices hit record highs. These events are taking a toll on the U.S. economy and
affecting families across Pennsylvania and throughout America. Real GDP growth
in the first three quarters of 2007 averaged 3.1 percent on an annualized basis, but
slowed significantly at the end of last year and was 0.9 percent in the first quarter of
2008. While we expect the recent stimulus package to support an increase in
growth in 2008 and for the overall growth outlook to be modestly better by the end
of the years, the U.S. economy is clearly struggling.
This period of slower growth has generated anxiety among many Americans about
our future. It has led some to question the ability of the United States to remain the
world's leading economy at a time when competition across the globe is increasing.
Still others suggest that recovery lies in a retreat inward, away from international
economic engagement, and back to what they remember as a calmer and simpler
time when the U.S. was less dependent on the rest of the world.
Yet, this is a false choice. In today's global economy, a shift inward is tantamount to
economic stagnation and would cost millions of jobs, deter foreign investment,
curtail growth, and increase the cost of many goods and services purchased by
American households. In fact, the key to remaining competitive in today's changing
world is embracing openness to trade, to investment, and to people. To continue
our unprecedented growth and prosperity, America - and Pennsylvania - must
adapt to the new challenges and opportunities created by the dynamic global
economy. In short, we need a new national consensus on globalization that can
provide the basis for continued U.S. economic leadership in the decades ahead.
Financial Market Turmoil
Let me begin by putting our current economic situation in context. Starting in 2002,
the U.S. economy experienced a long period of benign economic conditions marked
by low interest rates, low inflation, and less volatile asset markets, which led many
to overlook the "risk" half of the risk-reward equation at the heart of financial
markets. Investors around the world, who in preceding years had enjoyed abovehistorical returns on most types of investments, continued reaching for ever-higher
gains. The financial-services industry created a variety of complicated new products
to meet this demand. Regulators and investors alike showed a growing
complacency toward risk. These factors blended into a dangerous cocktail of
underlying conditions ripe for instability.
Last summer, these new vulnerabilities in our financial system became clear.
Looser credit standards in the housing market, combined with an end to rapid home
price appreciation, led to a significant rise in delinquent mortgages. This in turn
contributed to immediate and unexpected losses for investors and a reconsideration
of the risk-reward relationship - first in housing, and soon after, across all asset
classes. Shaken investor confidence in housing assets had a domino effect
throughout world markets, ratcheting up demand for cash and liquidity, and
curtailing the pace of the new lending and investment necessary for strong growth
to continue.
U.S. policymakers responded aggressively to stabilize the markets to reduce the
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turmoil's impact on the real economy and address the underlying regulatory gaps
and policy weaknesses. The U.S. Federal Reserve took focused actions to protect
the financial system from severe disruption by ensuring that markets have access
to financing. The Administration and Congress responded with a $150 billion
bipartisan stimulus package when it became clear that the market turmOil, together
with the housing market downturn and high energy prices, were posing significant
risks to the U.S. economy. This package provides stimulus payments for millions of
Americans and tax incentives for business investment. Policymakers also launched
a series of housing-market initiatives to help millions of Americans by increasing the
availability of affordable mortgage financing and preventing avoidable foreclosures.
We have also begun to focus, in cooperation with international policy makers, on
the weaknesses in business practices of financial institutions revealed by the
market turmoil. Together, we are taking steps to strengthen the oversight of risk
management and reporting practices of financial institutions; enhance disclosure of
and the process for setting values for complex products; change and clarify the role
and use of credit ratings; and reform the mortgage-origination process. In each of
these broad categories, the specific proposals are concrete, widely accepted and,
in a number of cases, already being implemented by national or international
authorities, as well as by the private sector. With these efforts, along with the
general flexibility and resiliency of the U.S. economy, we will work through these
challenges and hope to see a strengthening economy by the end of the year.
Growing Protectionism
Unfortunately, the recent market developments have contributed to a climate of
increased distrust and anxiety among Americans that is fueling support for
protectionist policies. This is partially due to concerns created by the economic
downturn, but it is also the result of a broad-based transformation underway across
regions and within all sectors of our economy.
International competition from free trade, as an example, appears threatening to
Americans already skeptical about the overall benefits of globalization. A recent
Pew Research Center poll found that 48 percent of Americans see free trade
agreements as a bad thing for the country, and only 30 percent seeing them as a
good thing. This message has reached Capitol Hill, where there is reluctance to
pass the Colombia Trade Promotion Agreement, despite its clear benefits to the
United States and Colombia. We also see protectionist rhetoric particularly
pronounced in this political year where the benefits of trade are being openly
questioned by individuals from across the political spectrum.
Many Americans are also fearful about the implications of foreign investment. In the
wake of September 11 th, concerns about national security have led Congress and
the public to take a careful look at investment from outside our borders. The Dubai
Ports World case epitomizes this concern, as do the frequent headlines about
investment by sovereign wealth funds. And it is not just in the United States. Many
countries are now considering further restrictions on foreign investment in certain
sectors of their economies, and are also considering limits to sovereign wealth fund
investment. In an increasingly globalized world, some countries seem resolved that
the only sure protection is the rejection of foreign capital. While some investments
may pose genuine national security concerns, broader restrictions on foreign direct
investment, whether explicit or implicit, also pose serious economic risks.
Finally, we also see Americans increasingly concerned about competing for jobs
against people from around the world. Talent is the most important commodity in
the global marketplace and ever more fungible as advanced technology makes
borders less relevant. U.S. companies are global leaders in a variety of industries,
and to maintain or improve their global leadership position they have to hire the
best talent, wherever that talent may be. And their U.S. employees benefit as these
companies maintain their competitive edge and grow. But this is a difficult reality for
many Americans to accept.
One response by Congress to this concern has been to limit the number of highlyskilled worker visas allowed into the United States. Ironically, restrictions on highly
skilled people into the United States have led many American companies like
Microsoft, for example, to relocate some operations overseas in order to find a
more skilled workforce. This only exacerbates the perception that America can no
longer compete. The fact is that the United States must attract and retain the
world's best and brightest to remain at the cutting edge of innovation. And,
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hpl004: Under secretary David H. McCormick Remarks to the World Affairs Council in Pittsburgh
Page 3 of 5
increasingly, many of these individuals will not have been born in the United States.
The Case for Openness
These fears and anxieties are symptomatic of a rapidly changing world. But, the
free flow of trade, investment, and intellectual capital to the United States is more of
a cure for our economic challenges than a root cause. Indeed, America's openness
has historically been the bedrock of its competitiveness, ingenuity, and productivity.
If we are to continue to prosper in today's global economy, openness is no longer a
choice but a requirement.
The data unequivocally support these claims, whether it is in the area of trade,
foreign direct investment, or the free flow of talent. On trade, U.S. exports to the
world are at an all time high. In 2007, exports accounted for 12 percent of GOP, and
contributed to more than a third of U.S. economic growth. Exports have been a
boon for Pennsylvania too, with one-sixth of all manufacturing workers in
Pennsylvania dependent on exports for their jobs. The greater Pittsburgh metro
area exported $8.3 billion of goods in 2006, nearly one-third of Pennsylvania's
exports. In addition, Pennsylvania exported nearly $30 billion in goods in 2007, up
from $26.3 billion in 2006, and overall exports are up 85 percent since 2002. These
exporters include not just large firms such as Alcoa and Heinz, but smaller
companies such as Advanced Materials and American Textile, located here in
Pittsburgh. For many U.S. companies, international markets - that contain ninetyfive percent of the world's consumers and where purchasing power is growing at an
accelerating pace -- offer the greatest opportunity for growth.
One way the Administration is trying to further the benefits of trade is through Free
Trade Agreements (FTA) with our strategic economic partners. FTAs benefit both
countries by reducing or eliminating tariff rates, improving intellectual property
regulations, opening government procurement opportunities, and easing investment
rules. Under President Bush's leadership, we have negotiated 10 new FTAs, for a
total of 15 agreements, and our exports to these partners are growing twice as fast
as our exports to the rest of the world. The fact is, FTAs promote fairer trade for
America, as we already have very low tariffs in the United States, and in many
cases give duty-free treatment to goods from other countries. Free Trade
Agreements even the playing field by ensuring these partners cut their tariffs on
American goods. As one of my colleagues recently put it, we already have free
trade with Colombia - it just so happens to be one-way free trade, because
currently, 90 percent of goods from Colombia come into the U.S. duty free. The
purpose of this agreement is to make trade a "two-way" street, so a growing
number of American goods made by American workers enter Colombia duty free.
Trade agreements also help promote investment opportunity, which fuels economic
dynamism and innovation, as well as deployment of new technologies that raise
productivity and, ultimately, our standard of living. Free trade agreements help spur
American investment overseas and foreign investment in the United States by
setting transparent ground rules for doing business in each country. This improves
investor confidence, makes the United States a more attractive investment
destination, and makes it easier for American companies to expand their
businesses overseas.
This is important because over 5 million jobs in the United States are directly
created by foreign direct investment (FOI), and about the same number of
additional jobs are indirectly supported by the U.S. operations of foreign-owned
firms. Pennsylvania is a clear beneficiary of such investment. It ranks as the fastestgrowing state in attracting international business, and in 2006, Pennsylvania ranked
as the number one destination for new cross-border investment. In addition, over
987 foreign-owned firms employ approximately 230,000 workers in Pennsylvania.
Not only does foreign investment create jobs, it tends to create better-paying jobs
with compensation on average more than 25 percent higher than U.S.-owned firms.
These jobs are heavily weighted in manufacturing, and foreign firms account for 14
percent of all R&D investment in the United States.
Like with investment, it is also increasingly true that skilled employees are a
competitive advantage for global businesses, and that companies and countries
that attract and retain the world's best and brightest win in the marketplace. When
looking at the U.S. economy, it is easy to understand why this needs to be a top
priority. One quarter of all U.S. start-ups in engineering and technology established
between 1995 and 2005 had at least one foreign-born founder. These include big
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Page 4 of 5
name firms like Google, Sun Microsystems, and eBay. Other countries are catching
on. Germany, Australia, and the United Kingdom, for example, are all taking the
global competition for talent very seriously and are aggressively recruiting to snatch
up the next business visionaries. To keep up, the United States cannot rest on its
past reputation as being the best place in the world to live and work and instead
must compete actively to win the global war for talent.
A New Consensus for Globalization
We face a real challenge - a growing risk of protectionism and a turn inward at a
time when America's openness could not be more important to its future. In order to
bridge the divide, we need to set some new rules of the game which recognize both
the enormous benefits as well as the potential downsides of globalization. I do not
have the answers, but as a starting place, I would like to suggest several broad
areas in which we will need new ideas, new levels of cooperation, and ultimately, a
new bipartisan consensus on globalization if we are to compete and win in today's
global economy.
First, we need more effective policies and approaches for helping individuals,
companies, and regions to adapt to the rapid pace of global economic change.
Even though it generates significant benefits in the aggregate, globalization
inevitably results in winners and losers. While trade provides great benefits to the
U.S. economy as a whole, these benefits are not always distributed equally.
Workers in certain industries, for example, will sometimes lose their jobs, and
communities will sometimes be disaffected. Helping those negatively impacted will
require new training, new skills, and a new model for helping those displaced to not
only land on their feet, but to climb even higher up the economic ladder.
Companies, cities, and regions must also change, diversify, and reinvent
themselves - a constant reality as new technologies replace old and growth breeds
competition. Here in Pittsburgh we see evidence of this, as the city has transformed
itself from one dominated by steel mills to a city focused on developing new
industries in information technology, advanced manufacturing, and medical devices.
Such focus fits well into the second principle, which is creating a predictable and
welcoming investment environment. Capital is like water, flowing to where there is
the least resistance. And, also like water, capital is the lifeblood of
entrepreneurship, innovation, and growth. To attract capital, cities, regions, and the
country overall must ensure that the business climate reflects investment-friendly
tax regimes, attracts and retains a talented work force, and predictably enforces the
rule of law.
The World Bank ranks countries' overall business climate in its annual 'Doing
Business' study. Not surprisingly, the United States ranks very high in the latest
study, third overall out of 178 countries (Singapore and New Zealand are first and
second). But, the U.S. ranks only 76th on taxation, 24th on dealing with licenses,
and 18th on working through bankruptcy proceedings. This is unacceptable for the
most dynamic economy in the world, and other countries are not standing still.
Third, we need to invest in winning the global talent war and this will require
targeted policies to recruit and retain these highly-skilled, high potential workers to
America's shores. This not only means significant changes in current policies but a
fundamental shift in our mindset as a nation as well. For example, the current cap
on temporary visas for skilled workers, so called H-1 B visas, should be raised
significantly from its current cap of 65,000. As recently as 2001-2003, Congress
raised the cap to 195,000, providing important skills to the U.S. economy, but it has
returned to dramatically lower levels.
Moreover, we must adopt more aggressive approaches for pursuing outstanding
foreign students and professionals and create incentives for them to stay in the
United States upon completion of their degrees. Foreign born scholars hold more
than half of all science and engineering post-doctoral positions at U.S. universities,
while about 38 percent of U.S. doctoral-level employees in technical firms are
foreign born. This is an asset America cannot afford to lose.
There are other areas such as investment in education, particularly math, science,
and engineering that are the cornerstone Of. any innovative economy, and which will
enhance our competitive strengths. The United States leads the world In R&D and
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Page 5 of 5
has boosted federal R&D funding by almost half under the leadership of President
Bush. Still, these investments are a fraction of what they can and should be. Total
R&D spending in the U.S. is likely to rise by about 3 percent this year, reaching
almost $350 billion. China, which is second in R&D investment in the world at about
$150 billion, is boosting its spending by roughly 15 percent per year and Asian
universities now produce almost half of all engineering graduates in the world.
Given these trends, we can no longer take our leadership in these areas for
granted.
These suggestions are merely a starting point for a discussion about a
competitiveness agenda for winning in today's global economy. None of these
ideas are mutually exclusive -- they are interdependent. For the United States
adapting to globalization is not just about changing one policy but requires a holistic
approach to maximizing the benefits of globalization while addressing its inevitable
disruptions.
Conclusion
The challenges of our current economic climate have led some to question
America's global economic leadership in the future. I don't want to make light of
these challenges. They are very real. And, when we have a problem in our markets,
we don't minimize it, but we shine a light on it and move quickly to clean it up. As I
discussed earlier, we are responding aggressively and comprehensively to address
our challenges and reduce the impact on the U.S. and global economies. But we
should also take confidence from the fact that the performance of the U.s. economy
for the past five decades is unmatched, and its long-term fundamentals compare
favorably today to any advanced economy in the world. I have no doubt that the
United States will weather the current storm and will emerge stronger than before.
A more fundamental question, however, is whether in this time of dramatic global
economic change and turmoil we will remain true to the underlying prinCiple of
openness that has made this country great. We are a country of immigrants, whose
strength was forged from our differences and a common vision for a better life. This
strength is embodied still by the United States' place as the world's leading
economy, innovator, and manufacturer, and home to many of the world's most
brilliant scientists, engineers, and entrepreneurs. It is a country that has thrived
because of its engagement with the world. We have not yet deviated from this path,
and we most assuredly should not.
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HP-1005: Statement of Nee I T. Kashkari Nominee for Assistant Secretary of the Treasury for Intemation... Page 1 of 2
June 3, 2008
HP-1005
Statement of Neel T. Kashkari Nominee for Assistant Secretary of the
Treasury for International Affairs U.S. Senate Committee on Banking, Housing
and Urban Affairs
Washington - Chairman Dodd, Ranking Member Shelby, and members of the
Committee, I am honored to appear before you today as President Bush's nominee
to serve as Assistant Secretary of the Treasury for International Affairs. Please
allow me to express my gratitude to the President and to Secretary Paulson for the
confidence and trust that they have shown in me, and I would also like to thank you
for your consideration of my nomination. I wish to also thank my wife Minai - who is
here today - for her continuous support of my career and my public service.
If confirmed, I look forward to working closely with this committee, and your
colleagues in the United States Senate as well as the U.S. House of
Representatives to advance U.S. economic interests at home and abroad.
I would like to briefly discuss my experience and how it has prepared me for the
position to which I have been nominated. In my role as Senior Advisor to Secretary
Paulson, I have been responsible for developing and executing international and
domestic policies for the Department to foster a more conducive investment climate
for the U.S., as well as to support global economic growth. Prior to my government
service, I worked as an investment banker, where I executed financial and strategic
transactions that have prepared me for the position to which I have been
nominated.
Since joining the Treasury Department in July 2006, I have led several policy
initiatives for the Department, including:
1.
2.
3.
Promoting Indian financial sector liberalization and free trade through
strengthened economic engagement and increased infrastructure
investment;
Enhancing U.S. energy security by implementing policies that will, over time,
reduce our exposure to the global oil market by encouraging the
development of alternative fuels and by improving the efficiency of our auto
fleet;
Spearheading our response to the housing crisis by mobilizing the private
sector to avoid preventable foreclosures and working to ensure the flow of
capital into the housing market, enabling the necessary housing correction
to move forward as quickly as possible, and minimizing spillover from
housing to the rest of the real economy.
Washington - Chairman Dodd, Ranking Member Shelby, and members of the
Committee, I am honored to appear before you today as President Bush's nominee
to serve as Assistant Secretary of the Treasury for International Affairs. Please
allow me to express my gratitude to the President and to Secretary Paulson for the
confidence and trust that they have shown in me, and I would also like to thank you
for your consideration of my nomination. I wish to also thank my wife Minai - who is
here today - for her continuous support of my career and my public service.
If confirmed, I look forward to working closely with this committee, and your
colleagues in the United States Senate as well as the U.S. House of
Representatives to advance U.S. economic interests at home and abroad.
I would like to briefly discuss my experience and how it has prepared me for the
position to which I have been nominated. In y role as Seni?r Advisor t? Secretary
Paulson, I have been responsible for developing and executing International and
domestic policies for the Department to foster a more conducive investment climate
for the U.S., as well as to support global economic growth. Prior to my government
n:
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service, I worked as an investment banker, where I executed financial and strategic
transactions that have prepared me for the position to which I have been
nominated.
Since joining the Treasury Department in July 2006, I have led several policy
initiatives for the Department, including:
1.
2.
3.
Promoting Indian financial sector liberalization and free trade through
strengthened economic engagement and increased infrastructure
investment;
Enhancing U.S. energy security by implementing policies that will, over time,
reduce our exposure to the global oil market by encouraging the
development of alternative fuels and by improving the efficiency of our auto
fleet;
Spearheading our response to the housing crisis by mobilizing the private
sector to avoid preventable foreclosures and working to ensure the flow of
capital into the housing market, enabling the necessary housing correction
to move forward as quickly as possible, and minimizing spillover from
housing to the rest of the real economy.
Prior to joining Treasury, I was a Vice President at Goldman Sachs where I advised
U.S. and international companies on both debt and equity financings and global
mergers and acquisitions. As an advisor to management teams and boards of
directors, I gained firsthand insight into the challenges that U.S. companies face as
they strive to access markets abroad while also competing with global players here
at home. This transactional experience will be particularly relevant to helping
implement our critically important investment security policy through the Committee
on Foreign Investment in the United States (CFIUS). I will work hard to ensure that
U.S. national security is protected, while encouraging foreign investment in the U.S.
Prior to joining the financial services industry, I strengthened my analytical skills as
an aerospace engineer, developing technology for future NASA space science
missions, such as the James Webb Space Telescope, the replacement to Hubble,
which is scheduled to launch in 2013.
My educational background includes a Bachelor's and Master's degree in
engineering from the University of Illinois at Urbana-Champaign and an M.BA in
finance from the Wharton School.
If confirmed, I look forward to working with the Administration, Congress, and the
staff at the Department of the Treasury to promote global economic growth,
financial market stability, and open markets for U.S. goods and services.
Mr. Chairman, Senator Shelby, Members of the Committee, I am grateful for the
opportunity to appear before you today. I would be pleased to answer any of your
questions.
·30·
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HP-I006: Assistant Secretary David G. Nason<br>Rcmarks at thc SIFMA<br>
Page 1 of6
June 4,2008
HP-1006
Assistant Secretary David G. Nason
Remarks at the SIFMA
New York- Thank you for inviting me here to offer opening remarks at the 13th
Annual Fixed Income Legal and Compliance Conference. The Securities Industry
and Financial Markets Association is a key trade group for the financial seNices
industry and we in Washington have come to value your expertise and perspective.
SIFMA is empowered by its mission to champion policies that benefit investors and
issuers. Today I would like offer the Treasury Department's perspective on some of
the economic and market conditions in the United States and discuss our
perspective on key regulatory policy matters.
Think back to the conditions in our capital markets and your last Legal and
Compliance Conference. Some of the discussion topics were similar to today's, but
the lens through which we look at them is now quite different. These market
conditions provide a pertinent backdrop for an examination of financial markets and
regulatory issues.
Today I will provide an update on financial market and economic conditions, then I
will discuss regulatory issues that policymakers must address in the near-term and
in the future. The regulatory issues before financial policymakers today are
incredibly complex and deseNe measured consideration rather than a rush to
conclusion.
Economic and Market Conditions
Undoubtedly, the U.S. economy is going through a difficult period. After six straight
years of almost three percent average annual growth, our growth rate slowed
significantly late last year. The root causes of the stress are well documented. The
turmoil in financial markets was born from a dramatic weakening of underwriting
standards for U.S. mortgages, especially subprime mortgages, beginning in late
2004 and extending into early 2007.
The loosening of credit terms in the subprime market was symptomatic of a much
broader erosion of market discipline on the standards and terms of loans to
households and businesses. Following many years of benign economic conditions
and plentiful market liquidity, global investors had become complacent about risks,
even in the case of new and increasingly complex financial instruments. The
confluence of many events led to a significant credit contraction and a repricing of
risk. Sentiment swung hard to risk aversion with perhaps one of the most dramatic
series being the events that led to the unusual transaction where JPMorgan Chase
acquired Bear Stearns.
Although we expect to work through housing and capital markets issues for some
time, we also expect to see a faster pace of economic growth before the end of the
year. We are seeing signs of progress as capital and credit markets have stabilized
somewhat. The markets are calmer now than earlier in the year. The deleveraging
and repricing of risk continues, as does the capital-raising that is essential for the
viability of U.S. financial institutions. Capital raising improves market confidence
and allows banks to continue to extend the lending necessary for economic growth.
Secretary Paulson has urged financial institutions to raise additional capital and we
have been pleased that our largest institutions have gone to market to do so. Since
December of last year, financial institutions have raised more than $200 billion in
capital. Importantly, this investment is helping to facilitate price discovery in markets
that are suffering from significant illiquidity. It is also encouraging to see signs that
different types of investors are interested in financial institution investments such as
sovereign wealth funds and most recently private equity firms.
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Despite this progress, some trends are not as encouraging. The unsecured
interbank financing market faces ongoing challenges and many securitization
markets remain strained.
On a separate but related track we are focused on housing, which presents the
most significant threat to our economy. Both the Federal Housing Administration
and the HOPE NOW Alliance are making a meaningful impact on this problem. The
HOPE NOW Alliance announced recently that homeowners had received a record
number of mortgage modifications in one month.
Similarly, our government sponsored enterprises, Fannie Mae, Freddie Mac and the
Federal Home Loan Banks, are performing their Congressionally-mandated roles
by providing liquidity for our mortgage market. Fannie Mae and Freddie Mac are
connected to 80 percent of the overall mortgage market. This is an important role
and it increases the need to ensure that these enterprises are regulated
appropriately. But we are seeing encouraging developments in efforts to improve
their regulatory oversight to give confidence to the market.
A key way policymakers can all work together to send a positive signal to the
markets, especially the housing market, is to send a strong GSE reform bill to the
President's desk. We are encouraged by the recent progress made in the Senate
Banking Committee to strengthen oversight of GSEs and we strongly support it.
Chairman Dodd and Ranking Member Shelby have been instrumental in guiding
this important legislation through the Committee. The bill provides the new regulator
with the appropriate powers, including capital, receivership, new product approvals,
and portfolio authority. I have been in Washington long enough to recognize when
the stars are aligned to move a complicated piece of legislation like GSE reform.
This is one of those moments and we should capitalize on it.
The Treasury Department is working to understand the lessons learned from the
current housing and broader market challenges. Treasury, in conjunction with other
functional regulators, has developed policy responses to begin to address the
ongoing crisis of confidence in our markets. These policy responses can be
categorized into broad themes and each of these themes are discussed in a recent
policy statement produced by the President's Working Group on Financial Markets.
Regulatory Reform
A confluence of events has moved the topic of financial services regulatory reform
from an academic exercise to an economic necessity. While there is great
temptation to view these issues through the lens of the problems we are facing
today; the forces compelling change are much broader. The most dominant force or
trend compelling change is the globalization of the financial services industry.
Globalization means that foreign economies are maturing into market-based
economies, contributing to global economic growth and stability, providing a deep
and liquid source of capital outside of the United States. These markets often
benefit from recently created or newly developing regulatory structures that are
more adaptive to the complexity and increasing pace of innovation. At the same
time, the increasing interconnectedness of the global capital markets poses new
challenges: an event in one jurisdiction may ripple through to other jurisdictions as
we have witnessed firsthand in our securitization markets.
In addition, improvements in information technology and information flows have led
to innovative, risk-diversifying, and often sophisticated financial products and
trading strategies. However, the complexity intrinsic to some of these innovations
may inhibit investors and other market participants from properly evaluating their
risks.
Further, the growing institutionalization of the capital markets has provided markets
with liquidity, pricing efficiency, and risk dispersion and has encouraged product
innovation and complexity. At the same time, these institutions can employ
significant degrees of leverage and more correlated trading strategies with the
potential for broad market disruptions.
Finally, the convergence of financial services providers and financial products has
increased over the past decade. Financial intermediaries and trading platforms are
converging. Financial products may have insurance, banking, securities, and
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HP.1006: AssIstant Secretary David G. Nason<br>Remarks at the SIFMA<br>
Page 3 of6
futures components.
These developments also pressure the U.S. regulatory structure, exposing
regulatory gaps and redundancies. As is evident in the topics that I will emphasize
next, the U.S. regulatory structure reflects a system, much of it created over 70
years ago, grappling to keep pace with market evolutions and facing increasing
difficulties at times in preventing and anticipating financial crises.
Treasury never intended our recently released Blueprint for a Modernized
Regulatory Structure (Blueprint) to be responsive to current market events. The
analysis and rationale behind our Blueprint recommendations are instructive,
however, as we move through this extraordinary period in our capital markets.
Depository Charters
An honest discussion about the evolution of our capital markets and the attendant
changes to our regulatory structure would be incomplete without looking closely at
the charters of our depository institutions. It requires an examination of why
Congress decided to create organizations. This requires a willingness to challenge
the status quo. Candid self-analysis is critical to evolutionary and progressive
change. Change of this type is often and inevitably met with those who have an
interest in keeping things the way they are.
A key principle in Treasury's analysis of these issues is that federal prudential
regulation and oversight should accompany the provision of federal support, such
as federal deposit insurance. While the states and the federal government have
jointly provided prudential regulation of depository institutions over time, the
responsibility ultimately falls back to the federal government for the deposit
insurance program and the overall solvency of the system.
In our Blueprint, our goal was to set forth issues that we should be thinking about in
the long-term. The overarohing issue driving our review of banking charters was to
establish a level playing field for all federally insured depository institutions.
Competition should take place broadly across different types of financial institutions.
The most efficient way to get there is to establish a uniform charter, and let
competition take place on the basis of competitive market factors instead of
regulatory factors.
Charter choice, whether through multiple federal charters or a state charter, had an
important place in our history. But, it is decades of political inertia that got us where
we are today. The world is different, and intervening changes over the years have
made many of the charter distinctions unnecessarily inefficient and costly to the
public that utilizes these depository institutions and to the institutions themselves.
Choosing a regulator for an insured depository should not be a fundamental
business decision. The overall charter consolidation process and reorganization of
regulatory responsibilities in the Blueprint will take care of many tertiary issues
associated with outdated regulatory burden.
This is the case with the federal thrift charter and the Office of Thrift Supervision,
the OTS. The thrift charter is no longer necessary to ensure sufficient residential
mortgage loans availability for U.S. consumers, which was the charter's primary
purpose. As a step towards a more rational structure for depository institutions we
concluded that the thrift charter has run its course and should be discontinued.
Another clear example of the need for a fresh look at our depository institution
charters is holding company oversight. The type and features of holding company
oversight is tied to the type of charter. Commercial banks are regulated at the
holding company level by the Federal Reserve. For entities electing the thrift
charter, the OTS provides holding company regulation, which provides a set of
different and less restrictive requirements. And, parents of industrial loan
companies are not subject to any holding company supervision. If the basis of
holding company oversight is to protect the assets of the insured depository, how
can this differing treatment make sense?
Few people would argue, and it is largely not permitted anyway, that different bank
charters should have different bank level regulations surrounding safety and
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Page 4 0[6
soundness. Likewise, while developing new activities could serve as some
motivation for different charters, at least for banks, activities have converged to a
large degree to those permissible for national banks.
The goal should be create a level playing field where competition among financial
institutions can take place on an economic and marketplace basis, rather than on
the basis of regulatory differences. For activities within the bank, all insured
depository institutions would be subject to the same broad rules and could be
modeled on activities that are authorized for national banks today.
SEC and CFTC Merger
As you are all well aware, we believe that there should be a merger of the
Securities and Exchange Commission (SEC) and the Commodity Futures Trading
Commission (CFTC). Treasury believes that the realities of the current marketplace,
such as the convergence of futures and securities products and market participants,
and globalization and its resulting pressures, make it increasingly difficult to
rationalize separate regulatory regimes.
Treasury was careful in not recommending an immediate regulatory combination,
but a merger preceded by a number of steps to ensure an effective and smooth
transition. In making this recommendation, Treasury noted particularly the benefits
of several of the process-oriented changes or modernizations that the Commodity
Futures Modernization Act of 2000 (CFMA) brought to the futures markets.
Regulation of securities markets, where the amount of change in the past decade
has been staggering, also warrants this sort of modernization.
In this context, Treasury has made a series of recommendations to modernize
securities regulation. First, the SEC should to adopt core principles for clearing
agencies and securities exchanges, such as those relating to operational and risk
management practices, similar to those adopted for the equivalent futures market
participants under the CFMA.
In addition, the SEC should expedite its rule approval process for exchanges and
other self-regulatory organizations. The SEC has made adjustments to this rule
approval process in the past. This is all the more important today with exchanges'
rapidly evolving electronic trading systems whose rules must be frequently adjusted
for operational efficacy and market integrity.
A close look at these recommendations make plain that we are trying to improve
some of the processes by which the SEC responds to a dynamic marketplace.
These recommendations are not, as some have indicated, a push to morph the
SEC into the CFTC or vice versa. The choice is not binary and we attempted to
create a process where the strengths of each agency could be preserved.
Market Stability Regulation
Our Blueprint offered a stepping-stone approach to a new way to think about our
capital markets regulatory structure - to utilize better market forces while improving
the line of sight and mission of our regulators. We expect a thoughtful and
deliberate discussion balancing the need for better, more modernized, regulation,
while recognizing that regulation alone cannot and will not weed out all financial
instability.
We saw an omission in our current regulatory structure; no regulatory body is
charged specifically and exclusively to focus on the overall conditions of market
stability that could impact the real economy.
Typically, the market stability role is associated with the central bank. Most central
banks have a general responsibility to achieve macroeconomic stability through the
formation of monetary policy. In the United States, the Federal Reserve plays this
role with the goal of promoting overall macroeconomic stability in terms of output
and prices. In normal economic conditions, market stability and macroeconomic
stability should go hand-in-hand. But as the current conditions in credit markets and
other past episodes of financial instability illustrate the traditional toolbox of
monetary policy and the regulatory framework might not be well-suited to deal with
transmission of financial shocks to the real economy in today's financial markets.
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HP-IOU6: AssIstant Secretary David U. Nason<br>Remarks at the SIFMA<br>
Page 5 of6
This is why we recommended recasting the role of the Federal Reserve as our
market stability regulator to expand its assessment and authority over potential
risks in the overall financial system, including correlations and common exposures
across financial institutions. This contrasts with its existing regulatory authority that
focuses primarily on the health of individual financial institutions.
Undoubtedly, the tasks of the market stability regulator would be difficult. We do not
believe that we can eliminate all future bouts of financial instability. In a dynamic
market economy it is impossible to eliminate instability through regulation.
It is interesting to note that this current period in financial market stress has created
an important change in vocabulary. For years, public policy makers have struggled
with the notion that certain institutions could be deemed "too big to fail". Now, we
should consider whether certain firms are "too interconnected to fail". And, if so,
what can we do to address this concern.
Monitoring the interconnectivity embedded in our networks of financial institutions is
a key attribute of market stability regulation. Obvious focus points here are
counterparty risk exposures - whether they occur through standard credit
instruments, credit default swaps, credit insurance, or other means; the operation of
market structures - whether established on a formal or informal basis; and general
practices that could cause problems for the overall financial network. I note many of
these topics are issues of focus today.
This reform is not meant to supplant market forces. It is intended to complement
them with new and broad authority. This process is what some have referred to as
"leaning against the wind" in an attempt to prevent broad economic dislocations
caused by potential excesses. I would agree, so long as the lean can be calibrated
based on the conditions of the storm and the effectiveness of the regulators initial
actions.
This would not be an easy task. In addition to the difficulty of determining just where
and when to lean against the wind there could be a tendency of a regulator to lean
too heavily simply to avoid blame for any ensuing financial instability. Moreover,
regulated entities could push back, alleging regulatory over-reach. But if we clearly
understand that this process will not prevent all financial instability and that the
dynamic and innovative aspects of financial markets must be preserved, then it is a
process worth trying.
Near-Term Market Stability Steps to Consider
The recent challenges in credit markets illustrates that the world has changed.
While broader changes regarding regulatory structure are debated, we need to
think continually about what steps can be considered now. For example, one
obvious question is the proper regulatory oversight of investment banks, especially
the largest firms, the SEC's consolidated supervisory entities (CSEs). Right now,
the Federal Reserve and the SEC are working constructively together while the
primary dealers have access to the Federal Reserve's liquidity facilities. If the
Federal Reserve is going to lend to the CSEs, then it is important it have adequate
information about its borrowers.
The SEC and the Federal Reserve are also in the midst of discussions to determine
the appropriate arrangement for information sharing going forward. Treasury
supports establishing a memorandum of understanding between the SEC and the
Federal Reserve. What happens next is a more difficult policy question. We are in
the first act of what is a multi-act play. Some decisions seem clear. If firms have
access to a government backstop, then there must be a regulatory cost for this
benefit. Determining the specifics of this regulatory regime requires a balancing act
of somewhat conflicting policy objectives.
Many other issues still need to be resolved. Some question whether the primary
dealers' access to the Federal Reserve's liquidity facilities is temporary, which has
an impact on behavior.
Others believe the increasing complexity of financial transactions and structure of
financial institutions is a logical reason for extending bank-like regulation to
additional firms. Greater complexity has not developed in a vacuum. While new
financial products and complex risk-hedging strategies provide the benefit of wider
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risk dispersion, if market participants and supervisors cannot evaluate fully the risk
profiles of the financial institutions using these products, then it remains unclear that
innovation has reduced risk.
It seems clear that we need to improve how we regulate complex financial firms.
Policymakers have begun this process in earnest and should find resolution in the
near-term, which certainly will result in further coordination and information sharing
among regulators.
These are incredibly complex matters. As we undergo this process, there are
several issues we should consider.
First, we should be concerned about the consequences of forcing innovation and
risk-taking decline to levels below what the market would normally allow. This could
inhibit overall economic growth and could push market-permitted risk-taking to
those firms not swept into broader regulatory reach. If that is the case, have we
improved overall market stability?
Another issue is putting responsibility on our supervisors that convey unreasonable
expectations. This provides a false sense of security to market participants,
potentially leading to less market discipline and even greater complexity and
opacity in the future that could lead to even greater financial instability. Both of
these outcomes are unattractive. But so is the status quo. We need to develop
ways to ensure that private institutions, even complex ones, can fail without
threatening the real economy. Participants must believe this if they can be expected
to discipline each other and this form of discipline is a vital component to a more
stable financial system.
Lastly, it is clear that regulation has a critically important role in the quest for a more
stable system. We look forward to considering further that role in the coming
months. Market stability regulation should reflect a fine balance between protecting
the government's interest, allowing for innovation, and harnessing market discipline.
It will be difficult to balance these objectives, but if we go into this process
understanding that we will never fully eliminate market instability, we have a much
better chance of establishing a more stable financial system for the future. Thank
you.
-30-
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HP-I007: Treasury Assistant Secretary Swage! to Hold Monthly Economic Briefing
~~
•
PRESS ROOM
u.s DiEPARTMENT Of THE TREASURY
. ,
.
June 4,2008
HP-1007
Treasury Assistant Secretary Swagel to Hold Monthly Economic Briefing
U.S. Treasury Assistant Secretary for Economic Policy Phillip Swagel will hold a
media briefing to review economic indicators from the last month as well as discuss
the state of the U.S. Economy. The event is open to the media:
Who
U. S. Treasury Assistant Secretary Phillip Swagel
What
Economic Media Briefing
When
Friday, June 6, 2008,11 :00 a.m. EDT
Where
Treasury Department
Media Room (Room 4121)
1500 Pennsylvania Ave, NW
Washington, D.C.
Note
Media without Treasury press credentials should contact Courtney Forsell at (202)
622-2960, or Courtney.Forsell@do.treas.gov with the following information: full
name, Social Security number, and date of birth.
-30-
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HP-1008: Treasurer Anna Escobedo Cabral to Lead Delegation to Vietnam<br>for Global Summit of W... Page I of I
. . ~~~1"~il PRESS ROOM
'l.~,' u.s. DEPARTMENT OF THE TREASURY
",
'If
~'......~'~ • .r
June 4,2008
HP-1008
Treasurer Anna Escobedo Cabral to Lead Delegation to Vietnam
for Global Summit of Women
Treasurer Anna Escobedo Cabral will lead a U.S. delegation to the 2008 Global
Summit of Women in Hanoi, Vietnam June 5-7. The summit brings together female
business, professional, and governmental leaders to promote economic opportunity
for women around the world. The 2008 summit will emphasize the importance or
public-private partnerships in advancing the economic status of women.
The Treasurer will deliver remarks Friday on megatrends affecting the world's
economies.
More information on the summit is available at:
http//www.globewomen.org/summitiSummit.htm.
Who
Treasurer Anna Escobedo Cabral
What
Remarks on Megatrends Affecting the World's Economies
When
Friday, June 6, 9:00 a.m. Local Time
Where
Global Summit of Women
Melia Hanoi Hotel
448 - Ly Thuong Kiet Street
Hanoi, Vietnam
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HP-1009: U.S. and China to Hold Meeting of the Strategic Economic Dialogue
. . ~~~1"~il PRESS ROOM
'l.~,' u.s. DEPARTMENT OF THE TREASURY
Page 1 of 1
<',
'If
~"-~'~.'/
June 4,2008
HP-1009
U.S. and China to Hold Meeting of the Strategic Economic Dialogue
The fourth Cabinet level meeting of the U.S. - China Strategic Economic Dialogue
is scheduled to take place at the U.S. Naval Academy in Annapolis, Md. on June 17
- 18, 2008.
Members of the media seeking press credentials must register online at SED IV
R.', IIc;tl ,lll!111 by June 11,2008. A digital passport photo is required.
For more information on the SED visit the Treasury Department website.
A schedule of open press events will be released in the coming weeks.
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Page 1 of 4
--4''''1
rw'nnnW'n=n'W'TWl1W'7
5
F'HLSS H()()M
June 5, 2008
2008-6-5-11-29-17 -1724 7
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 $74,160 million as of the end of that week, compared to $75,116 million as of the end of the
prior week.
I. OffiCial reserve assets and other foreign currency assets (approximate market value, in US millions)
I
[
II
IIMay 30, 2008
IA Official reserve assets (in US millions unless otherwise specified)
IIEuro
1(1) Foreign currency reserves (in convertible foreign currencies)
II
1116.028
I
IIYen
IITotal
I
I
II
11 74 ,160
1
11 12,118
1128,146
1
II
II
II
II
110
1
II
I
I(i) other national central banks, BIS and IMF
11 15,002
11 5,978
1120,980
I
Iii) banks headquartered in the reporting country
II
II
II
II
II
110
I
II
11 0
II
11 0
II
110
I(a) Securities
lof which issuer headquartered in reporting country but located abroad
I(b) total currency and deposits With:
lof which: located abroad
I(iii) banks headquartered outside the reporting country
lof which: located in the reporting country
1(2) IMF reserve position
11 4 ,244
1(3) SDRs
119.748
1(4) gold (including gold deposits and, if appropriate, gold swapped)
11 11 ,041
I--volume in millions of fme troy ounces
11 261 .499
1(5) other reserve assets (specify)
I
0
I--financial derivatives
I--Ioans to nonbank nonresidents
I-·other
IB
Other foreign currency assets (specify)
--securities not included in official reserve assets
--deposits not included in official reserve assets
-·Ioans not included in official reserve assets
--financial derivatives not included in official reserve assets
--gold not included in official reserve assets
I
[-other
I
II. Predetermined short-term net drains on foreign currency assets (nominal value)
"
"
~============~lI====~I!,r====41!r====~I~I====~I~I====~ll
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Page 2 of 4
L
[
II
IIMaturity breakdown (residual maturity)
IITolal
IUp 10 1 monlh
II Principal
I
II
II
II
II
II
[
llinterest
II
II
II
[inflows (+)
IIPrincipal
II
[
IIlnterest
II
3. Other (speCify)
--outflows related to repos (-)
I
I
I
I
I
I
I
I
11-62,000
11- 62 ,000
/I
II
I
II
II
I
I
II
II
\
II
--trade credit (+)
II
--other accounts payable (-)
II
--other accounts receivable (+)
II
II
--trade credit (-)
I
I
II
II
II
II
--inflows related to reverse repos (+)
I
II
II
II
II
II
II
II
(b) Long positions (+)
II
II
II
I
2 Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
[ (a) Short positions ( - )
More than 3
months and up to
1 year
More than 1 and
up to 3 months
t-outflows (-)
1. Foreign currency loans, securities, and deposits
I
I
I
I
I
I
!
I
II
II
\I
III. Contingent short-term net drainS on foreign currency assets (nominal value)
II
I
I
II
II
II
I Maturity breakdown (residual
maturity, where
applicable)
I
I
11. Contingent liabilities in foreign currency
More than 3
months and up to
1 year
More than 1 and
up to 3 months
IITolal
"
IUp 10 1 monlh
I
II
II
II
I
II
I
I
I
I
I
(a) Collateral guarantees on debt failing due within 1
year
I(b) Other contingent liabilities
2. Foreign currency securities issued with embedded
options (putlable bonds)
I
[3. Undrawn, unconditional credit lines provided by
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
t-other national monetary authorities (+)
t- BIS (+)
t
(b) with banks and other financial institutions
headquartered in the reporting country (+)
JI
(c) with banks and other financial institutions
headquartered outside the reporting country (+)
II
Undrawn, unconditional credit lines provided to:
I
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
--other national monetary authorities (-)
EBls (-)
r--
I
II
"
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/l00Bf.511291717247.htm
I
I
II
II
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lMF (+)
I
I
I
II
I
I
"
I
Ii
I
II
II
Ii
II
II
II
Ii
7/2/2008
Page 3 of 4
l-IMF (-)
II
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
!I
II
!I
II
II
II
II
II
II
II
II
II
II
[(a) Short positions
II
I(i) Bought puts
II
II
II
[(ii) Written calls
II
1/
IpRO MEMORIA: In-the-money options
I:
I( 1) At current exchange rate
1\
1\
1\
II
II
II
II
II
I(b) Long position
II
1(2) + 5 % (depreciation of 5%)
II
II
I(a) Short position
I(b) Long position
1(3) - 5 % (appreciation of 5%)
II
II
II
I(a) Short position
II
II
II
I
II
\I
II
II
II
II
II
II
II
II
I
/I
I
II
I
I
I
II
I
II
I
II
I
II
II
II
II
II
II
I(a) Short position
II
/I
II
I(b) Long position
II
II
\I
1(5) - 10 % (appreciation of 10%)
II
I
II
I(a) Short position
II
II
II
I(b) Long position
II
II
II
i(b) Long position
II
I
1/
II
"II
I
II
1(4) +10 % (depreciation of 10%)
II
I
II
II
I(a) Short position
I
I
I(b) Long position
!(
I
1/
I(a) Short position
1(6) Other (specify)
I
I
II
II
"II
I(ii) Written puts
I
II
II
II
I
I
II
II
II
II
I(b) Long positions
l(i) Bought calls
I
I
I
I
I
I
II
I
II
II
II
II
\I
I
IV. Memo items
[
II
[1) To be reported with standard periodicity and timeliness
(a) short-term domestic currency debt indexed to the exchange rate
II
(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic
currency)
11
Enondeliverable forwards
I
[-Short positions
I
[-long positions
I
[other instruments
I
li0 pledged assets
[lncluded in reserve assets
--included In other foreign currency assets
~) securities lent and on repo
--lent or repoed and included in Section I
http://www.tl~eatl.gov!pr~h>;/r.i:l~ai>esl200R6.)11291717247.htl11
I
I
I
II
I
II
I
II
I
7/2/2008
Page 4 of 4
--lent or repoed but not included in Section I
I
--borrowed or acquired and included in Section I
I
Ir--borrowed or acquired but not included in Section I
I
lie) financial derivative assets (net, marked to market)
I
t-forwards
I
I
[-futures
II
I
[swaps
I
I
t-options
I
t-other
I
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one year,l
Ilwhich are subject to margin calls.
I
raggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I
I
11
I(a) short positions ( - )
II
I(b) long positions (+)
II
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
~a) short positions
"IIII
[0 bought puts
~ii) written calls
I(b) long positions
"II
II
I(i) bought calls
I(d) written puts
I
"I
I
I(a) currency composition of reserves (by groups of currencies)
11 74 ,160
I
I--currencies in SDR basket
11 74 ,160
I
I--currencies not in SDR basket
II
I
1(2) To be disclosed less frequently
I--by individual currencies (optional)
I
"
II
I
I
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 markedto-market values, and deposits reflect carrying values,
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.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
41 The short positions reflect foreign exchange acqUired under reciprocal currency arrangements with certain foreign central banks.
The foreign exchange acqUired IS not included in Section I, "official reserve assets and other foreign currency assets," of the template
for reporting international reserves However, it is included in the broader balance of payments presentation as "U.S. Government
assets, other than official reserve assets/US. foreign currency holdings and U.S short-term assets,"
http://www.treatl.gov!pr~h>;/r.i:l~ai>es/;:2005(h511291717247.htl11
7/2/2008
HP-IOIO: Under 9ecletmy ft,r l-Mcroational Affairs David H. McConnick<BR>Testimony Before the H...
>~'~\ PRESS ROOM
u.s. OEPARTMENT Of THE TREASURY
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Page 1 of 3
~~
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June 5, 2008
HP-1010
Under Secretary for International Affairs David H. McCormick
Testimony Before the House Committee on Financial Services,
Subcommittee on Domestic and
International Monetary Policy, Trade and Technology
Washington - Chairman Gutierrez, Congressman Paul, Members of the
Committee, thank you for the opportunity to discuss an issue of global importance
with you today - the Clean Technology Fund (CTF).
The CTF is a new multilateral effort to reduce the growth of greenhouse gas
emissions in developing countries by helping to finance additional costs of
deploying clean energy technologies over dirtier and usually cheaper alternatives.
The President's Fiscal Year 2009 budget includes a $400 million appropriations
request for the initial U.S. contribution to the CTF, which will be housed at the World
Bank where it will leverage the capital bases of the multilateral development banks
(MOBs) and the donations of other contributing countries. The Administration has
requested authorization from Congress to commit $2 billion to the multilateral fund
over the next three years. We are aiming, along with our donor partners in the G-8
and beyond, at a global effort of up to $10 billion over the next three years with the
U.S. as the lead donor.
What Is the Problem?
Let me outline for you the magnitude of the problem that the CTF aims to address
and why it is so critical that the United States Government support it.
Since 2002, emerging and developing economies have been responsible for about
two-thirds of global GOP growth. While this unprecedented expansion has brought
economic opportunities and higher standards of living to these previously
impoverished countries, it has also led to surging demand for energy in the power,
transport, building, and industrial sectors.
In addition to contributing to higher global energy prices, this accelerating increase
in energy demand has led to an alarming growth in greenhouse gas emissions in
developing countries. In fact, the greenhouse gas emissions of emerging and
developing economies are rising more rapidly than the emissions of developed
countries and will soon surpass them. According to the International Energy
Agency, by 2030, global demand for energy will increase by over 50%, with almost
three fourths of this increase coming from a handful of developing countries (Brazil,
China, India, Indonesia, Mexico, and South Africa).
Currently, most developing countries are focused on pursuing the most costeffective way to grow their economies, feed their citizens, and raise their standard
of living. Thus, they tend to invest in the available energy technologies that can
provide them the most economic output at the least cost. However, each time they
invest in a dirty technology, such as a sub-critical coal plant with a 30 year life span,
the harder and more expensive it will be for them to mitigate the resulting climatic
effects in the future.
Estimates of the cost to encourage investments in lower carbon energy technology
and infrastructure could be enormous. The World Bank estimates that the price tag
to pay for the incremental costs to deploy clean energy technologies in the power
sector alone in the developing world will be $30 billion annually.
If we take no action to provide developing countries with the right incentives, their
investments today could lock in a legacy of highly-polluting, less efficient
httPIIWWw.treas~Ov/press/releases7hplCr~O.htm
7/2/2008
IIP-lOlO: Under Secretary for International Affairs David H. McCorrnick<BR>Testimony Before the H...
Page 2 of 3
technologies for which we would all eventually pay through the accelerated effects
of climate change.
What is the Response?
In response to this growing global challenge, the United States, UK, and Japan,
have been working multilaterally with other G-8 countries and other potential donor
and recipient countries to create an international clean technology fund to help
developing countries deploy clean energy technologies. Since September 2007,
Secretary Paulson, at the request of President Bush, has led U.S. efforts to
negotiate the development of the Fund with our international partners. In his 2008
State of the Union, President Bush highlighted the fund.
The proposed Fund has three major objectives: first, to reduce emissions growth in
developing countries through the accelerated deployment of clean technologies;
second, to stimulate and leverage private sector investment in existing clean
technologies; and third, to promote international cooperation on climate change in
the context of pursuing a future climate change agreement.
How Will the CTF Work?
The CTF will help developing countries finance the additional costs of deploying
clean technologies over dirtier alternatives. In short, the CTF will help developing
countries make the choice between deploying clean technologies and conventional
technologies economically neutral. The CTF will not cover the entire cost of any
project. It will help cover that portion of a project cost needed to reach the point of
economic viability. National governments and private sponsors will be responsible
for the bulk of project financing.
The CTF will be a multilateral trust fund administered by the World Bank, and
implemented through all of the multilateral development banks (MOBs). It will be
able to leverage the resources of the MDBs--which collectively lent over $55 billion
in 2007 for international development--and the private sector to finance clean
technology projects.
The Fund will invite developing countries, with an emphasis on those with high
expected emissions growth, to submit requests for CTF support to finance energy,
transport or other projects with significant emissions reduction potential, including
large-scale energy efficiency projects. To be eligible to receive funds, developing
countries will be required to work with the World Bank to develop investment
strategies that are based on national plans for low carbon growth.
The Fund will use a mix of concessionalloans. grants, equity investment, and credit
guarantees to finance any additional cost of deploying clean technologies. For
example, if the difference between building a traditional fossil fuel power plant and a
wind farm in a recipient country were $10 million. the CTF could help the recipient
country finance the additional cost associated with the wind farm. This support
would come as part of an overall financing package for the project that would
involve MOB loans or guarantees as well as international private financing and local
resources.
Status of the Fund
The United States, the United Kingdom. and Japan are currently working with other
potential donors in the G-8 and beyond to launch the CTF later this summer with
project funding likely beginning by the end of the year.
Most recently, on May 21 and 22, representatives from the Treasury Department
partiCipated in the final design meeting for the CTF hosted by the World Bank in
Potsdam. Germany where potential donor and recipient countries reached
agreement on general parameters of how the fund will work and how it will be
governed. There is now broad support for the CTF among donor and recipient
countries alike.
I want to underscore the significance of this broad support. Given the very different
views in the developed and developing countries on how to address climate
change, I believe that this support for the CTF presents the United States with a
httPIIWWw.trea~.gov/press/releaseMhp10ta.htm
7/2/2008
lIP-lOW: Under Secretary for International Affairs David H. McCornlick<BR>Testimony Before the H...
Page 3 of 3
unique opportunity.
Through U.S. leadership and involvement, I believe that the CTF will do more than
make an immediate impact on emissions growth in the developing world. I believe
that it will contribute to building the kind of trust between developed and developing
countries that will be necessary if a new UN climate arrangement is to be reached.
Conclusion
The CTF is one important step that the United States can take along with the other
developed countries to demonstrate leadership and to contribute constructively to
broader international efforts to mitigate the effects of climate change on our planet
and its people.
I look forward to working with Congress on this effort and welcome your questions.
Thank you.
-30-
httPIIWWw.treasgov/press/releaseMhplO!O.htm
7/2/2008
.4.,
Page 10f3
liP-lOll: Treasury Designates Gulf-Based aI Qaida Financiers
,
PRESS ROOM
t~)' u.s. DEPARTMENT Of THE TREASURY
,
,
:
...
,r
'
June 5,2008
HP-1011
Treasury Designates Gulf-Based al Qaida Financiers
Washington - The U.S. Department of the Treasury today designated three
individuals for providing financial and material support to al Qaida.
"These three dangerous individuals must be stopped from further facilitating
terrorism," said Stuart Levey, Under Secretary for Terrorism and Financial
Intelligence. "The global community should act swiftly to prohibit them from using
the financial system and from traveling internationally,"
Khalifa Muhammad Turki al-Subaiy and 'Abd ai-Rahman Muhammad Jaffar 'Ali
were convicted by the Bahraini High Criminal Court in January 2008 for financing
terrorism, undergoing terrorist training, facilitating the travel of others abroad to
receive terrorist training, and for membership in a terrorist organization. Adil
Muhammad Mahmud Abd al-Khaliq was arrested in the United Arab Emirates
(UAE) in January 2007 on charges of being a member of the terrorist groups al
Qaida and the Libyan Islamic Fighting Group (LlFG).
These individuals were designated under Executive Order 13224, which targets
terrorists and those providing financial, technological, or material support to
terrorists or acts of terrorism. Any assets these designees have under U.S.
jurisdiction are frozen and U.S. persons are prohibited from engaging in any
transactions with the designees.
Identifyi ng Information
KHALIFA MUHAMMAD TURKI AL·SUBAIY
AKAs:
Khalifa Mohd Turki Alsubaie
Khalifa Mohd Turki al-Subaie
Khalifa AI-Subayi
Khalifa Turki bin Muhammad bin al-Suaiy
Citizenship:
Qatari
DOB:
January 1, 1965
Qatar Passport:
00685868
Qatar Identity Card:
26563400140
Khalifa Muhammad Turki al-Subaiy is a Qatar-based terrorist financier and
facilitator who has provided financial support to, and acted on behalf of, al Qaida
senior leadership, including senior al Qaida leader Khalid Sheikh Mohammed
(KSM) prior to KSM's capture in March 2003. AI-Subaiy has provided financial
support to al Qaida senior leadership in Pakistan's tribal region, and has also
worked with senior al Qaida facilitators to move extremist recruits to al Qaida
training camps in Pakistan. In addition, al-Subaiy has served as a diplomatic and
communications conduit between al Qaida and third parties in the Middle East.
In January 2008, al-Subaiy was convicted in absentia by the Bahraini High Criminal
Court for financing terrorism, undergoing terrorist training, facilitating the travel of
others abroad to receive terrorist training, and for membership in a terrorist
organization. He was subsequently arrested in Qatar in March 2008, where he is
currently serving his sentence.
http/IWWw.trea:-.gov/press/releases/hptDll.htm
7/212008
HP-lOll: Treasury Designates Gulf-Based al Qaida Financiers
Page 2 of3
'ABO AL-RAHMAN MUHAMMAD JAFFAR 'ALI
AKAs:
'Abd ai-Rahman Muhammad Jaffir
'Abd ai-Rahman Muhammad Jafir 'Ali
Abda~RahmanJaffir~i
Abdul Rahman Mohamed Jaffer Ali
Abdulrahman Mohammad Jaffar
'Ali AI-Khal
Abu Muhammad AI-Khal
Nationality:
Bahraini
DOB:
January 15,1968
POB:
Muharraq, Bahrain
'Abd ai-Rahman Muhammad Jaffar 'Ali is a Bahrain-based al Qaida financier and
facilitator who has provided significant funding to al Qaida. 'Ali facilitated the
movement of money to a senior al Qaida facilitator in Iran. He has also provided his
personal funds for use by an al Qaida recruit.
In January 2008, 'Ali was convicted by the Bahraini High Criminal Court for
financing terrorism, undergoing terrorist training, facilitating the travel of others
abroad to receive terrorist training, and for membership in a terrorist organization.
'Ali was released shortly after the announcement of the verdict, and, with credit for
time served, has completed his sentence.
ADIL MUHAMMAD MAHMUD ABO AL-KHALlQ
AKAs:
Adel Mohamed Mahmoud Abdul Khaliq
Adel Mohamed Mahmood Abdul Khaled
POB:
Bahrain
DOB:
March 2, 1984
Bahraini Passport:
1632207
For several years, Adil Muhammad Mahmud Abd al-Khaliq has acted for or on
behalf of al Qaida senior leaders and has provided financial, material, and logistical
support to al Qaida and the Libyan Islamic Fighting Group (LlFG). In 2004, Abd alKhaliq was recruited by al Qaida to access sources of funding and to procure
reliable equipment to expand al Qaida operations in Afghanistan - ultimately to
carry out larger attacks there. Abd al-Khaliq also traveled to Waziristan, Pakistan,
for terrorist training and to take part in "jihad" in Afghanistan against Coalition
forces. His training included instruction in the use of AK-47 assault rifles and
explosives. Abd al-Khaliq resided in al Qaida, Taliban, and LlFG safehouses during
his training period.
Between 2004 and 2007, Abd al-Khaliq traveled to Iran five times on behalf of al
Qaida and the LlFG for his facilitation duties. During each of these trips, he met with
senior al Qaida facilitators. During this same timeframe, Abd al-Khaliq provided
material support to al Qaida and the UFG by equipping them with electrical parts
used in explosives, laptop computers, jackets, GPS devices, and other equipment.
Additionally, Abd al-Khaliq arranged the transportation of fighters, money, and
material to LlFG camps in Pakistan.
In January 2007, Abd al-Khaliq was arrested in the United Arab Emirates (UAE) on
charges of being a member of the terrorist groups al Qaida and the LlFG. Following
his conviction in the UAE in late 2007, Abd al-Khaliq was transferred in early 2008
to Bahraini custody to serve out the remainder of his sentence.
httpllWWw.trea~.gov!press!releases!hplOII.htm
7/2/2008
lp-1012: Treasurer Anna Escobedo Cabral Remarks at<br>Global Summit of Women in Vietnam
/'~~~'"
PRESS ROOM
'~IJ' u.s. DEPARTMENT Of THETREASURY
Page 1 of 4
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June 6,2008
hp-1012
Treasurer Anna Escobedo Cabral Remarks at
Global Summit of Women in Vietnam
Hanoi, Vietnam - Thank you for the generous introduction. I am pleased to be at
the 18th Global Summit of Women -- the foremost international forum regarding
women's issues. I am proud to be in such distinguished company, including female
government ministers, business executives, NGO leaders, entrepreneurs, and
professionals from more than 60 countries. I have no doubt this will be a successful
summit, which will expand opportunity and accelerate women's economic progress
worldwide.
I would like to express special thanks to the talented Summit President Irene
Natividad, as well as to Georgette Tan (VP Communications, MasterCard) and
Xiaoyah Zhao (Senior VP, GfK Roper) for their insightful presentations.
Also, I would like to extend a special note of gratitude to the government and the
people of Vietnam for their extraordinary effort in serving as host to this year's
summit and for their friendliness and gracious hospitality. A Vietnamese proverb
says, "Never forget benefits done you, regardless how smaiL" Certainly, I shall not
forget the kindness - both large and small - shown to me this week.
U.S. President Bush, Secretary of State Rice, and Treasury Secretary Paulson
visited Hanoi in late 2006 for the Asia-Pacific Economic Cooperation Summit. They
came with many messages, but with several themes in common - praise for the
people of Vietnam for their tremendous economic growth in the past decades and
great support for the people and the economies of Asia. Today, I hope to reaffirm
that message.
I will be addressing the topic of "Megatrends Affecting the World's Economies."
Although this topiC is a broad one, I have narrowed my remarks to demographic
trends, such as increased population and aging in Asia and how these trends affect
women and the economy. Also, I will discuss the trend of females successfully
using microfinance to decrease poverty, and an issue that I hope is quickly
becoming a global trend, financial literacy. But first, I will begin with a broad
discussion of the economy.
INTRODUCTION
Asia is the fastest growing economy and one of the most dynamic regions in the
world. It is of central importance to the global economy, has attracted the attention
of investors and entrepreneurs from around the world, and continues to grow. From
India to Japan and from China to Singapore, each country is on its own economic
path to the future, but each is inextricably linked. Globally, each of us shares the
benefits and responsibilities of expanding economic prosperity.
Over the past year, critical developments in the global markets have led to
mounting concerns about whether Asia can continue its impressive economic
performance. While the recent market turmoil has had limited direct effect on most
Asian economies, the slowdown in the United States and Europe has begun to
impact demand for exports from Asia, reinforcing the importance of Asian
economies shifting to a model of growth that relies more on domestic demand and
less on exports.
U,S. AND GLOBAL ECONOMY
As you are aware, the United States has been experiencing some financial market
turmoil since mid-2007 which has had global implications. A variety of factors led
up to the problem - easy credit conditions, a decline in mortgage and other credit
lending standards, increasingly complex financial instruments and structures,
excessive leverage in our financial system, and investor and credit ratings agency
httpIIWWw.treas.~ov/press/releases!hpt012.htm
7/2/2008
lp-1012: Treasurer Anna Escobedo Cabral Remarks at<br>Global Summit of Women in Vietnam
Page 2 of4
issues.
The President, U.S. Treasury Secretary Paulson and other leading policymakers in
the United States responded swiftly to help stabilize markets and reduce the impact
on the economy, while at the same time, avoiding regulations and actions that
would stifle innovation or hinder self-correction.
The U.S. implemented quick policies such as urging banks to recognize and report
losses and raise additional capital, developing initiatives to help keep people in their
homes, and enacting a $150 billion economic stimulus package to support
consumer and business spending. Also, the US Federal Reserve has taken
focused actions to protect the financial system. Already, we are beginning to see
modest yet positive effects of these actions. We continue to work on developing
longer-term solutions to strengthen financial markets and fix the weaknesses that
contributed to the turmoil in global financial markets.
It is also clear that the response must be both a domestic and an international one.
So, Treasury is working closely with counterparts in the G7 and other major
economies around the world to address market instability. The Financial Stability
Forum, which brings together the supervisors, central banks, and finance ministers
of major financial centers, has been critical to this effort. The FSF has released a
number of recommendations and implementation has begun.
ASIA ECONOMY
U.S. demand for imports has slowed over the past year, affecting exporters in a
variety of nations here in Asia and across the globe. However, in the midst of a US,
and to a lesser extent, European slowdown, Asia has faired relatively well.
EconomiC growth in Asia remains somewhat buoyant and appears to be a brighter
spot in terms of growth opportunities.
In recent decades, Asia has enjoyed increased entrepreneurial opportunities,
improved access to capital markets, increased global trade, and increased
consumer spending power. Growth throughout Asia has led to an accumulation in
wealth, high savings, and the growth of a strong middle class very quickly.
Hundreds of millions have joined, and continue to join, the middle class in the AsiaPacific. This shift to growth driven by domestic demand will help Asia enjoy
sustained and resilient growth, while also increasing the living standards of people
throughout the region.
Perhaps one of the greatest examples of economic growth in Asia is here in
Vietnam. Since 1975, Vietnam has been transformed. It is now one of Asia's
fastest-developing countries, with annual growth averaging 7.5 percent over the
past decade. It has made impressive progress in reducing poverty. It is a rising
diplomatic power. And, it has escaped deep poverty by embracing free trade.
In fact, over the past two decades, many Asian countries have made tremendous
progress in the fight against poverty. As home to two-thirds of the world's poor,
poverty remains one of the most pressing issues in Asia today, and it remains an
issue of great importance to women, who are often disproportionately affected.
Private sector development is helping, especially better financial inclusion and
microfinance.
MICRO FINANCE
Women in Asia have long known their strength in managing household assets. In
Japan, China, Vietnam, and many other Asian countries, women are often the
primary caretakers of money matters in the family. So it comes as no surprise that
women achieve great success when given access to resources through
microfinance and microcredit.
There is overwhelming evidence from developing regions of the world that women's
investments help families, help the economy, and reduce poverty in the developing
world.
Recently, The Washington Post ran a fascinating story about women being key in
the reconstruction of Rwanda's economy. That story also cited that in Bangladesh,
the Grameen Bank, the best-known of all micro-credit organizations, has focused its
microloans on women and had success rates far higher for female than for male
borrowers.
httP/IWWw.trea:;.guv!jJresslrekasc3/hplf)I2.htm
7/2/2008
lp-1012: Treasurer Anna Escobedo Cabral Remarks at<br>Global Summit of Women in Vietnam
Page 3 of 4
It goes on to mention that, "In India's great economic transformation of the past 15
years. states that have the highest percentage of women in the labor force have
grown the fastest as well as had the largest reductions in poverty, according to the
World Bank."
Microloan programs across the developing world have shown similar results.
POPULATION GROWTH IN ASIA
An interesting demographic trend in Asia with economic implications is rapid
population growth. Over the past half-century, this population explosion captured
the attention of the scholars and policymakers around the globe. Today, however,
population growth has slowed and the demographic boom is essentially over. But
the factors that contributed to the boom - better healthcare, and longer lifespans remain for both women and men.
The results of this rapid population growth, combined with economic growth, have
given the region much greater role in global economic affairs. As of mid-2000,
roughly three-fifths of the world's population resided in Asia. But as the population
in this region ages, Asia will face new challenges.
AGING POPULATION
Age patterns vary enormously in Asia. In places like Afghanistan, Pakistan, Laos,
and Cambodia, the median age in the year 2000 was below twenty years old.
Vietnam, too, has a relatively young population. However, in the coming years,
most population centers in Asia are expected to age QPpreciably.
In many countries, population aging is already well underway. Thailand, Singapore,
South Korea, and South India are beginning to see these increases. Japan,
already considered one of the "grayest" countries on earth, is one of the most
extreme cases.
While aging will pose serious challenges to the region's economies, it will also
create new economic opportunities over the decades ahead, especially in Japan
and China. With more and more people of retirement age, there will be less
working-age people to support growth and fund riSing public pension expenditures.
Countries with stronger national pension systems in place and strong public health
care sectors will be better equipped to handle aging populations in the decades
ahead. In many economies, fewer traditional workers will be in the workforce, and
more nontraditional wage-earners, including more women, will have to play an even
greater role in the workforces throughout Asia in order to support growth.
Also, families will bear an increasing financial burden of taking care of older
individuals. Caring for aging family members, educating their children, and saving
for their own retirement will create an increasing financial burden for women in Asia.
For women, knowing how to save and invest wisely will become even more
important. That's where financial literacy comes in.
FINANCIAL LITERACY
Financial Literacy - knowing how to save, plan for retirement, understanding credit,
and understanding the importance of using banks and financial institutions - is a
need we all share.
As Treasurer, this is an issue that I often promote in the United States and more
recently, abroad. I believe that the best approach to complex financial issues is
prevention. If we figure out how to help families before they get into trouble maybe by taking simple steps such as making a daily budget, or educating young
people about savings - we can improve lives.
Further, it is in important to ensure that people become banked use the banking
system and that those banks serve not only the wealthy, but the middle-class and
those at the other end of the spectrum. It is important that people have insurance.
It is important that as the retirement system continues to change that people
understand their investment decisions. And, it is important that no matter what
financial system we have, that people have access to, and understand how to use
that system.
We know that a country's low savings rate and high debt burden are drags on its
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hP-1012: Treasurer Anna Escobedo Cabral Remarks at<br>Global Summit of Women in Vietnam
Page 4 of 4
economic growth. We see this happening in many parts of the world. In many
countries in Asia, it is not low saving, but rather inefficient saving, that presents the
biggest challenge. As retirement and education costs increase, it becomes more
and more important that households have access to more and better investment
options, so that they can meet their future financial needs while also being able to
consume more now. By educating people about these issues, we can make a
positive impact on the world economy.
International financial literacy efforts are on the rise. Recently, the Department of
the Treasury had its first conference on this issue with some of the top world
leaders in the field. I hope this trend is one that continues to grow and flourish.
CONCLUSION
I've often heard, "When in doubt, predict that the present trend will continue." If this
is true, it would be a generally good sign for Asia, with its increasingly strong
economies and bright future.
It is also good news for women, who are leading the charge on so many vital issues
- eradicating poverty, ensuring quality education for our young people, protecting
the environment, and creating better lives for their families through control of family
budgets. I am proud to be here today with all of you gifted and wonderful women
who are doing so much to better the lives of people in your respective countries.
In our globally dependent world, it is important that we share best practices and use
that knowledge to ensure greater prosperity for us all. I know I have learned a great
deal already that I will take home with me. Let's make continuing to share ideas,
learn, and help one another a trend we continue for years to come.
Thank you. I'd be happy to take any questions you may have.
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lp-1013: Paulson to Speak on U.S. - China Economic Relations
:,~i'~'~\, PRESS ROOM
,~ u.s. DEPARTMENT OF THE TREASURY
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June 6, 2008
hp-1013
Paulson to Speak On U.S. - China Economic Relations
Secretary Henry M. Paulson, Jr. will deliver remarks next week to the Carnegie
Endowment for International Peace on the U.S. - China economic relationship and
the upcoming meeting of the Strategic Economic Dialogue (SED). The dialogue,
established by Presidents Bush and Hu, is a framework for managing our bilateral
economic relationship on a long-term strategic basis. The fourth Cabinet-level
meeting will take place June 17-18, 2008 at the U.S, Naval Academy,
Who
Treasury Secretary Henry M. Paulson, Jr.
What
Remarks on U.S.-China Economic Relations
When
Tuesday, June 10, 10:00 a,m. EDT
Where
Carnegie Endowment for International Peace
1779 Massachusetts Avenue, NW
Washington, D.C.
Note Media must register in advance with Trent Perrotto at 202-939-2372 or
tperotl()',Il:Uclll orCJ and must be pre-set by 9:50 a.m.
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hP-1014: Week 6 Wrap-Up: Treasury Sent 9.143 Million Stimulus Payments This Week
Page 1 of:
,,/~~~, PRESS ROOM
u.s. DEPARTMENT OF THE TREASURY
'{IJ'
June 6,2008
hp-1014
Week 6 Wrap-Up: Treasury Sent 9.143 Million Stimulus Payments This Week
This week the Treasury Department sent out 9.143 million economic stimulus
payments to American households totaling $6.789 billion. So far, Treasury has sent
out 66.576 million total economic stimulus payments totaling $56.831 billion.
Cumulative Total
Total Number of Payments: 66.576 million
Total Amount of Payments: $56.831 billion
Week Six (June 2-6)
Total Number of Payments 9.143 million
Total Amount of Payments: $6.789 billion
Week Five (May 26-30)
Total Number of Payments: 5.757 million
Total Amount of Payments: $4.320 billion
Week Four (May 19-23)
Total Number of Payments: 6.211 million
Total Amount of Payments: $4.927 billion
Week Three (May 12-16)
Total Number of Payments: 15.575 million
Total Amount of Payments: $13.562 billion
Week Two (May 5-9)
Total Number of Payments: 22.180 million
Total Amount of Payments: $20.138 billion
Week One (April 28-May 2)
Total Number of Payments: 7.708 million
Total Amount of Payments: $7.091 billion
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households, and the total amount of payments
sent. Payments began April 28 and will continue via direct deposit or paper check
through mid-July. For a single filer, the minimum payment is generally $300 and
the maximum payment is $600. For joint filers, the minimum is generally $600 and
the maximum $1,200. There is also an additional $300 payment for each qualifying
child.
For tax returns processed by the Internal Revenue Service by April 15 households
will receive their payments according to the last two digits of the Social Security
number on the tax form. On a joint return, the first number listed will determine
when a stimulus payment will be sent.
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hp-1014: Week 6 Wrap-Up: Treasury Sent 9.143 Million Stimulus Payments This Week
Page 2 of2
Direct Deposit Payments
If the last two digits of your Social
Security number are:
Your economic stimulus payment deposit
should be transmitted to your bank
account by:
00-20
21-75
76-99
May2
May9
May 16
Paper Check
If the last two digits of your Social
Security number are:
00-09
10-18
19-25
26-38
39-51
52-63
64-75
76-87
88-99
Your check should be in the mail by:
May 16
May 23
May 30
June6
June 13
June 20
June 27
July 4
July 11
A small percent of tax returns will require additional time to process and to compute
a stimulus payment amount. For these returns, stimulus payments may not be
issued in accordance with the schedule above, even if the tax return was processed
by April 15. In these cases, the stimulus payment will be issued approximately 2
weeks after the tax return is ultimately processed.
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hp-I015: Treasury Economic Update 6.6.08
Page 1 of 1
/~~~, PRESS ROOM
,~ u.s. OEPARTMENT OF THE TllEASURY
June 6,2008
hp-1015
Treasury Economic Update 6.6.08
" Today 's jobs data reflect the slow growth of the past two quarters and the
headwinds the U.S. economy faces from energy prices, the housing
correction, and credit market strains. We expect the stimulus payments now
going out to have a meaningful impact in supporting family and business
spending this year while we work through the current challenges."
Assistant Secretary Phillip Swagel, June 6, 2008
Employment Fell i.n May:
Job Growth: Payroll employment fell by 49,000 in May, following a decrease of
28,000 in April. The United States has added about 8 million jobs since August
2003. Employment increased in 41 states and the District of Columbia over the
year ending in April. (Last updated: June 6, 2008)
Unemployment: The unemployment rate was 5.5 percent in May, up from 5.0
percent in April. (Last updated: June 6, 2008)
Signs of Economic Strength Include Exports and. Low InJlation:
Exports: Strong global growth is boosting U.S. exports, which grew by 8.8 percent
over the past 4 quarters. (Last updated: May 29, 2008)
Inflation: Core inflation remains contained. The consumer price index excluding
food and energy rose 2.3 percent over the 12 months ending in April. (Last
updated: M~y 14, 2008)
The ECQnomic Stimulus Package Will Provjde a Jemporary B_90st to_Our
Economy:
The package will help our economy weather the housing correction and other
challenges. The Economic Stimulus Act of 2008, signed into law by President
Bush has two main elements--stimulus payments so that working Americans have
more money to spend and temporary tax incentives for businesses to invest and
grow. Together, the legislation will provide about $150 billion of stimulus for the
economy in 2008, providing a meaningful boost to the U.S. economy in 2008. (Last
updated: February 29,2008)
Pro-Growth Policies Will Enhance Long-Term U.S. Economic Strength:
We are on track to make significant further progress on the deficit. The FY07
budget deficit was down to 1.2 percent of GOP, from 1.9 percent in FY06. Much of
the improvement in the deficit reflects strong revenue growth, which in turn reflects
strong economic growth. Looking ahead, higher spending on entitlement programs
dominates the future fiscal situation; we must squarely face up to the challenge of
reforming these programs.
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7/2/2008
Page 1 of 5
/~~\ PRESS
ROOM
~ u.s. DE PARTMEHT OF THE TREASURY
'-,' -v
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June 10, 2008
hp-1016
Remarks by Secretary Henry M. Paulson, Jr. On the Fourth Meeting of the
U.S.-China Strategic Economic Dialogue at the Carnegie Endowment for
International Peace
Washington - Thank you Jessica, and thank you to the Carnegie Endowment for
International Peace for the opportunity to speak with you.
Today, as has been the case each day since the Sichuan earthquake, our thoughts
and prayers are with the Chinese people as they work to meet the challenges
resulting from this terrible tragedy. As President Bush has said, the United States
stands ready to help in any way possible. Our government, companies, charities
and individuals have already donated or pledged over $100 million in goods,
services and money. We are committed to help China rebuild the devastated area.
The U.S. - China economic relationship is complex, broad and important to both
our countries and to the world economy. Through the on-going, dynamic and
respectful discussions of our Strategic Economic Dialogue, the SED, the
relationship is also growing in a positive direction.
A Preview of the Fourth StrategiC Economic Dialogue
I look forward to making further progress on shared objectives at the fourth meeting
of the SED next week. This meeting will be the first opportunity for my Cabinet
colleagues to collectively meet and work with China's newly appOinted leadership
team. We welcome our new Chinese colleagues and together we will demonstrate
that the SED can effectively manage our economic relationship through a period of
leadership transition while laying a course of concrete action to achieve our
strategic objectives. In particular, I look forward to welcoming my new counterpart,
Vice Premier Wang Qishan, in his new role for his country.
A critical goal for the 21 st century is to get the U.S.-China economic relationship
"right." At next week's SED we will have a robust discussion of our economic
relationship, envisioning a future of sustainable economic growth over the next
decade.
And so the SED meeting next week will focus on five areas. These are: managing
financial and macroeconomic cycles; developing human capital; the benefits of
trade and open markets; enhancing investment; and advanCing joint opportunities
for cooperation in energy and the environment.
The SED has brought progress faster and more broadly on issues important to the
U.S. and global economy than would have been possible otherwise. Success has
come through on-going collaboration, candid high-level discussions, understanding
each other's priorities and interests, and surmounting particular bureaucratic
interests by working with the Chinese government as a whole.
It is clear that our strategy for robust engagement with China - intensive dialogue
but with resort to WTO dispute settlement and WTO-sanctioned trade remedies if
needed - is more productive than protectionist policies or legislation.
Managing financial and macroeconomic cycles will be our first discussion topic next
week. Both the United States and the Chinese economies face current challenges,
including adjusting to higher energy and food ~rices. The United States is working
through a housing market correction and re-prlclng of risk In credit markets.
China is grappling with rising inflation and growing internal and external
macroeconomic imbalances. China's imbalances stem largely from an economic
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structure that has become too heavily dependent on industry, investment and
exports. This has led to a growing trade surplus, high energy use, environmental
degradation and rising domestic inequality.
Continued exchange rate reform is among the macroeconomic and structural
measures China should take. Exchange rate reform will be critical in meeting
China's short and medium-term challenges. Greater exchange rate flexibility will
make Chinese monetary policy more effective in controlling inflation and will help
bring about the structural economic shifts China needs to reduce its imbalances.
Despite the progress that China has made, including almost 20 percent RMB
appreciation against the dollar since July 2005, continued movement and greater
flexibility are still needed. Increasing the pace of reform of China's financial services
markets is also important to further support the growth and development of China's
economy.
A major contributor to the structural imbalances is a saving rate challenge in each
of our economies. In the United States our saving rate is too low. In China it is too
high. In order to effectively deal with this issue, we must address how to adequately
provide for our aging populations, including the role of private and public insurance
and financing for social services such as health care and retirement. Inadequate
social safety nets in China lead to high levels of precautionary saving and are a
major contributor to low domestic consumption and the large and rising trade
surplus.
In the United States rising health care costs and our aging population are creating
public policy challenges. Restraining the growth of health care costs and reforming
our Medicare and Social Security programs are critical to prevent a looming fiscal
problem. These steps are necessary and important measures to help us address
our low saving rate and the resulting imbalances.
Increased openness to competition and international trade is critical for continued
economic growth in both our nations and for the future prosperity of our people. We
will discuss steps that we can take to ensure that our countries, and the world
economy, remain open to trade.
We will examine how we can promote mutual interests, including enhancing
innovation and developing and protecting intellectual property intensive industries,
improving food and product quality and safety, stopping the global trade in fake
products, furthering transparency and rule of law, and supporting green energy and
environmental product markets.
We will build on previous progress, such as the civil aviation agreement that
resulted in a new non-stop flight between Atlanta and Shanghai this past March,
and a new group leisure travel agreement that is estimated to bring up to 100
million Chinese travelers to the United States over the next 15 years, creating jobs
and growth here at home.
America's policy of open investment is one of our predominant economic strengths.
Foreign direct investment stimulates competitiveness, growth, jobs and productivity.
At the fourth round of the SED, we will discuss the best way to promote and protect
bilateral investment and counter protectionist pressures. We will also discuss the
concerns of American companies that China's investment regulations are opaque
and seem in many ways to be designed to favor China's "national champions."
The value of the SED to economic issues is clear. The SED also increases U.S. China collaboration on security and other key international issues, making our
overall relationship stronger and broader.
Energy Security and Environmental Sustainability
Finally, next week we will also focus on energy security and environmental
sustainability. I will elaborate further on that today.
Energy Security
The U.S. economy faces significant headwinds from a number of fa~tors including
rising energy prices. Gasoline, food, and many common household Items have
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become more expensive for American families. There is an urgent need for U.S.
energy policies to significantly evolve to ensure U.S. energy security.
Since the beginning of the Bush Administration, the United States has spent nearly
$18 billion to research, develop, promote and bring clean and efficient technologies
to market. We continue to develop new strategies - last December President Bush
signed the Energy Independence and Security Act, which responded to his "Twenty
in Ten" challenge to improve vehicle fuel economy and increase alternative fuels.
But much more is needed if we are to adequately address our energy security
challenges.
As the two largest net importers of oil, China and the United States face similar
challenges. We have a strong and shared interest in avoiding supply disruptions,
increasing energy efficiency, promoting the efficiency and transparency of the
global energy markets to the benefit of all oil importing nations, and expanding the
availability and use of alternative energy sources.
To power its economic growth China has become the world's largest coal producer
and consumer. In 2006, it became the second largest purchaser of new vehicles,
which is one of the key reasons why China has now become the world's third
largest consumer of oil.
To find solutions to these shared challenges, the U.S. and China have been
working together under the SED to address energy security. We already have an
agreement to strengthen cooperation on next generation biofuels, to increase
industrial energy efficiency, strengthen cooperation on the certification of energy
efficient products, increase cooperation on nuclear safety, and a joint five-year
commitment to promote large scale deployment of alternative fuel technologies for
vehicles. In conjunction with the International Energy Agency, the lEA, we have
also strengthened cooperation on strategic oil reserves.
But to comprehensively address its energy security, China must go beyond these
joint efforts. China has made a good start by establishing numerous plans and
ambitious goals, highlighted by the Eleventh Five Year Plan, for 2006 to 2010,
which established aggressive goals to reduce energy consumption per unit of GOP
by 20 percent. China has moved towards meeting some of these goals by reducing
energy consumption over 3 percent per unit of GDP output in 2007. While I applaud
this continued focus and am encouraged by this progress, further results cannot
come fast enough.
The Role of Markets in Promoting Energy Security
As the United States developed, we found that harnessing market forces, combined
with strong regulations and enforcement, were powerful tools to support economic
growth.
For example, the sulfur dioxide tradable credit system established under the 1990
Clean Air Act has demonstrated how market-driven measures can cost-effectively
reduce pollution.
We also learned a costly lesson in the 1970's when we attempted to defy market
forces and imposed oil price restrictions. Rather than achieving our intended result,
we experienced winter heating oil shortages, supply problems, rationing, and a
reduction in domestic oil and gas investment and exploration. In some cases we
attempted to control output prices without being able to control input prices, forcing
operating losses and large cuts in supply.
China, by setting price controls on fuel, is facing similar consequences today - as
can be seen by persistent gasoline and diesel shortages throughout the country.
The consequences of these policies also extend to the power sector, where price
caps on electricity and fuel contributed to nationwide power outages during
snowstorms this past January and February.
The United States learned that price controls interfere with the natural equilibrium of
markets to match supply and demand, and lead to shortages. And because market
forces can never be completely eliminated, price controls often lead to smuggling
and corruption.
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Indeed, the best way to deal with economic shocks is to allow markets to operate
fully, and with full information. For oil, information on stocks and reserves is
particularly important, and therefore it is critical that China and all oil producing
countries provide information on their reserves to the lEA.
In the United States, innovation, coupled with market-based policies and
regulations that encourage energy efficiency, lead to technological advances that
reduce energy consumption. As a result, the consumer benefits and markets evolve
and grow. We also achieve a cleaner environment.
The Ten-Year Energy and Environment Cooperation Framework
The U.S. and China both know that tomorrow's economic opportunity requires
conserving natural resources today. To focus more sharply on this goal, at last
December's SED meeting we announced th~ beginning of ten years of cooperation
on energy and environmental issues.
Working together on this framework will challenge all levels of government,
industry, academia and non-governmental organizations to find answers to these
and many other questions: How do we reduce dependency on oil and increase
energy security? How do we better preserve the natural environment, and prevent
greenhouse gas release due to deforestation? How do we meet our energy goals?
How do we ensure that our water is clean and safe?
These questions may be answered differently in the United States than in China.
Yet, our approaches to finding answers may be similar - to implement proven
policies, to educate individuals to make environmentally sound decisions, and to
ensure that companies follow regulations designed to protect human health.
Solutions will also require technological breakthroughs and making existing and
new technology affordable by reducing market access barriers. I often hear from
U.S. companies that they do not sell their technology to willing Chinese buyers for
fear that their designs and technology will be stolen. These U.S. exporters'
concerns are a significant reason for limited sales of technology-based products. I
hear from Chinese government officials that the U.S. technology they need for
pollution control is expensive in part due to tariffs and non-tariff barriers. We have a
shared interest in resolving these dilemmas, and we can solve them.
Since December, we have been adding details to this framework and we will
announce the results of our initial efforts at next week's SED meeting. This
cooperation will likely bring innovations that we cannot yet imagine and expand our
relationship in many new ways.
We are selecting shared goals, such as reducing dependency on oil. We are
defining specific energy targets, such as increasing vehicle fleet fuel efficiency and
creating incentives for the development and use of alternative fuels. We are
developing action plans for joint projects that will accelerate existing efforts. These
action plans will help each country identify policy solutions to improve
implementation of existing regulations and incentives, and challenge us to develop
even more innovative approaches and answers.
The Environmental Challenges
China's leaders go about this in the face of daunting environmental challenges.
According to the World Bank, 16 of the world's 20 most polluted cities are in China.
Water quality is deteriorating - 90 percent of all rivers show signs of significant
pollution, and 62 percent of water is unsuitable for fish. And although the Chinese
government has established laudable environmental protection goals, monitoring
and enforcement of environmental regulations remains very weak.
Conservation is one area where both the United States and China have made
significant progress in safeguarding the environment. In the United States, through
a variety of federal, state and local agencies we conserve, protect and manage
natural resources. Private industry and a vibrant non-profit sector further support
these efforts.
I applaud China's recent steps and would encourage further progress to develop
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Page 5 of 5
legislation that would more effectively protect natural habitat. I am also encouraged
to know that China is adding 2 million hectares of forest per year to increase forest
coverage by 6 percent to combat desertification. According to official Chinese
projections, by 2010, 16 percent of China's total territory will be natural reserve
areas, and 90 percent of the remaining typical forest and wetland ecosystems. and
key national wildlife will effectively be protected.
A Foundation for Progress
The environmental aspects of the ten year framework build upon a solid foundation.
We have a memorandum of understanding to combat illegal logging and promote
sustainable forest management. And we have launched efforts to help China
develop a nationwide program on sulfur dioxide emissions trading. U.S. and
Chinese private sector companies are also helping to create the "green" economy.
Whether it is the public sector or the private sector, this work is aspirationaJ.
Recent meetings between U.S. and Chinese leaders have shown great promise for
collaboration on green buildings, energy efficient infrastructure projects and
creating "Eco-cities." China adds 2 billion square meters of new construction every
year, and has 40 billion square meters of existing buildings that need retrofitting.
China's leaders know that the development of green buildings is a critical need.
As we establish this cooperative framework, my friends in China often ask what can
be done about China's immediate energy and environmental challenges. My
answer is that China, given its current economic growth and prosperity, can
leapfrog the United States and the rest of the world in deploying and using
advanced energy and environmental technology.
Adopting advanced technology will increase China's energy efficiency and reduce
the emissions of greenhouse gases and harmful pollutants. But bringing this
technology to China is hindered by the tariff and non-tariff barriers that China places
on environmental goods and services. A high priority should be eliminating barriers
on products, goods and services that can improve the health and welfare of the
Chinese people.
For example, there is a water membrane technology available right now. If installed
properly, it could help local communities take significant steps towards reducing the
pollution entering rivers from power plants. That means that within months, some
Chinese citizens could have cleaner water. Yet a tariff of 22 percent on water
membranes makes this technology too expensive for many communities.
Significant opportunity exists for the United States and China to achieve immediate
progress and make long-term strides towards energy security and environmental
sustainability. Through a ten year framework of cooperation, I believe that we have
the foundation to meet these challenges in a sustained, collaborative manner.
Conclusion
Next week's fourth Strategic Economic Dialogue meeting will move the United
States and China even further forward to a stronger economic future. We have kept
our economic relationship on an even keel, even during times of stress. We are
building upon a shared vision that is possible because of our cooperation, and
feasible because of our commitment to the prosperity of our people. Thank you.
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HP-I017: Testimony of Deputy Assistant Secretary Jeremiah O. Norton<br>Before the U.S. House Subc... Page I of,
/~3~, PRESS
ROOM
,~ u.s. OEPARTMENT OF TIlE TllEASURY
June 10. 2008
HP-1017
Testimony of Deputy Assistant Secretary Jeremiah O. Norton
Before the U.S. House Subcommittee on Capital Markets
Insurance and Government Sponsored Enterprises
Washington - Thank you, Chairman Kanjorski, Ranking Member Pryce. and
Members of the Subcommittee for inviting me to appear before you today to discuss
the Insurance Information Act of 2008 (H.R. 5840; Discussion Draft as of June 4,
2008).
The Need for Insurance Regulatory Modernization and Treasury's Blueprint
Recommendations
Insurance performs an essential function in our domestic and global economies by
providing a mechanism for businesses and individuals to safeguard their assets
from a wide variety of risks. Insurance is similar to other financial seNices in that its
cost, safety, and ability to innovate and compete is heavily affected by the
substance and structure of its system of regulation.
Unlike banks and other financial institutions that are regulated primarily at the
federal level or on a dual federal/state basis, insurance companies in the United
States are regulated almost entirely by the States. Over time. the business of
providing insurance has developed a more national focus, and the insurance
marketplace has become global in nature. The state-based regulatory structure
inherently makes the process of developing national products cumbersome and
competing in the global marketplace more costly.
On March 31, the Treasury Department ("Treasury") released a report on financial
seNices regulation entitled Blueprint for a Modernized Financial Regulatory
Structure ("Blueprint"). In addition to making recommendations for a long-term
"optimal" regulatory structure, the Blueprint also presents a series of "short-term"
and "intermediate-term" recommendations that could, in Treasury's view, improve
and reform the U.S. financial seNices regulatory structure - including the current
state-based regulation of insurance.
In the intermediate-term, Treasury recommends the establishment of an optional
federal charter (OFC) for insurance. The establishment of an OFC structure would
provide insurance market participants with the choice of being regulated at the
national level or of continuing to be regulated by a State. A properly constructed
OFC insurance regulatory structure should: enhance competition among insurers in
national and international markets; increase efficiency; promote more rapid
technological change; encourage product innovation; reduce regulatory costs; and
provide strong consumer protection.
There currently are pending bills in both the House (H.R. 3200) and Senate (S. 40)
entitled "The National Insurance Act of 2007" that would create an OFC and
establish a regulator within Treasury. These bills contain many of the core concepts
surrounding the establishment of an OFC structure as envisioned in the Blueprint.
We look forward to evaluating further the specific provisions of these bills as they
move forward.
While an OFC offers the best opportunity to develop a modern and comprehensive
system of insurance regulation, Treasury acknowledges that the OFC debate in the
Congress is ongoing. At the same time, however, Treasury believes that some
aspects of the insurance regulatory regime require immediate attention. In
particular, Treasury recommends that the Congress establish an Office of
Insurance Oversight within Treasury. This newly established office would be able to
focus immediately on key areas of federal interest in the insurance sector, including
international insurance issues.
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International Insurance Issues
The insurance marketplace operates globally with many significant foreign
participants. There is increasing tension among current regulatory systems due to
an absence of a clear and settled means for governments to recognize the
equivalency of prudential regulation of insurance and reinsurance companies
seeking to provide services in other countries. This impairs the ability of U.S.-based
firms to compete abroad and the allowance of greater participation of foreign firms
in U.S. markets.
In particular, foreign government officials have continued to raise issues associated
with the United States having at least 50 different insurance regulators, which
makes coordination on international insurance issues difficult for foreign regulators
and companies. The National Association of Insurance Commissioners (NAIC) has
attempted to fill this void by working closely with international regulators in various
areas. The NAIC itself is not a regulator but facilitates communications among the
States on many issues, including international insurance regulation. Nevertheless,
it is becoming increasingly difficult for the United States to speak consistently and
effectively with one voice.
It has become clear to Treasury that there is an immediate need to establish an
insurance-sector advisor at the federal level, as well as to create a federal
framework to address emerging international insurance regulatory issues. Two
examples of such a need include: (1) reinsurance collateral and the perceived
unequal treatment of certain foreign reinsurers; and (2) the European Union's (EU)
Solvency II directive and how that may impact the competitive position of U.S. firms
in Europe.
Reinsurance Collateral
States indirectly regulate unlicensed, non-U.S. reinsurers by setting out the
circumstances under which U.S. licensed insurers may take financial statement
credit for the reinsurance. Based primarily on the NAIC's model law and regulation,
States generally require that unlicensed, non-U.S. reinsurers provide 100 percent
collateral to secure their U.S. obligations. By contrast, within the EU, the European
Commission through its Reinsurance Directive is eliminating collateral requirements
among its EU reinsurers, but not necessarily among non-EU reinsurers.
Non-U.S. reinsurers, foreign government officials, and EU representatives believe
such cross-border collateral requirements should be reduced or eliminated between
jurisdictions of equivalent regulatory reinsurance supervision. Many believe that
there is a strong rationale for this view, and in response, various state insurance
commissioners have launched a series of efforts to address the issue and find a
pragmatic solution, only to see each of these efforts founder.
Solvency 1/
Last year, the EU published its Solvency II Framework Directive, which seeks to
develop a single EU-wide market in insurance services, create a consolidated
oversight structure with strong home country lead supervision of both prudential
and regulatory capital authority, and secure a high degree of consumer protection.
Solvency II is expected to be adopted by the end of 2008, and EU Member States
are expected to implement the directive by 2012. The framework creates a riskbased system for assessing regulatory capital for all insurers and reinsurers on a
consolidated basis across all EU Member States, similar in concept to the Basel II
framework applicable to banks.
As the EU continues to move toward the implementation of this oversight
framework in the insurance sector, it is becoming more apparent that the framework
potentially will be at odds with the U.S. regulatory structure for insurance. In
particular, it is unlikely that the EU would find the curr~nt U.S. state-based
regulatory structure "equivalent" for purpo.ses of all~wln.g U.S. Insurers to operate
within the EU, meaning that U.S. companies operating In Europe would face
unspecified regulatory measures that would increase the costs of their operations
and place them at a competitive disadvantage.
These issues - reinsurance collateral and Solvency \I - have been under
discussion for many years between U.S. and European authorities through
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numerous channels Despite good and cooperative efforts by all parties, we are
seemingly no closer today to finding pragmatic solutions than we were several
years ago.
Office of Insurance Oversight within Treasury
As called for by the Blueprint, the Office of Insurance Oversight (Office) would focus
immediately on key areas of federal interest in the insurance sector by serving as
an advisor to the Secretary of the Treasury on major domestic and international
insurance regulatory issues. The Office would also be provided with authority to
address international regulatory issues.
Such an office would be able to focus immediately on key areas of federal interest
in the insurance sector without the need to create a federal regulatory structure. It
would advise the Secretary of the Treasury on major domestic and international
policy issues, provide true national regulatory expertise and guidance on the
insurance industry and how it relates to the overall economy, and provide such
expertise and guidance on legislative issues pending before the Congress.
The Office should be empowered to address international regulatory issues with
foreign regulators, a role that is not being played in the non-consolidated statebased regulatory system. In this role, the Office should be the lead in working with
the NAIC and state insurance regulators, who would still be primarily responsible for
implementing insurance regulatory policies.
For example, the Office could lead the discussions with international regulators on
international regulatory issues to develop regulatory agreements that provide for
recognition of substantially equivalent prudential measures and regulatory systems
with respect to insurance and reinsurance services. This would include recognition
agreements providing for reliance upon facets of relevant foreign regulatory
systems. Overall, the establishment of federal involvement in these types of
agreements would allow for the United States to engage more consistently in
dialogue with foreign regulators and enhance the prospects for resolving issues.
The role that the Office would play in U.S. negotiations with foreign governments,
authorities, or regulators would be to bring its insurance expertise to the table along
with a well-developed uniform U.S. position on insurance regulatory policy. Its focus
would be on regulatory matters that are not presently addressed at the federal level.
It would not supplant the Commerce Department or other relevant Executive
Branch agencies, but would work closely with them. The United States Trade
Representative would remain the chief representative of the United States for
international trade negotiations, including all negotiations on any matter considered
under the auspices of the World Trade Organization and commodity and direct
investment negotiations.
As we suggested in the Blueprint, some degree of preemptive authority will be
necessary if international regulatory agreements are going to be effective. A
number of approaches to preemption could be considered, but a key aspect of
establishing the Office is to improve the ability of the United States to deal more
effectively with international insurance regulatory issues. Whatever the degree of
preemption, the establishment of this Office should further that goal.
Treasury welcomes the introduction of H.R. 5840, the Insurance Information Act of
2008, by Subcommittee Chairman Kanjorski and Ranking Member Pryce. This bill
would create an office within Treasury very similar to that recommended in the
Blueprint.
Overall, Treasury supports the bill's creation of the Office of Insurance Information.
Treasury has some concerns, however, we are confident that we can continue to
work together to address these as this legislation moves forward.
Conclusion
We appreciate the efforts of the Cha.irman and Members of the Su~c~mmittee. We
look forward to continuing to work With you and the Congress on thiS Important
legislation. Thank you.
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7/212008
HP·1018: Prepared statement by Treasury Under Secretary David H. McCormick<br>in Advance of G-...
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HP-1018
Prepared Statement by Treasury Under Secretary David H. McCormick
in Advance of G-8 Finance Ministers Meeting
Washington - Good afternoon. The G-8 Finance Ministers will be hosted by
Japan in Osaka, Japan on June 13th and 14th Their discussions will focus on
three key areas: the world economy, climate change, and development, which
correspond with the key themes of the Japanese G-8 presidency this year.
As typically happens, the Ministers will discuss the global economy, focusing on the
near-term prospects for their economies and taking note of the continued strong
performance in many emerging markets. Both Japan and Europe had strong first
quarters and Secretary Paulson will be especially interested in hearing from other
Ministers their assessments of growth prospects and how their economies are
coping with financial market headwinds and higher-priced commodities. In addition,
a number of Asian countries will attend outreach sessions, giving us a good chance
to broaden the world economy discussions.
Oil market developments and high global food prices will factor into the global
economy discussions. The vast majority of the run-up in oil prices reflects longterm trends in fundamentals: global economic growth has been consistently strong
since 2002 and especially fast among emerging market economies. This strong
growth has driven demand for oil while growth of global oil production has been
basically flat since 2005. Ministers will likely focus on medium to long-term policies
that can affect demand and supply, including developing alternative fuel sources.
On high food prices, the talks are likely to focus on progress to date in meeting
emergency humanitarian assistance needs, efforts to ensure that farmers in
developing countries have access to yield-enhancing inputs for the next haNest
including seeds, pesticides and fertilizers, and plans to improve agricultural
productivity in developing countries in the coming years. The United States has
consistently contributed about half of global food aid and the President recently
requested $1 billion for near-term humanitarian assistance and programs to
address challenges in supply. Ministers are also likely to encourage governments
to lift food export restrictions and to redouble efforts to conclude an ambitious Doha
Agreement in 2008.
Secretary Paulson will tell his G-8 colleagues that the housing correction, financial
market turmoil, and high energy prices continue to weigh on the U.S. economy.
While we are still working through housing and capital markets issues, and expect
to be doing so for some time, we also expect to see a faster pace of U.S. economic
growth before the end of the year. We have taken a number of steps to bolster the
economy while we weather these challenges. The economic stimulus package,
signed into law in February, will provide over $150 billion for businesses and
individuals in 2008. We expect these measures will provide a meaningful near-term
boost to household and business spending.
The Administration has also led several initiatives to help ease the strain from the
housing downturn. We are seeing results. The HOPE NOW alliance reports that
since last July, the mortgage industry has helped nearly 1.46 million homeowners
stay in their homes. Despite the recent turmoil, I share Secretary Paulson's
confidence in the resiliency and flexibility of the U.S. economy. Our long-run
economic prospects remain sound.
In addition to policy actions to strengthen the economy in the near term, it is
essential to enhance the functioning and stability of the U.S. financial system going
forward. The Administration is taking steps to do just that. As you know, the
President's Working Group on Financial Markets (PWG) reviewed policy issues and
issued its policy statement on March 13. The PWG is now tracking and assessing
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Hp·I018: Prepared Statement by Treasury Under Secretary David H. McCormick<br>in Advance ofG-...
Page 2 of2
implementation and will report on progress in the fourth quarter of 2008. At that
time, the PWG will consider whether further steps are needed to address
weaknesses.
In April the G-7 Finance Ministers and Central Bank Governors endorsed a series
of FSF recommendations that complement efforts underway in the United States.
These proposals included: strengthening prudential oversight of capital adequacy,
liquidity and risk management; enhancing transparency and improved valuation,
particularly for structured products; revising and clarifying the role and use of credit
ratings; improving the responsiveness of authorities to risks; and, creating robust
arrangements for dealing with stress in the financial system.
FSF Chairman Mario Draghi will provide an update on the implementation of the
FSF recommendations to G-8 Finance Ministers in Saturday's meeting. We are
encouraged by the progress so far to meet these goals, as well as progress
implementing the other FSF recommendations. Financial institutions have raised
almost $270 billion in new capital since the turmoil began, and will shortly begin
making their first half reports, which we expect to comply with leading practices.
The Basel Committee on Banking Supervision is on track to issue liquidity
guidelines for public comment in July, and IOSCO issued its Code of Conduct for
Credit Rating Agencies in May. We look forward to another progress report by the
FSF at the G-7 Ministerial meeting in October.
Climate change, an issue of great concern to Secretary Paulson, will be a major
subject of discussion during the meeting. Last year, President Bush initiated the
Major Economies process to bring the major emitting developed and developing
countries together to tackle climate issues and tasked Secretary Paulson with
creating an international program to promote clean technology deployment in
developing countries. At this meeting, Ministers will review the considerable
progress made in establishing the Clean Technology Fund. The Fund is a critical
new multilateral effort of the G-8 countries to reduce the rapid growth of
greenhouse gas emissions in developing countries by helping them to finance the
additional costs of deploying clean energy technologies over cheaper, dirtier
alternatives. Late last month we had a successful meeting in Germany which
included developed and developing countries and resulted in strong agreement on
the parameters of how the Fund will work, how it will be governed, and how it will
bring benefits to emerging economies. The Administration strongly supports the
Fund and has requested authorization from Congress for a U.S. contribution of $2
billion over three years to the Fund. Japan and the UK have also pledged support,
and we anticipate that other countries will soon follow.
Development -- with a particular focus on Africa -- is a key theme of Japan's G-8
presidency. We particularly welcome Japan's decision to focus on the importance
of developing the private sector in order to achieve sustainable economic growth.
In conversations with Secretary Paulson over the last year, a number of African
Finance Ministers have highlighted their commitment to creating an enabling
environment for the private sector. Ministers will specifically discuss how the G8
can support homegrown African efforts to improve investment climates, deepen
financial sectors and strengthen the continent's infrastructure base.
Thank you for coming, and I look forward to answering your questions.
-30-
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HP-lO 19: Remarks by Assistant Secretary Clay Lowery to the Foreign Correspondents Cl... Page I of 5
,,/~~~, PRESS ROOM
u.s. DEPARTMENT Of THE TREASURY
'{IJ,
May 26,2008
HP-1019
Remarks by Assistant Secretary Clay Lowery to the Foreign Correspondents
Club of Japan
Thank you for the opportunity to speak with you today. Many of the speeches given
by Treasury officials concern financial sector problems, and in the past a number
have addressed problems in the Japanese financial sector. Today our speeches
are more often about financial turbulence in the United States and what we are
doing to address it. Today I'd like to step back a bit and talk about some lessons
we have learned from episodes of financial turbulence over the past twenty years,
how these lessons relate to recent global financial market turmoil, and what we are
learning from recent events.
I will divide my remarks into four sections. First, what are the sources of financial
turbulence. Second, what have we learned about dealing with financial sector
turbulence. Third, what have we learned from past episodes about strengthening
financial systems and avoiding future problems. Finally, why is financial sector
innovation so important and why will the tensions between financial sector
innovation and regulation remain.
Sources of Financial Sector Turbulence
Charles Kindleberger, the economic historian, has called financial crisis a "hardy
perenniaL" Financial services differ from most other industries by explicitly linking
the future to the present - promises to pay in the future, the value of assets in the
future, insurance against future events. It is at its heart about uncertainty and risk,
about expectations and confidence, and subject to shifts between exuberance and
fear.
Sometimes that exuberance, which may be unsustainable, is driven by innovations
like the railroads, or opening up new territories to exploration like the South Sea
Corporation. Or the innovation can be in the financial sector itself - as in our recent
case of securitized investment vehicles (SIVs) and specialized products such as
collateralized debt obligations.
On the other hand, financial turbulence may arise from market movements rather
than exuberance. For example, the U.S. Savings and Loan (S&L) crisis had its
roots in a substantial maturity mismatch between assets and liabilities and a
prolonged period of high nominal interest rates which, following financial
deregulation, drove up the short-term funding costs for thrift and other financial
institutions. Roughly three-quarters of thrift assets comprised fixed rate, lowyielding mortgages and mortgage-backed products, while almost all thrift liabilities
were short-term deposits subject to rising interest rates.
Japan's financial crisis in the 1990s had its origins in an equity and property bubble
that began in the late 1980s. Growing bank exposure to the real estate sector
coupled with the widespread use of property as loan collateral multiplied banking
sector risk. When growth slowed and property prices fell after the bursting of the
bubble, Japan's banking sector came under increasing strain. Bank holdings of
corporate equity, a part of which counted in ba.nk c~pital, fueled ad~itional lending
when equity prices were rising. But when eqUity prices fell along With property
prices, the squeeze on bank capital worsened the problems of Japanese banks.
Responding to Financial Turmoil:
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Recognizing Losses, Prompt Regulatory Action, and Restoring Healthy Balance
Sheets
We need to look to the past to understand the causes of financial turbulence so as
to try to prevent future episodes. But we also need to need to draw lessons from
the past so as to try to resolve bouts of turbulence once we are in them. One thing
that we have learned from our own experience - and it has been an expensive
lesson - is the importance of acting quickly to deal with financial sector difficulties.
This means having accounting rules that require financial institutions to recognize
losses quickly and a supervisory system that requires prompt action to restore
balance sheet health. This IS what we failed to do in our own Savings and Loan
Crisis in the 1980s, but what has characterized our response to the current credit
market turmoil.
In Japan, as in the U.S. S&L crisis, delay in recognizing and dealing with banking
sector weakness led the problem to grow over time. The solution to Japan's
banking crisis eventually came from a combination of mark-to-market accounting
rules, stricter evaluation of loan quality, workout or sale of distressed assets, and
increased bank capital through public funds and the private market.
In contrast, Sweden's banking crisis serves as an example of how prompt and
effective action can limit the cost of financial crises, both in terms of their drain on
public resources and their drag on economic growth. Problems in the banking
sector initially emerged in 1991 but by 1994, the Swedish banking system already
had returned to profitability. Early on, in autumn 1991, it became apparent that
banks, experiencing real estate-related losses, would not be able to meet the higher
capital ratios required by Basel I. Early recognition of the need for extensive action
and broad political consensus played critical roles in resolving the crisis. The
Swedish government quickly evaluated the situation of its banks, set up a fund to
strengthen those that were viable and resolve those that weren't, and established
two institutions to accept and resolve distressed assets.
Mature economies' experiences with banking failures teach us to appreciate the
need for strong risk management. accounting and valuation that accurately reflects
true financial conditions, and prompt disclosure of information to strengthen market
discipline. Authorities understand the need to step in promptly to supply liquidity to
markets, to protect depositors, to liquidate failed institutions, and to press banks to
recognize losses, and merge or raise new capital. Returning banking systems to
financial health has been fastest and most successful when authorities promptly
address problems, strictly limit lender of last resort function, use firm deadlines for
resolution, and ensure the appropriate incentives to owners and managers to
mitigate moral hazard.
The lessons from our own S&L experience, as well as those from Japan, Sweden,
and other countries have helped us shape our policy response to the current
financial turmoil in the United States. Minimizing the impact on the real economy
has been a guiding principle, as has been prompt, decisive action.
As financial market turmoil surfaced last August, policymakers in the United States
acted quickly to stabilize markets, reduce the impact of the turmoil on the real
economy, and address underlying regulatory and policy weaknesses. Treasury
Secretary Paulson, at the forefront of u.S. government efforts, has worked to
ensure a comprehensive, timely and appropriate response. We have sought to
avoid overreacting with regulations or policy responses that would stifle innovation
or distort the natural self-correcting forces of markets.
Secretary Paulson and other authorities have urged banks to promptly recognize
and report losses, and raise additional cap~tal as needed. Many global finan~i.al
institutions have done so - reporting subpnme-related losses of over $300 billion
and raising additional capital of more than $200 billion.
In addition to prompt action in the financial sector, the~e is macroeconomic policy.
In the United States, the Administration has worked with the Congress to help
soften the negative impact of these events on the real economy, through fiscal
http://www.trcas.gov/prc3:3/releases/hpl019.htm
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HP~ 1019:
Remarks by Assistant Secretary Clay Lowery to the Foreign Correspondents Cl... Page 3 of 5
policy and a series of initiatives to help families stay in their homes. In practically
record time, the U.S. Government has already begun implementing a $150 billion
economic stimulus package that will support consumer and business spending as
we weather the current economic slowdown.
The U.S. Federal Reserve and other central banks have taken focused, and
sometimes coordinated, actions to protect the financial system from severe
disruption by ensuring that markets have access to financing. Already, we have
seen some indication that this combination of actions is beginning to have the
desired effect, as markets appear to be gaining confidence and the availability of
credit has improved modestly.
Strengthening Financial Systems and Avoiding Future Turbulence
We have come a long way from past experiences of bank runs, financial panics,
and depressions. In many ways, it is the lessons learned from past events that
have helped make financial turmoil less likely to occur and reduced their impact.
However it is important that we continue to analyze, draw lessons, and implement
measures based on those lessons.
For instance, drawing on another event, the Asian Financial Crisis ten years ago
demonstrated that a balance of payments crisis could become a banking system
crisis when there are fixed exchange rates and internationally mobile capital,
providing valuable lessons about the importance of flexible exchange rate regimes.
Openness to capital flows also requires cultivating regulatory regimes, institutions
and policies that support stronger risk management, flexibility and adaptability.
The Asian Financial Crisis also revealed the pitfalls of over-reliance on the banking
sector for financial intermediation and the great value of financial sector
diversification, particularly well-functioning bond markets. Bond markets provide
important price signals for the economy, by establishing market-determined interest
rates over various maturities that accurately reflect the opportunity cost of funds.
Bond market creditors also transfer risk to those who are willing to bear it and
exercise market discipline upon issuers.
Since the Asian crisis, bond market development has become a priority around the
world - starting with a number of initiatives in APEC, then the Asian Bond Market
Initiative, and most recently the G8 Action Plan for Developing Local Bond Markets
in Emerging Market Economies and Developing Countries.
Bond markets have developed rapidly in emerging market economies since the
Asian Financial Crisis, and those economies are more resilient as a result.
Domestic securities outstanding have grown to about $6 trillion, nearly six times
that of ten years ago. Local currency debt now accounts for about two-thirds of
total emerging debt held and traded by international investors, which is a little less
than a 70 percent increase from the beginning of the decade. It is measures like
these - deduced from past lessons - that are contributing factors to emerging
market spreads not "blowing out," even during these turbulent times.
Although the United States is still grappling with the subprime financial turmoil, we
have already begun to draw lessons for strengthening our financial system in the
future. The President's Working Group on Financial Markets in March
recommended changes to mitigate systemic risk and restore investor confidence to
facilitate stable economic growth. These recommendations are to:
Reform the mortgage origination process; enhance disclosure and improve the
practices of sponsors, underwriters, a.nd ,investors with respect to. securitized
credits' reform the credit rating agencies processes for and practices regarding
rating ~tructured credit products; ensure that global fi.nancial institutions address
weaknesses in risk management and reporting practices; ensure that prudential
regulatory policies applicable to banks a~d se~urities firms, i.nclu.ding capital and
disclosure requirements, prOVide strong Incentives !or effective risk management
practices; and enhance the OTC derivative market Infrastructure.
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These recommendations are being implemented now.
International Responses
Fro~ the ou~set, it ~as been clear that the interconnectedness of today's markets
reqUIred an InternatIonal, as well as domestic, response. U.S. financial officials
have worked closely with counterparts in major economies around the world to
address market instability. The Financial Stability Forum (FSF), which brings
together the supervisors, central banks, and finance ministries of major financial
centers, has been critical to this effort. The FSF has released a number of
recommendations that echo and complement efforts underway in the United
States. Implementation already has begun.
The current turmoil in U.S. financial markets has also underscored the need to
revise and strengthen our system of financial sector regulation. Long before our
current challenges, Secretary Paulson had launched a broad Capital Markets
Competitiveness Initiative. Work has proceeded in a variety of areas such as
accounting and auditing, disclosure, and financial education.
Treasury concluded in its Blueprint for a Modernized Financial Regulatory Structure
that the optimal financial regulatory model mirrors the reasons we regulate: market
stability, safety and soundness associated with federal guarantees, and consumer
and investor protection. This proposal includes a market stability regulator,
prudential financial regulator and business conduct regulator. We believe that this
approach will foster innovation, mitigate risk, and enhance the competitiveness of
America's capital markets.
In Japan, we see the plans for enhancing the competitiveness of its financial
markets. The cornerstone of this work is the Financial Services Agency's broad
vision for improving the regulatory environment through enhancing the transparency
and predictability of regulatory actions. One of the fundamental lessons we have
learned is the importance of regulatory transparency, predictability and
consistency. Comprehensive steps to support market efficiency by relaxing
firewalls where appropriate, enhancing the competitiveness of exchanges, and
strengthening market discipline will serve Japan well.
Financial Sector Liberalization and Innovation and the Challenge for Financial
Sector Policy and Regulation
If financial sector turbulence is a recurring feature of financial systems, what should
we conclude about the value of financial sector innovation? In particular, what
lessons should emerging markets now reforming their financial systems draw from
the recent financial market turmoil and past crises? Is this a reason to slow
financial sector reform, liberalization, and opening?
I strongly believe the opposite is true. Slowing down financial sector reform is not a
recipe for avoiding crises, but it is a recipe for slowing growth. Strong, sustained
economic growth, particularly in today's economy depends critically on efficient,
competitive, and innovative financial systems. And robust, resilient financial
systems depend on sound macroeconomic policies; legal frameworks that establish
transparent, enforceable bankruptcy provisions; and strong, independent financial
regulation. In addition, financial sectors that are open to competition and new entry
_ both domestic and foreign --underpin financial sector development, innovation,
and economic growth.
In fact, the importance of openness to competition and new entry goes well beyond
financial services. Open investment regimes are critical to maintaining and
enhancing competitiveness. Japan has been the beneficiary of inward foreign
portfolio investment and the ability of its firms to invest overseas. But Japan still
lags far behind most OECD countries in inward investment as a percentage of
GOP and there concerns among investors that Japan may not be fully commItted
to att~acting FDI. It is therefore important that Japa~ sends a clear message that it
is open to foreign investment, especially in a period In whIch open regImes are
being challenged by rising protectionist pressures around the world.
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Financial markets continually evolve and innovate, and at an accelerating pace in
this era of globalization. Today's innovations will often become tomorrow's staples
of financial services. For instance, broad market index funds were once highly
innovative but now are standard components of pension plans around the globe.
Financial regulation needs to keep pace so that our markets remain transparent,
robust and internationally competitive - and resilient enough to withstand the
inevitable volatility that investors face from time to time. Financial sector regulation
will always be responding to financial innovation, and we will always be striving to
improve financial policy and regulation to deal with the financial sector as it
evolves.
Conclusion
The nature of financial markets, with their dependence on confidence and
expectations, and the rapid pace of innovation mean that financial market
authorities will never succeed at removing all risk of turbulence or crisis. But a
combination of accurate accounting and disclosure, market discipline, a
determination to act quickly to resolve problems, and a willingness to examine and
learn from past crises is the best way to limit the extent and the frequency of
financial market turmoil.
Thank you.
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12/8/2008
&.1020: Under Secretary Steel Statement on SEC's Proposed Rating Practices
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Page 1 of 1
ROOM
,.(.' u.s. OEPARTMENT OF THE TREASURY
·-L~
June 11, 2008
HP-1020
Under Secretary Steel Statement on SEC's Proposed Rating Practices
New York - Under Secretary for Domestic Finance Robert K. Steel released the
following statement today regarding the Securities and Exchange Commission's
proposed rules for improving credit rating practices:
"Today's SEC action is an important step to enhancing disclosure to investors and
market participants about the processes and practices of credit rating agencies and
towards addressing conflict-of-interest issues. The President's Working Group on
Financial Markets made several recommendations in March addressing credit
rating issues, including review and disclosure by credit rating agencies, due
diligence on the part of investors, and an assessment of the use of ratings in rules
and regulations by supervisors. This SEC action makes a significant contribution
towards implementing the PWG's recommendations."
-30-
http/IWWw.treas.gov!prc33!releases/hp1020.htm
71212008
Hp.1021: Week 7 Wrap-Up:<br>Treasury Sent 9.526 Million Stimulus Payments This Week
,'/~~', PRESS
Page 1 of2
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June 13, 2008
hp-1021
Week 7 Wrap-Up:
Treasury Sent 9.526 Million Stimulus Payments This Week
This week the Treasury Department sent out 9,525 million economic stimulus
payments to American households totaling $7.032 billion. So far, Treasury has sent
out 76.103 million total economic stimulus payments totaling $63.863 billion.
Cumulative Total
Total Number of Payments: 76.103 million
Total Amount of Payments: $63.863 billion
Week Seven (June 9-13)
Total Number of Payments: 9.526 million
Total Amount of Payments: $7.032 billion
Week Six (June 2-6)
Total Number of Payments: 9.143 million
Total Amount of Payments: $6.789 billion
Week Five (May 26-30)
Total Number of Payments: 5.757 million
Total Amount of Payments: $4.320 billion
Week Four (May 19-23)
Total Number of Payments: 6.211 million
Total Amount of Payments: $4.927 billion
Week Three (May 12-16)
Total Number of Payments: 15.575 million
Total Amount of Payments: $13.562 billion
Week Two (May 5·9)
Total Number of Payments: 22.180 million
Total Amount of Payments: $20.138 billion
Week One (April 28-May 2)
Total Number of Payments: 7.708 million
Total Amount of Payments: $7.091 billion
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households, and the total amount of payments
sent. Payments began April 28 and will continue via direct deposit or paper check
through mid·July. For a single filer, the minimum payment is generally $300 and
the maximum payment is $500. For Joint filers, the minimum is generally $600 and
http/IWWwt,reas.gov;rress/r~lea6e6/flp I 02 !.A-tm
7/2/2008
HP-1021: Week 7 Wrap-Up:<hr>Treasury Sent 9.526 Million Stimulus Payments This Week
Page 2 of2
the maximum $1,200. There is also an additional $300 payment for each qualifying
child.
For tax returns processed by the Internal Revenue Service by April 15 households
will receive their payments according to the last two digits of the Social Security
number on the tax form. On a jOint return, the first number fisted will determine
when a stimulus payment will be sent.
REPORTS
httPllwww.treas.govlplesslreicasc3/hp10~I.htm
7/212008
Direct Deposit Payments
If the last two digits of your Social Security
number are:
Your economic stimulus payment deposit
should be transmitted to your bank account
by:
00-20
21-75
76-99
May 2
May 9
May 16
Paper Check
If the last two digits of your Social Security
number are:
00-90
10-18
19-25
26-38
39-51
52-63
64-75
76-87
88-99
Your check should be in the mail by:
May 16
May 23
May 30
June 6
June 13
June 20
June 27
July 4
July 11
A small percent of tax returns will require additional time to process and to compute a
stimulus payment amount. For these returns, stimulus payments may not be issued in
accordance with the schedule above, even if the tax return was processed by April 15. In
these cases, the stimulus payment will be issued approximately 2 weeks after the tax
return is ultimately processed.
-30-
HP-1022: UPDATE<br>U.S. and China to Hold Meeting of the Strategic Economic Dialogue Next Week
Page 1 of2
June 13, 2008
HP-1022
UPDATE
U.S. and China to Hold Meeting of the Strategic Economic Dialogue Next
Week
Washington, D.C. - Treasury Secretary Henry M. Paulson, Jr. will host the fourth
Cabinet level meeting of the U.S.-China Strategic Economic Dialogue next week.
Secretary Paulson will be joined by Commerce Secretary Carlos Gutierrez, Labor
Secretary Elaine Chao, Health and Human Services Secretary Michael Leavitt,
OMS Director Jim Nussle, U.S. Trade Representative Susan Schwab, EPA
Administrator Stephen Johnson, and other Administration officials.
In addition, Federal Reserve Chairman Ben S. Bernanke will participate in the
Strategic Economic Dialogue discussions.
The fourth Cabinet level meeting of the U.S.-China Strategic Economic Dialogue
will focus on managing financial and macroeconomic cycles, developing human
capital, the benefits of trade and open markets, enhancing investment, and
advancing joint opportunities for cooperation in energy and the environment.
For more information on the SED visit the Treasury Department website.
The following events are open to media with SED credentials only:
What
Opening Statements
When
Tuesday, June 17, 2008, 8:30 a.m. EDT
Where
U.S. Naval Academy
Mahan Hall Auditorium
121 Blake Road
Annapolis, Md.
Note
Shuttle service for SED credentialed media will be provided from the U.S.
Navy/Marine Corps stadium parking lot from 6:00 a.m.-10:00 a.m. and 3:00 p.m.7:00 p.m. All media must be set by 8:00 a.m. The last shuttle to meet the set time
will depart the lot at 7:30 a.m.
What
Family Photo
When
Wednesday, June 18.2008,800 a.m. EDT
Where
U.S. Naval Academy
Bancroft Hall
121 Blake Road
Annapolis, Md.
N*
.
Shuttle service for SED credentialed media will be prOVided from the U.S.
Navy/Marine Corps stadium parking lot from 6:00 a.m.-10:?0 a.m. All media must
be set by 7:30 a.m. The last shuttle to meet the set time Will depart the lot at 7:00
a.m.
****
What
Closing Statements by Vice Premier Wang and Secretary Paulson
httP/IWWw.treas.guv!press!rclcZl3C3ihp!0n.htm
7/2/2008
HP.I022: UPDATE<br>U.S. and China to Hold Meeting of the Strategic Economic Dialogue Next Week
Page 2 of2
When
Wednesday, June 18,2008,4:00 p.m. EDT
Where
Treasury Department
Cash Room
1500 Pennsylvania Ave., NW
Washington, D.C.
Note
SED credentialed press with equipment should arrive at the moat entrance by 3:00
p.m.
What
U.S. Delegation Press Conference
When
Wednesday, June 18, 2008,4:45 p.m. EDT
Where
Treasury Department
Cash Room
1500 Pennsylvania Ave., NW
Washington. D.C.
httP/lwww.treas.guv/presslteleasc3/hp10?2.htm
7/2/2008
HP-1023: Kuwaiti Charity Designated for Bankrolling al Qaida Network
Page 1 of4
,t~~}jh, PRESS ROOM
\ __ u.s. DEPARTMENT OF TIlE TREASURY
June 13,2008
HP-1023
Kuwaiti Charity Designated for Bankrolling al Qaida Network
Washington - The U.S. Department of the Treasury today designated the Kuwaitbased Revival of Islamic Heritage Society (RIHS) for providing financial and
material support to al Qaida and al Qaida affiliates, including Lashkar e-Tayyiba,
Jemaah Islamiyah, and AI-Itlhaad al-Islamiya. RIHS has also provided financial
support for acts of terrorism.
"Designating and freezing the assets of an organization engaged in charitable work
is a decision not taken lightly because the last thing we want to do is cut off needed
humanitarian assistance," said Stuart Levey, Under Secretary for Terrorism and
Financial Intelligence. "However, the reality is that RIHS has used charity and
humanitarian assistance as cover to fund terrorist activity and harm innocent
civilians, often in poor and impoverished regions. We have a responsibility to do all
we can to shut down the funding channels of terrorism."
RIHS was designated today under Executive Order 13224, which targets terrorists
and those providing financial, technological, or material support to terrorists or acts
of terrorism. Any assets RIHS holds under U.S. jurisdiction are frozen and U.S.
persons are prohibited from engaging in any transactions with RIHS.
The RIHS offices in Afghanistan (RIHS-Afghanistan) and Pakistan (RIHS-Pakistan)
were designated by the U.S. Government and the United Nations 1267 Committee
in January 2002 based on evidence of their support for al Oaida. At that time, there
was no evidence that the Kuwait-based RIHS headquarters (RIHS-HO) knew that
RIHS-Afghanistan and RIHS-Pakistan were financing al Oaida.
Since that time, however, evidence has mounted implicating RIHS-HO in terrorism
support activity. The U.S. Government has learned that RIHS senior leadership,
who have actively managed all aspects of the organization's day-to-day operations,
have been aware of both legitimate and illegitimate uses of RIHS funds.
"We designated two branches of RIHS in 2002, and since then a number of other
countries have taken action against RIHS. We look forward to continuing our work
with Kuwaiti authorities to ensure that legitimate charitable giving can reach those in
need and not be diverted to terrorist organizations," Levey continued
Suspected of providing support to terrorism, RIHS offices have been closed or
raided by the governments of Albania, Azerbaijan, Bangladesh, BosniaHerzegovina, Cambodia, and Russia.
In countries where RIHS activities are banned or scrutinized by local governments,
RIHS-HO has developed multiple methods to continue its operations. After the
Government of Bangladesh closed RIHS offices, RIHS-HO funneled money into
Bangladesh through another organization to continue RI~S activities and to help
shield it from scrutiny there. RIHS-HO has used RIHS offiCials and other individuals
to courier funds out of the country in order to evade the scrutiny of the international
financial system. In some countries, including Albania and Kosovo in particular,
RIHS senior officials have assisted RIHS branch offices with name changes, and
then continued to provide financial support to the new organizations.
RIHS Support for Terrorism in South Asia
http://wwl"v.treas.gov/pn~S~/lelcZl3C.)/\1pl023.htm
12/8/2008
HP-I023: Kuwaiti Charity Designated for Bankrolling al Qaida Network
Page 2 of 4
RIHS-HQ provides significant financial and logistical support to the U,N.-designated
terrorist group Lashkar e-Tayyiba (LeT), a Pakistan-based terrorist group with links
to the al Qaida network. LeT was reportedly implicated in the July 2006 attack on
multiple Mumbai commuter trains, and in the December 2001 attack against the
Indian Parliament. As of 2007, RIHS provided office space to an LeT leader who
visited Kuwait to raise funds for LeT operations, RIHS officials accompanied the
LeT leader while he raised funds throughout Kuwait. As of late 2007, RIHS sent
money to LeT elements on a monthly basis, and regularly transferred funds to LeT
representatives' bank accounts in Pakistan. In some cases, LeT has received the
funds at charitable entities associated with RIHS.
RIHS also reportedly provided a key source of funding for terrorist attacks carried
out by an extremist group in Bangladesh in 2005. Despite a February 2005
Bangladeshi government ban of the terrorist group Jamaaat Mujahidin Bangladesh
(JMB), on August 17, 2005, JMB launched a series of near-simultaneous bomb
attacks across Bangladesh, killing two and injuring 64 persons. Over 400 bombs
exploded during the course of these attacks, which were carried out in 63 of
Bangladesh's 64 provinces. Following the bombings, RIHS was identified as one of
the key sources of funding needed for staging these attacks. After the August 2005
bombings, RIHS was accused of funding JMB's military activities with overt and
covert funds. These funds were channeled through a senior leader of a
Bangladeshi Islamic organization. As of early 2005, RIHS in Bangladesh had
contributed millions of dollars to this organization.
RIHS Support for Terrorism in Southeast Asia and the Horn of Africa
RIHS has provided financial and logistical support to the Southeast Asia based
terrorist group Jemaah Islamiyah (JI). Specifically, an RIHS employee provided
logistical support to JI's fugitive leader Nurjaman Riduan Isamuddin (aKa.
"Hambali") prior to his capture in 2003. Due to the high security conditions during
the 2002 Asian Summit, the RIHS employee escorted Hambali from Phnom Penh,
Cambodia, to an alternate location, where he then provided him with
accommodations. The employee was later captured and sentenced to life
imprisonment on terrorism charges, An RIHS representative in Indonesia provided
funding to a JI member collecting money for JI activities. The JI member funneled
the funds he received from RIHS and other sources to JI associates for the
procurement of weapons to support their operations.
RIHS has also funded al Qaida and like-minded terrorist groups in Somalia. AI
Qaida supporters in Somalia reportedly have historically received significant funds
through RIHS. In addition, RIHS provided hundreds of thousands of dollars to a
university controlled by AI-Itihaad al-Islamiya.
IDENTIFIER INFORMATION
Revival of Islamic Heritage Society
RIHS Headquarters-Kuwait
Revival of Islamic Heritage Foundation
RIHF
Society for the Revival of Islamic Heritage
Islamic Heritage Revival Party
Islamic Heritage Restoration Society
IHRS
Kuwaiti Heritage
Ihya Turas AI-Islami
Ijha Turath AI-Islami
Jamia Ihya UI Turath
Jamiat Ihia AI-Turath AI-Islamiya
Jam'iyat Ihya' AI-Turath AI-Islami
Jami'at Ihy'a AI-Tirath AI-Islamla
Jamiatul Ihya UI Turath
"
Jamiyat Ikhya At-Turaz AI-Islami, Society of the Rebirth of the Islamic People
Jamiatul-Yahya Ut Turaz
Jomiatul Ehya-Ut Turaj
http://w\Vw.lreas.guv!prcss!rclcUJe<;/hpl023.htm
12/8/2008
HP-I023: Kuwaiti Charity Designated for Bankrolling al Qaida Network
Page 3 of4
Jomiyatu-Ehya-Ut Turas AI Islami
Jama'ah Ihya AI-Turaz AI-Islami
Jami'ah AI-Hiya AI-Turath AI Islamiyah
Lajnat Ihya AI-Turath AI-Islami
Lajnat AI-Ihya AI-Turath AI-Islami
RIHS Administration for the Building of Mosques and Islamic Projects
RIHS Mosques Committee
Administration of the Revival of Islamic Heritage Society Committee
RIHS Arab World Committee
RIHS Committee for the Arab World
RIHS Committee for West Asia
RIHS Central Asia Committee
Committee for Europe and the Americas
RIHS Europe and the Americas Committee
RIHS Two Americas and European Muslim Committee
RIHS Europe America Muslims Committee
RIHS Southeast Asia Committee
RIHS Committee for South East Asia
RIHS Indian Continent Committee
RIHS Indian Subcontinent Committee
RIHS Committee for India
RIHS African Continent Committee
RIHS Committee for Africa
Revival of Islamic Society Heritage on the African Continent
RIHS Public Relations Committee
RIHS Cultural Committee
RIHS Principle Committee for the Center for Preservation of the Holy Qu'aran
RIHS General Committee for Donations
RIHS Youth Center Committee
RIHS Scientific Committee-Branch of Sabah AI-Nasir
RIHS Fatwas Committee
RIHS Center for Manuscripts Committee
RIHS Educating Committees, AI-Jahra'
RIHS Audio Recordings Committee
RIHS Project of Assigning Preachers Committee
RIHS Office of Printing and Publishing
RIHS Committee for Women
RIHS Committee for Women, Administration for the Building of Mosques
RIHS Women's Branch for the Project of Endowment
RIHS Administration for the Committees of Almsgiving
RIHS Committee for Almsgiving and Charities
RIHS Committee for the Call and Guidance
RIHS-Cambodia
RIHS Cambodia-Kuwait Orphanage Center
The Kuwaiti-Cambodian Orphanage Center
The Kuwait-Cambodia Islamic Cultural Training Center
RIHS Chaom Chau Center
Nara Welfare and Education Association
RIHS-Bosnia and Herzegovina
Kuwaiti Joint Relief Committee, Bosnia and Herzegovina
KJRC-Bosnia and Herzegovina
Plandiste School, Bosnia and Herzegovina
Organizacija Preporoda Islamske Tradicije Kuvajt
Kuwait General Committee for Aid
General Kuwait Committee
RIHS-Albania
Center of Call for Wisdom
CCFW
Thirrja Per Utesi
NGO Turath
RIHS-Kosovo
Dora E Miresise
Hand of Mercy
RIHS-Azerbaijan
RIHS-Russia
RIHS-Lebanon
RIHS-Bangladesh
RIHS-Somalia
http://ww\.·.trcas.gov/pre33/re!~38~s/hpl023.htm
12/812008
HP-I023: Kuwaiti Charity Designated for Bankrolling al Qaida Network
Page 4 of 4
RIHS-Ghana
RIHS-Tanzania
RIHS-Benin
RI HS-Cameroon
RIHS-Senegal
RIHS-Nigeria
RIHS-Liberia
RIHS-Ivory Coast
Addresses: Part 5, Qurtaba, P.O. Box 5585, Safal, Kuwait
House #40, Lake Drive Road, Sector #7, Uttara, Dhaka, Bangladesh
Number 28 Mula Mustafe Baseskije Street, Sarajevo, Bosnia and Herzegovina
Number 2 Plandiste Street. Sarajevo, Bosnia and Herzegovina
M.M. Baseskije Street, No.28p, Sarajevo, Bosnia and Herzegovina
Number 6 Donji Hotonj Street, Sarajevo, Bosnia and Herzegovina
RIHS Office, lIidza, Bosnia and Herzegovina
RIHS Alija House, llidza, Bosnia and Herzegovina
RIHS Office, Tirana, Albania
RIHS Office, Pristina, Kosovo
Tripoli, Lebanon
City of Sidon, Lebanon
Dangkor District, Phnom Penh, Cambodia
Kismayo, Somalia
Kaneshi Quarter of Accra, Ghana
AI-Andalus, Kuwait
AI-Jahra', Kuwait
AI-Qurayn, Kuwait
Sabah AI-Nasir, Kuwait
Qurtubah, Kuwait
Hadiyah, Kuwait
AI-Qadisiyah, Kuwait
AI-Fayha', Kuwait
AI-Riqah, Kuwait
AI-Firdaws, Kuwait
Khitan, Kuwait
AI-Sabahiyah, Kuwait
Jalib AI-Shiyukh, Kuwait
Sayan Wa Mashrif, Kuwait
Sabah AI-Salim, Kuwait
AI-Rumaythiyah, Kuwait
AI-Salimiyah, Kuwait
AI-Aridiyah, Kuwait
AI-Khalidiya. Kuwait
AI-Dhahr, Kuwait
AI-Rawdah, Kuwait
AI-Shamiyah Wa AI-Shuwaykh, Kuwait
AI-Amiriyah, Kuwait
AI-Nuzhah, Kuwait
Kifan, Kuwait
Website:'I"
httPllwww.treas.guv/prcss/rdctlJe<;/bpl023.htm
12/8/2008
HP·1Q24: Treasury International Capital (TIC) Data for April
Page 1 of3
PRESS HOOM
FROM THE OFFICE OF PUBLIC AFFAIRS
We recommend printing this release uSlIlg the PDF file below.
To view or pnnt the PDF content on this page, download the free ilu"I)!"
/lr (()lld/
ri>, 'c)(/, '/'
June 16. 2008
HP-1024
Treasury International Capital (TIC) Data for April
Treasury International Capital (TIC) data for April 2008 are released today and posted on the U,S, Treasury website
which will report on data for May, is scheduled for July 16. 2008,
Net foreign purchases of long-term securities were $115,1 billion,
• Net foreign purchases of long-term U,S securities were $104,8 billion, Of this. net purchases by private foreign investors were
purchases by foreign official institutions were $41.3 billion,
S
• U,S, residents sold a net $10,3 billion of long-term foreign securities,
Net foreign acquisition of long-term securities. taking into account adjustments. is estimated to have been $102,8 billion,
Foreign holdings of dollar-denominated short-term U,S, securities, including Treasury bills, and other custody liabilities decreased $17;
holdings of Treasury bills increased $3,3 billion.
Banks' own net dollar-denominated liabilities to foreign residents declined $25,0 billion,
Monthly net TIC flows were $60,6 billion. Of this, net foreign private flows were $31,5 billion, and net foreign official flows were $29,1 bil
-30-
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars, not seasonally adjusted)
2006
2007
12 Months Through
Apr-07
Apr-08
Jan-08
Feb-I
Foreigners' Acquisitions of Long-term Securities
I
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) 11
21077.1 29729.8
19933.9 28725.1
1143.2 1004.6
23191.3
21994.7
1196.6
32830.5
31897.4
933.1
3137,9
3061,5
76.4
2922
2844
7i
71
24
4
5
6
7
8
Private, net /2
Treasury Bonds & Notes, net
GOy't Agency Bonds, net
Corporate Bonds, net
Equities, net
946.6
125.9
193.8
482.2
144.6
816.9
198.2
107.0
331.3
180.4
992.9
182.9
166.3
499.6
144.1
667.2
249.0
126.8
189.2
102.2
23.6
0.4
19.9
-0.6
3.8
9
10
II
Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
E quities, net
196.6
69.6
92.6
28.6
5.8
187.7
3.0
119.1
50.6
15.1
203.7
51.8
120.2
31.7
0.0
265.9
77.8
96.8
56.8
34.6
52.8
36.1
-0.6
3.9
13.3
12
13
httPIIWWw.treas.gov!prc33/releas0s.!!1pl024.htm
3S
14
-3
(j
-3
I
4
4
7/2/2008
HP-1024: Treasury International Capital (TIC) Data for April
14
15
16
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
17
18
19
Net Long-Term Securities Transactions (line 3 plus line
20
Other Acquisitions of Long-term Securities, net 15
21
22
Net Foreign Acquisition of Long-Term Securities·
(lines 19 and 20):
Page 2 of 3
5515.9
5766.8
-250.9
8188.1
R411.3
-223.2
6240.0
6511.9
-271.9
8639.1
8795.2
-156.1
770.5
790.2
-19.7
683
69E
-12
-144.5
-106.5
-127.9
-95.3
-172.8
-99.1
-76.3
-79.8
-17.3
-2.3
-I E
892.3
781.5
924.7
777.0
56.7
64
-174.6
-234.2
-194.4
-235.4
-17.9
-I~
717.7
547.2
730.2
541.6
38.7
49
-()
<;
Increase in Foreign Holdings of Dollar-denominated Short146.2
-9.0
16.1
-25.0
226.1
48.8
29.3
19.5
170.3
-10.0
9.0
-19.0
265.0
107.9
71.0
36.9
76.3
11.6
0.8
10.8
155.1
174.9
-19.8
177.3
101.2
76.1
180.3
185.0
-4.7
157.1
95.4
61.6
64.8
57.9
6.9
-I~
27
28
U.S. Securities and Other Custody Liabilities: 16
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
198.0
-108.6
-79.3
-342.2
-80.2
()
1061.8
664.7
821.2
464.3
34.9
49
923.0
138.9
377.8
286.8
623.9
197.3
168.5
295.9
-41.9
76.7
58
c
23
24
25
26
30 Monthly Net TIC Flows (lines 21,22,29) 18
of which
31
Private, net
32
Official, net
/I
12
13
14
1/
-L
-~
5
-~
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 r
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and I O.a.4 on tl
Net transactions in foreign securities by U.S. residents. Foreign purchases offoreign securities = U.S. sales of foreign se(
Thus negative entries indicate net U.S. purchases offoreign securities, or an outflow of capital from the United States
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securitie:
estimated foreign acquisitions of U.S. equity through stock swaps estimated U.s. acquisitions offoreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign C
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are
quarterly and published in the Treasury Bulletin and the TIC website.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.s. banks or bro~
TIC data cover most components of international financial flows, but do not include data on direct investment flows, whi
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data sumr
TlC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on II
14
15
16
17
;8
describes the scope of TIC data collection.
REPORTS
•
(PDF) TIC Montilly Repol-1s CHI CICJs~·E3ur(I':r Flr'i"!rlCill Flowe, (BIIIIOII', of d()II~lr5. llOt Sf:nSI)lli'ily
httPIIWWw.treas.gov/prcS3/relea6~6ihrln24.htm
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7/2/2008
DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
June 16,2008
EMBARGOED UNTIL 9:00 AM
Contact: Rob Saliterman
(202) 622-2960
TREASURY INTERNATIONAL CAPITAL DATA FOR APRIL
Treasury International Capital (TIC) data for April 2008 are released today and posted on the U.S.
Treasury website (www.treas.gov/tic).Thenextrelease.whichwillreportondataforMay.is
scheduled for July 16,2008.
Net foreign purchases of long-term securities were $115.1 billion.
•
Net foreign purchases of long-term U.S. securities were $lO4.8 billion. Of this, net
purchases by private foreign investors were $63.5 billion, and net purchases by foreign
official institutions were $41.3 billion.
•
U.S. residents sold a net $10.3 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been $102.8 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities decreased $17.2 billion. Foreign holdings of Treasury bills increased $3.3
billion.
Banks' own net dollar-denominated liabilities to foreign residents declined $25.0 billion.
Monthly net TIC flows were $60.6 billion. Of this, net foreign private flows were $31.5 billion, and
net foreign official flows were $29.1 billion.
TIC Monthly Reports on Cross-Border Financial Flows
!Billions of dollars not seasonally adjusted)
12 Months Through
Apr-08
2007
Apr-07
2006
Jan-08
Feb-OB
Mar-08
Apr-OB
Foreigners' ACGuisitions of Long-term Securitie,
I
2
3
Gross Purchases orOomestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net iline I less line 2) fI
21077.1 29729.8
19933.9 28725.1
1143.2
1004.6
23191.3
21994.7
1196,6
32830.5
318974
933.1
3137.9
306 J.5
76.4
2922.6
28447
77.9
3076.9
2998.4
78.6
2592.6
2487.8
104.8
63.5
58.0
4.]
946.6
125.9
193.8
482.2
144.6
816.9
198.2
107.0
331.3
180.4
992,9
182.9
166.3
499.6
144.1
667,2
2490
126.8
189.2
1022
23.6
0.4
19.9
-0.6
3.8
71.1
24.2
35.7
14.9
-3.7
30.5
6
7
8
Private, net 12
Treasury Bonds & Notes. net
Gov't Agency Bonds. net
Corporate Bonds. net
Equities. net
3.2
-8.7
lOA
17.6
-16.3
9
10
II
12
13
Official, net 13
Treasury Bonds & Notes. net
Gov't Agency Bonds. net
Corporate Bonds, net
Equities. net
196.6
69.6
92.6
2R.6
5.8
187,7
3.0
IIY.I
50.6
15.1
203.7
51.8
120.2
52.8
36.1
6.7
-3.6
0.0
265.9
77.8
96.8
56.8
34.6
41.3
22.3
110
7.5
0.4
SS 15.9
5766.8
-250.9
8188.1
8411.3
-223.2
6240.0
6511.9
-271.9
-144.5
-106.5
-1279
-95.3
892.3
4
5
14
15
16
17
IR
Gross Purchases of Foreign Securities frorn U.S. Residents
Gross Sales of Foreign Sewrities to U.S. Residents
Foreign Securities Purchased. net(lme 14 less line 15)14
foreign Bonds Purchased, net
Foreign Equities Purchased. net
19
Net Long-Term Securities Transactions (line 3 plus line 16):
20
Other Acquisitions of I.ong-term Securities. net 15
21
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
22
Increase in Foreign Holdings of Dollar-denominated Short-term
U.S, Securities and Other Custody Liabilities: 16
23
24
2S
26
27
28
29
U.S. Treasury Bills
Pri vate, net
Official. net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private. net
Official. net
Change in Banks' Own Net Dollar-Denominated Liabilities
30 Monthly Net TIC Flows (lines 21.22.29) /8
31
32
/1
/2
13
14
of which
Private. net
Official. net
-0.6
1.2
3.9
13.3
4.4
4.8
48.1
28.0
15.5
4.1
0.4
8639.1
87952
-156,1
770.5
790.2
-19.7
683.0
696.0
-1l.9
755.6
754.5
1.1
699.7
689.4
10.3
·172.8
-99, I
-76.3
-79.8
·17.3
5,3
-18.3
4.1
-3.0
11.1
-2.3
7SI.5
924,7
777,0
56.7
64.9
79.6
115.1
-174.6
-234.2
-194.4
-235.4
-17.9
-15.4
-26.3
-1l.3
717.7
547.2
730.2
541.6
38.7
49.6
53.3
102_8
146.2
-9.0
16.1
-250
226.1
48.8
29.3
19.5
170.3
-10.0
9.0
-19.0
265.0
107.9
36.9
76.3
11.6
0.8
10.8
-0.7
14.6
17.4
·2.8
13.5
27.8
30.9
-3.0
-17.2
3.3
-10.4
13.8
155.1
174.9
-19.8
177.3
101.2
76.1
180.3
185.0
-4.7
157.1
95.4
61.6
64.8
57.9
6.9
-15.4
·98
-56
-14.3
-7.1
-7.2
-20.6
-7.6
-13.0
198.0
-108.6
-79.3
-342.2
-8~.2
0.4
-115.6
-25.0
1061.8
664.7
821.2
464.3
34.9
49.2
-48.7
60.6
923.0
138.9
377.8
286.8
623.9
197.3
168.5
295.9
-41.9
76.7
58.7
-9.5
·58.1
9.3
31.5
29.1
31.7
710
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 institutiom and net purchases
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 10.a.4 on the TIC "'ebsite.
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. purchase, of ;orei~n ,ecurities. or an outflow of capital from the United States: positive entries
15
indicate net U.S sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agl:ncy asset-backed securities +
/6
estimated foreign acquisitions of L: .S. equity through stock swaps·
estimated U.S. acquisitions of foreign equity through ,tock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Ofliciallnstitutions 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
17
/8
25.6
quarterly and published in the Treasury Bulletin and the TIC website.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customerS that are managed by US. banks or broker/dcalers.
TIC data cover most components uf international financial flows. but do not include data on direct investment flows. ",hich are collected
and published by the Department of Commerce's Aureau of Economic Analysis. In addition to the monthly data summarized here. the
TIC collects quarterly data on sume banking and non banking assets and liabilities. Frequently Asked Question 1 on the TIC ",ebsite
describes the scope of TIC data collection.
2
-0.8
HP-I025: Statement by Treasury Secretary Henry M. Paulson, Jr. <br>following Meeting of the G-8 Fina... Page 1 of 2
,.'~~~, PRESS
ROOM
~ u.s. DEPARTMENT OF THE mEASURY
June 14, 2008
hp-1025
Statement by Treasury Secretary Henry M. Paulson, Jr.
following Meeting of the G·B Finance Ministers
Osaka, Japan - I would like to start by thanking Minister Nukaga and his staff at
the Japanese Ministry of Finance for hosting a successful meeting.
Our meeting took place amid some new challenges for the global economy. I told
my G-8 colleagues that the U.S. economy continues to face challenges including
the housing correction, financial market turmoil, and high energy prices which
continue to weigh on growth. While we are still working through housing and capital
markets issues, and expect to be doing so for some time, we also expect to see a
faster pace of U.S. economic growth before the end of the year, while recognizing
that the recent increase in oil prices risks prolonging the U.S. economic downturn.
The Administration and Congress worked together and worked quickly to pass the
Economic Stimulus Act of 2008, a robust, broad-based and temporary package that
will will provide over $150 billion in stimulus for businesses and individuals in 2008.
This will provide a meaningful near-term boost to household and business
spending. The Administration has also coordinated several effective initiatives to
help ease the strain from the housing downturn. The HOPE NOW alliance reports
that since last July, the mortgage industry has helped nearly 1.6 million
homeowners stay in their homes.
Financial Stability Forum Chairman Draghi reported to us on the implementation of
the priority recommendations of the Finance Stability Forum (FSF) that were
endorsed by the G-? Finance Ministers and Central Bank Governors in April. I am
pleased by the progress to date in meeting these goals, as well as progress
implementing the other FSF recommendations. The President's Working Group
(PWG) has been working closely with the FSF and is now tracking and assessing
implementation of its policy recommendations and will report on progress in the
fourth quarter of 2008. At that time, the PWG will consider whether further steps are
needed to address weaknesses.
This period of slower growth has raised concerns around the world about the
benefits of globalization. Some suggest that recovery lies in a retreat inward, away
from international economic engagement. This would be the wrong choice. In
today's global economy, a shift inward would lead to economic stagnation and
would cost millions of jobs, deter foreign investment, curtail growth, and increase
the cost of many goods and services purchased by American households. In fact,
the key to remaining competitive in today's changing world is embracing openness
to trade and investment. In this context G-8 Finance Ministers agreed that
measures that address national security concerns should be transparent,
predictable and proportionate to the national security concern identified. We
recognized that commercially-driven investment from government-controlled
investors such as sovereign wealth funds has benefits and underscored that these
investors should adopt high standards in areas such as institutional and
governance arrangements, investment and risk management structures, and
transparency.
High and increasing oil and food prices pose policy challenges for both advanced
and developing countries and we spent considerable time talking about these
challenges. Food price inflation is being driven primarily by economic fundamentals
including high energy prices, increased food demand, and low inventories. The
international community should respond with an integrated approach that
addresses the immediate effects of the crisis as well as underlying causes of food
insecurity. In the short run, donors should unite to provide emergency assistance.
The President has requested an additional $770 million, including $395 million in
emergency food aid, $225 million in International Disaster Assistance which would
support a range of programs including th~ purchase of seeds and other farm inputs
to increase local production, and $150 million In Development Assistance to
httPIIWWw.treas.gov/press/release:slbp102.:i.htm
71212008
HP-I02S: Statement by Treasury Secretary Henry M. Paulson, Jr. <br>following Meeting of the G-8 Fina... Page 2 of2
improve agriculture infrastructure. But it is also imperative to remove supply-side
constraints, replace general food subsidies in developing countries with welltargeted ones, remove export restrictions, and improve the efficiency of
international agricultural markets, including through the successful conclusion of the
Doha Development Round.
Since 2002, the price of oil has increased five-fold, and earlier this year oil prices
breached previous record highs in real terms. At its heart, this run up in price
reflects long-term trends in global supply and demand and strong economic growth
coinciding with a period of minimal investment in oil production. This is not
something that lends itself to short-term solutions. On the demand side. we need
markets to work and to avoid subsidies and other market-distorting policies. On the
supply side, countries should open oil markets investment to boost yields,
exploration, and production. Producers need to increase output and capacity.
I was pleased to note progress on G-8 actions to respond to challenges associated
with climate change. Last year, President Bush initiated the Major Economies
process to bring the major emitting developed and developing countries together to
tackle climate issues and tasked the Treasury Department with creating an
international program to promote clean technology deployment in developing
countries. This program is a critical effort of the G-8 countries to reduce the rapid
growth of greenhouse gas emissions in developing countries by helping them to
finance the additional costs of deploying clean energy technologies over cheaper,
dirtier alternatives. Today Ministers discussed the considerable progress made in
establishing the Clean Technology Fund which includes a successful meeting
hosted by Germany last month that brought together developed and developing
countries and resulted in strong agreement on the parameters of how the Fund will
work, how it will be governed, and how it will bring benefits to emerging economies.
The Administration strongly supports the Fund and has requested authorization
from Congress for a U.S. contribution of $2 billion over three years to the Fund. I
was pleased to join my G-8 colleagues in welcoming and supporting the launch of
this fund.
On economic development in Africa, G-8 Ministers support Japan's focus on the
importance of developing the private sector in order to achieve sustainable
economic growth. In my trip to Africa last fall. and in subsequent conversations, a
number of African Finance Ministers have highlighted their commitment to creating
an enabling environment for the private sector. Priorities include efforts to improve
investment climates, deepen financial sectors and strengthen the continent's
infrastructure base.
-30-
httPIJWWw.treas.gov/prc~~/relea8eo/hp10 / 5.htm
7/2/2008
IP-1023: Kuwaiti Charity Designated for Bankrolling aI Qaida Network
/~~~, PRESS
'{I} u.s.
Page 1 of 4
ROOM
DEPARTMENT Of THE TREASURY
June 13, 2008
HP-1023
Kuwaiti Charity Designated for Bankrolling al Qaida Network
Washington - The U.S. Department of the Treasury today designated the Kuwaitbased Revival of Islamic Heritage Society (RIHS) for providing financial and
material support to al Qaida and al Qaida affiliates, including Lashkar e-Tayyiba,
Jemaah Islamiyah, and AI-Itihaad al-Islamiya. RIHS has also provided financial
support for acts of terrorism.
"Designating and freezing the assets of an organization engaged in charitable work
is a decision not taken lightly because the last thing we want to do is cut off needed
humanitarian assistance," said Stuart Levey, Under Secretary for Terrorism and
Financial Intelligence. "However, the reality is that RIHS has used charity and
humanitarian assistance as cover to fund terrorist activity and harm innocent
civilians, often in poor and impoverished regions. We have a responsibility to do all
we can to shut down the funding channels of terrorism."
RIHS was designated today under Executive Order 13224, which targets terrorists
and those providing financial, technological, or material support to terrorists or acts
of terrorism. Any assets RIHS holds under U.S. jurisdiction are frozen and U.S.
persons are prohibited from engaging in any transactions with RIHS.
The RIHS offices in Afghanistan (RIHS-Afghanistan) and Pakistan (RIHS-Pakistan)
were designated by the U.S. Government and the United Nations 1267 Committee
in January 2002 based on evidence of their support for al Qaida. At that time, there
was no evidence that the Kuwait-based RIHS headquarters (RIHS-HQ) knew that
RIHS-Afghanistan and RIHS-Pakistan were financing al Qaida.
Since that time, however, evidence has mounted implicating RIHS-HQ in terrorism
support activity. The U.S. Government has learned that RIHS senior leadership,
who have actively managed all aspects of the organization's day-to-day operations,
have been aware of both legitimate and illegitimate uses of RIHS funds.
"We designated two branches of RIHS in 2002, and since then a number of other
countries have taken action against RIHS. We look forward to continuing our work
with Kuwaiti authorities to ensure that legitimate charitable giving can reach those in
need and not be diverted to terrorist organizations," Levey continued.
Suspected of providing support to terrorism, RIHS offices have been closed or
raided by the governments of Albania, Azerbaijan, Bangladesh, BosniaHerzegovina, Cambodia, and Russia.
In countries where RIHS activities are banned or scrutinized by local governments,
RIHS-HQ has developed multiple methods to continue its operations. After the
Government of Bangladesh closed RIHS offices, RIHS-HQ funneled money into
Bangladesh through another organization to continue RIHS activities and to help
shield it from scrutiny there. RIHS-HQ has used RIHS officials and other individuals
to courier funds out of the country in order to evade the scrutiny of the international
financial system. In some countries, including Albania and Kosovo in particular,
RIHS senior officials have assisted RIHS branch offices with name changes, and
then continued to provide financial support to the new organizations.
RIHS Support for Terrorism in South Asia
RIHS-HQ provides Significant financial and logistical support to the U.N.-designated
terrorist group Lashkar e-Tayyiba (LeT), a Pakistan-based terrorist group with links
to the al Qaida network. LeT was reportedly implicated in the July 2006 attack on
multiple Mumbai commuter trains, and in the December 2001 attack against the
httPIIWWw.treas.gvv/VIess/rclcasc3/hpl0:?3.htm
7/2/2008
HP.I023: KuwaitI Charity Designated for Bankrolling al Qaida Network
Page 2 of 4
Indian Parliament. As of 2007, RIHS provided office space to an LeT leader who
visited Kuwait to raise funds for LeT operations. RIHS officials accompanied the
LeT leader while he raised funds throughout Kuwait. As of late 2007, RIHS sent
money to LeT elements on a monthly basis, and regularly transferred funds to LeT
representatives' bank accounts in Pakistan. In some cases, LeT has received the
funds at charitable entities associated with RIHS.
RIHS also reportedly provided a key source of funding for terrorist attacks carried
out by an extremist group in Bangladesh in 2005. Despite a February 2005
Bangladeshi government ban of the terrorist group Jamaaat Mujahidin Bangladesh
(JMB), on August 17, 2005, JMB launched a series of near-simultaneous bomb
attacks across Bangladesh, killing two and injuring 64 persons. Over 400 bombs
exploded during the course of these attacks, which were carried out in 63 of
Bangladesh's 64 provinces. Following the bombings, RIHS was identified as one of
the key sources of funding needed for staging these attacks. After the August 2005
bombings, RIHS was accused of funding JMS's military activities with overt and
covert funds. These funds were channeled through a senior leader of a
Bangladeshi Islamic organization. As of early 2005, RIHS in Bangladesh had
contributed millions of dollars to this organization.
RIHS Support for Terrorism in Southeast Asia and the Horn of Africa
RIHS has provided financial and logistical support to the Southeast Asia based
terrorist group Jemaah Islamiyah (JI). Specifically, an RIHS employee provided
logistical support to JI's fugitive leader Nurjaman Riduan Isamuddin (a.k.a.
"Hambali") prior to his capture in 2003. Due to the high security conditions during
the 2002 Asian Summit, the RIHS employee escorted Hambali from Phnom Penh,
Cambodia, to an alternate location, where he then provided him with
accommodations. The employee was later captured and sentenced to life
imprisonment on terrorism charges. An RIHS representative in Indonesia provided
funding to a JI member collecting money for JI activities. The JI member funneled
the funds he received from RIHS and other sources to JI associates for the
procurement of weapons to support their operations.
RIHS has also funded al Qaida and like-minded terrorist groups in Somalia. AI
Qaida supporters in Somalia reportedly have historically received significant funds
through RIHS. In addition, RIHS provided hundreds of thousands of dollars to a
university controlled by AI-Itihaad al-Islamiya.
IDENTIFIER INFORMATION
Revival of Islamic Heritage Society
RIHS Headquarters-Kuwait
Revival of Islamic Heritage Foundation
RIHF
Society for the Revival of Islamic Heritage
Islamic Heritage Revival Party
Islamic Heritage Restoration Society
IHRS
Kuwaiti Heritage
Ihya Turas AI-Islami
Ijha Turath AI-Islami
Jamia Ihya UI Turath
Jamiat Ihia AI-Turath AI-Islamiya
Jam'iyat Ihya' AI-Turath AI-Islami
Jami'at Ihy'a AI-Tirath AI-Islamia
Jamiatul Ihya UI Turath
Jamiyat Ikhya At-Turaz AI-Islami, Society of the Rebirth of the Islamic People
Jamiatul-Yahya Ut Turaz
Jomiatul Ehya-Ut Turaj
Jomiyatu-Ehya-Ut Turas AI Islami
Jama'ah Ihya AI-Turaz AI-Islami
Jami'ah AI-Hiya AI-Turath AI Islamiyah
Lajnat Ihya AI-Turath AI-Islami
Lajnat AI-Ihya AI-Turath AI-Islami
.
.
RIHS Administration for the Building of Mosques and IslamiC Projects
RIHS Mosques Committee
..
.
.
Administration of the Revival of IslamiC Heritage Society Committee
httPIIwww.treas.g{)v/pless/relcasc~/hpI073.htm
7/2/2008
I1P-1023: KuwaIti Charity Designated for Bankrolling al Qaida Network
Page 3 of 4
RlHS Arab World Committee
RlHS Committee for the Arab World
RlHS Committee for West Asia
RlHS Central Asia Committee
Committee for Europe and the Americas
RlHS Europe and the Americas Committee
RlHS Two Americas and European Muslim Committee
RlHS Europe America Muslims Committee
RIHS Southeast Asia Committee
RlHS Committee for South East Asia
RIHS Indian Continent Committee
RIHS Indian Subcontinent Committee
RIHS Committee for India
RIHS African Continent Committee
RIHS Committee for Africa
Revival of Islamic Society Heritage on the African Continent
RIHS Public Relations Committee
RIHS Cultural Committee
RIHS Principle Committee for the Center for Preservation of the Holy Qu'aran
RIHS General Committee for Donations
RIHS Youth Center Committee
RIHS Scientific Committee-Branch of Sabah AI-Nasir
RIHS Fatwas Committee
RIHS Center for Manuscripts Committee
RIHS Educating Committees, AI-Jahra'
RIHS Audio Recordings Committee
RIHS Project of Assigning Preachers Committee
RIHS Office of Printing and Publishing
RIHS Committee for Women
RIHS Committee for Women, Administration for the Building of Mosques
RIHS Women's Branch for the Project of Endowment
RIHS Administration for the Committees of Almsgiving
RlHS Committee for Almsgiving and Charities
RlHS Committee for the Call and Guidance
RIHS-Cambodia
RIHS Cambodia-Kuwait Orphanage Center
The Kuwaiti-Cambodian Orphanage Center
The Kuwait-Cambodia Islamic Cultural Training Center
RlHS Chaom Chau Center
Nara Welfare and Education Association
RIHS-Bosnia and Herzegovina
Kuwaiti Joint Relief Committee, Bosnia and Herzegovina
KJRC-Bosnia and Herzegovina
Plandiste School, Bosnia and Herzegovina
Organizacija Preporoda Islamske Tradicije Kuvajt
Kuwait General Committee for Aid
General Kuwait Committee
RIHS-Albania
Center of Call for Wisdom
CCFW
Thirrja Per Utesi
NGO Turath
RIHS-Kosovo
Dora E Miresise
Hand of Mercy
RI HS-Azerbaijan
RIHS-Russia
RIHS-Lebanon
RIHS-Bangladesh
RIHS-SomaJia
RIHS-Ghana
RIHS-Tanzania
RIHS-Benin
RIHS-Cameroon
RIHS-Senegal
RIHS-Nigeria
RIHS-Liberia
RIHS-Ivory Coast
Addresses: Part 5, Qurtaba, P.O. Box 5585, Safat, Kuwait
House #40 Lake Drive Road, Sector #7, Uttara, Dhaka, Bangladesh
Number 28' Mula Mustafe Baseskije Street, Sarajevo, Bosnia and Herzegovina
httPIIWWw.treas.gov!prcss/rclclt3e3/hp!{)?J.htm
7/212008
HP.1023: Kuwaiti Charity Designated for Bankrolling al Qaida Network
Page 4 of 4
Number 2 Plandiste Street, Sarajevo, Bosnia and Herzegovina
M.M. Baseskije Street, No.28p, Sarajevo, Bosnia and Herzegovina
Number 6 Donji Hotonj Street, Sarajevo, Bosnia and Herzegovina
RIHS Office, Ilidza, Bosnia and Herzegovina
RIHS Alija House, llidza, Bosnia and Herzegovina
RIHS Office, Tirana, Albania
RIHS Office, Pristina, Kosovo
Tripoli, Lebanon
City of Sidon, Lebanon
Dangkor District. Phnom Penh, Cambodia
Kismayo, Somalia
Kaneshi Quarter of Accra, Ghana
AI·Andalus, Kuwait
AI·Jahra', Kuwait
AI-Qurayn, Kuwait
Sabah AI-Nasir, Kuwait
Qurtubah, Kuwait
Hadiyah, Kuwait
AI-Qadisiyah, Kuwait
AI-Fayha', Kuwait
AI-Riqah, Kuwait
AI-Firdaws, Kuwait
Khitan, Kuwait
AI-Sabahiyah, Kuwait
Jalib AI-Shiyukh, Kuwait
Bayan Wa Mashrif, Kuwait
Sabah AI-Salim, Kuwait
AI-Rumaythiyah, Kuwait
AI-Salimiyah, Kuwait
AI-Aridiyah, Kuwait
AI-Khalidiya, Kuwait
AI-Dhahr, Kuwait
AI-Rawdah, Kuwait
AI-Shamiyah Wa AI-Shuwaykh, Kuwait
AI-Amiriyah, Kuwait
AI-Nuzhah, Kuwait
Kifan, Kuwait
Website: www <lliurai rl orC]
httPIIWWw.treas.sov!prC33!rclcfi3eDlhp!023.htm
7/212008
Page 1 of 1
Ip-1026: Joint Statements by G·S-Finance Ministers - Osaka, Japan
/~~~, PRESS
ROOM
,~ u.s. OEPAIII'MENT OF THE tREASURY
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June 14, 2008
hp-1026
Joint Statements by G-8 Finance Ministers - Osaka, Japan
Osaka, Japan-- The following statements were issued jointly by the G-8 Finance
Ministers:
REPORTS
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httPIIWWw.treas.glJv/press/rclc213c3ihpl(i26.htm
7/2/2008
Statement of the G-8 Finance Ministers Meeting
Osaka Japan
June 14th, 2008
I.
We, the Finance Ministers of the G-8 countries, met today in Osaka, Japan, in preparation for the
Summit of the G-8 Heads of State and Government in Hokkaido-Toyako. For a long time the world economy
enjoyed a combination of robust growth and low inflation, but it now faces headwinds. We will work to ensure
that the conditions are in place for continued strong world economic growth.
World Economy
2.
We remain positive about the long-term resilience of our economies and emerging market economies
are still growing strongly. However, the world economy continues to face uncertainty and downside risks persist.
Further declines in housing prices in the United States and greater strains in the financial markets may adversely
affect the global outlook. Elevated commodity prices, especially of oil and food, pose a serious challenge to
stable growth worldwide, have serious implications for the most vulnerable, and may increase global inflationary
pressure. These conditions make our policy choices more complicated. We will remain vigilant, and will continue
to take appropriate actions, individually and collectively, in order to secure stability and growth in our economies
and globally.
3.
Financial market conditions have improved somewhat in the past few months. Bold measures by major
central banks have supported the better functioning of markets. Disclosure of losses and capital enhancements by
many financial institutions have also helped improve market sentiment. However, strains remain, especially in
money and credit markets. The recent financial turmoil has revealed the risks posed to the financial system by
excessive risk taking and leveraging. Financial innovation has contributed significantly to the global growth and
development, but in the light of risks to financial stability, it is imperative that transparency and risk awareness be
enhanced.
4.
We are fully committed to completing our strategy launched last October for strengthening the resilience
of the financial system including implementing recommendations made by the FSF. We welcome Mario Draghi's
update on the progress including on the priorities for action within 100 days. We call for continuing efforts by
financial firms to improve disclosure and risk management practices, and to enhance their capital base as needed.
We call on the lASS to accelerate its reviews of accounting issues around off-balance sheet entities and valuation
in illiquid markets. We welcome the revised IOSCO code of conduct for credit rating agencies, the steps national
supervisors have taken to encourage better disclosure by financial institutions in their mid-year reports, and the
imminent release by the Basel Committee of their sound practice guidance on liquidity risk management. We
look forward to work on mitigating pro-cyclicality in the financial system. We encourage the financial services
industry to act upon the lessons learned from recent events. We look forward to concrete progress in closer
co-operation between the IMF and the FSF on reinforcing early warning capabilities.
5.
We affirm our commitment to an open investment policy and acknowledge that international investment
is fundamental to global prosperity. We will resist protectionist sentiment at home and abroad. We welcome the
work of the OECD to establish best practices for open investment regimes. We recognise the benefits of
commercially-driven investment from government-controlled investors such as sovereign wealth funds and, to this
1
end encourage these investors to work with the IMF to identify and adopt high standards in areas such as
governance, risk management, and transparency. We welcome ongoing discussions on mutual recognition of
comparable securities regimes and encourage further progress on facilitating cross-border financial services. We
also highlight the urgent need for a successful conclusion to the Doha Development Round.
Commodity Prices
6.
We have strong concerns about the sharp rise in oil prices, which have surpassed past peaks in both
nominal and real terms, and the impacts on global macro-economic stability as well as people's welfare and
development prospects. Elevated oil prices fundamentally reflect rising world demand and supply constraints, but
other elements such as geopolitical concerns and financial factors also playa role. To meet the challenge, on the
demand side, energy efficiency of all economies should be further improved and diversification of the energy
sources pursued. To this end, we recognise the importance of full implementation of the St. Petersburg Energy
Security Action Plan. These efforts will also help address the climate change problem. Passing on price signals to
consumers for example by reducing subsidies, while giving targeted support to the poorest, is also important. We
commend several emerging market economies for their recent moves in this direction and encourage further
progress in this area. On the supply side, we urge oil producing countries to increase production and to invest to
enhance long-term production capacity, drawing on the expertise of international oil companies. We also
encourage all countries to enhance refinery capacity. In addition, the oil markets can be made more efficient by
promoting greater transparency and reliability in market data including on oil stocks, which wider and more
timely participation in the Joint Oil Data Initiative (JODI) would address, and on the size of financial flows
coming into the oil markets. We ask relevant national authorities to examine the functioning of commodity
futures markets and to take appropriate measures as needed. We also caU on the IMF and the lEA to work
together, with appropriate national authorities, in carrying out further analysis of real and financial factors behind
the recent surge in oil and commodity prices, their volatility, and the effects on the global economy, and report
back at the next Annual Meetings.
7.
The recent steep rise in food prices has severely hit many low-income food-importing countries. Its
causes are multi-faceted, but we expect that ,kmand will likely stay high as emerging economies and developing
countries grow. The international community should respond with an integrated approach that addresses the
immediate effects of the crisis as well as underlying causes of food insecurity. In the short term, donors should
unite to provide emergency assistance. We are supporting efforts by the WFP, the World Bank and others to this
end and welcome the World Bank's recent announcement of a new $1.2bn rapid financing facility to address
immediate needs. We welcome the work of the IMF to address the needs of food-importing countries facing
balance of payments difficulties, including through the PRGF and the review of the Exogenous Shock Facility. In
the medium term, it is critical for international organisations, including the UN bodies, and donors collectively to
support partner countries' efforts to increase agricultural production, especially through a boost in productivity_ It
is particularly important to have a clear division of labour between different actors, including the Multilateral
Development Banks (MDBs) and Rome-based institutions. Acknowledging the important role played by science
and technology, we agree on the need to support international research institutes, such as the Consultative Group
on International Agricultural Research (CGIAR) and other partnerships. It is imperative to remove supply-side
constraints and export restrictions, replace general food subsidies in developing countries with well-targeted help
for the poorest, and improve the efficiency of international agricultural markets, including through the successful
conclusion of the Doha Development Round. As bio-fuels pose challenges and opportunities, it is essential to
2
ensure the sustainability of their production and use. In this light, research and development of the
second-generation production methods from non-food material should be a priority.
8.
Commodity price increases, including of oil and food, are a global challenge. We call for further
partnership and dialogue between producers, consumers, and relevant institutions on food security. We ask the
World Bank to examine the impact of commodity price increases on development prospects. We also ask the IMF
to conduct work on reform of fossil fuel subsidies. We look forward to the reports on these issues at the next
Annual Meetings.
Climate Change
9.
We are convinced that urgent and concerted action is needed and accept our responsibility to show
leadership in tackling climate change. We are strengthening our efforts to assist developing countries in
addressing climate change, and agreed to the attached "G-8 Action Plan for Climate Change to Enhance the
Engagement of Private and Public Financial Institutions". We welcome and support the launch, to be made in
collaboration with the MDBs, of the new Climate Investment Funds (CIFs), which will complement existing
bilateral and multilateral efforts, until a post-20l2 framework under the UNFCCC is implemented. These funds
include the Clean Technology Fund and the Strategic Climate Fund, and should be consistent with national
mitigation plans proposed by developing countries. Together these funds will scale up public and private finance for
the deployment of clean technologies, the prevention of deforestation and development of climate resilient
economies in developing countries, as described in our separate statement on the CIFs.
10.
We discussed the critical roles of the private sector in providing large-scale investment into low carbon
activities. We, especially, welcome the recent activities of the private financial institutions, in creating innovative
financial products and employing environmental guidelines for financing projects. We urge the MDBs, in
coordination with other multilateral and bilateral actors, to play key roles in increasing needed investments and
helping developing countries to integrate climate change into their overall devc\opment strategies and welcome
the joint MDB report on climate change, in response to our request at the Gleneagles Summit. We note that
market mechanisms, including emission trading and tax incentives, have the potential to deliver economic
incentives to the private sector to take investment decisions that internalise environmental costs, while they
should be designed to meet specific conditions in each country.
Development
II.
Growth in Africa remains robust, though it is still susceptible to shocks, including rising food and
energy prices, which pose great challenges to the most vulnerable populations. As high, stable growth is critical
to attaining broad-based development and the Millennium Development Goals, we are committed to working
together with African countries to foster sustainable, private sector led growth, building on our commitments to
double aid to Africa. ]n support of country specific growth strategies, we propose to focus on two pillars in our
"G-8 Action Plan for Private Sector Led Growth in Africa": improving the investment climate; and strengthening
the financial sector. In this regard, we are increasing contributions for the development of reliable infrastructures,
such as cross-border transport corridors. We will support capacity building of small- and medium-sized
enterprises and help African countries' efforts to promote their capacity to trade including through Aid for Trade.
We affirm the importance of good financial governance, including long-term fiscal discipline for resource rich
countries, and of broader implementation of the Extractive Industries Transparency Initiative. Furthermore, we
3
underline the necessity of enhancing a greater access to the formal economy. We will help strengthen local
financial institutions, promote local currency financing for African borrowers, enhance local bond market
development in African countries, and facilitate remittance flows.
12.
We will continue to put emphasis on the sustainability of growth. Private sector adoption of voluntary
guidelines for managing environmental and social issues in project finance should be encouraged. We support the
ongoing discussions with emerging creditors in various fora with a view to ensuring external debt sustainability
of low-income countries.
We welcome the progress made since our meeting last year in taking action to tackle
aggressive litigation against Heavily Indebted Poor Countries. In particular we note the measures taken by the
Paris Club, improvements to the World Bank's Debt Reduction Facility and the establishment of a Legal Support
Facility at the African Development Bank.
Abuses of the Financial System
13.
We are committed to fighting money laundering, terrorist financing and other illicit financing. Wc are
committed to effective and timely implementation of UN Resolutions, in particular Resolution 1803 which calls
for exercising vigilance over the activities of financial institutions with all banks domiciled in Iran, in particular
with Bank Melli and Bank Saderat, and their branches and subsidiaries abroad. We urge the Financial Action Task
Force (FA TF) to keep these threats under review and take appropriate action to safeguard the integrity of the
international financial system.
14.
In view of the recent developments, we urge all countries that have not yet fully implemented the OECD
standards of transparency and effective exchange of information in tax matters to do so without further delay. We
welcome the efforts of the OECD in this regard, and ask the OECD to strengthen its work on tax evasion.
4
G8 Action Plan for Private Sector Led Growth in Africa:
Improving the Investment Climate and Strengthening the Financial Sector
Osaka,Japan
June 14th 2008
According to recent estimates, growth accounts for approximately 80% of the poverty
reduction that has occurred over the last 15 years, lifting 500 million people around the world
above the poverty line. Growth among emerging and developing economics has been generally
strong with activity driven by a robust global growth, sound economic reforms, and strong
domestic private demand in recent years. In 2007, growth in these economies reached 7.8 percent
and is expected to remain robust at around 7 percent in both 2008 and 2009, despite the recent
turmoil in financial markets.
1.
2. This encouraging growth, however, is still susceptible to exogenous factors, including rising
food and energy prices, which pose great challenges to the most vulnerable populations, especially
in Mrica. We are committed to working together with African countries to maintain and
strengthen this favorable momentum as well as to honouring our existing committments to double
aid to Africa and cancel 100 per cent of debts for eligible Heavily Indebted Poor Countries (HIPCs)
to the IMF, the World Bank and the African Development Fund. This will be a key contribution to
attaining the MDGs.
3. To maintain the favorable momentum of high growth and to stem unfavorable headwinds,
fostering private-sector led growth supported by a sound policy framework is indispensable. While
aid and debt forgiveness make an important contribution to poverty reduction, long-term durable
reductions in poverty require a sustained process of growth driven by private-sector activity. Each
developing country needs to have a specific and appropriate poverty reduction and growth
strategy, tailored to the individual country circumstances and opportunities, at the heart of its
national development. We propose to focus our support on the following two pillars: improving the
investment climate and strengthening the financial sector.
Improving the Investment Climate
4.
Building reliable infrastructure is crucial to encourage growth. According to the World Bank,
Sub-Saharan Africa needs US$18 billion a year in infrastructure investment to achieve the
economic growth target needed to halve extreme poverty in the region by 2015. In particular,
facilitating the trade of landlocked countries should be a priority. We therefore are increasing
contributions to develop cross border infrastructures such as transport corridors and electricity
networks, and port and storage facilities, and to promote PPP (public private partnerships) in
building reliable infrastructures. We welcome the AIDB's expansion of infrastructure financing
including through the EPSA (Enhanced Private Sector Assistance), the European Union's support
for infrastructure through the 10th EDF (European Development Fund), and the World Bank's
Sustainable Infrastructure Action Plan. We call on MDBs (Multilateral Development Banks) and
the lCA (Infrastructure Consortium for Africa) to work together with African governments to
-1-
build Mrica's institutional capacity to develop, implement and manage economically sustainable
infrastructure projects. We continue to believe that particular attention should be paid to
developing regional economic communities' capacity in the field of planning and implementation
of cross-border infrastructure projects.
5.
Raising productivity across the board is vital. Capacity building of SMEs (small and
medium sized enterprises) should be encouraged. SMEs make up the bulk of Africa's businesses.
Based on recent investment climate surveys, firms with less than 50 employees represent about
88% of private sector production in Mrica. However, broad-based entrepreneurship remains
lacking in many countries. We will help African governments facilitate the expansion of emerging
industrial clusters and improve their opportunities to compete in global markets. We support the
AIDB's work in setting up a framework to dispatch appropriate SME specialists to assist with the
capacity building of SMEs. It is also essential to improve productivity in the agricultural sector to
help address high food prices.
6. We affirm the importance of good financial governance for supporting sustainable pro-poor
growth and boosting investor confidence in Mrica. To send a positive message to potential
investors, fairness and transparency in taxation, procurement, and concession-letting, as well as
reliability in the reporting of public economic, monetary and fiscal data are important. We
continue to encourage countries to make publicly available the results of independent diagnostic
work on their public financial management systems. We will also support governments in
maintaining the sustainability and improving the management of public debt.
7. We stress the importance of long-term fiscal discipline for resource-rich countries in order to
realize the full potential of internal financing for development. We ask the IMF, working closely
with the World Bank, to bring together the latest experiences of managing resource revenues and
make advice available to partner countries. It is crucial to transform resource revenues into
productive investments, including in education and infrastructure. We recognize the usefulness of
EITI (Extractive Industries Transparency Initiative) as a framework for improving the
accountability and transparency of revenues from extractive industries. In order to fully realize
EITI's potential, we call on candidate countries to complete the validation process in a timely
manner. We urge its Secretariat to focus on assisting countries to that end and to support the
international extractive industries in implementing this initiative.
8. National regulatory frameworks should be strengthened to attract and retain private capitaL
Complicated regulatory barriers reduce incentives for Mrican entrepreneurs to enter the formal
economy. While a few Mrican countries are making progress in simplifying business regulations,
much is still to be done in most others. To this end, we encourage countries to use surveys, such as
the World Bank's "Doing Business Reports," as indicators of possible barriers to business and of
reform efforts. We renew our commitment to the existing technical assistance facilities focusing on
the promotion of anti-corruption enforcement, and the reform of regulations, taxation and
customs , such as the IFC (International Finance Corporation)'s PEP (Private Enterprise
Partnership) Mrica, the World Bank's FIAS (Foreign Investment Advisory Services) and the
multi-donor ICF (Investment Climate Facility). In order to identify the most relevant and efficient
reform paths, we will encourage the IMF to work further on the issue of capital flight.
-2 -
9.
A focus should be put on securing property rights and expanding access to the formal
economy. The majority of economic activity in developing countries is outside of the formal
economic system. Insecure property rights limit access to credit and incentives for investment.
Efforts to better secure property rights and enhance the poor's access to the formal economy have
the potential to produce large, measurable returns. We will ask the World Bank to take stock of
their current efforts to develop property rights systems in countries and report to us on the
lessons learned. We will also ask the World Bank, in conjunction with other appropriate bodies, to
examine the feasibility, including a cost analysis, of developing best practices to guide policy
reforms in the areas of property rights and access to the formal economy, while respecting
traditional property rights systems.
10. We will continue to help African countries' efforts to promote trade and to support African
countries improve their customs and relevant border services by promoting "One Stop Border
Post" through technical assistance in collaboration with the World Customs Organization. More
broadly through implementing our commitments on "Aid for Trade", we will address constraints
on capacity to trade by providing support in a range of areas such as trade policy reform,
trade-related infrastructure and trade facilitation. In particular, we will aim to improve and
deepen regional integration to enlarge regional markets and south-south trade.
11. We will ask the World Bank and the AfDB, in cooperation with the ICF and noting the
report of the Spence Commission on Growth and Development, to study how to address
comprehensive investment climate reform in Africa, and report back to us at the next G8 Summit
Finance Ministers' Meeting.
Strengthening the Financial Sector
12. Better access to financial services is key to enhancing the economic well-being and financial
security of households. It is also crucial for promoting SMEs' activities and, at an even earlier
stage, enabling entrepreneurs to launch their first business venture. We welcome recent
improvements, but banking systems in Africa are small in absolute terms and are insufficiently
responsive to the needs of poor households, micro-enterprises, and SMEs. Building stronger
institutional and regulatory capacity, including for the principles of bank operations, is central to
achieve increased access to financial services. In addition, African borrowers often either fund
long-term investments with short-term liabilities in local currency, or they resort to long-term,
hard currency debt from international investors. Both options create a financial mismatch that
often results in unforeseen costs and risks. We init.iated the "Partnership for Making Finance
Work for Africa" to assist African countries in strengthening their financial markets and to
facilitate coordination among development partners in the financial sector.
13. We will support capacity building of local banks. We back the AfDB's capacity building of
local banks including through the EPSA, and encourage a wider use of risk mitigation schemes
such as guarantees of bank credit to SMEs. We will expand local currency financing for African
borrowers, especially SMEs. We note the activities of TCX (The Currency Exchange Fund) which
offers currency and interest rate derivatives for investment in developing countries.
-3-
14.
We will boost the development of local bond markets. Considering the huge financial
demands for infrastructure development and private sector activity, deep and well functioning
local currency bond markets are key to reducing local enterprises' dependency on loans and
broadening financial opportunities. We continue to emphasize the importance of technical
assistance for local bond markets development in African countries. Applying the knowledge and
experiences gained through initiatives in Asia, such as the ABMI (Asian Bond Markets Initiative),
may be useful. We will also back MDBs' programs that invest in local currency bonds in
developing countries and provide technical assistance to governments, regulators and market
participants.
15. We will continue to encourage private investment in African countries. Private capital flows
to Africa have increased significantly in recent years as investors take advantage of Africa's
benign macro-economic conditions, comparatively high yields, and improving investment climate.
In 2006, net private capital flows ($39.8 billion) exceeded bilateral aid grants ($36.9 billion) for the
first time since 1999. Maintaining private capital flows to Africa and diversifying them across
countries, including fragile states, and to non-extractive industries is criticaL We will boost
bilateral and multilateral supports for investment funds which provide smaller African companies
with long-term financing. Such supports can help leverage participation from private investors
who would be otherwise reluctant to commit their funds. The knowledge, skills and remittances
from African diasporas should also be better mobilized. With respect to remittances, we are
looking forward to progress along the line with the G8 conference recommendations. We will
continue to strengthen the initiative to facilitate remittance flows, which focuses on improving
data, development impa~ts, remittance services, access to finance, and innovative channels.
HP.I030: Treasury Designates Seven Members of the Rajah Solaiman Movement
Page 1 of 4
/~~~, PRESS ROOM
'{I}
u.s.
DEPARTMENT OF THE 'IllEASURY
June 16, 2008
HP-1030
Treasury Designates Seven Members of the Rajah Solaiman Movement
Washington· The U.S. Department of the Treasury today designated seven
members of the Rajah Solaiman Movement (RSM), a Philippines-based group that
utilizes violence and terrorism with the aim of turning the Philippines into an Islamic
state. The U.S. Department of State also named RSM and its leader, Ahmad
Santos, as Specially DeSignated Global Terrorists (SDGTs) today.
"The leader and members of the Rajah Solaiman Movement are responsible for
reprehensible acts that include killing citizens and tourists in the Philippines to
advance their terrorist agenda," said OFAC Director Adam J. Szubin. "Today's
action will make even basic operational functions more difficult for RSM and its
members by increasing their isolation from the international financial system."
Along with RSM, these eight individuals were added to the U.N. 1267 Sanctions
Committee's Consolidated List of individuals and entities associated with Usama
bin Laden, al Qaida and the Taliban on June 4. All UN member states are obligated
to freeze the funds and other assets of listed individuals and entities included on the
1267 Committee's Consolidated List and to apply other sanctions (travel ban and
arms embargo). The United States implements its asset freeze through E.O. 13224,
which blocks all property, and interests in property, of the designees that are in the
United States, or come within the United States, or the control of U.S. persons.
RSM has assisted with the terrorist plots of the al Qaida-affiliated Abu Sayyaf
Group (ASG) in Manila and other areas in the northern Philippines. According to
Philippine security officials and other sources, RSM members were involved in the
ASG's bombing of Super Ferry 14 in February 2004 and the February 2005
Valentine's Day bombings. RSM members were involved in several plots to bomb
high-profile targets, as welf, including Manila public utilities, tourist areas, and the
U.S. Embassy in Manila.
RSM has received training, funds, and operational assistance from the ASG and
Jemaah Islamiyah (JI), two terrorist organizations previously added to the UN's
Consolidated List and designated by the United States as SDGTs on September
24,2001 and October 23, 2002, respectively. RSM, in return, has provided field
operatives and a pool of potential recruits to the ASG and JI, enabling them to
expand their reach into the urban areas of the Philippines.
As of 2004, RSM reportedly received funding from private Saudi sources that
channeled funds through charitable NGOs in the Philippines. Between 2002 and
late 2005, Saudi financiers and at least one Saudi-based Filipino financier also
contributed funds to RSM for its training camps and planned terror operations.
Identifying Information
ANGELO RAMIREZ TRINIDAD
• AKAs: Angelo Trinidad y Ramirez
Khalil Trinidad
Khufil Trinidad
Abu Khalil Trinidad
Calib Trinidad
Kalib Trinidad
Adrian Tomas
• OOB: 20 March 1978
• POB: Gattaran, Cagayan Province, the Philippines
• FORMER ADDRESS: 3111 Ma. Bautista, Punta, Santa Ana, Manila, the
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HP.I030: Treasury Designates Seven Members of the Rajah Solaiman Movement
•
Page 2 of 4
Philippines
NATIONALITY: Filipino
Angelo Ramirez Trinidad is a member of RSM, and at the time of his arrest in
February 2005, was also a member of an ASG operational cell in Manila.
On the orders of senior ASG figure Jainal Antel Sali, Trinidad and an accomplice
conducted the February 2005 Valentine's Day bombing of a passenger bus in
Manila that killed six and wounded over 100. Trinidad assembled the bomb, helped
plant it on the bus and triggered it by cell phone. The ASG publicly claimed credit
for this bombing. A Philippine court convicted Trinidad of the bombing in October
2005. Sali, now deceased, was named as an SDGT pursuant to E.O. 13224 on
November 30, 2005 and was added to the UN's Consolidated List on December 6,
2005.
In February 2005, ASG members positively identified Trinidad as having
participated with the ASG in the April 2000 kidnappings of 21 foreign tourists and
Malaysian workers from Sipadan Island, Malaysia.
PIO ABOGNE DE VERA
•
•
•
•
•
AKAs: Pio de Vera y Abogne
Pio Abogue de Vera
Pio Abagne de Vera
Leo M. Obogne
Ismael de Vera
Ismail de Vera
Esmael de Vera
Manex
Tita Art
DOB: 19 December 1969
POB: Bagac, Bagamanok, Catanduanes Province, the Philippines
FORMER ADDRESS: Concepcion, Zaragosa, Nueva Ecija Province, the
Philippines
NATIONALITY: Filipino
Pio Abogne de Vera is a member of the ASG. At the time of his arrest in December
2005, he was also believed to be RSM's second-in-command and its operations
officer.
De Vera played an active role in an RSM plot to bomb civilian targets in Manila in
2005. He purchased and transported the explosives and scouted targets frequented
by Americans and other foreign nationals. Philippine authorities disrupted this plot
before its execution.
De Vera also was one of two persons tasked in 2003 with executing another
aborted RSM plot to bomb several targets in Luzon, the Philippines, including
telecommunications and power facilities.
REDENDO CAIN DELLOSA
•
•
•
•
•
AKAs: Redendo Dellosa y Cain
Redendo Cain Jabil Dellosa
Hakid Akmal
Habil Akmad Dellosa
Habil Ahmad Dellosa
Reendo Cain Dellos
Ahmad Dellosa
Abu Llonggo
Abu Iionggo
Abu Muadz
Brandon Berusa
Arnulfo Alvarado
DOB: 15 May 1972
POB: Punta, Santa Ana, Manila, the Philippines
FORMER ADDRESS: 3111 Ma. Bautista Street, Punta, Santa Ana, Manila,
the Philippines
NATIONALITY: Filipino
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Hp.1030: Treasury Designates Seven Members of the Rajah Solaiman Movement
•
Page 3 of 4
PHILIPPINE SSN: 33-3208848-3
Redendo Cain Dellosa is an RSM leader, as well as a member of the ASG.
Philippine authorities arrested Dellosa in March 2004.
Dellosa allegedly led the February 2004 bombing of a passenger ferry in Manila
Bay that killed over 100 people. Dellosa reportedly planted the bomb, and the ASG
publicly claimed credit for the attack.
In early 2004, ASG leader Khadafi Janjalani (SDGT), now deceased, tasked
Dellosa, through an associate, to devise a plan to kill Philippine Vice Presidential
candidate Loren Legarda. Dellosa admitted to authorities that he had decided to
place a bomb at one of her campaign stops.
Philippine authorities charged Dellosa with participation in the ASG's 2001
kidnapping of 20 people, several of whom were killed, from the Dos Palmas resort
in Palawan, the Philippines. He was also reportedly implicated in the ASG
kidnapping of 21 people on Sipadan Island, Malaysia, in 2000.
FELICIANO SEMBORIO DELOS REYES, JR.
• AKAs: Feliciano de los Reyes
Feleciano Semborio Delos Reyes
Feleciano Delos Reyes y Semberio
Feliciano Abubakar De Los Reyes
Ustadz Abubakar Delos Reyes
Abubakar Reyes
Ustadz Abubakar Abdillah
Abubakar Abdillah
Abdul Abdillah
Jorge Castro
• DaB: 04 November 1963
• POB: Arco, Lamitan, Basilan Province, the Philippines
• NATIONALITY: Filipino
Feliciano Semborio Delos Reyes, Jr. is a founding member and a senior leader of
RSM. In 2006, Reyes conducted military and counterintelligence training in the
Philippines for students of an ASG and JI-linked educational center.
In April 2003, Reyes reportedly joined with the ASG in planning and preparing a
proposed bombing in Manila.
Reyes also participated in the February 2003 Awang airport bombing near Cotabato
City, the Philippines, which killed one soldier and wounded three civilians.
Philippine Government authorities arrested Reyes in December 2006.
RICARDO PEREZ A YERAS
• AKAs: Ricardo Abdulkarim Ayeras
Ricardo Abdulkareem Ayeras
Ricky Ayeras
Abdul Kareem Ayeras
Abdul Karem Ayeras
Abdul Karim Ayeras
Abdul Karim Ayers
Khalil Ayeras
Isaac Jay Galang Perez
Jay Perez
Abdul Mujib
• DOB: 15 September 1973
• POB: 24 Paraiso Street, Barangay Poblacion, Mandaluyong City, Manila,
the Philippines
• FORMER ADDRESS: 24 Paraiso Street, Barangay Poblacion,
Mandaluyong City, Manila, the Philippines
• NATIONALITY: Filipino
Ricardo Perez Ayeras is a member of RSM. Philippine Government authorities
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¥Jl-1030: Treasury Designates Seven Members of the Rajah Solaiman Movement
Page 4 of 4
arrested Ayeras in January 2007 for his role in the February 2005 Valentine's Day
bombing of a passenger bus in Manila that killed six and wounded over 100.
Ayeras was also a central player in RSM's 2005 "Big Bang" plot to bomb civilian
targets in Manila. Ayeras was to drive the bomb-laden car, staying with it as a
suicide bomber, if necessary. He also helped purchase the explosives for the plot.
In addition, a JI operative channeled several thousand U.S. dollars, probably
destined for this same attack, through Ayeras's ATM account.
RUBEN PESTANO LAVILLA, JR.
• AKAs: Reuben Omar Lavilla
Omar Lavilla
Reuben Lavilla
Ahmad Omar Sharief
Shaykh Omar Lobilla
Omar Labella
Reymund Lavilla
Mile D. Lavilla
Mike De Lavilla
Abdullah Muddaris
Ramo Lavilla
• DOB: 04 October 1972
• POB: Sitio Banga Maiti, Barangay Tranghawan, Lambunao, Iloilo Province,
the Philippines
• FORMER ADDRESS: 10th Avenue, Caloocan City, Manila, the Philippines
• ALT. FORMER ADDRESS: Sitio 8anga Maiti, Barangay Tranghawan,
Lambunao,
Iloilo Province, the Philippines
• NATIONALITY: Filipino
Ruben Pestana Lavilla, Jr. founded RSM, along with Santos and others, and is
believed to have taken over as RSM's political, religious and strategic leader
following Santos's 2005 arrest. Lavilla is considered RSM' s spiritual advisor.
Lavilla channeled funds to RSM from personal Arab contacts. At some pOint before
2003, Lavilla also personally couriered approximately US $200,000 for RSM.
Lavilla was part of the ASG-sponsored cell that carried out the February 2004
bombing of a passenger ferry in Manila Bay that killed over 100 people.
DINNO AMOR ROSALEJOS PAREJA
• AKAs: Dino Amor Rosalejos-Pareja
Dinno Rosalejos Pareja
Khalil Pareja
Kahlil Pareja
Khalil Pareja Aminah
Johnny Pareja
• DOB: 19 July 1981
• POB: Cebu City, Cebu Province, the Philippines
• FORMER ADDRESS: Atimonan, Quezon Province, the Philippines
• NATIONALITY: Filipino
Dinno Amor Rosalejos Pareja assumed a senior leadership role for RSM following
the arrests of RSM leader Santos and RSM second-in-command De Vera in 2005.
Pareja was the key operative in the August 2005 twin bombings in Zamboanga City,
the Philippines, which wounded 26 people. In November 2006, Pareja led a group
in casing bombing targets in Cebu City, the Philippines, for an attack planned to
coincide with the Association of Southeast Asian Nations summit. Senior ASG
figure Jainal Sali, now deceased, directed Pareja to conduct this attack. Earlier,
around 2004, RSM leader Santos entrusted RSM funds to Pareja.
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7/212008
HP.1031: Treasury R.emoves 60 Names from Narcotics Traffickers List
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June 16, 2008
Hp·1031
Treasury Removes 60 Names from Narcotics Traffickers List
Washington - The U.S. Department of the Treasury's Office of Foreign Assets
Control (OFAC) today removed from its list of Specially Designated Narcotics
Traffickers 60 individuals who, since their designation, have severed ties with
Colombia's notorious Cali drug cartel and are assisting Colombian authorities. All
60 individuals are Colombian employees of Copservir, a previously-designated
enterprise that operated a retail drugstore chain before the Colombian government
seized control of its operations in September 2004.
"Removing the names of these Copservir employees from the list of Specially
Designated Narcotics Traffickers is the result of close cooperation with the
Colombian government," said OFAC Director Adam J. Szubin. "Today's action
represents a success in OFAC's targeting of Colombian drug cartels, as these 60
individuals have cut ties with the Rodriguez Orejuela narcotics trafficking
organization and have instead cooperated with the Colombian authorities during the
forfeiture process."
Copservir remains under the control and administration of the Colombian
government. The ownership interests in Copservir thai are held by narcotics
traffickers Miguel and Gilberto Rodriguez Orejuela and their family members are in
the process of being forfeited.
The Rodriguez Orejuela brothers were the leaders of the Cali drug cartel, once the
most powerful cocaine trafficking organization in Colombia. Both are serving prison
sentences in the United States after pleading guilty to federal narcotics trafficking
and money laundering charges in September 2006. Today's action was not
dependent on the Rodriguez Orejuela brothers' guilty pleas nor does it affect the
Colombian government's forfeiture case against Copservir's assets.
In November 2004, OFAC adopted a policy to issue specific licenses, on a case by
case basis, to authorize U.S. suppliers to engage in certain transactions with
Copservir. These licenses were issued provided that Copservir continued to
operate in a legitimate manner and under the control of the Colombian government.
The ability of U.S. suppliers to obtain licenses to engage in transactions with
Copservir preserved the jobs of several thousand Colombians who were
unknowingly manipulated by Miguel and Gilberto Rodriguez Orejuela.
The 60 individuals removed today were previously listed as Specially Designated
Narcotics Traffickers pursuant to Executive Order 12978 of October 21, 1995,
which applies financial sanctions against Colombia's drug cartels. The names of the
60 individuals are available at:
http /(www tll~C1S (Joviorrlc:';s /ellfolu'lIlcllt:'ofClc/actioris.'
A detailed look at the program against Colombian drug organizations is provided in
OFAC's March 2007 Impact Report on Economic Sanctions against Colombian
Drug Cartels:
http /'www tre,lsl1rycJ ov/offlcesierlforcPrllent:of:Jcireports/narco Impact report OSil42n07 pdf
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7/2/2008
p-1032: Opening Statement by Secretary Henry M. Paulson, Jr. <br>at the Fourth Meeting of the U.S. - ... Page 1 of2
·t~~~1 PRESS ROOM
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u.s.
DEPARTMENT OF THE TllEASURY
June 17, 2008
hp-1032
Opening Statement by Secretary Henry M. Paulson, Jr.
at the Fourth Meeting of the U.S. - China Strategic Economic Dialogue
Annapolis, Maryland •• Welcome to the distinguished Chinese delegation and U.S.
officials who are here today. We are gathering for two days of cooperation,
education and work on a range of economic issues vitally important to both of our
countries. I offer a particular welcome to my new counterpart, Vice Premier Wang
Qishan, in his new role for his country.
This meeting is the first opportunity for my Cabinet colleagues to collectively meet
and work with China's newly appointed leadership team. We look forward to
continuing our progress towards mutual solutions and shared goals through the
Strategic Economic Dialogue.
Today - as has been the case each day since the Sichuan earthquake - our
thoughts and prayers are with the Chinese people as they work to meet the
challenges resulting from this terrible tragedy. As President Bush has said, the
United States stands ready to help in any way possible, including helping China to
rebuild the devastated area.
The U.S. - China economic relationship is complex, broad and important to both
our countries and to the world economy. The U.S.-China relationship has become
central to each nation's interest and to maintaining a stable, secure and prosperous
global economic system. Through the on-going, dynamic and respectful discussions
of the SED, the relationship is growing in a positive direction. The SED has brought
concrete progress on issues important to the U.S., Chinese and global economy
faster than would have been possible otherwise.
At this meeting, we will build on previous progress, including landmark agreements
on food, feed and product safety announced at our December SED meeting in
Beijing. In December, we announced that the U.S. will provide technical assistance
for China to develop and implement a nationwide S02 emission trading program in
the power sector and that we have signed a memorandum of understanding to
combat illegal logging. The SED has also led to a civil aviation agreement that
resulted in a new non-stop flight between Atlanta and Shanghai this past March,
and a new group-leisure travel agreement that is estimated to bring up to 100
million Chinese travelers to the United States over the next 15 years.
These are a few examples of success resulting from on-going collaboration through
the SED, and candid high-level discussions and understanding each other's
priorities and interests. By definition, the U.S. - China economic relationship is
complex, yet the complexity has not interfered with our ability to build a base of
trust. The United States and China don't always agree on economic issues.
Sometimes we may even disagree quite strongly, but we keep talking. That was the
purpose of establishing the SED - to keep this most important and complex
relationship on an even keel, even in times of tension.
At this week's meeting, we will have a robust discussion of our economic
relationship as we envision a future of sustainable economic growth. We will look at
managing financial and macroeconomic cycles. Both the United States and the
Chinese economies face current challenges, including higher energy and food
prices. The United States is working th.rough a ~ousing r:n~rket cor~ection and repricing of risk in credit markets. China IS grappling With riSing Inflation and growing
internal and external macroeconomic imbalances.
The state of our economies affects our people, and affects world prosperity. As we
manage through the current challenges, we m~st also focus on the long-term
fundamentals that underlie sustainable growth In both our nations. DUring the
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HP-1032: Opening Statement by Secretary Henry M. Paulson, Jr. <br>at thc Fourth Meeting of the U.S. .,. Page 2 of 2
course of these two days, I will highlight how free trade, competition and open
economies are essential. Openness and trade create jobs and opportunities for
people to rise out of poverty, and are necessary for economic growth and stability in both China and in the United States.
And we will discuss the steps needed to ensure that our countries and the world
economy remain open to trade. We will discuss the best way to promote and
protect bilateral investment and to counter protectionist pressures. We will discuss
how open and competitive financial markets, including currency markets, are more
resilient in times of turmoil and more vibrant and efficient in supporting balanced
economic growth.
Both China and the United States want to enhance innovation and encourage
development of intellectual property-intensive industries. At the same time, we must
protect intellectual property rights, further transparency and rule of law, and stop the
global trade in fake products. We will discuss our on-going efforts in these areas, as
well as efforts to improve food and product quality and safety, and support green
energy and environmental product markets.
We will also discuss the structural imbalances and the saving rate challenge facing
each of our economies. In the United States our saving rate is too low. In China it is
too high. In order to effectively deal with this issue, we must address how to
adequately provide for our aging populations, including the role of private and public
insurance and financing for social services such as health care and retirement.
Finally, we will also advance joint opportunities for cooperation on energy security
and the environment. As the two largest net importers of oil, China and the United
States face similar challenges as demand for energy increases, and the global
production capacity has remained relatively flat for the past ten years.
We have a strong and shared interest in avoiding supply disruptions, increasing
energy efficiency, promoting the efficiency and transparency of the global energy
markets to the benefit of all oil importing nations, and expanding the availability and
use of alternative energy sources. We will continue working together on joint efforts
already in place, such as a five-year commitment to promote alternative fuel
technologies for vehicles, and explore new possibilities.
We will address many of these through the framework of ten years of cooperation
on energy and environmental issues announced at our December SED meeting.
Since December, we have been adding details to this framework and I am pleased
with the possibilities for innovation and cooperation ahead of us.
Significant opportunity exists for the United States and China to achieve immediate
progress and make long-term strides towards energy security and environmental
sustainability. Through a ten year framework of cooperation, I believe that we have
the foundation to meet these challenges.
Our meetings today and tomorrow will move the United States and China even
further forward to a stronger economic future. Again. welcome to our new Chinese
colleagues. We are building upon a shared vision that is possible because of our
cooperation. and feasible because of our commitment to the prosperity of our
people. Thank you.
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DEPARTMENT OF THE TllE4SURY
June 17, 2008
HP-1033
Under Secretary Steel Statement on HOPE NOW
Guidelines to Speed Help to Homeowners
Washington- Treasury Under Secretary for Domestic Finance Robert K. Steel
made the following statement today regarding the release of new HOPE NOW
guidelines to provide help to homeowners quickly and to deal with issues
surrounding second mortgages and short sales.
''The HOPE NOW procedures announced today will allow even more homeowners
to get help faster. We are pleased to see the alliance members continually making
improvements and expect them to maintain their efforts. As we have said, there is
no one silver bullet to address every housing challenge, but if we continue pursuing
a series of measures and initiatives, we can have a maximum impact."
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HP-I034: Assistant Secretary for International Affairs Clay Lowery<br>Testimony Bcfor. .. Page 1 of4
June 18, 2008
HP-1034
Assistant Secretary for International Affairs Clay Lowery
Testimony Before the House Committee on Financial Services
Washington - Chairman Frank, Ranking Member Bachus, members of the
Committee, thank you for the opportunity to discuss the Administration's request for
authorization to participate in the 15th replenishment (IDA 15) of the International
Development Association (IDA). IDA is the main vehicle of the World Bank to
support 82 of the poorest countries around the world, by providing the largest
source of interest-free loans, grants, and debt relief of any multilateral development
institution. Our request for authorization of $3.705 billion over three years
represents a 30 percent increase over IDA 14. We know this is a significant
increase but we believe there are compelling arguments for this request and for the
longstanding U.S. support for IDA.
There are a myriad of reasons to support the authorization and appropriations of
IDA. Today, I want to highlight three: effectiveness, leverage and coordination, and
U.S. foreign policy objectives. I will then briefly touch on our specific achievements
in the recently concluded IDA15 replenishment negotiations.
The IDA Model and Development Effectiveness
The IDA model is country focused. Countries receive assistance from IDA that
reflects their own priorities. IDA not only works across sectors such as agriculture,
education, infrastructure, and health, but it builds systems and capacity within
governments to be able to tackle the barriers to growth and poverty reduction. For
instance, bilateral assistance in a given country could be targeted towards specific
needs such as HIV/AIDS retroviral drugs. IDA then could focus on the health
system to ensure services are delivered and the proper standards of care are in
place. By focusing on systemic issues in each country, coordinating across sectors
and donors, IDA helps other development assistance be more effective as well.
IDA is performance driven and allocates resources to good performers. Findings of
the past 10 years of research on aid effectiveness confirm that reform-minded
governments are much more accountable to their citizens and manage aid and their
own resources more efficiently. In IDA. the top performing 10 percent of countries
receive seven times as much assistance on a per capita basis as the poorest
performing 10 percent of countries.
As one of the top donors to many of these countries, IDA has played a large role in
helping countries achieve their development goals. In IDA countries for instance,
•
•
•
•
People are living, on average fifteen years longer than they did forty years
ago.
Illiteracy has been cut in half over the past thirty years, from 50 percent to
25 percent of the population, and 80 percent of children now complete
primary education.
Regulatory obstacles to private sector development have been reduced by
one-sixth between 2003 and 2005.
Real GOP per capita has grown by 4.9% annually between 2002-2005;
more than double the average rate between 1990 and 2002.
There are many country specific success stories but to highlight one:
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HP-1034: Assistant Secretary for International Affairs Clay Lowery<br>Testimony Befor... Page:2 of 4
In Senegal, IDA supported the country's rural infrastructure projects, which
improved roads, strengthened decentralization and financed micro-projects
including water, schools, livestock, and other development needs. Beneficiary
households in the 110 participating rural communities reported a 25 percent
increase in incomes. Fiscal revenues for rural communities in the project area
almost tripled. Markets, schools, and health facilities are now more accessible
(children now typically spend 10 minutes going to school instead of 30), and the
weight and height of children under three years of age have improved.
IDA's focus on quality and country-level effectiveness also led it to become the first
international financial institution to introduce a results measurement system to
systematically track key country outcomes as well as IDA's contribution to those
outcomes. The measurement system provides an accountability function to
demonstrate more precise results from resources invested, and a learning function
to improve project design and direct resources to solutions that work.
These efforts are being noticed. In a recent article, William Easterly, a notable
development expert and frequent critic of development assistance providers,
ranked IDA as the number one donor using best practices in aid in his evaluation of
39 multilateral and bilateral donor agencies. In addition, DFID, the UK
development agency ranked IDA as the most effective multilateral development
bank and used this rationale as jus@cation for increasing their IDA 15 contribution
by 50 percent.
Leverage and Coordination
As a multilateral institution, IDA provides financial leverage for development
resources. For every dollar that the United States contributed to IDA 14 (FY06 FY08), IDA was able to provide more than $13 in loans and grants from other
donors and World Bank resources, a number which is expected to increase to $15
during IDA 15 (FY09-FY11). Further, IDA's investment in a country can signal to
investors that the country is making progress and open for business, generating
private sector flows.
IDA's leverage is not Simply financial. IDA, and more broadly the World Bank's role
in convening and coordinating donors at the country's request can make the impact
of the whole greater than the sum of its parts. By providing a common platform,
fragmented aid from multiple sources can align towards meeting a recipient
country's development goals. At a time when the average number of donors per
country has grown from 12 in the 1960s to more than 30 today, IDA can support the
country by providing coherence among donors, sharply reducing the transaction
costs for recipient countries, thereby focusing that more aid and government
resources are used to support growth.
The increasingly complex "international aid architecture" underscores the
importance of IDA's country-based model to improving the quality of aid and
creating a more effective environment for U.S. bilateral assistance. This, of course,
requires sufficient resources and reflects the tremendous non-financial aSSistance
that IDA puts at the disposal of governments in their struggle to meet the
development challenges they face. A compelling example of this convening power
has been the World Bank's response to increasing food prices. Through the
effective leadership of President Zoellick the World Bank has played a central role
in galvanizing the international community in trying to meet not only the short-term
needs of many poor countries but also advocating the appropriate policies to
address ways to increase agricultural productivity in the long run.
Support for u.S. Foreign Policy Objectives
The United States has a wide international reach; however, we can't do it alone.
The greatest opportunities and the most serious threats to U.S. interests now come
from the developing world. While IDA accounts for only a small percent of the
Administration's foreign assistance request, its global reach and expertise make it a
very effective instrument for advancing U.S. strategic objectives abroad. Some
notable recent IDA efforts include: (1) providing debt relief for the poorest countries;
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HP-1034: Assistant Secretary for International Affairs Clay Lowery<br>Testimony Befor... Page 3 of 4
(2) helping countries develop and reform their financial systems and develop their
local capital markets; (3) assisting post-conflict countries with economic
revitalization and reconstruction; (4) preventing and controlling infectious diseases
(such as avian flu); (5) providing assistance to help countries with anti-money
laundering activities; (6) administering trust funds providing assistance to countries
and global issues of importance to the United States; and (7) working to combat
corruption and improve governance g[obally.
For instance:
•
Since April 2002, the World Bank has committed $1.56 billion for 36
reconstruction projects and 3 budget support operations in Afghanistan.
IDA's emergency assistance has rehabilitated schools and decentralized
management to increase enrollment across grades, especially among girls.
IDA's investments in roads since 2003 have helped to reconnect Kabul with
the Tajikistan border, cutting travel time from 48 hours to about 6 hours,
increaSing opportunities for commerce.
• Even before Liberia was able to clear its arrears to the international financial
institutions (IFls), IDA was in that country providing technical advice and
limited amounts of grant funding in order to pave the way for broader
financial support from the donor community once arrears were cleared.
U.S. financial support and leadership, particularly along with the G-8 and
heads of the IFls, encouraged 90 countries to reach consensus on clearing
$1.4 bil[ion arrears this past year. This was instrumental for Liberia's reengagement with the world.
We have also been able to leverage substantial reforms through the replenishment
process due to strong U.S. leadership and influence. Over the years, our reform
agenda has taken IDA to new frontiers on measuring and achieving development
results. securing grant finance for the poorest countries, and enhancing
accountability and transparency. [DA. of course, was also critical to delivering the
President's Multilateral Debt Re[ief Initiative (MORI) in 2006 that is providing 100%
debt relief to 21 Heavily Indebted Poor Countries (HIPCs). Our goals for IDA 15
built on these successes.
IDA15 Achievements
In the IDA15 negotiations, the United States achieved all of its policy objectives,
most of which built on core elements of reforms achieved in IDA 14 and IDA 13. The
IDA 15 and the African Development Fund (AfDF11) replenishments focused on key
areas such as improving engagement in fragile and post-conflict countries,
enhancing economic integration through a scale-up in regional infrastructure
projects, strengthening the results measurement systems, and improving
transparency. Let me expand on a few of these.
Fragile States: The challenges facing fragile states are important for the world and especially IDA - to tackle more effectively. A large part of the focus in the
replenishment agreement was to have IDA lead in better-coordinated advice on the
ground where the interplay between political, security, and development objectives
requires coherent policies that deal with multidimensional challenges, as well as
find mechanisms to restore essential serves and jump start infrastructure
investments.
Regional Integration: Some of the most pressing development needs identified,
particularly by land-locked African countries, cannot be addressed only within lhat
country and requires regional cooperation for needs such as water management,
road networks. trade facilitation, and energy access. For most of their history, the
MOBs have been designed to support programs in individual countries. Since
IDA 13 support for regional projects has become an increasingly important part of
IDA's work program. In order to catalyze collaboration on specifiC projects among
countries with differing development needs and resource profiles, in IDA 15 funding
is set aside to finance up to two-thirds of regional project cost. To ensure country
commitment to project success, however, one-third of the cost must be funded by
the participating country's IDA allocation.
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HP-l034: Assistant Secretary for International Affairs Clay Lowery<br>Testimony Be for.. . Page 4 of 4
Results Measurement: IDA was the first MOB to introduce a results measurement
system to monitor development progress. It tracks individual country outcomes
through indicators such as primary school completion rates and HIV prevalence
rates, measures IDA's contribution to country outcomes through output indicators
such as the number of teachers trained or facilities built, and tracks the number of
projects that achieve their development objectives. Over the duration of IDA 15, IDA
will work to improve the quality of these data by building country statistical
capacity. The agreement also commits IDA to continue efforts to link staff
performance assessments to actual project results, thus placing the supreme value
on the quality - not quantity - of assistance.
Why IDA and the Multilateral Approach?
A multilateral organization, such as IDA, has the scale and capacity to deliver
development results better than anyone donor does. By pooling donor
contributions, IDA is able to multiply the impact of donor contributions, helping to
make funding possible for long-term, large-scale projects such as road building or
rural electrification. Sometimes an MOB such as IDA, by virtue of its structure as a
member organization, can more easily work directly with governments to reform
policies and improve capacity to achieve a country's own development agendas.
MOBs are able to provide longer-term, predictable financing across sectors,
generating efficiencies. The World Bank is able to design its interventions in IDA
countries based on best practices and the lessons learned over time and in more
developed countries If we didn't have IDA, then I believe we would be working hard
to create something very close to it.
The fight against global poverty is one of the biggest challenges of our time. As
both a courageous and generous nation. the U.S. is a natural leader in this fight to
support those in the greatest need. IDA is the most effective institution through
which we can invest to achieve that goal. In supporting a country's own
development plan, IDA can leverage other sources of funding, coordinate multiple
donors around a shared goal, and is able to champion policies that are in line with
U.S. policy priorities. This is not to say that IDA and the World Bank are perfect;
rather it underscores the need constantly to re-evaluate IDA's approaches to find
out what works and what doesn't work. Often with U.S. leadership, IDA has
compiled an impressive record of adaptation and improved effectiveness.
But bold leadership also means fulfilling our commitments. We believe that the
critical policy gains made in IDA 15 on engagement in fragile states, regional
integration, and results measurement justify the proposed 30% increase in
resources to IDA. A three-year authorization is necessary for IDA to be able to
make the long-term financing commitments needed to support country development
plans. Since U.S. contributions to MDRI are funded through our contributions to
IDA, full funding of our request to the MOBs is also necessary for the United States
to meet its financial obligations to the costs of debt relief under MDRI. Continued
arrears jeopardize the U.S. ability not only to deliver debt relief, but also to influence
and lead IDA.
We respectfully urge your support for our request and I look forward to trying to
answer your questions.
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hp.1035: Treasury DesIgnates Leadership of the IJU Terrorist Group
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ROOM
DEPARTMENT OF THE TREASURY
June 18, 2008
hp-1035
Treasury Designates Leadership of the IJU Terrorist Group
Washington - The U.S. Department of the Treasury today designated two leaders
of the Islamic Jihad Union (IJU), an al Qaida-affiliated terrorist organization with the
goal of overthrowing the Uzbekistan government.
"Under the leadership of Jalolov and Buranov, IJU has terrorized innocents and
killed civilians," said Adam J. Szubin, Director of the Office of Foreign Assets
Control (OFAC). "Today's action and the parallel action by the UN demonstrate the
international community's commitment to choking off the financial lifelines
supporting IJU."
Najmiddin Kamolitdinovich Jalolov and Suhayl Fatilloevich Buranov were
designated today under Executive Order 13224, which targets terrorists and those
providing financial, technological, or material support to terrorists or acts of
terrorism. Assets the designees hold under U.S. jurisdiction are frozen and U.S.
persons are prohibited from engaging in transactions in property or interests in
property blocked under the order.
Jalolov and Buranov were also recently added to the U.N. 1267 Sanctions
Committee's Consolidated List of individuals and entities associated with Usama
bin Laden, al Qaida and the Taliban. All UN member states are obligated to freeze
the funds and other assets of listed individuals and entities included on the List and
to apply other sanctions, including a travel ban and an arms embargo. The United
States implements this asset freeze through E.O. 13224.
Historically, IJU operates principally in Central and South ASia, however as of late
2007, IJU was also operationally active in Europe. In September 2007, three IJU
operatives were arrested by German authorities for plotting attacks against various
public venues and possibly against U.S. military facilities in Germany. In 2004, IJU
claimed responsibility for suicide attacks against Uzbekistan government offices,
the U.S. and Israeli Embassies in Tashkent, and a bazaar that killed at least 47
people.
IJU, AKA the Islamic Jihad Group (IJG), was named a Specially Designated Global
Terrorist (SOGT) pursuant to E.O. 13224 on May 25, 2005, and added to the UN
1267 list in 2005. IJU was also designated as a Foreign Terrorist Organization
(FTO) in 2005.
Identifier Information
NAJMIDDIN KAMOLlTDINOVICH JALOLOV
Najmiddin Kamolitdinovich Jalolov is the leader of IJU, having created the
organization after leaving the Islamic Movement of Uzbekistan in late 2001.
Jalolov was considered to have been a possible ringleader in the late 2007 IJU plot
to conduct terrorist attacks in Germany. In late 2006, Jalolov instructed an IJU
operative to case targets in Central Asia for a terrorist attack, directing him to pay
close attention to certain targets including hotel complexes where visitors from
Western countries stayed.
During trials related to the 2004 attacks in Tashkent, IJU members testified that
Jalolov was the leader of IJU. Jalolov reportedly was one of the organizers of the
terrorist acts in Uzbekistan in 2004 that killed at least 47 people.
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hp-1035: Treasury Designates Leadership of the IJU Terrorist Group
Page 2 of2
AKAs: Nazhmiddin Kamoldinovich Zhalolov
Nazhmidin Kamoldinovich Zhalolov
Nazhmiddin Zhalalov
Najmiddin Jalalov
Najmiddin Jalolov
Nazhmiddin Zhalolov
Nazhmuddin Kamoldinovich Zhalolov
Abu Yahya Muhammad Fatih
Abdurakhmon
Yakh'yo
Yahyo
Najmiddin Kamilidinovich Zhanov
OOB: 1972
All. OOB: 1 April 1972
POB: Andijan region, Uzbekistan
Address: S. Jalilov Street 14, Khartu, Andijan region, Uzbekistan
Nationality: Uzbek
SUHA YL FA TlLLOEVICH BURANOV
As of late 2007, Suhayl Fatilloevich Buranov was the deputy IJU leader and was
responsible for the organization's communications. As of late 2005, Buranov also
prepared suicide bombers from among new IJU members. Buranov reportedly was
one of the organizers of the terrorist acts in Uzbekistan in 2004 that killed at least
47 people.
AKAs: Suhail Fatilloyevich Buranov
Sukhail Fatilloevich Buranov
Suhail Buranov
Mansur Buranov
Sohail Mansur
Suhail Mansur
Abu Huzaifa
OOB: 1983
Alt. OOB: 11 October 1983
POB: Tashkent, Uzbekistan
Address: Massiv Kara-su-6, Building 12, Apartment 59, Tashkent, Uzbekistan
Nationality: Uzbek
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hp-l036: Treasury Targets Hizballah in Venezuela
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ROOM
,~ u.s. DEPARTMENT Of TIlE lIIEJ,SURV
June 18, 2008
hp-1036
Treasury Targets Hizballah in Venezuela
Washington - The U.S. Department of the Treasury today designated two
Venezuela-based supporters of Hizballah, Ghazi Nasr al Din and Fawzi Kan'an,
along with two travel agencies owned and controlled by Kan'an.
"It is extremely troubling to see the Government of Venezuela employing and
providing safe harbor to Hizballah facilitators and fund raisers. We will continue to
expose the global nature of Hizballah's terrorist support network, and we calion
responsible governments worldwide to disrupt and dismantle this activity," said
Adam J. Szubin, Director of the Office of Foreign Assets Control (OFAC).
Today's action was taken pursuant to Executive Order 13224, which targets
terrorists. those owned or controlled by or acting for or on behalf of terrorists, and
those providing financial, technological, or material support to terrorists or acts of
terrorism. Assets the designees hold under U.S. jurisdiction are frozen and U.S.
persons are prohibited from engaging in transactions in property or interests in
property blocked under the order.
Identifying Information
GHAZI NASR AL DIN
Ghazi Nasr al Din is a Venezuela-based Hizballah supporter who has utilized his
position as a Venezuelan diplomat and the president of a Caracas-based Shi'a
Islamic Center to provide financial support to Hizballah. Nasr al Din served until
recently as Charge d' Affaires at the Venezuelan Embassy in Damascus, Syria, and
was subsequently appointed the Director of Political Aspects at the Venezuelan
Embassy in Lebanon.
Nasr al Din has counseled Hizballah donors on fundraising efforts and has provided
donors with specific information on bank accounts where the donors' depOSits
would go directly to Hizballah.
Ghazi Nasr al Din has met with senior Hizballah officials in Lebanon to discuss
operational issues, as well as facilitated the travel of Hizballah members to and
from Venezuela. In late January 2006, Nasr al Din facilitated the travel of two
Hizballah representatives to the Lebanese Parliament to Caracas to solicit
donations for Hizballah and to announce the opening of a Hizballah-sponsored
community center and office in Venezuela. The previous year, Nasr al Din arranged
the travel of Hizballah members to attend a training course in Iran.
AKAs: Haj Ghazi Nasseredine
Ghazi Nassereddine
Gazi Nasseridine
Gazi Nasser EI-Din
Ghazil Nasser AI-Din
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hp-l036: Treasury Targets Hizballah in Venezuela
Page 2 of 3
Haj Ghazzi Nassereddine
Ghassan Attef Salame Nasserddine
Ghassan Nasr EI Din Ghassan
Ghazi Nasserddine
Ghazi 'Atef Nasraldine
Atef Salameh Nasserdine Ghasan
Hajj Ghazi 'Atif Nasr ai-Din
Venezuelan Cedula: 18,190.527
Venezuelan Passport: B-0472561
OOB: 13DEC 1962
POB: Lebanon
FA WZI KAN'AN
Fawzi Kan'an is a Venezuela-based Hizballah supporter and a significant provider
of financial support to Hizballah. Kan'an has facilitated travel for Hizballah members
and sent money raised in Venezuela to Hizballah officials in Lebanon,
Kan'an has met with senior Hizballah officials in Lebanon to discuss operational
issues, including possible kidnappings and terrorist attacks. Further, Kan'an has
also traveled with other Hizballah members to Iran for training.
AKAs:
Fazi Canaan
Faouzi Can'an
FouziKanan
Fauzi Kanaan
Fawzi Kan'an
Fauzi Ganan
00B1:
DOB 2:
00B3:
POB 1:
POB2:
POB 3:
Passport no:
Nationality:
Naturalization no.:
Identification no:
Residence 1:
Maustaf Fawzi (Faouzi) Kanaan
7 June 1943
February 1943
I June 1943
Lebanon
Baalbeck, Lebanon
Betechelida, Lebanon
0877677
Venezuelan (Naturalized)
2108, 16 December 1977
V-6.919.272
Calle 2, Residencias Cosmos, Fifth Floor, Apartment 50,
La Urbina Caracas, Venezuela
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12/8/2008
Page 3 of3
hp-l036: Treasury Targets Hizballah in Venezuela
Residence 2:
Esquina Bucare, Building 703, Second Floor, Apartment 20
Caracas, Venezuela
BIBLOS TRAVEL AGENCY
Biblos Travel Agency is a Venezuela-based travel agency owned and operated by
Fawzi Kan'an, which he has used to courier funds to Lebanon.
AKAs:
Location:
Biblios Travel
Biblos Travel CA
Biblos Travel, C.A.
Avenida Baralt, Esquina Maderero, Edificio Santa Isabel II,
PB, Loc. 1 Caracas, Venezuela
HILAL TRAVEL AGENCY
Formed in April 2001, Hilal Travel Agency is a Venezuela-based travel agency
owned and operated by Fawzi Kan'an.
AKAs:
Address:
Business 10 no.:
Hilal Travel C.A.
Avenida Baralt, Esquina Maderero, Edificio Santa Isabel
Caracas, Venezuela
80074366
-30-
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Closing Statement by Secretary Paulson at the Fourth Meeting of the U.S.
China Strategic Economic Dialogue
Washington, DC-- Good afternoon. We have reached the conclusion of our fourth
meeting of the Strategic Economic Dialogue. Thank you to my Cabinet colleagues
for your active participation at this meeting. And, of course, I thank our Chinese
colleagues for their continued commitment to the SED. To my counterpart, Vice
Premier Wang Qishan, it has been our pleasure to host you and your countrymen
here. I know that I will talk to you many times before then, yet I also look forward to
seeing you later this year for our fifth SED meeting.
Our discussions these last two days covered a wide range of priority issues for both
our nations. I believe I speak for all of my Cabinet colleagues when I say that the
SED has fostered broad, productive relations. Our discussions have gained
momentum, leading to progress on a number of fronts this week, and creating a
foundation for timely progress going forward. While these direct discussions may
suspend for a day or two as our Chinese colleagues return home, the break will not
last much longer than that, as intensive work continues between these biannual
meetings.
Through the SED, we deal with long term strategic issues important to the
prosperity of the American people, the Chinese people, and the global economy. At
this meeting we grappled with the most important, strategic issues in our economic
relationship. In particular, I believe we've begun two initiatives that over time will
enable significant progress on two shared priorities - investment and energy and
the environment.
Today, my colleague Vice-Premier Wang and I will sign a 1O-year Energy and
Environment Cooperation Framework, through which we will address some of the
most important and difficult challenges facing our nations and the world today energy security, environmental sustainability, and climate change.
China and the United States are the two largest net importers of oil. Together, the
United States and China account for more than half of global coal consumption.
And we are the two largest emitters of green house gasses. China's rapid
development has relied on a rapid increase in energy use, particularly oil and
electricity. Last year, China accounted for almost 50 percent of total growth in world
oil demand.
Our interests in this area are very aligned. We seek energy security -- which is so
vital to our economic security -- while taking the necessary steps and making the
necessary technological advances to preserve the health of our planet. Success in
this area will require a sustained long-term effort by our two countries. And although
there are no short-term fixes or easy answers, we are making progress and the 10year Framework provides a vehicle for us to achieve more tangible results this year
while laying the foundation for a long-term productive engagement between our two
nations, which is essential if we are to meet this challenge.
To address these long-term issues requires more than government to government
cooperation. Through this 1O-year Framework, our two governments will engage
businesses, academics, and leading research facilities in both our nations to jointly
explore new ideas, share knowledge, and commercialize new technology. Working
in a multidisciplinary format will enhance the productivity of this collaboration
between our nations.
The 1O-year Framework will center around five areas -- electricity, air, water,
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HP.1037: Closing Sfatement by Secretary Paulson at the Fourth Meeting of the U.S.<br>China Strategic ... Page 2 of2
transportation, and conservation of forest and wetland ecosystems. We will pursue
the concept of EcoPartnerships as a potential vehicle for voluntary cooperative
initiatives across public and private entities.
Trade and open investment are key sources of economic growth. Both nations
renewed their commitment to work actively toward a positive conclusion of the
Doha negotiations. We also established a Transportation Forum between our two
countries that will identify important infrastructure needs across all modes of
transportation and enable the free flow of trade in these areas between the US and
China. We discussed the importance of open investment to both our countries.
I am particularly pleased that we agreed to launch negotiations of a bilateral
investment treaty (BIT). The conclusion of a BIT would send a strong signal that our
two nations welcome investment and will treat each other's investors in a fair and
transparent manner. The US will pursue a comprehensive treaty based on the US
model BIT, which reflects high standards of investor protection and provides legal
protections for all economic sectors. Our two governments will begin these
negotiations soon, and expect to have several rounds of discussions before the
next SED meeting. We will work for a high-standard BIT, which is clearly in the
mutual economic interests of both our nations.
During our meetings, we discussed the state of the US, Chinese and global
economies. I provided an update on US financial markets, and described the steps
we have taken to address immediate market stresses as well as medium-term
steps we are taking to address policy issues arising out of recent market turmoil.
We agreed that while the turmoil of recent months has created difficulties, the future
prosperity of all our people requires that we fully partiCipate in global financial
markets, to balance our economies and fuel growth. The Chinese discussed
several important incremental steps they are taking to open their financial markets.
We also discussed the role of currencies in the global economy, and I told the
Chinese I welcome the recent increased pace of appreciation of the RMB, and urge
China to continue its move toward greater exchange rate flexibility, a crucial tool in
controlling inflation and managing the domestic economy.
I am pleased that we continue to build stronger relationships between our leaders
and our countries - that this innovative effort to strengthen a unique economic
relationship is a success. We have managed through times of tension, and through
leadership transition. And we will no doubt face future challenges. The mutual
respect, trust and candor fostered through the SED will enable us to manage those
challenges as well. Thank you.
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of meeting of the U.S. - China Strategic Economic Dialogue,
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FOR IMMEDIATE RELEASE, June 18, 2008
CONTACT Brookly McLaughlin, (202) 622-2920
U.S. Fact Sheet:
Fourth Cabinet-Level Meeting of the U.S.-China Strategic Economic Dialogue
The United States and China today concluded the fourth Cabinet-level meeting of the Strategic
Economic Dialogue (SED). President George W. Bush and President Hu Jintao established the SED to
create a Cabinet-level forum to develop strategies to reach shared long-term objectives while managing
short-term challenges in our economic relationship. During the meeting held June 17 and 18, 2008 at the
U.S. Naval Academy in Annapolis, Maryland, 9 U.S. Cabinet officials and agency heads joined
Secretary Paulson for discussions with China's Vice Premier Wang Qishan and a delegation of 18
Chinese ministers and agency heads.
The SED is a mechanism for managing the U.S.-China economic relationship on a strategic basis. Stable
and prosperous bilateral economic relations are increasingly important to both countries. At the meeting
this week, leaders from both countries discussed the following topics: joint opportunities in energy and
the environment, managing financial and macroeconomic cycles, investing in people, trade and
competitiveness, and enhancing investment.
The dialogue in Annapolis builds upon the progress that has been made in U.S.-China bilateral
economic relations since the beginning of the SED, including: progress on consumer safety issues, with
discussions creating a new culture of collaboration between the U.S. and Chinese governments to
promote the health and safety of American consumers; progress on financial sector reform, including the
value of the RMB; a new bilateral civil aviation agreement, opening the Chinese air passenger and cargo
markets to U.S. air carriers; steps to address energy security and environmental sustainability, including
an agreement to establish a national emissions trading program in China and an agreement to strengthen
cooperation on strategic oil stocks with the International Energy Agency; and a new tourism
memorandum of understanding, facilitating visits for groups of Chinese tourists that is projected to be a
significant driver of growth for the U.S. travel industry.
Joint Opportunities in Energy and the Environment
Building upon the Major Economies Process launched by President Bush last September as well as
previous SED discussions, the United States and China have agreed to take further concrete steps to
enhance collaboration between the two countries to promote energy security, and further environmental
sustainability:
•
Ten Year Energy and Environment Cooperation Framework: At the third Cabinet-level SED
meeting, the United States and China announced the establishment of a working group to develop
plans for extensive cooperation on energy and the environment over a ten year period. The United
States and China today announced that both countries have agreed to a framework for this
cooperation, and have established joint task force groups to tackle challenges in five specific areas:
electricity, air, water, transportation, and conservation of forest and wetland ecosystems.
•
Eliminating Barriers to Trade in Environmental Goods and Services: Discussions in this area began
at a broad level, and are now focused on the scope of product coverage and on the modalities for
tariff reduction or as appropriate elimination, to facilitate a comprehensive WTO agreement on
environmental goods and services.
•
Cooperation with the International Energy Agency; Building on the commitment at the third
Cabinet-level SED meeting to strengthen cooperation on construction and management of strategic
oil stocks, China agreed to consider voluntary participation in the joint actions of lEA member
countries during times of oil disruption, in line with the principles of the Five Country Ministerial
and 08 Plus 3 energy ministerial agreements in Japan. Coordination with the lEA during times of oil
disruption significantly increases energy security both globally and for the United States. China also
agreed to strengthen collaboration with the lEA on areas such as global energy markets, energy
efficiency, and clean energy technology.
•
Sustainable Forest Management: The United States and China have agreed to promote global
sustainable forest management, with both sides identifying specific regions and activities for joint
cooperation by the next meeting of the Cabinet-level SED.
•
Illegal Logging: The United States and China convened the first meeting of the bilateral forum under
the Memorandum of Understanding on Illegal Logging and Associated Trade on June 13,2008 and
agreed to detailed follow-up work on priority areas.
Bilateral Investment
America's policy of bilateral investment is one of our economic strengths, and the United States
continues to promote openness to trade and investment. Foreign direct investment into the United States
stimulates growth and competitiveness, creates jobs, enhances productivity and prosperity, and fosters
competitiveness. The United States and China reached a number of agreements that build upon both
countries' mutual interests in supporting and promoting open investment and market-based competition:
•
Bilateral Investment Treaty Negotiations: The United States and China have agreed to launch
negotiations of a bilateral investment treaty. The conclusion of a BIT would send a powerful signal
that our two countries are committed to open investment and to treating each other's investors in a
fair and transparent manner. The United States will negotiate on the basis of the U.S. model BIT,
which reflects high-standards of investor protection. We will pursue a comprehensive treaty that
provides important legal protections for all economic sectors, including the right to nondiscriminatory treatment, due process, transparency, free capital transfers, and compensation in the
event of expropriation. We will pursue an agreement that enables investors to enforce these rights
through independent international arbitration. Our two governments will begin negotiations soon and
expect to have several rounds of discussions before the next SED meeting, but the timeline for
concluding the negotiation will be detern1ined by the quality of the agreement. We believe that a
high-standard BIT is clearly in our mutual economic interests.
•
Creation of an Investment Promotion Initiative: The United States and China jointly agree to create
an investment promotion initiative, to enhance public recognition of the positive benefits of
investment flows between our two countries.
•
First Meeting of the U.S.-China Investment Forum: The first meeting of the U.S.-China Investment
Forum was held on June 16 th , with both sides discussing bilateral investment and agreeing to a
framework and work plan. The Investment Forum is a platform allowing the U.S. to focus on
practical investor concerns with the Chinese, such as the process of investment reviews, potential
investment barriers in China, and encouraging increased job-creating Chinese investment in the
United States.
•
Sovereign Wealth Funds: China agreed that investment decisions by its state-owned investment
firms will be based solely on commercial grounds.
Financial Sector Reform
The United States and China, as leaders in the global economy and in the international financial and
trading systems, share a responsibility to promote balanced and sustained growth in their economies. A
competitive and efficient financial sector will be an engine for growth in China's fast-growing economy,
providing opportunities for American manufacturers and service providers.
During the fourth Cabinet-level SED in Annapolis, both sides discussed market turmoil of recent months
and the repricing of risk in global markets. The United States reported on steps it is taking to address
market turmoil in the short-tenn and in the intermediate term steps to address policy issues arising from
recent turmoil. The Chinese reported on steps they are taking to open their financial services sector and
further integrate into global markets.
The United States and China have reached a number of agreements resulting in further opening of
China's financial services sector:
•
Consumer Finance: China agreed to allow, on a pilot project basis, non-deposit taking foreign
financial institutions to provide consumer finance. This agreement provides new opportunities for
U.S. companies.
•
Stock Exchange Listings in China: China agreed to allow qualified foreign companies to list on its
stock exchanges through issuing shares or depository receipts.
•
RMB-Denominated Bonds: China agreed to ease qualifications for foreign incorporated banks to
issue subordinated RMB-denominated bonds. This will allow foreign banks, including U.S. banks, to
raise capital and grow their business.
•
Qualified Foreign Institutional Investors: China agreed to reduce the initial "lockup period" for the
investments of certain Qualified Foreign Institutional Investors (QFIIs), creating new opportunities
for U.S. mutual funds and money managers.
•
Credit Rating Agencies: China agreed to allow existing credit rating agency (CRA) joint ventures to
apply for a license to rate corporate bonds without reducing their existing percentage foreign equity
stake, following entry into force of new u.S. regulations on Nationally Recognized Statistical
Reporting Organizations. This action will expand business opportunities for foreign CRAs, including
U.S. CRAs, in the Chinese domestic market.
•
Insurance: China confirmed that it recognizes U.S. concerns regarding proposed regulations
("Administrative Methods of Equity Interest") that would restrict investment in Chinese domestic
companies and that it will continue to fully consult and consider comments received from all
interested parties. China also clarified that it had recently issued regulations ("Overseas Investment
with Insurance Funds") which specify the relevant requirements to allow insurance companies in
China -including foreign-invested companies-- to invest assets overseas. This should provide
greater clarity regarding t.he requirements to manage such assets and will provide companies with
greater flexibility in managing their business.
•
Securities Joint-Ventures: As agreed to at the May 2007 Cabinet-level SED meeting, China reported
that it had resumed its licensing of securities joint ventures by approving the application of Credit
Suisse's investment banking operations in China, allowing Credit Suisse to participate in China's
domestic stock underwriting market. Credit Suisse's Investment Banking Operations are
headquartered in New York.
•
Securities Scope of Business: As agreed to at the May 2007 Cabinet-level SED Meeting, China
reported that it had acted to meet its commitment to allow foreign securities firms to expand their
operations by granting CLSA brokerage and research licenses. This precedent will benefit U.S.
financial institutions.
•
Qualified Foreign Institutional Investors (QFIIs): Since committing to QFIl expansion at the May
2007 Cabinet-level SED meeting, China has issued quotas for several new QFIIs. This action allows
foreign mutual funds, including U.S. mutual funds, to invest in China's domestic stock market This
precedent will benefit U.S. financial institutions.
•
RMB Appreciation: The RMB has appreciated 20.3% since July 2005 against the US dollar, and
since the last SED, the annual pace of appreciation has accelerated to 14.6% compared to 3.4% in
2006 and 6.9% in 2007.
Trade and Competitiveness
The United States and China have made joint commitments and taken joint actions to ensure that our
economies remain competitive in an economic environment shaped by globalization, including:
•
Doha Round: The United States and China will work together with other WTO members to actively
promote the conclusion of Doha Development Agenda negotiations, with the view to facilitating the
development of multilateral trading system.
•
Transportation Forum: The United States and China signed a Joint Declaration on Transportation
Cooperation establishing a Transportation Forum between the two countries covering all modes of
transportation. The Transportation Forum will help identify opportunities for, and work to reduce
barriers to, American companies that desire to help design, construct and equip China's new roads,
rail, port and aviation facilities, and to provide a broad range of freight, passenger and mail services
within the country. The Transportation Forum will help identify transportation infrastructure needs
and will identify bottlenecks, to enable a free flow of trade between the U.S. and China.
•
Transparency: The United States and China agree to publish in advance for public comment, subject
to specified exceptions, all trade and economic-related administrative regulations and departmental
rules that are proposed for adoption, and provide a public comment period of not less than 30 days
from the date of publication. China agrees to publish such measures for comment on the Chinese
Government Legislative Infornlation Website maintained by the Legislative Affairs Office of the
State Council, and the United States agrees to publish such measures for comment in the Federal
Register maintained by the National Archives.
•
Intellectual Property Rights: The United States and China agreed to intensify cooperation on IPR
protection through the IPR Working Group under the JCCT as soon as possible after the close of
SED IV and prior to the 19th JCCT. Both sides agree to start the above mentioned cooperation with
an introduction of China's recently published "Outline of National Intellectual Property Rights
Strategy" and "Plan for IPR Protection Initiatives in 2008," and both sides may discuss issues that
are not related to the claims of the current WTO dispute settlement.
The Safety and Quality of Products
The United States is one of the most open economies in the world. Ensuring the integrity of trade, the
quality of products, and the safety of food, drug and medical devices is a continuing priority for the
United States. Americans expect that goods and products sold in our marketplace are safe, and the
United States continues to take steps with all trading partners to ensure the safety and quality of these
goods and products.
To further enhance and strengthen our ongoing dialogue about the integrity of the trade relationship
between the United States and China, the two countries reviewed progress on the implementation of a
number of agreements to ensure China meets the strict requirements the United States has in place to
protect consumers and ensure the safety and quality of products in our marketplace. These agreements
cover the safety of drugs, medical products, food and animal feed. In addition, the two countries
announced:
•
Food and Drug Administration in China: The United States and China reached consensus that U.S.
Department of Health and Human Services / Food and Drug Administration personnel shall be
placed at the U.S. Embassy and Consulates General in China and agreed to work out detailed
arrangements.
-30-
U.S. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
FOR IMMEDIATE RELEASE, June 18, 2008
CONTACT Brookly McLaughlin, (202) 622-2920
Joint U.S. - China Fact Sheet
Fourth U.S.-China Strategic Economic Dialogue
At the U.S. Naval Academy in Annapolis, Maryland on June 17 and 18, the United States and China
held the fourth Strategic Economic Dialogue (SED). As special representatives of President George W.
Bush and President Hu Jintao, Treasury Secretary Henry M. Paulson, Jr. and Vice Premier Wang Qishan
served as co-chairmen of the SED.
DisclIssions at the fourth SED meeting led to a number of results in areas of strategic importance that
strengthen and deepen the hilateral economic relationship, including:
I. Macroeconomic Cooperation and Financial Services
The United States and China reaffirm their commitment to continue working together to achieve
sustained growth, maintain price stability, and ensure the smooth and orderly functioning of their
financial systems, and agree to continue their cooperative approach to information sharing on financial
services issues of mutual interest, and to consider further how to deepen cooperation to safeguard global
financial stability. Moreover, the United States and China took the following actions and made the
following commitments:
•
•
•
•
The United States published an assessment of the causes of the current global financial market
turmoil and its recommendations for financial services firms and regulators to strengthen their
operations and procedures and plans to issue a follow-up statement later this year that will assess
progress towards implementation of these recommendations and consider whether further steps are
needed;
China will complete, by December 31, 2008, an assessment of foreign participation in China's
securities, futures, and fund management firms, and based on the results of its assessment, make
policy recommendations on adjusting foreign equity participation in China's securities market;
The United States has proposed new regulations that are consistent with the International
Organization of Securities Commissions revised Code of Conduct for Credit Rating Agencies, to
strengthen their procedures to protect the integrity of the ratings process, help ensure that investors
and issuers are treated fairly, and safeguard confidential material information provided;
China will allow existing credit rating agency (CRA) joint ventures to apply to qualify for a
securities-related credit rating business without a reduction in their existing percentage foreign
equity stake, following entry into force of new U.S. CRA regulations, at which time registered
CRAs must comply fully. CSRC will consider these applications in accordance with its prudential
regulations;
•
•
•
•
The United States reiterated its commitment to open financial markets, apply national treatment to
Chinese banks and process expeditiously applications by Chinese banks to establish branches in
the United States, in accordance with relevant prudential regulations and procedures, without
undue delay;
China allowed, on a pilot project basis, non-deposit taking foreign financial institutions to provide
consumer finance to local retail customers in China; agrees to reduce the lockup period for the
invested principal of Qualified Foreign Institutional Investors (QFII) to 3 months for insurance
companies, government and monetary authorities, mutual funds, pension funds, charity funds,
donations funds and open-end China funds established by QFIIs; and will allow qualified foreign
companies to list on its stock exchanges through issuing shares or depository receipts in
accordance with relevant prudential regulations and allow qualified foreign incorporated banks to
issue subordinated RMB-denominated bonds;
U.S. Department of Agriculture (USDA) will explore means to further cooperation on agricultural
insurance with China, and will consider providing training for Chinese officials and industry
representatives who seek to develop China's insurance policies in the areas of insuring crops and
livestock from damages, including those caused by natural disasters.; and
China and the United States had positive discussions on the proposed regulation on
"Administrative Method of the Equity Interest in Insurance Companies" during the comment
period, and in particular, on the issue of the U.S. concern that foreign insurance institutions may
invest in a new or existing domestic insurance company without regard to whether that institution
has already invested in the same insurance sector in China. China will consider fully comments
timely submitted from all parties, and continue to consult as appropriate. China recently issued
regulations which specify relevant ClRC requirements to allow insurance companies in China
("Measure for the Overseas Investment with Insurance Funds"), including foreign-invested
companies, to invest a certain proportion of their assets overseas.
II. Investing in People and Product Quality and Food Safety
The United States and China had substantive discussions on how best to work together to mitigate the
economic risks associated with the aging populations in both countries and to provide better social
services such as health care and retirement. In addition, building on the significant progress made at the
third SED meeting on product quality and food safety, the United States and China committed to further
strengthen our cooperative efforts. To this end, both countries:
•
•
•
•
•
•
•
agree to continue discussing China's export product quality and food safety control system and to
strengthen cooperation on inspection, quarantine, and safety of designated products;
will sign a 2008 work plan to implement the Memoranda of Agreement on the safety of drugs and
medical devices between the Food and Drug Administration within the U.S. Department of Health
and Human Services (HHS) and China's State Food and Drug Administration (SFDA);
signed a joint progress statement regarding the joint Five-Year Work Plan under the Agreement on
the Safety of Food and Feed between HHS and China's General Administration of Quality
Supervision, Inspection, and Quarantine (AQSIQ);
continue discussions to sign a Memoranda of Understanding between the U.S. Department of
Agriculture and AQSIQ on food safety;
signed a Memorandum of Understanding on Collaboration in Traditional Chinese Medicine; and
commit jointly to explore cooperation in disaster preparedness, forecast and mitigation.
agreed on the importance of improving consumer confidence in the safety of products and drugs
and reached consensus that we should place U.S. Department of Health and Human Services/Food
and Drug Administration personnel at the U.S. Embassy and the relevant Consulates General in
China and General Administration of Quality Supervision, Inspection and Quarantine and State
Food and Drug Administration personnel in the Chinese Embassy and the relevant Consulates
General in the United States, and agreed to work out detailed arrangements.
III. Cooperation on Energy and the Environment
Recognizing that energy and environmental challenges represent two of the most important policy issues
facing our two countries in the twenty-first century, and the importance of joint cooperation in
addressing these challenges, the United States and China committed to strengthen long-term
cooperation on energy and the environment. To this end, both countries:
•
•
•
•
•
•
signed a Ten Year Energy and Environment Cooperation Framework and announced the first five
goals to be addressed under the framework, established five task forces and launched action plans
focused on concrete cooperation for each goal, with the aim of completing all of these action plans
by SED V, and also initiated discussion on exploring the concept of EcoPartnerships by SED V;
agreed on the critical relationship between energy security, economic growth, and environmental
protection, and on the importance of exploring energy efficiencies, alternative fuels, and next
generation technologies; and agree to recognize the importance of ensuring responsible and
transparent energy exploration and development that minimizes the negative impact on the
environment and through bilateral dialogue will give full effect to the energy security principles
embraced at Aomori, Japan in the Joint Statement of the Five-Party Energy Ministers on June 7,
2008 and the Joint Statement of Energy Ministers by the G8 Plus 3 on June 8, 2008;
agree to strengthen cooperation with the International Energy Agency (lEA) on areas of mutual
interest to address energy security issues of common concern, including global energy markets,
strategic oil reserve, energy diversification, energy efficiency and clean energy technology, and
agree that in times of oil supply disruption, to consider voluntary participation in the joint action of
IEA member countries, building on the previous commitments made at the third SED meeting and
the Joint Statement of the Five-Party Energy Ministers on June 7, 2008 at Aomori, Japan;
agree to share information and experiences on technologies and supervision methods related to
waste utilization and disposal;
agree to continue bilateral exchanges on the scope of product coverage and on the modalities for
tariff reduction or as appropriate elimination, so as to facilitate achieving a comprehensive WTO
agreement on environmental goods and services; and
agree to explore establishing a mechanism for regular information exchange on timber and forest
products trade and timber legality identification, to enhance legal trade in timber and forest
products and global forest law enforcement and governance; agree to discuss in June the transfer to
China applicable technology and equipment for forest fire prediction, warning, monitoring and
suppression; agree to promote global sustainable forest management utilizing each side relative
strengths.
IV. Trade and Competitiveness
The United States and China discussed the challenges of trade in the next decade and actions that should
be taken to ensure that our economies remain competitive in an economic environment shaped by
globalization. To this end, both sides:
•
•
will work together with other WTO members to actively promote the conclusion of Doha
Development Agenda negotiations, with the view to facilitating the development of the multilateral
trading system;
agreed to intensify cooperation on IPR protection through the IPR Working Group under the JCCT
as soon as possible after the close of SED IV and prior to the 19th JCCT. Both sides agree to start
the above mentioned cooperation with an introduction of China's recently published "Outline of
National Intellectual Property Rights Strategy" and "Plan for IPR Protection Initiatives in 2008,"
and both sides may discuss issues that are not related to the claims of the current WTO dispute
settlement;
•
•
•
•
•
•
•
signed a Joint Declaration on Transportation Cooperation that establishes a forum for both
countries to discuss challenges and future cooperation in transportation;
further agreed to hold regular government-to-government meetings of U.S. and Chinese agencies
responsible for government policies that relate to innovation, and host a public-private discussion
between the fourth SED and fifth SED meetings and agree that there is mutual benefit in exploring
cooperation on joint activities in research and development in science and technology;
discussed China's market economy status and the United States recognized the continued progress
China has made in its market reforms, will earnestly consider China's concerns, and will consult
through the JCCT in a cooperative manner to work toward China's Market Economy Status in an
expeditious manner;
agreed to continue consultation through the JCCT and other channels on trade remedy rules and
procedures;
will continue to conduct cooperative discussions on high-tech and strategic trade issues in the
U.S.-China High Technology Working Group (HTWG) under the JCCT. The United States and
China are committed to facilitating civilian high-tech trade as agreed in the "Guidelines for U.S.China High Technology and Strategic Trade";
agreed to strengthen cooperation on Rules of Origin, Customs Trade Partnership Against
Terrorism (C-TPA T), and the protection of cultural relics; and
The United States and China recognize the significant steps both countries have taken to enhance
transparency. Building upon their SED III transparency commitments, the United States and
China agree to publish in advance for public comment, subject to specified exceptions, all trade
and economic-related administrative regulations and departmental rules that are proposed for
adoption and provide a public comment period of not less than 30 days from the date of
publication. China agrees to publish such measures in the Chinese Government Legislative
Information Website of the Legislative Affairs Office of the State Council, and the United States
agrees to publish such measures in the U.S. Federal Register. The two sides also agreed to
continue exchanges on transparency in administrative rule-making and licensing, and to invite
representatives from their legislative and judicial organs to appropriate future meetings.
V. Investment
In light of the potential for a substantial increase in bilateral investment flows, the United States and
China agreed to a number of steps to facilitate mutually beneficial investment between the two
countries. To this end, both sides:
•
•
•
agreed to launch negotiations on a bilateral investment treaty in the interest of facilitating and
protecting investment and enhancing transparency and predictability for investors of both
countries;
agreed to a framework and work plan for the Investment Forum at their first meeting on June 16.
The Forum will focus on practical investor concerns, such as the process of investment reviews
and potential investment barriers; and
agreed to create an Investment Promotion Initiative that features a series of investment activities in
both countries that bring together interested parties.
In addition , the United States welcomes sovereign wealth fund investment, including from China. China
stressed that investment decisions by its state-owned investment firms will be based solely on
commercial grounds, and the United States will fully consider any written comments submitted by
China on the proposed "Regulations Pertaining to Merger, Acquisitions and Takeovers by Foreign
Persons," and confirms the CFIUS process ensures the consistent and fair treatment of all foreign
investment without prejudice to the country of origin.
The fifth SED will be held in Beijing in December 2008.
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u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
June 18, 2008
COl\TACT Brookly McLaughlin, (202) 622-2920
FOR IMMEDIATE RELEASE
JOINT U.S. - CHINA FACT SHEET
U.S.-CHINA TEN YEAR El"ERGY AND ENVIRONMENT COOPERATION FRAMEWORK
At the fourth meeting of the U.S.-China Strategic Economic Dialogue in Annapolis, Maryland, the
United States and China signed a Ten Year Energy and Environment Cooperation Framework that sets
goals and lays out concrete next steps. The two countries announced the following four steps in this
cooperation:
l. Creation of the Ten Year Energy and Environment Cooperation Framework and signing of the
Agreement.
2. Announced five initial goals to be addressed under the Framework.
3, Announced the establishment of five task forces to develop action plans focused on concrete
cooperation for each goal, with the aim of completing all of these action plans by the next SED
meeting.
4. Initiated discussions on exploring the concept of EcoPartnerships by the next SED meeting.
The Cooperation Framework has been structured to foster extensive collaboration over a ten year period
to address the challenges of environmental sustainability, climate change, and energy security.
A joint steering committee to guide cooperation has been established, with Secretary of the Treasury
Henry M. Paulson, Jr. serving as a co-chair for the United States, and Vice Premier Wang Qishan
serving as a co-chair for China.
There are five participating cabinet agencies for the United States - the Departments of the Treasury,
State, Commerce, and Energy and the Environmental Protection Agency. There are seven participating
agencies for China - the National Development and Reform Commission, State Forestry Administration,
National Energy Administration, and the Ministries of Finance, Environmental Protection, Science and
Technology, and Foreign Affairs. Additional agencies will be added by the United States and China as
necessary.
Initial Goals, Task Forces. and Additional Steps
The five initial goals that have been established are:
1. Clean, Efficient, and Secure Electricity Production and Transmission
2. Clean Water
3. Clean Air
4. Clean and Efficient Transportation
S. Conservation of Forest and Wetland Ecosystems
Task forces have been identified for each of the five initial goals. Core areas that each task force may
address include: basic research and joint technological research and development; technology
commercialization (including demonstration and dissemination); policy development and incentives:
information sharing; and capacity building.
Highlights from the initial task force discussions are as follows:
o Clean, Efficient, and Secure Electricity Production and Transmission:
Preliminary discussions have focused on steps both countries can take together to address electricity
supply and demand challenges; and in the power generation sector, an efficient diversi fication of
energy resources. Potential areas of collaboration include Renewable and Alternative Sources of
Clean Energy, Clean Fossil Fuel, Power Grid and the Electricity Market, and Nuclear Power.
o
Clean and Efficient Transportation: Preliminary discussions have focused on four broad areas: I.
Clean and efficient vehicle technologies; 2. Design and modality of transportation systems; 3. Clean
and alternative fuels, including next generation (cellulosic) biofuels; and 4. Improvement and
utilization of existing transportation infrastructure.
o
Clean Water: Targeted initial areas of cooperation for the Clean Water action plan include water
quality management; provision of safe drinking water; and prevention and control of pollution from
agriculture and rural areas. Cooperative work in these areas will include design of an overall
framework of U.S.-China cooperation on clean water; an evaluation and analysis of clean water
policies, and assessment and promotion of transfer of clean water technologies; study programs; and
performance evaluation of the study programs.
o
Clean Air: Both countries will build upon the agreement reached at SED III to implement an S02
emissions trading program for China's power sector, through integration of this program into
China's regulatory system.
o
Conservation of Forest and Wetland Ecosystems: The United States and China will focus on two
major areas: 1. Enhanced cooperation on wetlands conservation and management; and 2. Enhanced
cooperation on the establishment and management of protected areas, including wildlife
conservation.
The U.S. and China agree to explore by the next SED meeting the concept of EcoPartnerships as a
potential vehicle for implementing and demonstrating cooperative initiatives of the U.S.-China Ten Year
Energy and Environment Cooperation Framework, whereby both countries would work together to
facilitate voluntary, cooperative partnerships in the United States and China.
The task forces will continue to meet over the coming months and provide additional details of their
work to both the United States and Chinese governments by the next SED meeting.
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ROOM
u.s. DEPARTMENT OF THE mEMURY
June 19, 2008
HP-1040
Remarks by Secretary Henry M. Paulson, Jr. on Economy
and Markets before Women in Housing and Finance
Washington, DC-- Good afternoon. Thank you, Mary Martha. And thanks to
Women in Housing and Finance for almost thirty years of actively promoting women
in the finance and housing professions. Not surprisingly, I think those who work in
finance and markets serve an integral role in our economy and congratulate all of
you who have chosen to pursue careers in these challenging and dynamic fields.
U.S. Economy
As you know, the U.S. economy is going through a rough period - after six straight
years of almost 3 percent average annual growth, our growth rate slowed
significantly late last year. We are facing a trio of headwinds - a housing correction,
capital markets turmoil and high energy and commodity prices.
We acted quickly in January and February to enact an economic stimulus package
that is injecting $150 billion into our economy now when it's most needed. To date,
over 76 million payments totaling almost $64 billion have been sent. These
payments are helping families weather this period of slow growth and absorb
unexpectedly higher food and gas prices. These stimulus payments are already
having an impact as retailers are reporting increased sales as people receive and
spend their checks. While the stimulus is making our economy stronger than it
otherwise would have been, the headwind of high energy prices has the potential to
lengthen the economic slowdown.
The housing correction is proceeding. We have implemented a series of public and
private initiatives to help financially-able homeowners stay in their homes and to
keep mortgage financing available. Importantly, Congress has made great progress
on reform of the supervision of the GSEs, and needs to complete that work. Fannie
Mae and Freddie Mac are the two largest sources of mortgage finance, with a
combined 70 percent share of the mortgage market last quarter. A strengthened
regulator for Fannie Mae and Freddie Mac will increase investor confidence in
these enterprises and will be a substantial tool to ease the housing downturn and
increase the availability of affordable mortgages for Americans who want to buy a
new home or refinance their current one.
U.S. Capital Markets
Certain sectors of the capital markets are still under stress, but we continue to
make progress. As I have said before, we expect to be working through this for
some time as de~leveraging and re-pricing of risk continue.
Revaluation of assets and overall market conditions are creating a challenging
earnings environment and pressure for some financial i.nstitutions. While stressful in
the near-term, this re-pricing of risk is necessary and Will set the stage for greater
confidence and market improvements.
For some time I have encouraged financial institutions to raise capital. Even in this
difficult environment, U.S. financial institutions have begun the process by raiSing
billions of dollars in new capital. I expect this process to continue and broaden,
which is essential to the ability of these institutions to continue to support the
broader economy.
I believe market conditions will continue to improve, but not in a straight line. Our
financial institutions must continue to improve risk management and disclosure. I
am confident that actions being taken by our financial institutions and regulators will
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make our capital markets stronger and contribute to sustainable future economic
growth. <?veraB, I believe t.ha.t the United St~tes is on the right path to resolving
market disruptions and bUlldln~ a stronger fmanClal system. Increasingly, our capital
markets will reflect the underlYing economy. And in that regard, a significant
downside risk is housing, which we continue to monitor.
Policy Issues Arising from Market Turmoil
As w.e wo~k through the immediate market turmoil, the President's Working Group
on Fmanclal ~arkets, the PWG, has also reviewed its causes and, in MarCh, made
recommendations to address them.
Our review found that the turmoil was fueled by an abundant supply of easy credit,
a breakdown .in mortgage and other credit lending standards, increasingly complex
and opaque fmanclal Instruments and structures, excessive leverage in our financial
system, a lack of independent assessment by investors and credit ratings agency
issues.
The PWG presented specific near-term steps to address underlying weaknesses,
steps that should be implemented by regulators, investors, financial institutions and
credit ratings agencies. Among these, we identified improvements for every step of
the mortgage originate-to-distribute model, including stronger oversight of mortgage
origination, national licensing standards for mortgage brokers, more disclosure from
securitizers and ratings agencies, and improved due diligence by investors.
We also outlined specific steps that credit rating agencies should take to provide
information that investors need to make more fully-informed decisions about risk.
This will require reforming structured credit product rating processes and
implementing other changes. The SEC has already begun by proposing new rules
on disclosure, due diligence and conflict of interest. Regulators must also review
how rules and guidance encourage over-reliance on the use of ratings.
In recent years, credit default swaps and over-the-counter (OTC) derivatives have
become integral for hedging credit, default and price risk. Due to innovation and
demand, we have seen tremendous expansion in the scale, diversity and impact of
these instruments and markets. As price volatility has surged, so have trading
volumes; market infrastructure needs to more sufficiently evolve to support this
expansion. In response to this pressing need, we recommended the establishment
of a functional, well-designed industry cooperative that can meet the needs of the
OTC derivatives markets in the years ahead.
We are working with the PWG member agencies - the Federal Reserve, the SEC
and the CFTC - and the Federal Reserve Bank of New York and the acc, to
monitor the efforts of several private sector committees and others to implement
these and other PWG recommendations, and will report our progress later this year.
Balancing Market Discipline and Market Oversight
In the last few decades, we have seen an evolution in mortgage finance that
reflects a broader evolution in financial services. Commercial banks used to be the
primary channel for U.S. financial intermediat,ion. That is less true now. as non-bank
financial institutions playa significantly more Important role.
Shortly after I came to Washington, I pOinted out that our financial regulatory
structure has not kept pace with this market evolution. We .then began w~rk to
outline a new financial regulatory structure that IS better sUlt~d to protect Investors,
protect the stability of the financial system. and support the Innovation and nsktaking that fuel our economy. We released our report. the Bluepnnt for a
Modernized Financial Regulatory Structure, in March of thiS year.
Our work on an ideal regulatory structure began ~8 months ago, during a period of
calm markets. and many viewed it as an academic exercise. The market turmOil last
summer, and particularly the failure of Bear Stearns In March, has underscored the
need for this overhaul.
The headline question when considering the ideal regula.tory ~tructure is how to
strike the right balance between two principles: market diSCipline and market
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oversight. These are fundamental principles vital to a healthy financial sector and a
healthy economy, and must be continually rebalanced if our financial system is to
remain strong.
Stresses, losses, fragility and liquidity conditions in certain parts of the market in the
last several quarters have revealed how crucial market stability is to our economy.
Stable, deep and liquid markets translate into lower cost financing for everything
from mortgages to student loans to corporate mergers.
In our Blueprint, we suggested an optimal regulatory structure for the long term in
which the Federal Reserve would take on a different but important role as market
stability regulator focused exclusively on the market as a whole. We raised for
debate whether it was optimal to have a regulator that serves as the system's
lender of last resort and also focuses on the safety and soundness of individual
institutions. We questioned whether these sometimes conflicting responsibilities
should be separated in order to better channel market discipline. We also noted that
where the system was at risk additional regulatory authority to complement market
discipline would be needed.
Our Blueprint also emphasized that regulation must be strongest where market
discipline is most compromised, and the presence of an explicit government
backstop significantly weakens market discipline. Therefore, the nature and degree
of government support is an important factor in determining the appropriate level of
regulation.
Of course, regulation alone cannot fully protect the financial system. Market
diSCipline must also constrain risk-taking. The collapse of Bear Stearns, and the
government's response, has put these issues squarely on the plate of financial
regulatory policymakers. Decisions on the immediate issues will inform future
decisions about how to modernize and improve our regulatory structure and what
we should expect from our central bank.
In response to the Bear Stearns collapse, the Federal Reserve acted to address
market liquidity issues by giving primary dealers temporary access to the discount
window. The Fed took this action to protect the system - not a particular institution.
And we strongly supported this important step. But the obvious follow-up question
to this extraordinary action is what role should the Fed play now that it is a lender to
these institutions? We are working closely with the Fed and the SEC as they
answer this. The parties are working to formalize this role in a Memorandum of
Understanding, an MOU. Some issues are easy to resolve - the Fed must have
information and access so that it can assess its potential borrowers and
counterparties. A more difficult issue is how this newly formalized relationship
evolves when these temporary facilities eventually close and how, depending on its
scope, the MOU will be perceived by the marketplace. In this context, we should
also consider how the SEC and the Fed should coordinate regarding capital and
liquidity requirements for these firms.
As the Fed and the SEC work through the immediate issues associated with the
primary dealers' current access to the Fed's facilities, we must also begin in earnest
the serious work it will take to transform our current regulatory structure into
something that meets the objectives we laid out in the Blueprint. This will not be
done easily or quickly, nor will it be done in a single step. But we must begin to
modernize our financial regulatory structure to reflect the ,breadth of financial
institutions that finance the U.S. and global economy.
Perhaps the most difficult question is how to create an entity that performs the
function of the Blueprint's market stability regulator. In reality, the Fed is already
expected to play this role when the system is threaten~d. Whether it ':las Long
Term Capital Management in 1998 or Bear Stearns thiS year, our nation has come
to expect the Federal Reserve to step in to a~ert events that po~e unacceptable
systemic risk. But, as we noted in our Blue~nnt, the Fed ha~ ne!ther the clear
statutory authority nor the mandate to anticipate and deal With nsks across our
entire financial system.
Much of the Fed's current authority as lender of last resort was granted during the
Great Depression. In light of the changes and developments in today's financial
markets we should take a hard look at whether the Congress has given the Fed the
appropri'ate authority and direction to execute this lender of last resort responsibility
when the system is threatened.
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We ~~ve now learned that a wider range of institutions can potentially threaten the
stability of the financial system. It seems clear that in the future the central bank
might need to make liquidity available to a broader range of financial institutions
under certain extraordinary circumstances. However, at the same time, the
circumstances under which that liquidity is provided must be limited and focused on
systemic risk that can impact the overall economy. We must examine this authority
a~d .the pro~esses and procedur~s to implement it and calibrate them appropriately.
It IS Imperative that market participants not have the expectations that lending from
the Fed is readily available.
To act as market stability regulator, the Fed would need appropriate authority to
respond to and proactively address systemic risks - whether it be a risk posed by a
commercial bank, an investment bank, a hedge fund, or another type of financial
institution. To perform this function, it is vital that the Fed have information and
access across all types of financial institutions. But information gathering alone is
not enough. We must also define the scope of the Fed's role in identifying and
constraining risk-taking that can detrimentally affect the financial system. This likely
requires authority to intervene to prevent the build up of conditions that create
significant risk to the stability of the financial system. Ultimately, we should get to
the place where the market stability regulator's responsibilities come with broadbased authority applicable to a wide range of institutions - with a focus on the
system as a whole. Defining the scope of the Fed's new authorities and
responsibilities is not a simple task, and the definition must balance two very
important priorities - providing additional stability to the financial system on the one
hand, while limiting moral hazard on the other.
The greater the belief in a safety net, the more risk market participants are willing to
take and the greater the risk to the taxpayer. A stable system requires that risktaking bring both reward and loss. Market discipline plays an enormous role in
curtailing excessive risk-taking, a role that neither can nor should be completely
executed by regulators.
Of course, the mere creation of a market stability regulator can increase moral
hazard and decrease market discipline. The expectation that a regulator wilf
intervene to protect the system must be limited to the greatest extent possible. In
other words, we must limit the perception that some institutions are either too big or
too interconnected to fail. If we are to do that credibly, we must address the reality
that some are. To do that, we must strengthen market infrastructure and operating
practices in the OTC derivatives market and the tri-party repo system and clarify the
resolution, or wind down, procedures for non-depository institutions. Creating a
more stable environment will mitigate the likelihood that a failing institution can spur
a systemic event.
During the past year, despite dislocations in our financial markets, our market
infrastructure has proven quite resilient. Payments were made, margining at
clearing corporations continued, and exchanges handled massive surges in volume
around the world. Still, there are two areas of market infrastructure where market
participants and regulators must focus attention - OTC derivatives and secured
lending, including tri-party repos. These activities play important roles and bring
many benefits, but have outgrown an infrastructure that needs to be strengthened.
And this contributed to the concern that an institution could be too big or too
interconnected to fail. And this, together with the implications concerning broader
market behavior and market confidence, factored prominently into the Fed's
decisions surrounding the failure of Bear Stearns.
Given the massive scale of the OTC derivatives market, we need to enhance trade
processing with more automation, clear the backlog and create utilities and
protocols that will make the process more efficient. I am pleased that a number of
the institutions that account for a significant percentage of OTC derivatives trading
are working to do this, by recently forming a cooperative and working with the New
York Fed, under Tim Geithner's leadership, to create the necessary protocols to
bring more transparency and efficiency and re~uce counterparty credit risk. It is.
imperative that this cooperative bring standardization ~ot only to dealer transactl~ns
but to the broader community of counterpartles, including hedge funds. For the trlparty repo market, we must address risks ass.ociated with a potentia! counterparty
failure and the risk associated with the potential disruption of a clearing bank.
Despite long-standing efforts to address t~e tre.atment of derivatives .and other
financial contracts in the case of a failed finanCial institution, there still seems to be
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uncertainty surrounding the process by which a large complex institution is wound
down and what impact that would have on the overall financial system. U.S.
bankruptcy law was updated significantly in 2005 to address many issues
associated with OTC derivatives contracts. We should evaluate whether the
resolution, or winding down, process for large complex institutions should be
modified to help mitigate disruption to the financial system and improve market
discipline. This requires addressing a number of difficult questions, including
whether we need to assign a particular regulatory agency to oversee resolutions
and how any potential intervention is justified and explained.
Finally, we must review the emergency authorities of the Federal Reserve, Treasury
and other financial regulators, and update them to reflect the current financial
system. To be effective in the future, our regulatory system needs an overhaul.
Clearly, these are difficult questions. They will not be resolved quickly. Nor will they
be resolved in one single reform effort. The solutions will evolve, as regulators and
market participants consider the issues. Recent events have revealed the
disconnect between the ever-eVOlving financial system and our outdated regulatory
framework. Dedicated and innovative regulators have found ways to address
current issues within the bounds of authorities created when the financial system
was markedly different.
This work is absolutely necessary, and must be engaged as we address the
narrower, immediate issues that are today in the public debate. Beginning to
address these fundamental issues is critical to finding the right balance between
discipline and oversight that will strengthen our financial system.
Conclusion
I will sum up my main points today. When we published the Blueprint in March, I
made clear I believed we were laying out a long-term vision that would take time to
consider and implement. Since then, the Bear Stearns episode and market turmoil
more generally have placed in stark relief the outdated nature of our financial
regulatory system. We are working with the Fed and the SEC on the immediate
issues raised by the Fed's provision of liquidity to the primary dealers. But we must
dramatically expand our attention to the fundamental needs of our system, and
move much more quickly to update our regulatory structure - always keeping in
mind that there must be a balance between market discipline and market oversight.
I see three clear lessons from the experience of recent months:
First, we should quickly consider how to most appropriately give the
Federal Reserve the authority to access necessary information from
complex financial institutions and the authority to act to mitigate
systemic risk in advance of a crisis.
Second, we need to take several critical steps to make sure that
market discipline continues to play the vital role it needs to play to
keep our financial system in balance, as we work to ensure the
system's stability. To reduce the perception and the likelihood that a
complex financial institution is too interconnected to fail, steps are
needed to strengthen our practices and financial infrastructure in the
OTC derivatives market and in the tri-party repo system, and to
provide greater certainty around the mechanics of winding down a
failed institution that is not a federally insured depOSitory institution.
Third we must re-examine the emergency authorities of the Federal
Rese~e, Treasury and other financial regulators to ensure they are
adequate to the roles they are expected to play in today's modern
and multi-faceted financial system.
As we address each of these lessons, we must be guided by the desire to balance
market oversight with market discipline. The stability of our finan~ial system is
essential and market discipline is also essential to the preservation of a healthy
financial ~ystem. I know from first hand experience that normal or even presumed
access to a government backstop has !he poten.tial to chan~e behavior ,:"ithi~
financial institutions and with their creditors. It Will compromise. market diSCipline
and lower risk premiums, which ultimately puts the system at risk.
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And for the sake of the system and its impact on the overall economy, we need
businesses to manage their affairs without the expectation or presumption that the
government will be there if they get into trouble. We need to encourage this by our
words and our deeds. And this should be an important consideration as we debate
how best to give our regulatory structure a much-needed and long-overdue
overhaul to meet the needs of our financial markets.
We know that the combination of high energy and commodity prices, market stress
and a housing correction makes this a tough time for America's families and
workers. We also know that the U.S. economy's performance for the past 50 years
has been second to none, and that we have undergone difficult economic periods in
the past. I understand that doesn't make the day-to-day much easier right now. But
I am confident, because our economy is resilient. deep and competitive. And I want
Americans to be confident as well. I travel overseas quite often, and am constantly
reminded that our long term economic fundamentals compare favorably to any
advanced economy in the world. One thing is clear - whatever our current
difficulties, I wouldn't bet against the U.S. worker, the U.S. economy, or the U.S.
financial system. Thank you.
-30-
httPIIWWw.treas.~ov/prcss/rclc1l3u3/hr!()40.htm
7/2/2008
1041: US Treasury Awards $8.2 Million to Organizations Serving<br>Economically Distressed Nati... Page 1 of 2
".4~1~", PRESS
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June 19, 2008
HP-1041
US Treasury Awards $8.2 Million to Organizations Serving
Economically Distressed Native American Communities
Scottsdale, Arizona - Director Donna J. Gambrell of the U.S. Department of the
Treasury's Community Development Financial Institutions (CDFI) Fund visited
Scottsdale, Arizona today to announce awards totaling $8,224,587 to 29
organizations serving Native American or Alaskan Native communities located in 15
states. The awards were made through the CDFI Fund's Native American CDFI
Assistance (NACA) Program.
"The 29 Native organizations we recognize today are strong institutions that bring
leadership and stability to their communities by providing financial education,
building assets, and expanding financial opportunity," said CDFI Fund Director
Gambrell. "We are very pleased to know that the awards made today will enable
further community development efforts and increase the availability of financial
services and products in Native American and Alaskan Native communities."
The event was hosted by the Salt River Financial Services Institution which is
supported by the Talking Stick Golf Club, an enterprise of the Salt-River Pima
Maricopa Indian Community. Treasury held the national award announcement there
to highlight the seven Arizona-based award recipients: Arizona Tribal CDFI
(Phoenix); Bik'eh Hozho Community Development Corporation (Tuba City); CDFI of
the Tohono O'Odham Nation (Sells); Hopi Credit Association (Keams Canyon);
Pascua Yaqui Tribe (Tucson); Salt River Financial Services Institution (Scottsdale);
Yavapai Apache Nation Community Development & Lending Corporation (Camp
Verde) - all of which are leaders serving the community development needs of their
Native communities. The awardees were selected after a competitive review of 45
applications received by the CDFI Fund from organizations across the nation that
requested over $17 million in funding under the 2008 round of the NACA Program.
Since 2002, the CDFI Fund has made 177 awards totaling $31.3 million through its
various funding programs aimed at benefiting Native communities. In five short
years, the number of Native CDFls has grown from 14 to 47 - a 335 percent
increase. In addition, the CDFI Fund has awarded over $7.5 million to organizations
to provide capacity-building and financial services training programs that are
focused on Native Communities.
Background
The CDFI Fund invests in and builds the capacity of community-based, private, forprofit and non-profit financial institutions with a primary mission of community
development in economically distressed communities. These institutions certified by
the CDFI Fund are able to respond to gaps in local markets that traditional financial
institutions are not adequately serving. CDFls provide critically needed capital,
credit and other financial products in addition to technical assistance to community
residents and businesses, service providers, and developers working to meet
community needs.
In 2004, the CDFI Fund introduced the NACA Program, which was specifically
designed to encourage the creation and ~trengthe~ing of CDFI~ .that prima~ily ~erve
Native American, Alaska Native, and Native Hawaiian communities. Organizations
funded serve a wide range of Native communities, and reflect a diversity of
institutions in various stages of development - from organizations in the early
planning stages of creating a CDFI, to tribal entities working to certi~ a.n existing
lending program, to established CDFls In need of further ca~aclty bUilding
assistance. Two types of funding are available: finanCial assistance awards,
httPIIWWw.treas.gov!prcss/rcIcu3es/hp!041.htm
7/2/2008
HP.I041: US Treasury Awards $8.2 Million to Organizations Serving<br>Economically Distressed Nati ... Page 2 of2
available only to certified CDFls, are made in the form of loans, grants, deposits, or
equity investments to support their financing activities. Historically, FA awards have
been primarily used by awardees as financing capital; a FA award requires the
awardee to match the CDFI Fund's award dollar-for-dollar with funds from nonFederal sources; and technical assistance grants used to acquire products or
services, including technology, staff training, consulting services to acquire needed
skills or services, or to support general capacity-building activities ..
The CDFI Fund's vision is an America in which all people have adequate access to
affordable capital, credit and financial services.
For more information about these awards, or about the CDFI Fund and its
programs, please visit the Fund's website at: http //wwwcejflfllIH!l)UV .
-30-
httP/lwww.treas.gov/presslteleaseslhplD41.htm
7/2/2008
fJP-1042: Treasury LItts Sanctions on Chinese Firm
Page 1 of 1
/~~~, PRESS ROOM
u.s. DEPARTMENT Of THE TllEASURY
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June 19, 2008
HP-1042
Treasury Lifts Sanctions on Chinese Firm
Washington - The U.S. Treasury Department's Office of Foreign Assets Control
(OFAC) today removed the China Great Wall Industry Corporation (CGWIC), and
its U.S. subsidiary, G.W. Aerospace, from the list of Specially Designated Nationals.
CGWIC, a Chinese entity, was designated on June 13, 2006, pursuant to Executive
Order 13382, for providing material support to Iran's missile program. GW.
Aerospace, which is located in Torrance, California, was designated for being
owned or controlled by CGWIC.
"Removing China Great Wall Industry Corporation from our sanctions list marks a
great success for our counter-proliferation sanctions program," said OFAC Director
Adam J. Szubin. "A company that once supported Iran's missile program has
implemented a rigorous and thorough compliance program to prevent future
dealings with Iran."
OFAC has determined that CGWIC and its U.S. subsidiary no longer meet the
criteria for designation pursuant to E.O. 13382.
E.O. 13382, signed by the President on June 28, 2005, authorizes the U.S.
Treasury to freeze the assets of proliferators of weapons of mass destruction and
their supporters and to isolate them from the U.S. financial and commercial
systems. 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.
Since the President issued E.O. 13382 and identified eight entities in the Annex to
the Order, a total of 49 entities and 12 individuals have been deSignated as
proliferators of WMD or for supporting WMD proliferators. Specifically, the Treasury
Department has deSignated:
•
•
•
34 entities and 11 individuals tied to Iranian proliferation activity;
Nine entities and one individual tied to North Korean proliferation activity;
Three entities tied to Syrian proliferation activity.
Additionally, the State Department has designated three Iranian entities under E.O.
13382.
Identifying information on entities being removed:
CHINA GREAT WALL INDUSTRY CORPORATION (a.k.a. CGWIC; a.k.a.
ZHONGGUO CHANGCHENG GONGYE ZONGGONGSI), No. 30 Haidian Nanlu,
Beijing, China; Moscow, Russia; and all other locations worldwide
G.W. AEROSPACE, INC. (aKa. GREAT WALL AEROSPACE, INC.), 21515
Hawthorne Blvd., Suite 670, Torrance, CA 90503; California Corporate Number
C1458237 (United States)
-30-
httPIIWWw.treasgov/press!reIea~es/hpl042.htm
7/2/2008
~P-I043:
Treasury Designates AI Haramain Islamic Foundation
/~~', PRESS
Page 1 of 1
ROOM
,~ u.s. DEPARTMENT OF TIlE TllE4SURV
June 19, 2008
HP-1043
Treasury Designates AI Haramain Islamic Foundation
Washington - The U.S. Department of the Treasury today designated the AI
Haramain Islamic Foundation (AHF) for having provided financial and material
support to al Qaida, as well as awide range of designated terrorists and terrorist
organizations.
Today's action targets the entirety of the AHF organization, including its
headquarters in Saudi Arabia. Evidence demonstrates that the AHF organization
was involved in providing financial and logistical support to the al Qaida network
and other terrorist organizations designated by the United States and the United
Nations.
Between 2002-2004, the United States designated thirteen AHF branch offices
operating in Afghanistan, Albania, Bangladesh, Bosnia & Herzegovina, Comoros
Islands, Ethiopia, Indonesia, Kenya, Netherlands, Pakistan, Somalia, Tanzania, and
the United States.
Several of these branch offices have also been designated by the United Nations
1267 Committee based on evidence of their support for al Qaida. The United States
and United Nations also designated in 2004 the former leader of AHF, Aqeel
Abdelaziz AI-Aqil.
The Kingdom of Saudi Arabia joined the United States in designating several
branch offices of AHF and, due to actions by Saudi authorities, AHF has largely
been precluded from operating in its own name.
Despite these efforts, AHF leadership has attempted to reconstitute the operations
of the organization, and parts of the organization have continued to operate.
AI Haramain Foundation was deSignated today under Executive Order 13224,
which targets terrorists and those providing financial, technological, or material
support to terrorists or acts of terrorism. Assets held by any office of the AHF
organization under U.S. jurisdiction are frozen and U.S. persons are prohibited from
engaging in any transactions with AHF.
For more information on the actions taken against AI Haramain Foundation, please
visit the following link: Idlp ,1,\".\I//III:dSIIIY.qoV.\lfflces.'i:llfoICl'illelltihcy·
1,,,,,1 Ji:C'/pr(jll:ctlrle) cllLlllt,,~c, (,:. ,CCiJl r JI;I
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-30-
http/IWWw.treas.gov/press/releases/hpl043.htm
7/212008
HP-I044: U.S. Treasury Assistant Secretary to Deliver Remarks<br> in London on Financial Markets
/~3~, PRESS
Page I of 1
ROOM
,~ u.s. OEPARTMENT OF THE TREASUfI'I
June 19, 2008
HP-1044
U.s. Treasury Assistant Secretary to Deliver Remarks
in London on Financial Markets
U.S. Treasury Assistant Secretary Anthony W. Ryan will deliver remarks on
progress in financial markets on Tuesday, June 24 in London. Assistant Secretary
Ryan also will provide and update on the implementation of the U.S. President's
Working Group on Financial Markets' policy statement released on March 13.
The following event is open to credentialed media:
Who
U. S. Treasury Assistant Secretary Anthony W. Ryan
What
Remarks at Euromoney's Global Borrowers Investors Forum 2008
When
Tuesday,
June 24 4:30 p.m. (Local Time)
Where
The Hilton Park Lane, London
22 Park Lane
London, Wi K 1BE, United Kingdom
httPIJWWw.trea~.guvlplesslreleaSC3/hplf)44.htm
7/2/2008
HP-1045: Paulson to Attend Meeting of Finance Officials in Mexico
Page 1 of 1
/~~~, PRESS ROOM
u.s. DEPARTMENT Of TIlE TREASURY
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June 19, 2008
HP-1045
Paulson to Attend Meeting of Finance Officials in Mexico
Washington, DC-- Treasury Secretary Henry M. Paulson, Jr. will attend a day of
meetings hosted by Mexican Finance Minister Agustin Carstens on Tuesday to
discuss regional finance and economic issues.
Paulson will join finance officials from Latin America, the Caribbean and Canada as
well as heads of the International Monetary Fund, World Bank and Inter-American
Development Bank to discuss a range of economic issues and areas of regional
cooperation. The meetings will cover a global and regional economic outlook, the
role of international financial institutions in the region and areas of strategic
cooperation.
-30-
httPIIWWw.treas.gov/presslreleases/hp104S.htm
7/2/2008
HP.1046: Week 8 WHlp-Up:,bplreasury Sent 9.071 Million Stimulus Payments This Week
,.'~#'<f~~, PRESS ROOM
u.s. DEPARTMENT OF THE TREASURY
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HP-1046
Week 8 Wrap-Up:
Treasury Sent 9.071 Million Stimulus Payments This Week
This week the Treasury Department sent out 9.071 million economic stimulus
payments to American households totaling $6.919 billion. So far, Treasury has sent
out 85.174 million total economic stimulus payments totaling $70.782 billion.
Cumulative Total
Total Number of Payments: 85.174 million
Total Amount of Payments: $70.782 billion
Week Eight (June 16-20)
Total Number of Payments: 9.071 million
Total Amount of Payments: $6.919 billion
Week Seven (June 9-13)
Total Number of Payments: 9.526 million
Total Amount of Payments: $7.032 billion
Week Six (June 2.6)
Total NumberofPayments: 9.143 million
Total Amount of Payments: $6.789 billion
Week Five (May 26-30)
Total Number of Payments: 5.757 million
Total Amount of Payments: $4.320 billion
Week Four (May 19-23)
Total Number of Payments: 6.211 million
Total Amount of Payments: $4.927 billion
Week Three (May 12-16)
Total Number of Payments: 15.575 million
Total Amount of Payments: $13.562 billion
Week Two (May 5-9)
Total Number of Payments: 22.180 million
Total Amount of Payments: $20.138 billion
Week One (April 28-May 2)
Total Number of Payments: 7.708 million
Total Amount of Payments: $7.091 billion
httP/IWWw.treas.gov/press/relea~es/hplD46.htm
7/2/2008
ffP-I046: Wet:K 8 Wrap-Up:<br>Treasury Sent 9.071 Million Stimulus Payments This Week
Page 2 of2
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households, and the total amount of payments
sent. Payments began April 28 and will continue via direct deposit or paper check
through mid-July. For a single filer, the minimum payment is generally $300 and
the maximum payment is $600. For joint filers, the minimum is generally $600 and
the maximum $1,200. There is also an additional $300 payment for each qualifying
child.
For tax returns processed by the Internal Revenue Service by April 15 households
will receive their payments according to the last two digits of the Social Security
number on the tax form. On a joint return, the first number listed will determine
when a stimulus payment will be sent.
REPORTS
httP/lwww.treap.gov!prcss!releu:.JeBlhpl046.htm
7/2/2008
Direct Deposit Payments
If the last two digits of your Social Security Your economic stimulus payment deposit
number are:
should be transmitted to your bank account
by:
00-20
21-75
76-99
May 2
May 9
May 16
Paper Check
If the last two digits of your Social Security Your check should be in the mail by:
number are:
00-09
10-18
19-25
26-38
39-51
52-63
64-75
76-87
88-99
May 16
May 23
May 30
June 6
June 13
June 20
June 27
July 4
July 11
A small percent of tax returns will require additional time to process and to compute a
stimulus payment amount. For these returns, stimulus payments may not be issued in
accordance with the schedule above, even if the tax return was processed by April 15. In
these cases, the stimulus payment will be issued approximately 2 weeks after the tax
return is ultimately processed.
-30-
IP-I048: Transcript ofD.S. Delegation Press <br>Conference at the Fourth Meeting of the U.S.<br>Chi ... Page 1 of 4
/~"~~, PRESS
ROOM
,~ u.s. DEPARTMENT Of 1IIE TllEASURY
June 18, 2008
HP-1048
Transcript of U.S. Delegation Press
Conference at the Fourth Meeting of the U.S.
China Strategic Economic Dialogue
SECRETARY PAULSON: Before taking your questions, let me just thank my
cabinet colleagues again. This is always a busy time of year, and it seems busier
than normal right now, and they've put a lot of work in getting ready for this, and
spent a day-and-a-half in these meetings, made major contributions, and I'm very
grateful for their involvement. And I think it pays real dividends because one of the
real advantages of this dialogue is when, rather than making the case on currency
to the central bank governor, or making the case on the environment to the
environmental minister, the fact that we make the case on a broad range of issues
to the whole economic leadership, and when that is siloed it is huge. And these
discussions go better and better every time.
Well, let me go right now to your questions.
Yes, in the front.
Q: Thank you. I just - before the SED, Treasury Department revised a regulation of
CFIUS. The proposed CFIUS will give - the proposed regulation will give CFIUS
more room to interpret the regulation of foreign investors. So China is - you know,
is a little bit concerned about, you know, the protectionists, you know, in the United
States as United States is asking more openness of, you know, Chinese financial
market. What is your comment on that?
SECRETARY PAULSON: Well, I would say this: first of all, we have traditionally
had a market as open as any market in the world. CFIUS is an exception. Our
market is open and the exception is CFIUS reviews investments where there is a
national security concern, to protect the national security, and this national security
control.
In China, you need pre-approval, and so it's a different system. We're in different
stages of development. And there is no doubt that we would have more investment
from China, but Chinese investors are - no investor wants to come in and be
embarrassed, and to be turned away. So we have - the CFIUS - new CFIUS
regulations we have follow the law. I'm very pleased with the law, and I think it
really clarifies things in a very positive way.
We've gone out very transparently for comment, and are taking comment from
everyone before finalizing the regulations. So we had a - I think we had a very
good meeting on investment. We - all of us emphasized how that the highest vote
of confidence anybody can pay to our economy is to make a direct investment. We
benefit from it. And so we had a good conversation about investment, and we
talked about - sovereign wealth funds, and again explained we're open to the
investment - very open. And we talked about the best practices, and why we
thought that was a great effort by the IMF, which would be important to keeping
markets open in various places around that world that maybe aren't quite as
comfortable with investment as we are, and so in any event we had a good
discussion on investment.
Yes?
Q: My question is everybody is very - pay a lot of attention to the election and once,
you know, U.S. is probably going to lead by a government who is a Democrat
president. It's possible. But if so, do you think he is going to still continue the SED,
and will you personally lobby to continue?
httPIIWWw.trea~.guv/prcss/rclctl3cj/hpl1)48.htm
7/2/2008
HP-1048: Transcnpt of U.S. Delegation Press <br>Conference at the Fourth Meeting of the U.S.<br>Chi ... Page 2 of 4
SECRETARY PAULSON: Well, I would say this: First of all, I'm not going to
speculate on any outcome - on the election. I'm just simply saying what I say to my
Chinese counterparts: Americans are results-oriented people, and I think that we
understand how important this economic relationship between our two countries is.
And if anything we try to do - and most of the major economic issues around the
country and many other issues around the world are easier done if you have
bilateral cooperation with China, multilateral support. We have a strong interest in
China's economy doing well; they have a strong interest in our economy doing well,
and if this relationship - this SED - produces tangible results that we wouldn't have
otherwise achieved, then I am an optimist that it will continue. And again, I also say
to people that imitation is the highest form of flattery, and I see many other nations
wanting to emulate the SED that we have with China.
SECRETARY PAULSON: Yes, let me go to that gentleman.
Q: Thanks. We've asked China several times to lift its energy price controls. China's
officials yesterday in Annapolis said they would not do that, or least indicated it was
nothing in the foreseeable future.
Given the state of energy markets today and how much energy China consumes,
how much of an impact is that having now or likely to have in the near future? In
other words, is it affecting U.S. prices?
SECRETARY PAULSON: Yeah, I would say this: First of all, in terms of the energy
markets, there is no doubt in my mind that China understands the importance of
markets, and they are working toward markets where there are not subsidies or
administrative controls. They understand the importance of transparency, and they
are working - and we have good discussions about that.
So where there are differences, they are differences about the pace of change. And
it is - just as we have significant economic and political issues in this country when
the price of gasoline goes up that we even have - well, anyway, I think it would be
difficult for them, and we understand it's difficult for them to do that right now, and
we're encouraging them to make progress.
Now in terms of the impact on global oil prices, there are a lot of considerations. But
what I would say to you is that the big driver is supply and demand. And global
production capacity has been relatively flat for ten years and demand has been
increasing. And I think that is the predominant factor in oil prices.
Yes?
Q: Thank you, Mr. Secretary. Circumstances have changed a lot since SED IV.
China has appreciated its currency more than 20 percent so far. And - (inaudible)has been exposed in U.S. financial system, such as the subprime mortgage crisis.
My question is how have these changed circumstances affected the dynamics of
SED IV? For example, did the Chinese challenge the U.S. system might not be the
best model? Thank you.
SECRETARY PAULSON: Quite clear on that. First of all, in terms of currency, we
expressed an understanding and appreciation for the accelerated pace of
appreciation of the renminbi. And we clearly see a continuing need to continue to
make progress in currency flexibility. But we understand what has been
accomplished, number one.
Number two, with regard to currency, I've never heard the Chinese move from their
position that they need a currency that is more flexible over time and that they're
working toward a currency that is market-determined, because they know that's in
their best interest. They have a market-driven - want to get to a totally marketdriven economy. They're going to be able to manage their economy much more
effectively if they had a market-driven currency, be better at fighting inflation.
Monetary policy would be more effective. And so, they've never backed away from
that. The discussion has been about the rate and pace of change.
Now, with regard to the subprime crisis and the turmoil that's gone on in our
markets, they have clearly said they'd look to us and to a number of other European
countries - but predominantly to the U.S. - as a model, that we were the teachers.
httpIIWWw.trea~.gov/presslreleas~s/hpI048.htm
7/2/2008
HP.I048: Transcript of U.S. Delegation Press <br>Conference at the Fourth Meeting of the U.S.<br>Chi ... Page 3 of 4
And now they see the teachers aren't perfect. And so, they want to - we had a lot of
discussion. They want to learn from our mistakes and we're going to talk much
more about some of the things we're encountering and some of the challenges we
have and the way in which they're dealing with them. But again, they haven't at all
moved away from their need to develop their capital markets more fully and to open
up.
And it was encouraging to me that the progress was reflected in a whole series of
steps that they informed us about. They talked about non-deposit taking financial
institutions now being able to make consumer loans. They talked about insurance
companies - I think it would be easier for them to invest part of their portfolio
overseas. They have gone forward in expanding the scope now of their first
brokerage, investment banking joint venture in China. They are going to make it
possible now for foreign firms to issue ADRs in China, so raise equity in China. And
so, they're going to make it easier for foreign banks who want to raise capital to
issue subordinated debt denominated in RMBs. So again, I think it's important to
see that they're taking a long-term approach and continuing to make progress
there.
Yes, in the back, and then 1'11-
Q: I wanted to know if you consider the launch of the BIT talks a big personal
achievement for you and for the Bush administration.
SECRETARY PAULSON: I'm sorry. I didn't hear theQ: Would you consider the launch of the bilateral investment treaty talks a big
achievement for you personally and for the Bush administration? And how do you
expect the Congress to greet this?
SECRETARY PAULSON: Well, let me say, I don't think the launch is a big
achievement. The launch is an important step to take because you can't achieve
success on something unless you launch it. And so, if we successfully complete a
bilateral investment treaty, it will be a big achievement whenever that is completed.
And we're going to begin negotiations and it's important because again here we're
dealing with historically - we have a lot of U.S investment in China. And China had
been in an earlier stage of their development. Now they're getting to the point
where they have more companies of the size and stature and financial resourcesthey're going to want to invest outside of their country. And so, each of us have an
interest in providing more protection for investors and sending a strong Signal about
the importance of open investment. And so, we will - we are going to work hard to
negotiate a high-quality U.S. model BIT. And congratulate us when we successfully
do that. Yes?
Q: Thank you, Mr. Paulson. Yesterday, the Chinese central bank governor
expressed concern over the weakening dollar. He said that this was driving up the
price of commodities, including oil, as well as inflation. And basically SECRETARY PAULSON: He said what was driving up oil inflation?
Q: The weakening dollar has been driving up the price of commodities including oil
and inflation in China, and also imposing some kind of prejudice on the renminbi
itself.
SECRETARY PAULSON: Well, I would say this. I addressed that and there is no
push back there, as there is any other place when I address it, because the facts
speak for themselves. If you go back to February of 2002, the dollar has
depreCiated 24 or 25 percent and the price of oil has gone up over 500 percent.
And it's gone up dramatically in every currency. And when you look at what's
happened to food prices, it's a similar story. And I think everyone that looks at this
seriously knows that there is one fundamental cause and that is we need more
sources of energy, alternative sources of energy. And we need more production
capacity in oil.
And I'll take one more question. Yes, the gentleman there. Okay, I'll take two more.
I saw you, so you'll be next in the line.
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HP-I048: 1ranscripr of U.S. Delegation Press <br>Conference at the Fourth Meeting of the U.S.<br>Chi ... Page 4 of,
Q: Would you elaborate on the concept of so-called ecopartnerships within the
context of the new 1O-year agreement?
SECRETARY PAULSON: Well, what we've done here with this is we've recognized
that we're not going to get to the kind of success we need to have unless we set
some very bold long-term objectives and then try various approaches involving
different blocs of society. Now, the Chinese have had great success when they
view that in terms of their economic zones during their development. And you
remember Shenzhen and what they accomplished there.
And so, I think in China, there is a concept of something along the lines of green
zones. And we've seen this in other parts of the world. When I was in Abu Dhabi, I
was very impressed looking at a project for a totally green city that they were
putting together. But as they talk with people in the U.S., that's obviously a different
approach. We have a different system. But there are interchanges right now
between Chinese and various different regional interchanges. The Chinese, when
they go to Chicago, they say Mayor Daley's rooftop gardens. There's just a variety
of ideas there. And so, this is again something to energize societies and to be able
to communicate, share ideas. And it will take different forms in different countries.
Q: Thank you very much. Recently I've seen some reports saying that Chinese
officials have been more aggressive in expressing their dissatisfaction over the
United States on some issues like the weakening of U.S. dollars that were just
mentioned. So did you view such kind of pressure during this U.S. SED session?
And what are the issues that both sides most disagree with, if there is any?
SECRETARY PAULSON: I read that account. And I certainly, for someone - and I
think none of our colleagues; it was quite the reverse. And as you got to know each
other better, rather than making speeches and talking past each other, there's just a
serious understanding of what the issues are, that two different systems - how best
to address them? And I would say this: We have encouraged China to playa bigger
role in the global economy and multilateral organizations, to participate in anything,
more proactively in the Doha Round to all kinds of other forums. And I've read
some of the statements but I don't see why Chinese officials can't say something
about the U.S. dollar weakness; everybody else seems to say it around the world.
(Laughter.) And I always make the same point that we have - every economy has
got some ups and downs. We're going through a tougher period right now. But
we're doing, I think, the right things.
And when we have an issue in the U.S., we tend to move through it pretty quickly
because we shine a light on it; we move quickly to clean it up. And I will tell you, I
look at the underlying strength of our economy and the fundamentals longer term,
and I don't think we take a back seat to any other industrial nation. And I think that's
going to be reflected in our currency value.
And so, but I encourage the Chinese to be frank and speak out. We're frank. And I
view it as a positive sign.
Thank you all very much.
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HP-1049: IMF Concludes Article IV Consultation with the United States
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HP-1049
IMF Concludes Article IV Consultation with the United States
Washington, DC--The Treasury Department released today the concluding
statement by the staff of the International Monetary Fund following this year's
Article IV Consultation with the United States This statement represents IMF staffs
independent judgment and assessment of U,S, economic performance and policies,
Release of this statement is consistent with the United States' longstanding, strong
support for enhanced transparency of the IMF. The United States also plans to
release the IMF staff report and Public Information Notice on the U.S. Article IV
review following the Executive Board's discussion of the mission later this summer.
REPORTS
•
1[I;1F 2008 /\I'tlcic IV COI\S, 111,IIICH' - Slcllerner,! or Ih~ Fum! ,\llISOiIOII
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INTERNATIONAL MONET AR Y FUND
2008 Article IV Consultation with the United States of America
Concluding Statement of the IMF Mission
(June 19,2008)
BACKDROP
1.
The slowdown in activity in the United States has been less than feared, and
recovery should begin next year as important headwinds are overcome. Considering the
severity of the shocks that have hit, the economy has held up well so far, with substantial
monetary and fiscal stimulus, buoyant net exports, and healthy corporate balance sheets all
providing welcome support. However, their effect is being blunted by growing strains on
household and bank finances, and now also by higher commodity prices. These strains,
which have yet to fully feed through to domestic demand and activity, will take time to work
out. As such, we project that real GOP (Q4/Q4) will be roughly flat in 2008, and recover
gradually in 2009 to around 2 percent. Although inflation expectations have ticked up on
surging commodity prices, we expect that price pressures will be contained as commodity
prices peak and economic slack rises.
2.
The unusual nature of the ongoing crisis in the financial and housing sectors
leaves the outlook highly uncertain. A more rapid recovery is clearly possible, given the
substantial policy stimulus and proactive response of financial markets to repair balance
sheets. However, the economy is facing historically unprecedented shocks, financial
conditions currently presage further tightening, and there is the worrisome possibility that
weakening activity will feed back into further bank losses, generating a longer slowdown.
3.
Against this uncertain background, the main policy challenges are:
•
to provide measured support to economic activity while keeping inflation
expectations anchored;
•
to reform financial regulation and supervision to improve liquidity management,
enhance capital provisions, and reduce systemic risk;
•
to implement over time the multilateral strategy, with demand rebalanced to sustain
growth while reducing the external current account deficit.
MONETARY POLICY
4.
Monetary policy settings are now broadly supportive of recovery, and a riskmanagement approach would suggest that policy should be on hold. The Fed has eased
rapidly in response to output risks and pushed the federal funds rate to a setting in real terms
that in the past has been associated with recessions. Although the impact of Fed policy on the
economy will be dampened by widening spreads and tighter lending standards, this is
nevertheless a robust response to downward economic pressures. At the same time, surging
commodity prices have lifted headline inflation, and there are some signs from bond markets
and surveys that inflation expectations are edging up. Although we anticipate a lessening of
inflationary pressures, vigilance will be required, given the stimulus in the pipeline and the
2
imperative of keeping inflation expectations well in check. Thus, it could become necessary
to withdraw stimulus quickly as the economic recovery gains traction.
FISCAL POLICY
5.
Timely fiscal stimulus, and the operation of automatic stabilizers, are providing
welcome support to activity at a critical time. Tax rebate checks have been going out to
low- and middle-income individuals since late April, which wlll temporarily boost aggregate
demand at a time when oil and food prices are weighing on consumers' purchasing power.
6.
However, medium-term pressures on the budget limit the room for further
discretionary fiscal expansion. While it is encouraging that the Administration and
Congress are aiming for budget balance over the medium term, these plans do not yet provide
for war-funding authority beyond FY2009 or the costs of overriding legislated actions such
as hikes in the alternative minimum tax and cuts in Medicare compensation. Further fiscal
effort will thus be needed in the years ahead, particularly if the medium-term balance target
were made more ambitious-as we continue to favor--by excluding the social security
surplus. This would complement needed reform of entitlement programs that the
Administration has well recognized are unaffordable over the longer term. Reflecting these
medium- and long-term budget pressures, and the experience elsewhere with repeated fiscal
stimulus, if further action becomes necessary to offset much weaker activity, it could most
effectively be targeted to the housing and financial sectors at the root of current problems.
POLICIES TO SUPPORT HOUSING AND FINANCIAL SECTORS
7.
Timely support has been provided to the housing and financial sectors to limit
macroeconomic risks. The Administration has supported measures encouraging lenders to
avoid foreclosures by modifying loans for borrowers in difficulty. Regulators of govemmentsponsored enterprises have taken actions that allow for additional mortgage purchases, which
could improve market liquidity (albeit at a cost of adding to concerns about the financial
health of these institutions and reinforcing market perceptions of an effective government
guarantee of their liabilities, thus underlining the importance of enacting proposals to
strengthen oversight of these enterprises). The Federal Reserve has also contributed to
market liquidity and the lowering of systemic risks by establishing several types of lending
facilities, including a discount window program for major investment banks (formally, for
primary securities dealers).
8.
Policies need to be mindful of moral hazard, but further action to limit avoidable
foreclosures is justified by risks that house prices could fall below equilibrium. Although
policies need to be mindful of moral hazard and it is clear that house prices still need to
adjust down, overshooting is a clear risk with important macroeconomic consequences. We
therefore support actions in Congress to foster voluntary mortgage write-downs by allowing
the Federal Housing Administration (FHA) to provide guarantees for qualifying new
mortgages at a significant discount from the current appraised value, as well as to introduce
long-needed regulatory reform. However, the take up of FHA guarantees may be quite
limited, and stronger incentives may be needed for lenders to adopt the proposal-e.g.,
through issuance of negative equity warrants allowing the original lender to share any profits
from future sales. In addition, consideration could be given to proposals for bankruptcy
3
reform. Specifically, allowing judges to write down the principal on mortgages on primary
residences-as is now permitted for most other forms of debt, including mortgages on second
homes-warrants consideration as it could mitigate the problem of holdouts (especially
lenders with second liens). While such reforms could increase borrowing costs to
homeowners, it could also encourage better risk management by lenders, and the evidence
suggests that the effect on mortgage costs is likely to be small.
9.
Despite the easing in financial market conditions since the crisis last March,
important risks remain. The Fed's widening of access to its discount window following the
collapse of Bear Steams has lowered systemic risks but not eliminated them. Were the fragile
conditions of last March to recur, the new facility for lending Treasury securities against
asset-backed securities could be adapted with due regard to moral hazard considerations. For
example, the maturity of securities loans could be lengthened significantly, as has been done
with government backing in the United Kingdom. Although group-level oversight has been
enhanced significantly by the inception of the consolidated supervisory program for large
investment banks, further regulatory reforms, many suggested in the Treasury blueprint,
would help. The agreement with over the counter derivatives dealers and other active market
participants on further steps to strengthen the infrastructure of those markets is also a
welcome development as it would reduce future systemic risk.
LESSONS FOR FINANCIAL REGULATION AND SUPERVISIONS
10.
A key medium-term challenge for policymakers will be to restore confidence in
important segments of the U.S. financial market, most notably for securitized products.
The financial boom exposed weaknesses stemming from:
•
leverage that was increasingly supported with short-term funding and thin capital bases;
•
weak regulation of mortgage origination, reflecting the lack of federal oversight of this
sector, difficulties in coordinating across federal and state regulators, and shortfalls in
consumer protection;
•
and incentive problems within the securitization chain, as mortgage originators and
bundlers had few incentives to maintain loan quality even as investors became overly
reliant on external ratings.
The Treasury blueprint provides a sensible basis for comprehensive reform and
11.
simplification of the regulatory system. The extension of the public safety net to primary
dealers, notably the major investment banks, after the collapse of Bear Steams has underlined
the importance of effective systemic regulation. In addition to revisiting risk weights for
capital (including for off-balance sheet entities), enhancing liquidity provisions, increasing
transparency, and reforming governance for rating agencies-as suggested by other forums
including the Financial Stability Forum and the Fund-we would add:
•
stronger regulation and supervision of investment bank and thrift holding companies, as
well as government-sponsored enterprises, by a single supervisor, possibly the Fed;
•
closer supervision ofliquidity conditions in (commercial and investment) bank-holding
companies, with contingency plans that factor-in interruptions of secured financing;
•
counter-cyclical capital requirements and further emphasizing the leverage ratio.
12.
Recent events have highlighted the importance of better consumer protection to
realign incentives in the originate-to-distribute model. The Fed is appropriately proposing
enhanced underwriting standards for lenders of risky loans, and legislation before Congress
rightly instigates federal regulation of mortgage brokers when state supervision is
insufficient. The creation of a business conduct regulator, with responsibilities for mortgage
consumer protection, would be an important step forward, as would greater clarity on ratings
on structured credit products. Holding security bundlers partially legally liable for the quality
of assets they create could also improve incentives to produce safer securities.
SUPPORTING EXTERNAL ADJUSTMENT
13.
While dollar depreciation has moved U.S. competitiveness closer to mediumterm fundamentals, tensions remain given the pattern of adjustment. Bilateral rate
movements have not corresponded to the existing pattern of imbalances, with larger changes
against freely-floating currencies (such as the euro) than against currencies of countries with
large current account surpluses (such as the renminbi). Thus, the reduction in tensions in the
international exchange rate and trade system has been more limited than suggested by the
dollar's real effective rate. This underlines the importance for both the u.s. and its trade
partners to make further progress in implementing the agreed multilateral strategy to reduce
external imbalances, rebalancing demand in a manner that sustains growth. On the U.S. side,
it is appropriate that planned fiscal consolidation is being delayed to support growth.
CONCLUSION
14.
U.S. authorities are to be congratulated on their rapid and innovative responses
to a complex crisis, but significant challenges lie ahead. The policy reactions will help
minimize disruption not only in the United States but across the world. These actions will
need to be supplemented by broader efforts in major countries to foster stability in
international financial markets and maintain an open trading system in the period ahead.
hp-l050: Under Secretary Robert K. Steel <br>Keynote Address to the Managed Funds Association
,>#'~""
PRESS ROOM
,,(.! u.s. DEPARTMENT OF
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Page 1 of 5
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June 23, 2008
hp-1050
Under Secretary Robert K. Steel
Keynote Address to the Managed Funds Association
Chicago- Thank you, Richard, for that kind introduction.
This year's conference has brought together some of the best minds in alternative
asset management, and it is an honor to be here. The Managed Funds Association
(MFA) is an important organization, and you are very fortunate to have the strong
leadership of Richard Baker. I first met Richard when I was working at Goldman
Sachs and then was fortunate to be able to work with him again when I moved to
Washington. As a Congressman, he was one of the members we respected most
and we always enjoyed working with him as a member of the House Financial
Services Committee. He understands all financial services extremely well,
particularly asset management, and he will be a great leader for this Association.
We continue to enjoy a great collaborative relationship with Richard and of the rest
of MFA's leadership. Your organization has served as a useful source of
information for policymakers like me, and your efforts to promote sound business
practices are more important today than ever before.
It is always a privilege to be back in Chicago, my home for more than 15 years. I
attended business school at the University of Chicago and began my career in
financial services here more than 30 years ago. It was here that Secretary Paulson
and I first met. We worked together in the Goldman Sachs office on the 60 th floor of
the Sears Tower. Chicago was then, and continues to be, a global financial center
that exemplifies innovation and leads the world in global derivatives trading.
Chicago is significant to finance for other reasons as well. For instance, Chicago is
the birthplace of the "Chicago School" of economics, which was developed by
renowned economists like George Stigler and Milton Friedman at the University of
Chicago. Their influential work emphasized free market economics and market
discipline. The "Chicago School" of thought has substantially impacted the field of
finance and it continues to be relevant in today's marketplace.
In fact, one observation that can be drawn from our current period is that regulation
itself can not insulate us from market volatility. Friedman and his colleagues, who
famously cautioned against an over-reliance on regulation, would probably not have
been surprised by the irony that during recent market instability, investment
partnerships have generally faired better than more directly-regulated financial
institutions.
Another influential line of economic thinking - the "efficient market hypothesis" also owes its roots to the city of Chicago. Research in the 1960s by Professor
Eugene Fama, also at the University of Chicago, suggested that market participants
cannot "outsmart" the market (1). This idea, which was popularized in the 1973
book A Random Walk Down Wall Street by Burton Malkiel, assumes that markets
are "informationally efficient," and the availability of that information prevents
market participants from successfully outperforming the market with any
consistency greater than random chance would allow.
This hypothesis has faced its fair share of criticism over the years (2), and I am
confident no one in this room believes it is impossible to outperform the market or
you wouldn't be hedge fund managers. Yet, the efficient market hypothesiS certainly
has some truth to it - it is indeed challenging to outperform the market on a riskadjusted basis. In fact, today's asset management industry has very clearly
distinguished between the delivery of beta and alpha returns. Market-correlated
returns are widely available for a very modest charge, however, the ability to
produce real alpha is difficult to achieve but very valuable. The clarity of this
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distinction puts a clear focus on the ambition of alternative investment strategies.
The ideas developed within the "Chicago School" and the "efficient market
hypothesis" have helped shape our modern views of market discipline and market
integrity; and therefore have important implications for the hedge fund industry, a
large portion of which is represented in the room today. In recent years, your
industry has grown dramatically in both size and importance. With that growth,
comes new responsibilities.
Let me spend my time this afternoon giving some background on our efforts at
Treasury with regard to investment partnerships and provide a brief update on our
progress. I will then describe some of the specific responsibilities that your industry
must accept, followed by some perspective on the role of regulation. Finally, I will
conclude with a brief update on current market conditions.
Hedge Funds and Public Policy
It has long been my view that the growing hedge fund industry brings many benefits
to our capital markets. Hedge funds improve market liquidity, enhance efficiency,
catalyze financial innovation and diversify the investor base within our capital
markets.
Yet with the benefits of this success, hedge funds also bring the potential to pose
additional risk to the financial system. The size and higher leverage suggest that
hedge funds have the potential to trigger broader challenges within the financial
system. Moreover, as hedge fund investments have become an increasingly
attractive option for some institutional investors, new challenges arise for investor
protection.
When Secretary Paulson and I arrived at Treasury in 2006, hedge funds were an
increasing area of focus for public policymakers around the world. This attention
was heightened in September 2006, when the failure of Amaranth Advisors marked
the largest hedge fund wind-down in history. The once $9.2 billion hedge fund, lost
more than $6.5 billion by employing a highly leveraged strategy concentrated in the
natural gas industry. Although there were no systemic effects from the collapse of
Amaranth, the losses were unsettling and the fund's failure renewed many fears
both on Main Street and in Congress about the risks hedge funds pose.
At the time, many experts predicted the next round of market instability to be
connected to the hedge fund industry. Knowing what we know now - that hedge
funds have remained generally stable during the current period of volatility - there
is a certain amount of irony to that sentiment.
These fears of the hedge fund industry were even more pronounced overseas. The
German government, whose former deputy chancellor compared hedge funds to a
"plague of locusts", began advocating for a government-sponsored code of conduct
for hedge funds (3). In January 2007, Germany assumed the G-8 Presidency and
made hedge fund regulation one of their top priorities.
While we believed hedge funds were an appropriate area of focus for public policy,
we had a different perspective than the Germans on the benefits of hedge fund
regulation. In February 2007, the President's Working Group on Financial Markets
(PWG) - a group chaired by the Secretary of the Treasury that also includes the
Chairmen of the Federal ReseNe, the Securities and Exchange Commission and
the Commodity Futures Trading Commission - responded by issuing principles and
guidelines for private pools of capital.
It was the strong view of the President's Working Group thai two issues, systemic
risk and investor protection, are the key areas where policymakers should and must
focus their attention with regard to hedge funds. The principles and guidelines
highlight how these risks are best addressed through market discipline, disclosure
and transparency and a balanced regulatory approach.
As we made clear at the time, the principles and guidelines were not an
endorsement of the status quo. The ten principles provided a clear but flexible
approach to address issues presented by the gro~h and dynamism of these
investment vehicles. They represented a uniform view from the Treasury
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Department and the group of key independent regulators that heightened vigilance
is necessary. The PWG designed the principles to endure as financial markets
evolved and identified four stakeholders who must contribute to hedge fund
vigilance: asset managers, creditors, investors and regulators,
At the time, many people were calling for much more dramatic change. To our
encouragement, these principles and guidelines have been extremely well received
by policymakers, legislators, regulators, industry leaders and the general public,
both in the U.S. and abroad. We feel good that these principles and guidelines
provided the appropriate guidance to address public policy issues associated with
the rapid growth of investment partnerships, including hedge funds.
Best Practices Committees
But our job was not done yet. Seven months after releasing the principles and
guidelines, the PWG followed up by announcing two blue-ribbon, private sector
committees - one committee comprised of investors and the other comprised of
asset managers. The mission of these private sector committees is to assess and
foster a private sector dialogue on issues of significance to the industry and the
market.
The asset managers' committee is a diverse group of hedge fund managers, with
over $140 billion in assets under management and representing many different
strategies. The investors' committee members include public and private penSion
funds, endowments, foundations, labor organizations and hedge fund consultants.
The first task of these two committees was to develop best practices using the
principles and guidelines as a framework. These best practices were released on
April 15th of this year. The recommendations were open for public comment for 60
days, and that comment period just ended on June 13th. The committees will now
review and, as necessary, revise these best practices and standards, before
releasing the final version in the coming months.
The best practices for the asset managers call on hedge funds to adopt standards
in critical areas of business, including disclosure, valuation of assets, risk
management, business operations, compliance and conflicts of interest. The work
done by the MFA on "sound practices" for the industry provides a useful
complement to these efforts. Moreover, given the global nature of financial markets,
a parallel set of best practices for asset managers were developed by a group in
the United Kingdom chaired by Sir Andrew Large.
The best practices for investors include a Fiduciary's Guide and an Investor's
Guide. The Fiduciary's Guide provides recommendations to individuals charged
with evaluating the appropriateness of hedge funds as a component of an
investment portfolio. The Investor's Guide also provides recommendations for
executing and administering a hedge fund program once a hedge fund has been
added to the investment portfolio. In simple terms, these two guides help fiduciaries
decide if hedge funds are appropriate for their portfolio and if so how a hedge fund
strategy should be developed.
Both best practices documents recommend innovative and far-reaching practices
that exceed existing industry standards. The recommendations complement each
other by encouraging both types of market participants to hold the other more
accountable. The committees will continue to meet to discuss raising the standards
for industry participants, even after the best practices are complete.
The Responsibilities of Hedge Fund Managers
The work of these two hedge fund committees comes at a critical time for the hedge
fund industry. Today, global assets under hedge fund management have grown to
over $ 2.7 trillion, more than triple the amount managed in 2000 (4). Last year, a
high-profile research project completed by the McKinsey Global Institute named
hedge funds one of four "new power brokers" that are shaping today's global capital
markets. That report concluded that, "Hedge funds' unique investment activities are
having a broad and undeniable influence on global f!nancial ma.rkets (5)." This
validates your industry as critically Important actors In modern financial markets.
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HP-1050: Under Secretary Robert K. Steel <br>Keynote Address to the Managed Funds Association
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At Treasury, we have been very clear that we believe hedge funds have many
benefits for global capital markets. While being an advocate for the benefits of your
industry, it IS also important for me to be straightforward about the risks hedge
funds pose and the responsibilities you must accept. In essence, congratulations
are clearly in order to you and your industry, but with the benefits of that success
comes additional responsibilities.
Our hope is that you have been engaged in the process so far and taken advantage
of the opportunity to submit public comments on the best practices developed by
the "Asset Managers' Committee." We are appreCiative that the MFA has submitted
public comments. The private sector committee will greatly benefit from your
perspectives. Your next task as hedge fund managers is to adopt and implement
these comprehensive best practices. The best practices emphasize controls and
standards in five key areas:
•
•
•
•
•
Strong disclosure practices that provide investors what they need in order to
make informed decisions;
Robust valuation procedures that call for segregation of responsibilities,
thorough written policies and oversight;
Risk management practices that emphasize measuring, monitoring, and
managing risk;
Sound and controlled trading and business operations and infrastructure;
and
Specific practices, such as written code of ethics, to address conflicts of
interest and promote the highest standard of professionalism.
Adopting these practices across all aspects of your business will help mitigate
systemic risk and ensure investor protections.
Your industry also has a critical responsibility to maintain market integrity. As
significant participants within our marketplace, you must set an example by
maintaining the highest ethical standards. Attempting to 'beat the market' through
fraud, manipulation or rumor mongering is an unacceptable breach of market
integrity. That's not beating the market, that's cheating the market.
It is important that regulators have broad authority to investigate and prosecute
those who seek to gain an unfair advantage. These measures instill confidence in
market participants that the market is operating in a fair and transparent fashion
where rules matter. Market participants must know the playing field is level and the
rules are fair.
The Role of Regulation
Today, markets remain under considerable stress and there is a debate underway
about how to address these challenges. In particular, there has been substantial
discussion focused on longer-term regulatory fixes. For more than a year, Secretary
Paulson has been leading efforts to modernize our financial regulation. We believe
today's marketplace needs a more effective and efficient regulatory structure.
Last year we began work on a Blueprint for Financial Regulatory Reform. That
document, which was released in March, describes an optimal regulatory structure
and short- and intermediate-term recommendations that will help move us toward
the ideal structure.
The optimal model recommends three regulators: a regulator focused on market
stability across the entire financial sector, a regulator focused on safety and
soundness of those institutions supported by a federal guarantee. and a regulator
focused on protecting consumers and investors.
The market stability regulator would be given broad powers to protect the stability of
the overall financial system. To do this effectively, the market stability regulator
should collect information from all market participants including commercial banks,
investment banks, insurance companies, hedge funds and commOdity pool
operators. But rather than focus o~ the he~lth of ~ particular individual organ.ization,
it will focus on whether a firm's or Industry s practices threaten overall finanCial
stability.
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Page 5 of 5
At the same time, it is important to recognize that regulation alone can not protect
us from market challenges Markets can and do operate very efficiently, just as the
work by Milton Friedman and other Chicago economists over the years has
suggested. But efficient markets require that market participants help uphold market
discipline and market integrity.
Hedge funds have endured a period where many people were critical and afraid.
Today your industry has been validated as a critically important player in global
capital markets. With that privilege, comes new responsibility. By accepting these
responsibilities, you have the opportunity to enhance the professionalism and
integrity of the asset management business.
Conclusion - Update on Markets Conditions
Let me conclude by offering some brief perspective on current market conditions.
As the U.S. economy continues to weather these challenging times, we face a trio
of head winds - a housing correction, contracting credit conditions and high energy
prices.
Capital markets continue to challenge financial institutions, as de-leveraging and repricing of risk continues. Secretary Paulson has urged banks to promptly recognize
and report losses and raise additional capital. And many global financial institutions
have begun this process - reporting losses of over $370 billion and raising
additional capital of more than $275 billion. We expect the process of raising of new
capital to continue, which demonstrates a long-term display of investor confidence
in our financial institutions as well as the economy.
As Americans continue to spend their stimulus checks we have already seen an
impact, as reported earlier this month retail sales have increased notably. To date
over $71 billion in stimulus payments have been sent out to U.S. families, and $23
billion more will be sent out by the middle of this summer. We are leading several
initiatives to increase the availability of affordable mortgages and keep homeowners
in their homes. The housing correction is in progress.
We are optimistic that conditions will continue to improve,but not in a straight line.
There is still significant de-leveraging occurring in our markets today, and we
recognize that this process will take additional time. I am confident that in the long
term, our markets, financial institutions and regulatory practices will all help to make
our capital markets stronger, enabling them to contribute to sustainable economic
growth.
Thank you. I will be happy to take your questions.
(1) See "Efficient Capital Markets: A Review of Theory and Empirical Work;" Journal of Finance; May
1970.
(2) For one example, see: Lo, Andrew and Craig MacKinlay; A Non-Random Walk Down Wall
Street; Princeton University Press (1999).
(3) Mallaby, Sebastian; "Hands Off Hedge Funds"; Foreign Affairs Jan/Feb 2007.
(4) HedgeFund.net; First Quarter. 2008
(5)"The New Power Brokers"; McKinsey and Company; October 2007. pg 95.
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HP-I051: 1 estimony of <br>Deputy Assistant Secretary for Tax, Trade, and Tariff Policy<br>Timothy ...
Page 1 of 5
't~~~1 PRESS ROOM
,~, u.s. DEPARTMENT Of THE TREASURY
June 24, 2008
HP-1051
Testimony of
Deputy Assistant Secretary for Tax, Trade, and Tariff Policy
Timothy E, Skud
Before the Senate Finance Committee
Washington--Mr. Chairman, Ranking Member Grassley, and Members of the
Committee, thank you for the opportunity to appear here today to discuss the
Treasury Department's responsibilities for customs revenue functions and the
International Trade Data System (ITDS).
Treasury Responsibility for Customs Rev~nue Fwnctions
As the Committee is aware, the Secretary of the Treasury has authority for
"customs revenue functions," as defined by The Homeland Security Act of 2002.
Customs policy is important to the Treasury Department not only for revenue
collection, but also because the way we approach taxation and regulation of
international trade has an important effect on our economy and on promoting global
growth. Our overall goals are promoting trade and growth, simplifying and clarifying
regulations, and collecting tax accurately and efficiently, with minimal burden on the
taxpayer.
While the authority for enforcing the laws involving customs revenue functions has
been delegated to the Department of Homeland Security (DHS), the Treasury
Department has retained an important role in this area. Specifically, the Treasury
Department has sole authority to approve regulations concerning a wide range of
functions involving revenue or regulating trade for economic purposes including
import quotas, trade bans, user fees, origin, copyright and trademark enforcement,
duty assessment, classification, valuation, preferential trade programs, and
recordkeeping requirements. The Treasury Department also reviews Customs and
Border Protection (CBP) rulings involving these topics that constitute a change in
practice. In addition, the Treasury Department shares the chair of the Commercial
Operations Advisory Committee (COAC) with DHS.
Moreover, as part of the Treasury Department's responsibility for customs revenue
functions, we have worked with DHS and CBP over the past year on particular
areas of concern to this Committee.
One area is simplification of the duty drawback rules, a concept we support. In
conjunction with the Committee's staff and other interested offices, we have worked
with CBP to provide detailed technical advice on draft legislation to simplify
administration of duty drawback. We appreciate the Committee's interest and
efforts in this area and look forward to continuing to work with you on this important
legislation.
Another area of concern to the Treasury Department, CBP, and other trade
agencies has been problems in collecting antidumping and countervailing duties. In
response to Congress' interest in this area, the Treasury Department provided a
report on this issue last year. Although CBP's collection rate is over 99 percent for
duties overall, CBP is able to collect less than 50 percent of antidumping and
countervailing duties that have been retroactively assessed in excess of bonds or
cash deposits. We concluded in the report that the chief obstacle to ensuring
collection of such duties is the difficulty of obtaining adequate security (cash
deposits, bonds, or other instruments). This p~oblem appear~ to have been.
exacerbated in some cases by unscrupulous Importers who Imported knowing they
were likely to incur duties not fully secured by bonds or cash depOSits following
retrospective duty assessment and who then absconded when payment was due.
International Trade Data System (ITDS)
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One of the most significant areas on which the Treasury Department has worked
closely with CBP is the International Trade Data System (ITOS). The SAFE Port Act
(P.L. 109-347, October 13, 2006) formally established ITDS and gave the Secretary
of the Treasury the responsibility to coordinate interagency participation in ITOS in
consultation with an interagency committee consisting of the agencies partiCipating
in ITDS and the Office of Management and Budget (OMB).
The goal of ITDS is to make the Federal government's collection of international
trade data less burdensome and more efficient by integrating and fully automating
the government-wide collection, use, and dissemination of international trade data.
Under the ITDS concept, agencies harmonize their data requirements, eliminating
redundancies and minor definitional differences. Traders submit standardized
electronic import and export data one time to a single collection point, commonly
called the "single-window system." The data is then distributed to agencies
depending on what information they need to perform their respective trade-related
missions.
IT OS is not a separate computer system. Rather, it is a feature of the Automated
Commercial Environment (ACE), the new system for processing imports and
exports that is being built by CBP. ITOS is being developed and will be operated by
CBP with the collaboration of 43 other government agencies.
Today, international traders are confronted with duplicative and non-uniform
reporting requirements, both paper and electronic. A number of Federal agencies
maintain separate international trade reporting systems. Other agency processes
are not automated at all, requiring traders to present CBP officials with paper
documentation before their goods are allowed to enter or depart the United States.
The cost of redundant reporting requirements burdens not only importers and
exporters, but also the government and the performance of the economy as a
whole. These requirements protect consumers, the environment, health and safety;
provide information for accurate taxation and for trade statistics; and accomplish
numerous other worthwhile goals. Nevertheless, the multiple reporting schemes,
superimposed one on top of another, result in a significant cumulative burden.
The very separateness of these collection systems also limits their effectiveness.
AgenCies do not necessarily have access to information that other agencies collect
or know what actions other agencies have taken in response to that information.
They act in isolation rather than together.
Benefits of ITDS
Once fully implemented, ITDS will have a number of significant benefits to the
private sector and the government, including:
•
•
•
•
•
•
•
Reducing the burden on business and increaSing the efficiency of the
government's collection of international trade transaction data by
substituting standard electronic messages for the redundant reporting often on paper forms - that occurs today.
Enhancing the ability of CBP and other agencies to target risky cargo,
persons, and conveyances.
Extending the capabilities of ACE by bringing together critical security,
public health, public safety, and environmental protection agencies through
a common platform.
Reducing the technical barriers to authorized sharing of data with other
governments by accepting electronic filings reported using international
standards for trade reporting (World Customs Organization standards).
Improv'mg compliance with laws and regulations that apply to:
o Carriers - for example, highway safety and vessel clearance
requirements,
o People - for example, immigration requirements for drivers and
crews of commercial conveyances, and
o Goods - which consist of several hundred laws including those
addressing public health and safety, animal and plant health,
consumer protection, and enforcement of trade agreements.
Providing convenient access to data on international trade that are more
accurate, complete, and timely for Federal agencies with a statistical
mission.
Providing a single billing and collection pOint for the variety of taxes and
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fees incurred by traders.
Serving as a custodian of records on international trade transactions,
providing Federal agencies with a convenient, single point of access to data
on trade transactions, with each agency having its own, and appropriate,
level of access.
Another important feature of ITOS is that its data requirements are being designed
to be consistent with the World Customs Organization (WCO) Data Model, an
international standard for reporting customs data. International trade transactions
are reported not only to U.S. authorities, but also to other nations with their own
electronic reporting formats. Currently, firms operating in multiple countries must
report to each country in the unique format each requires. The failure to adopt
internationally standardized data requirements not only creates costs for traders,
but also hinders collaboration among governments to identify, traCk, and apprehend
dangerous shipments, a matter of great importance today.
Status of the ITOS Program
When I testified before this Committee two years ago, I reported that many
agencies with a border role were not participating in ITOS, and that even for the
participating agencies commitment had been uneven.
This year, however, I am able to report a significant improvement in agency
participation due to a number of factors. First is the Congressional mandate in the
SAFE Port Act that all "agencies that require documentation for clearing or licensing
the importation and exportation of cargo shall participate in ITOS."
Secondly, agency participation was spurred by the cabinet-level Import Safety
Working Group, (created on July 18, 2007, by Presidential Executive Order 13439),
which recognized the value of ITOS for ensuring import safety. The Working Group
report, delivered to the President on September 10, 2007, recognized ITDS as a
"key component to improve systems interoperability" in the effort to improve import
safety. In addition, the Working Group recommended that OMB direct CBP to
accelerate implementation of ITOS and, in particular, to:
•
•
Include information currently reported by importers and carriers to CBP in
the ACE Oata Warehouse, where it can be accessed by other agencies;
and,
Implement the World Customs Organization Oata Model messages, which
could provide a platform for electronic reporting of health and safety
information in advance of the current ITOS production schedule.
Moreover, following up on the SAFE Port Act and the recommendations of the
Import Safety Working Group, OMB issued a policy memorandum (M-07-23)
requiring each agency involved in clearing and licensing cargo to designate a senior
executive to participate in the ITOS interagency team and to prepare a plan, to be
completed by November 12, 2007, outlining the agency's plan for utilizing ITOS,
including any necessary rulemaking or acquisitions. A subsequent OMB
memorandum, issued on September 28, 2007, incorporated the Working Group
recommendations with regard to ITOS. OMB is tracking each agency's participation
in ITOS by establishing milestones and monitoring progress toward those
milestones.
At the passage of the SAFE Port Act there were 31 agencies participating in ITOS.
At that time, Treasury identified ten additional agencies required by the SAFE Port
Act to participate in ITOS. All of those agencies have since joined ITOS, and OMB
has also joined the ITOS Board of Directors. Currently, 43 agencies participate in
the ITOS program.
Some ITOS functions are already operational. ITOS agencies are able to obtain, in
near real time, detailed information about any importation reported through an
electronic filing. Most information currently required by CBP from importers (entry
summary data) is transferred daily from CBP's current processing system to the
ACE "Data Warehouse," which ITDS agencies can access through the ACE Portal,
a secure web-based interface. For example, an agency analyst using the ACE
portal at his or her desk could identify all imports. (which were reported
electronically) for any given month, day, port, or Importer over the past 3 years.
Twenty-five of the agencies participating in ITOS already have access to data on
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import transactions through the ACE portal.
Several agencies have also been able to put this information-processing power to
work. For example, as a result of information obtained through ACE/ITDS, the Food
Safety Inspection Service increased the amount of ineligible product it removed
from commerce 44-fold in 1 year (36,000 to 1.6 million pounds between FY 2005
and FY 2006). Access to the ACE Portal has also allowed agencies to eliminate
redundant paperwork requirements. Before obtaining access to the ACE Portal,
Treasury's Alcohol and Tobacco Tax and Trade Bureau required importers of
industrial alcohol to file a paper certification that the product was to be used for nonbeverage purposes. The import information available through the ACE Portal now
allows the agency to eliminate that requirement.
Challenges Remain fer ITDS
ITDS still faces a number of challenges, chiefly resource and priority issues
associated with any large IT project or multi-agency project The November 2007
Report to Congress on ITDS made 11 recommendations. While progress has been
made on many of the recommendations, several challenges remain. While we will
provide a complete status report by the end of 2008, as required by the SAFE Port
Act, some key areas of progress are as follows:
•
To some extent, ITDS has become a victim of its recent success. Increased
agency participation means that fixed ITOS program resources must be
spread among more agencies. Another potential issue emphasized by the
growth in ITDS participation is the competition between the resources spent
on "establishing a data interchange system" and those devoted to related
policy and operational matters. With a finite funding stream for ITDS, delays
to the completion of the "data interchange system" can put the ultimate
success of the program at risk. In part, the energy of the very capable ITDS
program team has mitigated this risk. (Recommendation 10)
• CBP has focused its efforts on integrating import safety agencies into ITOS
and has been particularly successful in this effort. (Recommendation 1)
• Work on harmonizing data among agencies, which is critical for eliminating
redundant data demands and is the basis for the entire ITDS concept, has
accelerated but is not complete, in part because the talented data team has
earned additional responsibilities. Ways to refocus resources in this area
are under discussion. (Recommendation 2)
• ITOS agencies are already able to obtain much detailed import information
through the ACE Portal, but are unable to access other data already
collected electronically either (1) because the data has not yet been added
to the ACE Data Warehouse, or (2) because software for retrieving that data
is not fully operational. Making this data available could have immediate
benefits (particularly with regard to import safety) and would also accelerate
agency plans to fully utilize ITOS. These goals are being addressed but at
this point, this additional data has not been made available to ITDS
agencies. It may not be possible to do so without a significant impact on the
current program schedule. (Recommendation 5)
• The ITOS team is aligning agency data requirements with the World
Customs Organization standards for transmitting data from traders to
governments. but there are not yet firm plans in place for implementing
WCO consistent messaging capability in ACE. (Recommendation 7)
Conclusion
We are very pleased with the progress that has been made to date on ITOS, and
we look forward to working with the participating agencies to ensure that each of
the recommendations in the November 2007 report are addressed and that ITOS
achieves its overall intended purpose. Once fully implemented, ITDS will provide a
critical "single-window" for electronic filing by private-sector market participants and
subsequent distribution of the relevant information to the appropriate Federal
agencies, thereby eliminating redundant reportin~ and syst~ms, while providing
agencies with access to information and processing capability that they do not now
have.
Mr. Chairman, thank you again for the opportunity to testify before the Committee
this morning. I would be happy to answer any questions you may have.
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June 24, 2008
HP-1052
Deputy Assistant Secretary for Fiscal Operations and Policy
Gary Grippo
Testimony Before the House Committee on Ways and Means
Subcommittee on Social Security
Washington - Chairman McNulty, Ranking Member Johnson, and other members
of the subcommittee, thank you for inviting me here today to discuss garnishment
practices and their impact on federal government beneficiaries who receive their
benefit payments electronically. The Committee is to be commended for continuing
to focus on this issue, and I am hopeful that we will be able to achieve a solution
based on sound public policy that provides appropriate protections and a balancing
of consumer, government and business interests.
Treasury is willing to offer expertise and assist the federal benefit agencies in
crafting a solution to this problem, leveraging our role in regulating Federal
payments and working closely with the banking industry. Today, I will provide
background on our role as a disburser of federal payments, our use of technology in
disbursing government benefits, and our perspective on potential solutions to the
garnishment issue.
Treasury's Role as a Central Disburser
One of Treasury's core functions is to develop policy for and to operate the financial
infrastructure of the federal government. Treasury's Financial Management Service
(FMS) provides central payment services to federal program agencies. FMS
disburses 85% of the federal government's payments, including income tax refunds,
Social Security benefits, veterans benefits, and other federal payments to
individuals and businesses.
FMS disburses payments based on certified payment files received from program
agencies. In FY 2007, FMS disbursed 982 million payments, of which 78% were
issued electronically. Focusing specifically on federal benefits payments, such as
Social Security and veterans benefits, or those categories of payments generally
exempted by law from garnishment, FMS disbursed almost 800 million payments,
of which approximately 81 % were issued electronically. The largest federal benefit
programs are Social Security and Supplemental Security Income, together
comprising 71 % of the payment volume. While the other federal benefit programs veterans benefits, railroad retirement, civil service retirement, and black lung
disability programs - represent a much smaller payment volume, the issues their
beneficiaries may face when attempting to access lifeline benefits are the same. In
our role as a central disburser, we would strive to ensure that any potential solution
would work for all federal programs with exempt funds that are protected by law
from garnishment.
Strategic Vision: Electronic Treasury
Integrating and leveraging technology into our payment programs is a long-standing
strategic vision for the Department of the Treasury. Treasury's strategic goal to
effectively manage the government's finances includes strategies for expanding allelectronic transactions to ensure timely and accurate payments at the lowest
possible costs. Electronic payments provide real and meaningful savings not only to
the government and the taxpaye: but also to the financial industry: For Treasury, it
costs approximately 98 cents to Issue a check versus 10 cents to Issue an
electronic payment. When this 88 cents per item saving~ i~ multiplied over the
millions of federal payments issued annually, and as recIpients convert from checks
to electronic payments, the savings can become substantial.
On our path toward an all-electronic treasury, we have benefited from statutes,
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such as the Debt Collection Improvement Act of 1996 (DCIA), that generally require
federal payment recipients to receive their payment electronically. As the regulation
implementing the DelA was proposed and finalized, an appropriate public policy on
electronic payments was developed, with waivers and carve-outs to electronic
requirements so as to not impose an undue hardship on the payment recipients.
With the implementation of the DCIA, the rate at which federal benefit payments
were made by electronic payment increased from 56% in FY 1996 to 75% in FY
2000. However, since obtaining a 4-5% annual growth rate in the late 19905, we
have leveled off to a 1-2% growth rate, with some years seeing less than a 1%
increase.
Treasury has also benefited from the broader acceptance of electronic banking
technology as we strive to increase the use of electronic payments. In assessing
our future, we recognize a changing landscape, with rapidly increasing federal
benefit payment volumes resulting from baby-boomer retirements. One of our
strategies to manage future payment issuance costs is to actively market and
promote electronic payments, specifically direct deposit of benefit payments.
Promoting Electronic Payments
Federal benefit recipients may opt to receive their payment by check or
electronically. For those recipients choosing electronic payments, Treasury offers
two programs: Direct Deposit and the recently launched Direct Express card.
Direct Deposit is a payment program for consumers who authorize the deposit of
payments automatically into a checking or savings account via the Automated
Clearing House (ACH) network. It is Treasury's preferred payment method and is
the best way for Americans to receive their federal benefit payments. The
advantages of direct deposit to the government, banking system, and recipients are
well documented. It is safe, convenient, reliable, and eliminates the risk of lost or
stolen checks.
Ideally, individuals would sign-up for direct deposit when they apply for their benefit
payment. Treasury is working with the Social Security Administration in
encouraging more individuals who have a bank account to opt for direct deposit
when applying for their benefit.
Just this month, Treasury launched the Direct Express card. The Direct Express
card is a prepaid debit card offered to Social Security and Supplemental Security
Income check reCipients who wish to receive their benefits electronically. While
specifically designed as a product for unbanked federal beneficiaries, anyone
receiving Social Security or Supplemental Security Income benefits can sign up for
the card. Treasury has deSignated a financial agent to issue this nationally available
card for the payment of federal benefits. The features of the card were formulated
after a one-year pilot program and discussions with consumer groups and other
stakeholders. Most of the card services are free. There is no cost to sign up for the
card and there are no monthly fees. While there are fees for a limited number of
optional transactions, it is possible to use the card for free, and while the Direct
Express card is currently available to only Social Security and Supplemental
Security Income benefit recipients, Treasury plans to add other federal benefit
programs at a later date.
ASSisting Federal Benefit Agencies in Resolving the Garnishment Issue
Treasury strongly encourages and actively promotes electronic payments, but we
do recognize that electronic payments may cause problems in certain instances.
Specifically, individuals who have bank accounts and are subject to garnishment
actions may find direct deposit unattractive. Financial institutions may freeze
accounts that receive federal benefits as they perform due diligence in complying
with a myriad of state laws and court orders. An account may be temporarily frozen
even when the account contains federal benefits which are exempt from
garnishment. Thus, a federal benefit recipient who receives direct deposit may not
be able to access lifeline funds because they have been automatically routed In to a
frozen account. If the recipient had received their benefits by paper check, they
could cash the check without depositing it into the frozen account and have full
access to the funds.
Treasury believes that any solution to this problem, whether operational, regulatory,
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or if necessary statutory, would ensure that federal benefit recipients have access
to a certain amount of funds that cannot be frozen while the garnishment order is
adjudicated by the courts and financial institutions, and while the final amounts of
exempt and non-exempt funds are determined. The model used to establish the
appropriate amount of funds excluded from an account freeze would need to be
developed based on an analysis of benefit payment amounts and the ability of
financial institutions to implement it without complex accounting or research. This
type of solution seems essential to ensure that benefit recipients have access to
their statutorily protected funds while the details of a garnishment order are
resolved.
As referenced above, one operational solution to the problem that we currently
have in place is the Direct Express card. The card account contains primarily Social
Security benefit payments, which, under federal law, are protected from
garnishment by creditors other than the United States government. This means that
creditors do not have the right to have these funds taken out of the account, none of
which would be frozen pending resolution of a garnishment order.
Treasury is willing to coordinate a joint inter-agency effort in establishing a
regulatory solution to the problem, based on our expertise in managing federal
payments and working with the banking industry. Treasury, the Social Security
Administration, and other federal benefit agencies are working together to provide
specific guidance to financial institutions on actions they must take if there are
benefits in an account subject to a garnishment order. We have discussed options
with Social Security Administration staff and look forward to collaborating with them
and other federal benefit agencies. Treasury can offer its expertise in the payments
and banking systems to help craft a government-wide policy solution. As part of this
interagency effort, Treasury is willing to assist the federal benefit agencies by
serving as central point-of-contact on implementation, compliance, and general
administration of a rule, and in working with the appropriate federal banking
regulators on enforcement.
We envision that through this interagency effort, we would provide guidance to
financial institutions on how to discern if there are exempt funds in an account and
what amount of funds should not be frozen. For example, a regulation could provide
a safe harbor to financial institutions that follow the guidance and allow recipients
access to funds. Treasury is working closely with the Social Security Administration
and other federal benefit agencies on a number of complex issues that would need
to be addressed as we move toward a solution. These issues include commingling
of funds, account fees, look-back periods, compliance costs, and enforcement. We
believe further discussion with stakeholders and a public comment period are
essential to fully address these issues.
Conclusion
The impact of garnishment orders on recipients of federal benefit payments is a
public policy issue that needs to be addressed. Progress has been made over the
last 18 months in evaluating the complexities of this issue. Garnishment practices
are also an impediment for Treasury as we strive to further promote direct deposit
and electronic payments. Treasury is willing to use its expertise with Federal
payments and commercial banking practices to help develop and implement a
solution. We look forward to working with the federal benefit agencies, consumer
groups, banking regulators, financial institutions, and the Congress to come to a
consensus solution.
This concludes my formal statement. I am pleased to address any questions you
may have.
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/~~~, PRESS ROOM
u.s. DEPARTMENT OF THE TREASURY
{I}
June 24. 2008
HP-1053
Assistant Secretary Anthony W. Ryan
Remarks at Euromoney's Global Borrowers Investors Forum
London- Good afternoon and thank you for inviting me to join you today. I
appreciate the opportunity to be here in London. the capital of a nation with a rich
history of producing thought leaders whose ideas we often return to over time. For
example. just 30 miles northeast of here in Essex. in the churchyard of the village of
High Laver, the great English philosopher John Locke was buried in 1704.
Locke is perhaps best renowned for his influential work. Two Treatises of
Government. which outlines the "social contract." In essence. Locke postulated that
individuals essentially exchange their "natural" rights for the sake of protection or to
jointly preserve social order. This contract offered an escape from a constant state
of war. Otherwise, according to Locke, man "however free. is full of fears and
continual dangers: and it is not without reason. that he seeks out, and is willing to
join in society with others, who are already united, or have a mind to unite, for the
mutual preservation of their lives, liberties and estates (1)."
Three centuries and several revolutions later, the political theory behind Locke's
"social contract" continues to be debated, and most importantly, applied. We can
borrow liberally from this concept of a social contract. and apply it to current
deliberations regarding financial markets. We need to collectively undertake efforts
that seek to facilitate market stability. offer protections against known and unknown
risks, reduce uncertainty but yet not eliminate natural risk taking, and unite to
further strengthen and deepen our capital markets. Today. I would like to provide an
update on some of the collective actions being taken to implement the policy
statement released in March by the U.S. President's Working Group on Financial
Markets.
Private Sector I Public Sector
More often than not. multiple perspectives on a particular issue offer us a better
understanding and a better decision-making framework from which to work. We
have likely all witnessed situations where one's perspective on an issue is often a
function of where one sits. Such a perspective is in itself limiting. The health of our
capital markets reflects the collective efforts of both the public and private sectors.
To reap the benefits, both sectors must share responsibility. Few stakeholders
would disagree with those statements; however, there exists a robust debate
reflecting different perspectives as to what. where. when, and how each party
should fulfill its respective commitment.
Private Sector
Allow me to begin with the private sector's role in the capital markets. First. we must
recognize that the private sector is quite a diverse community. It is global in scope
and includes both users and providers of capital. Users include those seeking to
borrow money to purchase a car. parents looking to finance their children's
education. married couples looking to buy their first home, and entrepreneurs
hoping to secure a small business loan. Providers include individuals investing their
savings and institutional pension plans. These users and providers interact with
many other participants in the markets including originators of credit, financial
intermediaries, firms that securitize credit. rating agencies. and others.
In seeking to accomplish their respective objectives, participants confront risk. Such
risk includes credit. counterparty. operational, liquidity and reputational risk.
amongst others. Successful market participants must be aware of these risks, be
able to identify and assess such risks. and manage them effectively. Private-sector
participants act in their own self interest, and as they exercise their powers of
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analysis and reason, they define and establish market discipline. Market discipline
is critically important and serves multiple purposes. It serves to aid investors and
lenders not just individually, but it also serves to mitigate the likelihood and severity
of a systemic event.
However, despite its many virtues, the establishment and continuous deployment of
robust discipline should not be taken for granted. Simply put, it can be
compromised and undermined. Potential costs, complacency, and the search for
fast and easy rewards can weaken such self-restraint. This is not unique to financial
markets. If in doubt, just ask parents, school teachers or military leaders.
As the fog enveloping our markets continues to dissipate, we must all recognize
that the erosion of market discipline contributed greatly to the challenges we are
addressing today. These breakdowns in the system will continue to occupy policy
makers and market participants for years to come.
It is also clear that complacency about risk manifested itself in many ways and
affected a broad array of market participants, including originators of credit,
financial firms that securitize credit, rating agencies, and investors.
Each group needs to be part of the rebuilding process. Efforts must be made to
strengthen market practices by enhancing transparency and disclosure. The effect
of many of the weaknesses in the market and the resulting challenges in
addressing them were exacerbated by complexity and opacity. One of the best
antidotes to mitigating opacity is better and more useful disclosure and increased
transparency.
In the United States this past March, the President's Working Group on Financial
Markets (PWG), an inter-agency policy group chaired by Secretary Paulson, set
forth in a policy statement a broad array of recommendations to strengthen capital
markets. Similarly, the Financial Stability Forum (FSF), an international forum that
includes the U.S. Treasury Department and several other U.S. government
agencies, issued a complementary report in April. The PWG and FSF each expects
to issue a status report before the end of this year.
Financial markets are globally linked; therefore, many of the PWG
recommendations will serve all market participants, not just those in the United
States. Over the past several months the PWG member agencies have been
actively engaged with market participants to implement these recommendations.
Recognizing the benefit and need for improved market practices and stronger
market diSCipline, the PWG has engaged with several private-sector committees.
To address disclosure and transparency issues, a private-sector committee is
developing best practices regarding disclosure to investors in securitized credits,
including asset-backed securities and collateralized debt obligations of asset
backed securities.
The American Securitization Forum and the Securities Industry and Financial
Markets Association (SIFMA) are leading this group. They are covering
transparency and disclosure practices, including standardized templates, price
discovery and valuation tools, and credit rating practices. They expect to issue a
report later this summer.
Another area in which we need to witness a much greater awareness and
appreciation of risk by market participants is the use of ratings. While we must see
changes to credit rating agency practices, the users of their services must rely less
on, and appreciate more, the limitations of ratings products.
To aid in accomplishing this goal, a second private-sector group is outlining further
steps that issuers, underwriters, and credit rating agencies can take to ensure the
integrity and transparency of ratings, and to foster the appropriate use of ratings in
risk assessment. The Asset Managers' Group at SIFMA is leading this effort. They
are exploring issues including: use and quality of r~tings; business models; and
credit rating agency independence. We expect their work to be completed by the
end of July.
Once identified and assessed, risks must be better managed. During the past year,
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many financial institutions, money managers, and investors simply failed to
appreciate the magnitude and nature of risks on their books. This inability to
aggregate risk and transparently address public concerns led to even further
uncertainty, volatility, and dislocations. We need improved risk management
practices by investors and financial institutions.
The Senior Supervisors' Group, comprised of supervisors from five countries,
issued a report highlighting the risk management practices that worked well for
better-run firms. Simply put, the stronger firms invested in risk management
systems - and it was capital well spent. They recognize that professional investors
should not rely on disparate systems to identify, monitor and manage risk.
Furthermore, they know that risk needs to be in the day-to-day routines of seniormost management - centralized, well understood, and acted upon.
Risk monitoring and management is not a function to be left solely to a back office
or a set of quants - it is the senior-most management's responsibility to be fully
aware of the risk they are taking on daily basis. Firms that employed such practices
fared better than others.
By better assessing risks, financial institutions are better placed to manage capital,
liquidity and leverage. Strong, well-capitalized financial institutions with robust risk
management systems are better positioned to deal with bumps down the road.
Such institutions will be able to take advantage of new opportunities, capture
greater market share, and secure the confidence of creditors, shareholders,
investors and regulators.
A third private-sector group is reassessing the implementation of the Counterparty
Risk Management Policy Group II's existing guiding principles and
recommendations regarding risk management, risk monitoring, and transparency.
They are modifying and developing new recommendations to incorporate lessons
from the recent turmoil, including lessons learned regarding valuation practices.
This group intends to issue a report in late July that focuses on four areas of reform:
financial institutions' risk management practices; structured financial products; offbalance sheet activities, including accounting policy and disclosure; and market
infrastructure.
Market infrastructure is another area where we need to see further progress. This
includes market-making capacity and systems for processing, clearing, and settling
financial transactions. Effective market infrastructures are critical to the operating
integrity and functioning of our markets and help inspire confidence in market
participants. Just as innovation facilitates new financial products and instruments,
innovation and technology also must be applied to facilitate more robust and
efficient market infrastructure. We have seen all too often that when the back office
fails, the front office fails with it.
Two large markets that play important roles in our capital markets deserve special
attention: the aTC derivatives and the secured lending markets. The functioning of
these markets, not only under normal market conditions, but also during turbulent
periods, is critically important for the long-term health of our financial system.
Having a market infrastructure that works for all participants at all times is a key
component of achieving a market with proper discipline on creditors and
counterparties.
We need to continue efforts to enhance aTC market infrastructure, efforts that
include implementing an integrated life-cycle processing infrastructure for all
products and all participants and firmly establishing cash settlement and novation
protocols.
We need complementary efforts to mitigate risks to the financial system in the event
that services, including Tri-Party Repo, provide by one of the two major clearing
banks for government securities were suddenly di~rupte.d or t~rminated. A related
challenge is the vulnerability of the repo ~arkets, Includl~g 'Tn-Party Repo, as a
continuous funding source. As we have witnessed, liqUidity In the repo markets can
evaporate suddenly if counterparties ~ecome unwilling to provide even short-term
secured financing because of uncertainty. Efforts are needed to ensure that both
borrowers and lenders strengthen their credit, operational and liquidity risk
management practices.
httPIIWWw.treas.gov/press/releasi}s/hp l 053.htm
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HP-I053: ASsTsrnm Secretary Anthony W. Ryan<br>Remarks at Euromoney's Global Borrowers Invest...
Page 4 of 5
Economies benefit from the greater variety of financial instruments and financing
approaches. At the same time, this expansion of financial firms and the
interconnected nature of their business activities and exposures coupled with more
opaque and complex instruments can pose an ever-broadening array of risks to the
larger financial system, and thus the broader economy.
The question of whether an institution could be "too big" to fail has evolved to
whether an institution could be "too interconnected" to fail. Collectively, we must all
seek to reduce the likelihood of such a failure through more robust market
discipline, enhanced market infrastructure, reduced interdependence, improved
transparency, and more robust awareness and management of risk. Having diverse
instruments and interconnected market participants is not a problem. What we must
have are mechanisms and facilities that allow a market participant to fail without
compromising the broader system. Strong post-trade practices, centralized clearing,
standardized practices and protocols, greater transparency, timeliness and quality
of information, and better risk management systems all help.
We all need to do the hard work to address these complex challenges. We need
market leaders to support strengthening practices. Changes must occur, and there
is a great deal to be said when it originates within the private sector.
Public Sector
Policy makers will welcome such constructive developments by the private sector,
but robust regulatory practices must complement private-sector efforts. Here, too,
change is necessary. Private-sector responses and actions to address weaknesses
through changed market practices will not be wholly adequate. EndorSing the status
quo or hoping that the financial pain - even though it is staggering in real terms will be sufficient enough to provide incentives for markets to operate in a safe and
orderly fashion and for financial institutions to remain sound is simply not an option.
Regulatory responses are necessary to complement improved market practices.
The challenge -- whether it is for parents, teachers, military leaders or regulators -is determining the appropriate balance. Curfews for children, trips to the principal's
office, and extra K.P. duty all ultimately served the purpose of fostering better
discipline.
What should regulatory guidance address? Where and how should it be applied?
When should changes take effect? Do regulators have the necessary authorities to
fulfill their respective missions? These questions need to be asked, debated and
answered.
In doing so, stakeholders must move past the rhetoric. Policy makers must certainly
be aware that regulations to address risks might have not only intended
consequences, but also potential unintended consequences. But dire predictions by
market participants that regulatory changes or significant changes to market
practices will result in the evaporation of liquidity tend to obfuscate reality.
The PWG's Policy Statement acknowledged that some regulatory policies failed to
mitigate some of the weaknesses, and that regulators have an important role here,
including reforming credit origination and distribution processes, reforming ratings
practices and uses, strengthening global financial institutions' risk management
practices, improving investor awareness of risk and due diligence, and enhanCing
financial market infrastructure. Regulators are engaged on all of these issues.
Our efforts need to reflect the fact that our financial system has evolved over time.
Today, a significant part of lending and financial ir,termediation occurs outside of
the traditional banking channel. The debate about regulation must address such
change.
Let me be clear - our job is not to eliminate risk. Our job is to ensure that financial
markets operate effectively in times of stress and in times of calm. We seek to fulfill
our responsibility and accomplish these objectives. We desire and expect market
participants to fulfill their responsibility by enhancing market discipline to complete
the balance.
Conclusion
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HP-1053: Assistant Secretary Anthony W. Ryan<br>Remarks at Euromoney's Global Borrowers Invest...
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It is important that I stress a theme Secretary Paulson emphasized in remarks last
week about our financial regulatory system. As we resolve the challenges of today,
federal regulators must balance the need for market stability with concerns about
the likelihood of increased moral hazard. While firm failures are painful, as a policy
matter, we must be in a place where firms are allowed to fail.
We continue to work through the vestiges of the prior environment in which market
discipline was compromised. Learning from the past is important, but we must also
look ahead. We need to ask questions and address challenges. We might not have
all the answers, but we need to address the root causes of the problems and move
to strengthen the overall financial markets given their interconnected and global
nature.
As financial industry professionals and policy leaders, you know first-hand the
benefits of dynamic economic growth, and thus have a vested interest in capital
markets that enhance investor confidence and market liquidity - both of which have
been challenged Significantly over the past year.
These are important issues, and all stakeholders, including regulators, must not just
define solutions, but implement them, and continually seek to strengthen both our
market and regulatory practices. By positively changing practices, we help
strengthen market discipline, reduce uncertainty, mitigate systemic risk, restore
investor confidence. and facilitate stable economic growth. In my view, this is the
essence of John Locke's "social contract" from a financial markets' perspective.
At the U.S. Treasury Department. we are addressing both the current and strategic
challenges, and doing all we can to ensure high-quality, competitive, and orderly
capital markets. Effective and efficient capital markets rely on private-sector
representatives to playa complementary role. To reap the benefits, both sectors
must share responsibility and be actively engaged. Let's make sure we a/l do so -there is much work to do, and much to be gained.
Thank you very much.
(1) Two Treatises of Government, S. 123.
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7/2/2008
HP-I054: I aul~ M Travel to Russia, Germany, UK
Page 1 of 1
,,'~~~, PRESS ROOM
,~ u.s. DEPARTMENT Of THE TREASURY
June 24, 2008
HP-1054
Paulson to Travel to Russia, Germany, UK
Washington - Treasury Secretary Henry M. Paulson, Jr. will travel to Moscow,
Berlin, Frankfurt and London June 29 - July 3 to meet with senior government
officials and market participants to discuss the global economy, the launch of a
Clean Technology Fund, the need to keep economies around the world open to
investment and efforts to protect the global financial system from abuse by Iran.
In London Paulson will deliver a speech hosted by the Chatham House on the
global economy and markets.
The following event is open to the media:
Who
U. S. Treasury Secretary Henry M. Paulson, Jr.
What
Keynote Speech on Economy and Markets hosted by Chatham House
When
Wednesday, July 2,16:00 (Local Time)
Where
Royal Society of Arts
8 John Adam Street
WC2N 6EZ
Note
Media should register at pres';utilceej'chJthallli1OuseorC) UK.
Film crews must be in place by 15:30, all other media in place by 15:45.
Chatham House Media Contact: Nicola Norton +44 (0)20 7957 5739
httPIIWWw.treas.gov/press/releasesillpll)~4.htm
7/2/2008
HP-I055: Pauborr ~ with Vietnamese Prime Minister
r.,
/~~~, PRESS
Page I of I
ROOM
u.s. DEPARTMENT OF THE TREASURY
--~
June 24, 2008
HP-1055
Paulson Meets with Vietnamese Prime Minister
Washington - Secretary Paulson will welcome Vietnamese Prime Minister Dung to
the U.S. Treasury Department on Wednesday. June 25. They will discuss the
growing economic relationship between the U.S. and Vietnam. including trade and
investment issues and cooperation on economic technical assistance.
-30-
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7/2/2008
Page 1 of 1
HP-1056: Treasury Department Releases New Guidance on Health Savings Accounts
,.'~~', PRESS ROOM
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u.s. DEPARTMENT OF THE mEASURY
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June 25, 2008
HP-1056
Treasury Department Releases New Guidance on Health Savings Accounts
Washington, DC--The Treasury Department and the Internal Revenue Service
today released Notice 2008-59, which provides employers and employees with a
new set of formal questions and answers on Health Savings Accounts (HSAs).
Since HSAs were created as part of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, Treasury and the IRS have issued a large number
of formal guidance items containing questions and answers on HSAs. Notice 200859 contains over 40 new frequently asked questions and answers that cover a wide
range of topics. including:
• Who is an Eligible Individual;
• Issues related to High Deductible Health Plans;
• Contributions to HSAs;
• Distributions from HSAs; and
• Establishing an HSA.
A copy of Notice 2008-59 is attached.
-30-
REPORTS
httP/IWWw.treas.gov/prcss/rclcasC3fhpI056.htm
7/2/2008
Part III - Administrative, Procedural, and Miscellaneous
Health Savings Accounts
Notice 2008-59
PURPOSE
This notice provides guidance on Health Savings Accounts.
BACKGROUND
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, Pub. L. No.1 08-173, added § 223 to the Internal Revenue
Code to permit eligible individuals to establish Health Savings Accounts (HSAs) for
taxable years beginning after December 31, 2003. The Health Opportunity Patient
Empowerment Act of 2006, Pub. L. No.1 09-432 (HOPE Act), amended § 223 of the
Code effective generally for taxable years after December 31,2006.
Notice 2004-2,2004-1 C.B. 269, and Notice 2004-50,2004-2 C.B. 196, provide
guidance on HSAs in question and answer format. This notice addresses additional
questions relating to HSAs.
TABLE OF CONTENTS
The following is an outline of the questions and answers covered in this Notice.
2
DEFINITIONS
I.
ELIGIBLE INDIVIDUALS
Q&A-1. Payment of HDHP premiums by an HRA not disqualifying
coverage
Q&A-2. Disqualifying benefits before HDHP minimum deductible satisfied
Q&A-3. Employer reimbursement of medical expenses before HDHP
minimum deductible satisfied
Q&A-4. HDHP and HSA-compatible HRA or health FSA
Q&A-5. Eligible for Medicare Part D and contributions to HSA
Q&A-6. Enrolled in Medicare Part D and contributions to HSA
Q&A-7. HDHP and other high deductible coverage
Q&A-B. HDHP and HRA or health FSA that reimburses family members
before minimum HDHP deductible satisfied
Q&A-9. Disregarded coverage or preventive care through Department of
Veterans Affairs
Q&A-10. Access to health care that is free or at charges below fair market
value
Q&A-11. Family HDHP coverage and dependents with disqualifying
coverage
II.
HIGH DEDUCTIBLE HEALTH PLANS
Q&A-12. Changing from family HDHP to self-only HDHP
Q&A-13. Different deductibles for specific benefits
3
Q&A-14. Benefits limited to hospitalization or in-patient care
Q&A-15. Expenses that apply towards meeting deductible
1\ I.
CONTRIBUTIONS
Q&A-16. Contribution limits for individuals with family coverage and
dependents with non-permitted coverage
Q&A-17. Contribution limits for married couples with different types of
HDHP coverage
Q&A-18. Contributions for married couples who each have family HDHP
coverage
Q&A-19. Contributions for months when covered by an HDHP
Q&A-20. Rollovers from an existing HSA to a new HSA
Q&A-21. Employer contributions for prior year
Q&A-22. Catch-up contributions for spouses
Q&A-23. Contributions to an employee who was never an eligible
individual
Q&A-24. Error resulting in excess contributions
Q&A-25. Contributions to an employee who ceases to be an eligible
individual
Q&A-26. Employer contributions to HSA of employee's spouse
IV.
DISTRIBUTIONS
Q&A-27. Debit cards
Q&A-28. Third party authorization
4
Q&A-29. Payment of Medicare Part D premiums
Q&A-30. Medicare premiums for spouse
Q&A-31. Continuation coverage premiums
Q&A-32. Premiums for a dependent receiving unemployment benefits
Q&A-33. Expenses for a child claimed as a dependent by another
V.
PROHIBITED TRANSACTIONS
Q&A-34. Borrowing from HSA
Q&A-35. Loan from trustee to HSA
Q&A-36. Pledging HSA as security for a loan
Q&A-37. Consequences for entering into a prohibited transaction
VI.
ESTABLISHING AN HSA
Q&A-38. When an HSA is established
Q&A-39. Not treating as established before state law considers HSA
established
Q&A-40. Establishment date for rol/overs
Q&A-41. Establishment date for successive HSAs
VII.
ADMINISTRATION
Q&A-42. Reporting HSA administration and maintenance fees withdrawn
by the trustee from an HSA
DEFINITIONS
The fol/owing definitions apply for purposes of this Notice.
Eligible individual means an individual who: (1) is covered by a high deductible
5
health plan (HDHP); (2) is not also covered by any other health plan that is not an
HDHP (with certain exceptions for plans providing certain types of limited coverage); (3)
is not enrolled in Medicare; and (4) may not be claimed as a dependent on another
person's tax return. See § 223(c)(1).
Limited-purpose health flexible spending arrangement (FSA) means a health
FSA described in a cafeteria plan that only pays or reimburses permitted coverage
benefits (as defined in § 223(c)(2)(C)), such as vision care, dental care or preventive
care (as defined for purposes of § 223(c)(2)(C)). See Prop. Treas. Reg. § 1.1255(m)(3).
Limited-purpose health reimbursement arrangement (HRA) means an HRA that
only pays or reimburses permitted coverage benefits (as defined in § 223(c)(2)(C)),
such as vision care, dental care or preventive care. See Rev. Rul. 2004-45, 2004-1
C.B.971.
Post-deductible health FSA means a health FSA in a cafeteria plan that only
pays or reimburses medical expenses (as defined in § 213(d)) for preventive care or
medical expenses incurred after the minimum annual HDHP deductible under §
223(c)(2)(A)(i) is satisfied. No medical expenses incurred before the annual HDHP
deductible is satisfied may be reimbursed by a post-deductible FSA, regardless of
whether the HDHP covers the expense or whether the deductible is later satisfied. See
Prop. Treas. Reg. § 1.125-5(m)(4).
Post-deductible HRA means an HRA that only pays or reimburses medical
expenses (as defined in § 213(d)) for preventive care or medical expenses incurred
6
after the minimum annual HDHP deductible under § 223(c)(2)(A)(i) is satisfied. No
medical expenses incurred before the annual HDHP deductible is satisfied may be
reimbursed by a post-deductible HRA, regardless of whether the HDHP covers the
expense or whether the deductible is later satisfied. See Rev. Rul. 2004-45.
QUESTIONS AND ANSWERS
I.
ELIGIBLE INDIVIDUALS
Q-1.
Does an individual fail to be an eligible individual, as defined in §
223(c)(1), merely because the individual is covered by an HRA which, in addition to
paying and reimbursing expenses for vision, dental and preventive care, pays and
reimburses premiums for coverage by an accident and health plan?
A-1.
No. An individual who is otherwise an eligible individual does not fail to be
an eligible individual merely because the individual is covered by an HRA which, in
addition to paying and reimbursing expenses for vision, dental and preventive care,
pays and reimburses premiums for coverage by an accident and health plan. See
Notice 2002-45, 2002-2 C.B. 93, and Rev. Ru\. 2002-41,2002-2 C.B. 75, for guidance
on HRAs.
Example. In 2008, Employer A provides an HRA which reimburses any § 213(d)
medical expense incurred by an employee, employee's spouse and dependents. For
2009, Employer A amends the HRA to limit its benefits to expenses for vision care,
dental care, and preventive care and to pay the employee's share of the premiums for
the employer-sponsored HDHP. During 2009, A's employees are otherwise eligible
individuals.
For 2009, Employer A's employees are eligible individuals even if covered by the
HRA.
Q-2.
If an individual is covered under a plan that pays for medical expenses
7
incurred before the minimum HDHP deductible is satisfied and the coverage is not
permitted insurance under § 223(c)(3), disregarded coverage under § 223(c)(1 )(8)(ii) or
preventive care under § 223(c)(2)(C), is that individual an eligible individual as defined
in § 223(c)(1)?
A-2.
No. To be an eligible individual, an individual must be covered by an
HDHP and by no other health plan that provides coverage other than disregarded
coverage under § 223(c)(1 )(8) or preventive care under § 223(c)(2)(C). See Rev. Rul.
2004-45.
Example. Individual B is covered by an HDHP. In addition, Individual B is
covered by a "mini-med" plan that provides the following benefits: a fixed amount per
day of hospitalization; a fixed amount per office visit with a physician; a fixed amount
per out-patient treatment at a hospital; a fixed amount per ambulance use; and
coverage for expenses relating to the treatment of a specified list of diseases.
Although the fixed amount per day of hospitalization benefit and specified
disease benefit are allowed in addition to the HDHP as permitted insurance, the other
benefits are not disregarded coverage or preventive care and, thus, Individual B is not
an eligible individual who can contribute to an HSA.
0-3.
If an employee is covered by an HDHP and the employer pays or
reimburses some or all of the employee's medical expenses incurred before the
minimum HDHP deductible is satisfied (other than disregarded coverage under §
223(c)(1 )(8) or preventive care under § 223(c)(2)(C)), is the employee an eligible
individual under § 223(c)(1)?
A-3.
No. To be an eligible individual, an individual must be covered by an
HDHP and no other health plan except disregarded coverage or preventive care. If at
any time, an employer pays or reimburses, directly or indirectly, aI/ or part of employees'
medical expenses below the minimum HDHP deductible under § 223(c)(2)(A) (other
8
than for disregarded coverage or preventive care) the employees are not eligible to
contribute to an HSA.
Example 1. For 2008, an HDHP with self-only coverage has an annual
deductible of $2,500. The employee pays the first $250 of covered medical expenses
below the deductible. The employer reimburses the next $1,350 of covered medical
expenses below the deductible. The employee is responsible for the last $900 of
covered medical expenses below the deductible. The $1 ,350 of medical expenses paid
or reimbursed by the employer is not a contribution to an HSA and not disregarded
coverage or preventive care.
An employee covered by this type of plan is not an eligible individual under §
223(c)(1) because the employee has disqualifying coverage from a plan that is not an
HDHP.
Example 2. For 2008, an HDHP with self-only coverage has an annual
deductible of $4,500. The employee pays the first $1,100 of covered medical expenses
below the deductible. The employer reimburses the next $3,400 of covered medical
expenses below the deductible. The $3,400 of medical expenses paid or reimbursed by
the employer is not a contribution to an HSA and not disregarded coverage or
preventive care.
An employee covered by this type of plan is an eligible individual under §
223(c)(1) because the employee is responsible for the minimum annual deductible
under § 223(c)(2)(A).
0-4(a).
If an individual has family HDHP coverage under which benefits are
paid once the entire family incurs a minimum amount of covered expenses (an umbrella
deductible), but which also provides benefits to each individual if that individual incurs
expenses in excess of the minimum family HDHP deductible in § 223(c)(2)(A)(i)(II) (the
embedded individual deductible), does the individual fail to be an eligible individual
merely because of the embedded individual deductible?
A-4(a).
No, the individual does not fail to be an eligible individual merely
because of an embedded individual deductible that is no less than the minimum family
HDHP deductible in § 223(c)(2)(A)(i)(II).
9
Q-4(b). Maya post-deductible HRA or post-deductible health FSA payor
reimburse qualified medical expenses of an individual with family HDHP coverage once
the minimum annual deductible in § 223(c)(2)(A)(i)(II) for family HDHP coverage has
been satisfied?
A-4(b). Yes, a post-deductible HRA or post-deductible health FSA may payor
reimburse qualified medical expenses of an individual with family HDHP coverage
incurred at any time after the minimum annual deductible in § 223(c)(2)(A)(i)(II) for
family HDHP coverage has been satisfied.
Example. In 2008, a family with family HDHP coverage has an umbrella
deductible of $3,500, and an embedded individual deductible of $2,200. A postdeductible HRA reimburses § 213(d) medical expenses incurred after $2,200 of medical
expenses covered by the HDHP have been incurred.
The covered individuals, if otherwise eligible, are eligible individuals.
0-5.
Does an individual fail to be an eligible individual merely because the
individual is eligible for, but not enrolled in, Medicare Part 0 (or any other Medicare
benefit)?
A-5.
No. However, an individual is not an eligible individual under § 223(c)(1)
in any month during which such individual is both eligible for benefits under Medicare
and enrolled to receive benefits under Medicare. See also Notice 2004-50, 0&A-2 and
3, regarding Medicare Parts A and B.
0-6.
Does an individual fail to be an eligible individual merely because the
individual is enrolled in Medicare Part 0, or any other Medicare benefit?
A-6.
Yes. Under § 223(b)(7), an individual who is enrolled in Medicare is not
an eligible individual in any month during which the individual is enrolled in Medicare.
10
See also 0&A-29 of this Notice regarding paying Medicare premiums with funds in an
HSA.
0-7.
Mayan otherwise eligible individual covered by an HDHP as defined in §
223(c)(2) also be covered by a health plan that is not an HDHP with a deductible equal
to or greater than the statutory minimum HDHP deductible?
A-7.
Yes, as long as the deductible of the other coverage equals or exceeds
the statutory minimum HDHP deductible, the individual remains an eligible individual.
Example. An otherwise eligible individual has self-only HDHP coverage from
January 1 through December 31, 2008, with a deductible of $2,500 and a life-time limit
on benefits of $1 ,000,000. In addition to the HDHP, the individual has self-only health
plan coverage with a $1,000,000 deductible and a $2,000,000 life-time limit on benefits.
The individual is an eligible individual.
0-8.
Is an individual with family HDHP coverage who is also covered by a post-
deductible HRA or post-deductible health FSA an eligible individual under § 223(c)(1) if
the post-deductible HRA or post-deductible health FSA reimburses § 213(d) medical
expenses of a spouse or dependent incurred before the minimum family HDHP
deductible under § 223(c)(2)(A)(i)(lI) has been satisfied?
A-8.
No. If an individual with family HDHP coverage is covered by a post-
deductible HRA or post-deductible health FSA that reimburses the § 213(d) medical
expenses of any covered individual before the minimum family HDHP deductible under
§ 223(c)(2)(A)(i)(II) has been satisfied, that individual is not an eligible individual under §
223(c)(1 ).
Example 1. Employee C has family HDHP coverage. Employee C's spouse and
children (but not Employee C) are also covered by non-HDHP family coverage provided
by the spouse's employer. Employee C and Employee C's spouse and children are
11
also covered by a post-deductible health FSA. The health FSA pays for unreimbursed
medical expenses of the spouse and child without regard to the satisfaction of the
deductible of the family HDHP.
Because the health FSA covering Employee C reimburses medical expenses
before the minimum family HDHP deductible is satisfied, Employee C is not an eligible
individual.
Example 2. Same facts as Example 1, except the health FSA does not cover
Employee C. Employee C is an eligible individual.
0-9.
Is an individual an eligible individual if he or she is eligible for medical
benefits through the Department of Veterans Affairs (VA) but only receives medical care
that is disregarded coverage or preventive care from the VA and is otherwise an eligible
individual?
A-9.
Yes. Although an individual actually receiving medical benefits from the
VA at any time in the previous three months is generally not an eligible individual, this
rule does not apply if the medical benefits consist solely of disregarded coverage or
preventive care.
0-10. Is an otherwise eligible individual who has access to free health care or
health care at charges below fair market value from a clinic on an employer's premises
an eligible individual under § 223(c)(1)?
A-10. An individual will not fail to be an eligible individual under § 223(c)(1)(A)
merely because the individual has access to free health care or health care at charges
below fair market value from an employer's on-site clinic if the clinic does not provide
significant benefits in the nature of medical care (in addition to disregarded coverage or
preventive care).
Example 1. A manufacturing plant operates an on-site clinic that provides the
12
following free health care for employees: (1) physicals and immunizations; (2) injecting
antigens provided by employees (e.g., performing allergy injections); (3) a variety of
aspirin and other nonprescription pain relievers; and (4) treatment for injuries caused by
accidents at the plant.
The clinic does not provide significant benefits in the nature of medical care in
addition to disregarded coverage or preventive care.
Example 2. A hospital permits its employees to receive care at its facilities for all
of their medical needs. For employees without health insurance, the hospital provides
medical care at no charge. For employees who have health insurance, the hospital
waives all deductibles and co-pays.
Because the hospital provides significant care in the nature of medical services,
the hospital's employees are not eligible individuals under § 223(c)(1 )(A).
Q-11. If an otherwise eligible individual under § 223(d)(1) has family HDHP
coverage that covers dependents, and the dependents have other, disqualifying, nonHDHP coverage, is the individual an eligible individual?
A-11. Yes. See also Rev. Rul. 2005-25. See Q&A-16 of this Notice regarding
the contribution limit.
1l.
HIGH DEDUCTIBLE HEALTH PLANS
0-12. If an individual switches from a family HDHP to a self-only HDHP, does
the individual fail to be an eligible individual during the period of self-only coverage
merely because the self-only HDHP, for the purpose of satisfying the self-only
deductible, takes into account expenses incurred while the individual had family HDHP
coverage?
A-12. A self-only HDHP may use any reasonable method to allocate the covered
expenses incurred during the period of family coverage for the purpose of satisfying the
deductible for self-only coverage. For example, subject to state law requirements, the
13
plan may allocate to the self-only deductible only the expenses incurred by that
individual. Alternatively, the plan may allocate the expenses incurred during family
HDHP coverage on a per-capita basis according to the number of persons covered by
the family HDHP. If the family deductible was satisfied before the change to self-only
coverage, the plan may also treat the individual as having satisfied the self-only
deductible for that plan year. In all cases, each expense must be allocated on a
reasonable and consistent basis and, except in the case of COBRA continuation
coverage, each expense may be allocated to only one individual, and the plan year
must be 12 months. For individuals switching from self-only HDHP coverage to family
HDHP coverage, see Notice 2004-50, Q&A-23. If COBRA continuation coverage is
required to be made available, the HDHP must comply with the requirements of Q&A-2
of § 54.49808-5 for those individuals receiving COBRA continuation coverage.
Example 1. Employer D offers its employees a calendar year health plan
otherwise qualifying as an HDHP. Employee E and E's spouse are covered by
Employer D's family coverage HDHP with a $6,000 deductible. Employee E incurs
$2,500 in covered expenses; Employee E's spouse incurs $2,000 in covered expenses.
On July 1, Employee E and Employee E's spouse each change to self-only HDHP
coverage with a $3,000 deductible and Employee E's spouse is no longer covered
under the plan.
For the period from July 1 through December 31, the plan may credit Employee
E's self-only deductible with either: (1) $2,500 (the actual amount of expenses
Employee E incurred under family coverage), or (2) $2,250 ($4,500/2), Employee E's
per-capita share of expenses incurred by the two individuals covered by family
coverage. In this case the HDHP must credit Employee E's spouse with at least $2,000
toward the satisfaction of the deductible; the HDHP also complies with the requirements
of Q&A-2 of § 54.49808-5 by crediting Employee E's spouse with $2,250 toward the
satisfaction of the deductible.
Example 2. The same facts as Example 1, except that Employee E's spouse is
entitled to elect, and elects, COBRA continuation coverage under the HDHP. In this
case, the HDHP must comply with the requirements of Q&A-2 of § 54.4980B-5.
14
Example 3. The same facts as Example 2, except that the amounts incurred by
Employee E and Employee E's spouse are reversed: Employee E incurred $2,000 of
medical expenses and Employee E's spouse incurred $2,500.
If the HDHP credits Employee E's spouse with $2,250 toward the satisfaction of
the deductible, this would not satisfy the requirements of Q&A-2 of § 54.4980B-S.
Employee E's spouse must be credited with at least $2,SOO toward the satisfaction of
the deductible to comply with the requirements of Q&A-2 of §S4.4980B-5.
Example 4. Employer F offers its employees a calendar year health plan,
otherwise qualifying as an HDHP. As of January 1,2008, Employee G, and Employee
G's spouse and child are covered by Employer F's family coverage HDHP with a $6,000
deductible. From January 1 through September 30, 2008, Employee G incurs $2,500 in
covered expenses; Employee G's spouse incurs $500 in covered expenses, and
Employee G's child incurs $3,000 in covered expenses. Employee G and spouse are
divorced, effective October 1, 2008. On that date, Employee G changes to self-only
HDHP coverage with a $3,000 deductible and the child and ex-spouse elect COBRA
continuation coverage in Employer F's family HDHP coverage.
The plan may (1) credit Employee G's individual deductible with $2,500 and
reduce the expenses allocated to the child and ex-spouse in family coverage by $2,500;
or (2) credit Employee G's self-only deductible with $2,000 and reduce the expenses
allocated to the child and ex-spouse by $2,000 (allocating one-third of the $6,000 in
expenses to Employee G's individual deductible and two-thirds of the $6,000 in
expenses to the former spouse and child remaining in family coverage). Coverage of
the child and former spouse is COBRA continuation coverage. However, if the pro rata
allocation of expenses of the family to the child and former spouse were less than the
actual expenses incurred by the child and former spouse, then allocation of only the
ratable share of the family expenses would not comply with the requirements of Q&A-2
of § 54.49808-5; (3) credit Employee G with no expenses and continue to credit the
child and ex-spouse with all expenses incurred under family coverage; or (4) treat
Employee G as having satisfied the $3,000 individual deductible while treating the
former spouse and child as having satisfied the $6,000 family deductible.
0-13. If a health plan imposes a separate or higher deductible for specific
benefits, are amounts paid by covered individuals to satisfy the separate or higher
deductible treated as out-of-pocket expenses under § 223(c}(2)(A)?
A-13. If significant other benefits remain available under the plan in addition to
the specific benefits subject to the separate or higher deductible, amounts paid to
15
satisfy the separate or higher deductible are not treated as out-of-pocket expenses
under § 223(c)(2)(A).
Example. In 2008, a self-only health plan with a $3,000 deductible imposes a
lifetime limit of $1 ,000,000 on reimbursements for covered benefits. The plan pays 100
percent of covered expenses after the $3,000 deductible is satisfied. Although the plan
provides benefits for substance abuse treatment, the substance abuse treatment
benefits are subject to a separate $5,000 deductible, and these benefits are limited to
$10,000, after the separate deductible is satisfied.
The plan is an HDHP and no expense incurred by a covered individual other than
the $3,000 general deductible is treated as an out-of-pocket expense under §
223(c)(2)(A).
0-14. If a health plan meeting the minimum deductible of § 223(c)(2)(A) restricts
benefits to expenses for hospitalization or in-patient care, is the plan an HDHP?
A-14. No. A plan must provide significant benefits to be an HDHP. A plan may
also be designed with reasonable benefit restrictions limiting the plan's covered
benefits. See Notice 2004-50, 0&A-15. However, if a plan only provides benefits for
expenses of hospitalization or in-patient care, significant other benefits do not remain
available under the plan in addition to the benefits subject to exclusion. Therefore, any
expenses incurred by a covered individual after satisfying the deductible are treated as
out-of-pocket expenses under § 223(c)(2)(A).
Example. In 2008, a self-only health plan with a $2,000 deductible includes a
$3,000,000 lifetime limit on covered benefits. Generally, the plan only provides benefits
for medical services provided while a covered individual is admitted to a hospital as an
overnight patient or provided at a "same day" surgery facility. A same day surgery
facility does not include a hospital emergency room, a trauma center, a physician's
office or a clinic. Covered medical services for individuals admitted to a hospital or
same day surgery facility include room accommodations, miscellaneous medical
services and supplies necessary for treatment, primary surgery, pathology charges and
the administration of anesthesia while at the hospital or center, and charges by the
primary attending physician for one visit per day while at the hospital. In addition, the
plan provides: an organ transplant benefit, a hospice care benefit, and home health care
16
visits. The home health care benefit is subject to a 60 visit per year limit, and must be in
connection with the hospitalization. The plan also pays for certain preventive care
screening and ambulance service. The plan pays for no visits to physician's offices nor
any other out-patient care other than those noted above. The maximum dollar amount
that the covered individual pays for covered benefits under the plan for 2008 is $5,500.
The restriction of benefits to medical services provided while the covered
individual is admitted to a hospital or at a same day surgery facility is not reasonable
because significant other benefits do not remain available under the plan after
application of the restriction. Any expenses incurred by a covered individual for outpatient care or visits to physician's offices are treated as out-of-pocket expenses under
§ 223(c)(2)(A). Because the plan maximum for amounts paid by a covered individual
does not restrict payments for those out-of-pocket expenses, the plan fails to qualify as
an HDHP.
0-15. What medical expenses may be taken into account in determining when
the HDHP deductible is satisfied for purposes of a post-deductible HRA or postdeductible health FSA?
A-15. Only medical expenses described in § 213(d) and covered by the HDHP
may be taken into account in determining whether the HDHP deductible, or the
minimum deductible in § 223(c)(2)(A)(i), has been satisfied. For example, if the HDHP
does not cover chiropractic care, expenses incurred for chiropractic care do not count
toward satisfying the HDHP deductible or the minimum deductible in § 223(c)(2)(A)(i).
For self-only HDHP coverage, only the covered medical expenses of the covered
individual count toward satisfying the HDHP deductible or the minimum deductible in §
223( c )(2)(A)(i)(I).
Example. In 2008, an individual, spouse and child have family HDHP coverage
with a $2,500 deductible. The HDHP does not provide benefits for vision or dental care.
They are also covered by a combination limited purpose/post-deductible HRA that pays
or reimburses § 213(d) medical expenses incurred by each family member after the
family incurs $2,500 in covered medical expenses, and pays or reimburses vision and
dental expenses before and after the HDHP deductible is satisfied. On February 15,
2008, the family incurs $2,500 in vision and dental expenses that are reimbursed by the
17
HRA. On March 17, 2008, the family then incurs $400 in expenses covered by the
HDHP (but for the deductible). The family must incur an additional $2,100 in covered
medical expenses before the HDHP deductible is satisfied.
The HRA may not reimburse the family for the $400 of expenses because the
family had not incurred $2,500 in covered expenses when the $400 was incurred.
ill.
CONTRIBUTIONS
0-16. How do the maximum annual HSA contribution limits apply to an eligible
individual with family HDHP coverage for the entire year if the family HDHP covers
spouses or dependent children who also have coverage by a non-HDHP, Medicare, or
Medicaid?
A-16. The eligible individual may contribute the § 223(b)(2)(8) statutory
maximum for family coverage. Other coverage of dependent children or spouses does
not affect the individual's contribution limit, except that if the spouse is not an otherwise
eligible individual, no part of the HSA contribution can be allocated to the spouse.
0-17. How do the maximum annual HSA contribution limits apply to a married
couple if both spouses are eligible individuals and one spouse has self-only HDHP
coverage and the other spouse has family HDHP coverage?
A-17. The maximum annual HSA contribution limit for a married couple if one
spouse has family HDHP coverage and the other spouse has self-only HOHP coverage
is the § 223(b)(2)(B) statutory maximum for family coverage. The contribution limit is
divided between the spouses by agreement. See § 223(b)(5) and Notice 2004-50,
Q&A-32. This is the result regardless of whether the family HDHP coverage includes
the spouse with self-only HOHP coverage. See Notice 2004-2, 0&A-15. If only one
spouse is an eligible individual, see Rev. Rul. 2005-25.
18
Example. For 2008, Hand Ware married. Both are 40 years old. Hand Ware
otherwise eligible individuals. H has self-only HDHP coverage. W has an HDHP with
family coverage for Wand their two children.
The combined contribution limit for Hand W is $5,800, which is the §
223(b)(2)(B) statutory contribution limit for 2008. Hand W divide the $5,800
contribution limit between them by agreement.
0-18. How do the maximum annual HSA contribution limits apply to a married
couple if both spouses are eligible individuals and each spouse has family HDHP
coverage that does not cover the other spouse?
A-18. The maximum HSA contribution limit for a married couple where both
spouses have family HDHP coverage is the § 223(b)(2)(B) statutory maximum. This
rule applies regardless of whether each spouse's family coverage covers the other
spouse. The contribution limit is divided between the spouses by agreement.
Example. In 2008, H, who is 37, and W, who is 32, are married with two
dependent children. H has HDHP family coverage for H and their two children with an
annual deductible of $3,000. W has HDHP family coverage for Wand their two children
with a deductible of $3,500.
The combined contribution limit for Hand W is $5,800, the maximum annual
contribution limit. Hand W divide the $5,800 contribution limit between them by
agreement.
0-19. Mayan individual who ceases to be an eligible individual during a year still
contribute to an HSA with respect to the months of the year when the individual was an
eligible individual?
A-19. Yes. An individual who ceases to be an eligible individual may, until the
date for filing the return (without extensions) for the year, make HSA contributions with
respect to the months of the year when the individual was an eligible individual.
Example. J has a self-only HDHP, and is an eligible individual for the first four
19
months of 2008. J has until April 15, 2009 (the date for filing the 2008 return, without
extensions) to contribute 4/12 x $2,900 ($967) to an HSA.
0-20. Mayan individual who is not an eligible individual make a rollover
contribution from his or her existing HSA to a new HSA?
A-20. Yes.
Q-21. May employer contributions to employees' HSAs made between January
1 and the date for filing the employee's return, without extensions, be allocated to the
prior year?
A-21. Yes. For employer contributions (including salary reduction contributions)
made between January 1 and the date for filing the employees' returns without
extension, the employer must notify the HSA trustee or custodian if the contributions
relate to the prior year. The employer must also inform the employee of the
designation. However, the contributions designated as made for the prior year are still
reported in box 12 with code W on the employees' Form W-2 for the year in which the
contributions are actually made.
Example. In January 2009, Employer K contributes $500 to each employee's
HSA and notifies the HSA trustee (and provides a statement to the employees) that the
contributions are for 2008. Subsequently, in 2009, Employer K contributes $250 to
each employee's HSA on March 31, June 30, September 30 and December 31. For
each employee whose HSA received these contributions, Employer K reports a total
contribution of $1 ,500 in box 12 with code Won the Form W-2 for 2009.
In completing the Form 8889 for 2008, to compute Employer K's contributions,
the employees add the $500 to any employer contributions reported in box 12, code W
on the 2008 Form W-2. In completing the Form 8889 for 2009, the employees subtract
the $500 from the box 12 code W amount on the 2009 Form W-2 and add to the
remaining $1,000 any contributions for 2009 made by Employer K between January 1.
2009 and his or her filing date without extensions. See Instructions to Form 8889.
0-22. If a husband and wife are each eligible to make catch-up contributions
20
under § 223(b)(3), must each spouse contribute their catch-up contributions to their own
HSA?
A-22. Yes. An individual who is eligible to make catch-up contributions may only
make such contributions to his or her own HSA. See also Notice 2004-50, 0&A-32. If
both spouses are eligible for the catch-up contribution, each spouse must make catchup contributions to his or her own HSA.
0-23. If an employer contributes to the account of an employee who was never
an eligible individual, can the employer recoup the amounts?
A-23. If the employee was never an eligible individual under § 223(c), then no
HSA ever existed and the employer may correct the error. At the employer's option, the
employer may request that the financial institution return the amounts to the employer.
However, if the employer does not recover the amounts by the end of the taxable year,
then the amounts must be included as gross income and wages on the employee's
Form W-2 for the year during which the employer made the contributions.
Example 1. In February 2008, Employer L contributed $500 to an account of
Employee M, reasonably believing the account to be an HSA. In July 2008, Employer L
first learned that Employee M's account is not an HSA because Employee M has never
been an eligible individual under § 223(c).
Employer L may either request that the financial institution holding Employee M's
account return the balance of the account ($500 plus earnings less administration fees
directly paid from the account) to Employer L. If Employer L does not receive the
balance of the account, Employer L must include the amounts in Employee M's gross
income and wages on his Form W-2 for 2008.
Example 2. The same facts as Example 1, except Employer L first discovers the
mistake in July 2009. Employer L issues a corrected 2008 Form W-2 for Employee M,
and Employee M files an amended income tax return for 2008.
0-24. If an employer contributes amounts to an employee's HSA that exceed the
21
maximum annual contribution allowed in § 223(b) due to an error, can the employer
recoup the excess amounts?
A-24. If the employer contributes amounts to an employee's HSA that exceed
the maximum annual contribution allowed in § 223(b) due to an error, the employer may
correct the error. In that case, at the employer's option, the employer may request that
the financial institution return the excess amounts to the employer. Alternatively, if the
employer does not recover the amounts, then the amounts must be included as gross
income and wages on the employee's Form W-2 for the year during which the employer
made contributions. If, however, amounts contributed are less than or equal to the
maximum annual contribution allowed in § 223(b), the employer may not recoup any
amount from the employee's HSA.
Q-25. If an employer contributes to the HSA of an employee who ceases to be
an eligible individual during a year, can the employer recoup amounts that the employer
contributed after the employee ceased to be an eligible individual?
A-25. No. Employers generally cannot recoup amounts from an HSA other than
as discussed above in Q&A-23 and Q&A-24. See Notice 2004-50, Q&A-82.
Example. Employee N was an eligible individual on January 1, 2008. On April 1,
2008, Employee N is no longer an eligible individual because Employee N's spouse
enrolled in a general purpose health FSA that covers a/l family members. Employee N
first realizes that he is no longer eligible on July 17, 2008, at which time Employee N
informs Employer 0 to cease HSA contributions.
Employer O's contributions into Employee N's HSA between April 1, 2008 and
July 17, 2008 cannot be recouped by Employer 0 because Employee N has a
nonforfeitable interest in his HSA. Employee N is responsible for determining if the
contributions exceed the maximum annual contribution limit in § 223(b), and for
withdrawing the excess contribution and the income attributable to the excess
contribution and including both in gross income.
22
0-26. Are employer contributions to the HSA of an employee's spouse (who is
not an employee of this employer) excluded from the employee's gross income and
wages?
A-26. No. The exclusion under § 106(d)(1) is limited to contributions by an
employer to the HSA of an employee who is an eligible individual. Any contribution by
an employer to the HSA of a non-employee (e.g., a spouse of an employee or any other
individual), including salary reduction amounts made through a § 125 cafeteria plan,
must be included in the gross income and wages of the employee.
IV.
DISTRIBUTIONS
0-27. Mayan HSA be administered through a debit card that restricts payments
and reimbursements to health care?
A-27. Yes, if the funds in the HSA are otherwise readily available. For example,
in addition to the restricted debit card, the HSA account beneficiary must also be able to
access the funds other than by purchasing health care with the debit card, such as
through online transfers, withdrawals from automatic teller machines or check writing.
Employers must notify employees that other access to the funds is available. See also
Notice 2004-50, 0&A-77 and 79.
0-28. Mayan HSA account beneficiary authorize someone else to withdraw
funds from his or her HSA?
A-28. Yes. Although an HSA is an individual account, an HSA account
beneficiary can designate other individuals to withdraw funds pursuant to the
procedures of the trustee or custodian of the HSA. Distributions are subject to tax if
23
they are not used to pay for qualified medical expenses for the HSA account
beneficiary, the account beneficiary's spouse, or dependents. See Notice 2004-2, O&A-
25. But see 0&A-34, Q&A-35, and Q&A-36 of this Notice regarding prohibited
transactions.
Q-29. If the account beneficiary has attained age 65, are Medicare Part 0
premiums qualified medical expenses?
A-29. Yes. If an account beneficiary has attained age 65, premiums for
Medicare Part 0 for the account beneficiary, the account beneficiary's spouse, or the
account beneficiary's dependents are qualified medical expenses. See also Notice
2004-2, Q&A-27, and Notice 2004-50, 0&A-4 and 45, regarding Medicare Parts A and
B. See Q&A-6 of this Notice regarding eligibility of Medicare enrollees to contribute to
an HSA.
0-30. If the account beneficiary has not attained age 65, are Medicare premiums
for coverage of an account beneficiary's spouse (who has attained age 65) qualified
medical expenses?
A-3~.
No. If the account beneficiary has not attained age 65, Medicare
premiums are generally not qualified medical expenses.
0-31. Are premiums for continuation coverage required under Federal law for
the spouse or dependent of an account beneficiary qualified medical expenses?
A-31. Yes. Although qualified medical expenses generally exclude payments for
insurance, § 223(d)(2)(C)(i) provides an exception for the expense of coverage under a
health plan during any period of continuation coverage.
24
Q-32. Are premiums for health coverage for a spouse or dependent during a
period when the spouse or dependent is receiving unemployment compensation under
any Federal or state law qualified medical expenses?
A-32. Yes. Although qualified medical expenses generally exclude payments for
insurance, § 223(d)(2)(C)(iii) provides an exception for the expense of coverage under a
health plan during a period in which an individual is receiving unemployment
compensation under any Federal or state law.
0-33. Do qualified medical expenses for HSA purposes include the § 213(d)
medical expenses incurred by an account beneficiary's child who is claimed as a
dependent by the account beneficiary's former spouse?
A-33. Yes. See §§ 152(e) and 213(d)(5).
Y...
PROHIBITED TRANSACTIONS
0-34. If an account beneficiary borrows funds from his or her HSA, is this a
prohibited transaction under § 4975?
A-34. Yes. An HSA is a plan as defined in § 4975(e)(1 )(E). An HSA account
beneficiary is a disqualified person under § 4975(e)(2). A loan or extension of credit
between a plan and a disqualified person is a prohibited transaction. Section
4975(c)(1)(B). Thus, any direct or indirect extension of credit between the account
beneficiary and his or her HSA is a prohibited transaction.
0-35. If a trustee of an HSA lends money to the HSA, is this a prohibited
transaction under § 4975?
A-35. Yes. An HSA is a plan as defined in § 4975(e)(1 )(E). An HSA trustee is a
26
transactions" with an HSA (e.g., the account beneficiary may not sell, exchange, or
lease property, borrow or lend money, pledge the HSA, furnish goods, services or
facilities, transfer to or use by or for the benefit of himself/herself any assets of the HSA,
etc.). If an account beneficiary engages in a prohibited transaction with his or her HSA
the sanction, in general, is disqualification of the account. Thus, the HSA stops being
an HSA as of the first day of the taxable year of the prohibited transaction. The assets
of the beneficiary's account are deemed distributed, and the appropriate taxes,
including the 10 percent additional tax under § 223(f)(4) for distributions not used for
qualified medical expenses, apply.
If the employer sponsoring the account (or other disqualified person) is the party
engaging in a prohibited transaction, then the employer (or other party) is liable for the
excise tax, but the account beneficiary is not.
VI.
ESTABLISHING AN HSA
Q-38. When is an HSA established?
A-38. An HSA is an exempt trust established through a written governing
instrument under state law. Section 223(d)(1). State trust law determines when an
HSA is established. Most state trust laws require that for a trust to exist, an asset must
be held in trust; thus, most state trust laws require that a trust must be funded to be
established. Whether the account beneficiary's signature is required to establish the
trust also depends on state law.
Q-39. Maya trustee treat an HSA as established before the date of
establishment determined under state law, such as the date when HDHP coverage
27
began?
A-39. No. But see Q&A-40 and Q&A-41 of this Notice concerning the
establishment date for HSAs in connection with rollovers, or where a previous HSA was
established.
Q-40. When is an HSA established if the funds in the HSA were rolled over or
transferred from an Archer MSA or another HSA?
A-40. An HSA that is funded by amounts rolled over or transferred from an
Archer MSA or another HSA is established as of the date the prior account was
established. Qualified HSA distributions under § 106(e) or qualified HSA funding
distributions under § 408(d)(9) do not affect the HSA establishment date. See also
Notice 2004-2, Q&A-23.
Example. An account beneficiary established an Archer MSA on October 17,
2000. On May 13, 2004, the account beneficiary rolled the entire amount held in the
Archer MSA into an HSA. On January 1, 2008, the account beneficiary has the HSA
trustee make a direct transfer of the entire HSA to an HSA with a new trustee.
The establishment date of the HSA with the new trustee is October 17, 2000.
Q-41. On what date is an HSA established if the account beneficiary had
previously established an HSA?
A-41. If an account beneficiary establishes an HSA, and later establishes
another HSA, any later HSA is deemed to be established when the first HSA was
established if the account beneficiary has an HSA with a balance greater than zero at
any time during the 18-month period ending on the date the later HSA is established.
Example 1. An account beneficiary established an HSA on March 1, 2007. On
June 15, 2007, he withdrew all the funds from the HSA, resulting in a zero balance. On
November 21,2008, he established a second HSA.
28
Because the second HSA was established within 18 months of June 15, 2007,
the second HSA is deemed to be established on March 1,2007.
Example 2. The same facts as Example 1, except that the account beneficiary
establishes a third HSA on January 1, 2009. On that date, the second HSA has a
balance greater than zero.
The third HSA is deemed to be established on March 1, 2007.
VII.
ADMINISTRATION
0-42. How are HSA administration and maintenance fees withdrawn by the
trustee from an HSA reported by the trustee?
A-42. HSA administration and maintenance fees withdrawn by the trustee are
reflected on the Form 549B-SA in the fair market value of the HSA at the end of the
taxable year. These fees are not reported as distributions from the HSA.
EFFECT ON OTHER DOCUMENTS
Notice 2004-2, 2004-1 C.B. 269, Notice 2004-50,2004-2 C.B. 196, and Notice
2007-22,2007-10 I.R.B. 670, are amplified.
DRAFTING INFORMATION
The principal author of this notice is Leslie R. Paul of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further
information regarding this notice contact Ms. Paul at (202) 622-6080 (not a toll-free call).
57: Treasury Releases Ftfth in
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June 25, 2008
HP-1057
Treasury Releases Fifth in a Series of Social Security Papers
Washington, DC - Treasury today released the fifth in a series of papers on Social
Security. Issue Brief NO.5 is entitled Social Security Reform: Strategies for
Progressive Benefit Adjustments.
REPORTS
httPI/WWw.treas.?ovtpressile1edses/tJp1057.htm
7/2/2008
This is the fifth in a series of Treasury issue briefs on topics related to Social Security reform. The fundamental reason Social Security must be reformed is that scheduled benefits under current low exceed the
future revenues that the system is projected to toke in. Specifically, scheduled benefits have a present
value that is $13.6 trillion greater than the present value of the revenues that the system is projected to
receive. Relative to scheduled benefits and taxes, therefore, the present value of benefits less taxes must
be reduced by $13.6 trillion. This can be done by increasing revenues relative to what is provided fOI
under current law and/or by lowering benefits relative to what are currently scheduled but not fully payable under current law
This brief discusses the possible role that progressive reductions in scheduled benefits would ploy in
Social Security reform A progressive reduction in scheduled benefits would have high earners bear a
relatively larger share of the burden of the adlustments needed to make Social Security permanently solvent, while workers with low earnings would be relalively shielded from the impact of benefit reductions.
Under such a change, the reduction in scheduled benefits expressed as a share of wages while working
would be higher for high-wage workers than it is for low-wage workers. While there is considerable
disagreement about the precise nature arld timing of the reforms thot will ultimately make Social Security
solvent, there is brood agreement that progressive benefit adjustments will be a key component of those
reforms Indeed, most proposed reforms to move Social Security toward permanent solvency coil for
benefit changes of this type l
An important theme of this brief is that all plans that progressively reduce the growth rate of benefits
operate in essentially the some way. Plans differ with regard to how rapidly and how progressively
benefits are reduced, but the key levers used to slow the growth of benefits are the some.
Two points should be kept in mind in considering plans that involve changes to scheduled benefits The
first point is that currently scheduled benefits cannot actually be paid under current low since Social
Security is projected to have insufficient funds to pay scheduled benefits from 2041 on. Paying currently
scheduled benefits would require additional revenues Comparing benefits in a solvent plan with on
unpayable level of benefits in on insolvent plan is potentially misleading. The second point is that pro-
For examp'e, thiS IS true of plans proposed by Jeffrey liebman, Mayo MocGuineas, and Andrew Somwick
Ihttp//wwwnonporfisonssplancom/poges/1/indexhtmJ; by Peter Diamond and Peter Orszag
Ihttp//wwwssogov/OACT/solvency/DlamondOrsz09_20031008pdf); and by Robert Pozen
(httP//wwwssagov/OACT/solvency/RPozen_20050210pdf)
posols to reduce scheduled benefits typically do not actually cut benefits In either nomlriOl or real terms;
benefits of successive birth cohorts continue to grow over time, but at a slower role tllUII the benefit::,
scneduled under current low. In other words, future retirees would receive benefits Thai ore at least 05
large in real terms as what is received by current retirees; the benefits woulcJ lust not be 05 brge as what
IS now scheduled ~ut not payable
Reforms that brrng the system rnto balance by slOWing benefit growth (that is, reducing scheduled benefits] have the potential to be fairer to future generations than comparable reforms that ocf-,eve solvency
by raising taxes This IS because the tax approach would result In a much lorger Increase in attempted
pre-funding as more resources are brought into the system in advance of when benefits ore paid. As diScussed In issue briefs 3 and 4, pre(unding prOVides resources for future generations only if the increased
revenues brought into the Social Security program do not give rise to higher spending and/or lower
taxes in the rest of t~e budget If the increased surplus revenues are offset by lorger deficits in the rest
of the budget. the surpluses would riot increase the government's capacity to pay future Sociol Security
oenefits and the attempt to make older workers pava reasonable shore of the reform burden through
tax increases would be undone While SOCial Security would be mode fairer to future generations. that
effect would be entirely offset by a non-Sacral SeclHity fiscal policy that places a greater fiscal burden
on future generations A reduction in the growth rote of benefits, on the other hand. relies less on preTJnding to make Social Security fa.r across generations and IS therehe less subject to thiS problem
Another reason why many Soc.ial Security reform plans propose reductions in scheduled growth of
benefits IS to ensure that all workers bear a reasonable portion of the bJrden of Social Security reform
If Social Security were mode solvent with tax increases alone. the tox Increases would have to be large
and abrupt if workers in the middle of their lives at the time of reform ore to shoulder a reasonable shore
of the reform burden For example, 0 worker a98u 35 wiler I reform is implemented would face higher
payrOll taxes for twe-thirds of his working lire, whe~eas 0 20 year old would face higher payroll taxes for
his entire workillg life By contrast, these two workers would make the same contribution to a reform that
Involves reducing the benefits they are scheduled to receive in retirement so long as the benefit adiust
ments ore fully phascc in by time the older worker retires.
Treasury's second and third issue briefs developed a practical framework for deSigning and evoiuoting SOCIal Security reform plans that IS built around specific metr.cs for assessing the effec:t thot reforms
would have on fairness across generations. fairness Within generations, and benefit odequocy Those
metrics con be used to assess reforms that yield a permanently solvent system Changes in scheduled
benefits must tvpicolly be combined With other reforms to yield 0 permanently solvent system. As the other ports of a pion might be progressive or regreSSive, the overall plorl must be evaluated to fullV quantify
the level of progressivitv brought about from the reform It could be. for example, that benefit changes in
a plan imorove progresslvity but that thiS is offset by other provisions.
This last observation highlights :re value of the "too-down" approach to Social Security reform set forward
in Treasury's previous issue briefs. A "top-down" approach to Social Security reform begins by laying
down high-level measurable goals relating to how tre reform burde'l is allocated across and withrn generations. the level of benefits. and how pre-funding :5 to be attempted. Once those goals ore defined.
It IS then possible to construct a package af reforms thot ochreves them In general. it will be pOSSible to
find more than one package of reforms that achieves a pmticulor set of high-level reform goals, the chOice
among such plans must therefore be mode with reference to ot1er. less essential considerations
In con trost, what might be called a "bottom-up" approach to Social Security reform would entail selecting reform elements from a list of specific modifications to benefits and revenues and then evaluating the
Impact of the chOices on Social Security's fi,ances: p., bottom-up reform plan would be devised by
selecting enough items from suc~ a list to reach c solvency target
Before conSidering the various ways In which progressive adlustmenls to benefits can be implemented, it is
useful to begin with a review of how Social Security letirement benefits are computed under CL.rrent low
There are three steps Involved In computing Initial benef:ts under Socral Security First, a special overage
of the individual's taxable earnings whde worbng is calcuioted; thiS average earnings ITleOSUre is known os
average Indexed monthly earnings, or AIMEJ Second, a progressive formula is used to convert the AIME
Inlo a primary Insurance arr10unt, 0- PIA Third, in,lial benefits ore determined by adlustlng the PIA for retirement before or after the no-mol retirement age and adlusting for price Inflalion between age 62 and the time
the individuol beginS collecting benefits AJter benefit payments commence, they are then adiusted for price
inflation each January
Steps one and two of the benefit calcul,otion involve index.lng Individual earflirlgs and key parameters of the
benefit forr/ula to a measure of economy-wide average wages Firs', III computing the AIME, on individual's
annlJal taxable earnings prior to age 60 are inoexed to the growth of economywide average wages
between the time the earnings were receiVed and the time the individual is oge 60. For eX:Jmple, if economY-Wide average wages in the year Oil Indvduol is og2 40 are half as large os economy-wide overage
wages in the year the Indivic1uol is age 60, thell the Individual's age-40 earnings ore scalec1 10 be twice
as large irrdexed earnings rlor to age 60 and actual earnings after age 60 are referred to collectively
as "i:ldexed taxoble eo mings," with the AIME computed as the overage of the highest 35 years of Indexed
covered earnings divided by 12_
Second, the formula relaflng on individual's AIME to hiS or her prrrlory insuronce amount changes every year
in accordance with changes In the economy-wide overage wage. This formula is Illustrated in figure 1 It has
three linear segments; speCifically
• For AIME between zero and 22 percent of the economy-wide overage wage in the year a new
beneficiary is age 60, the PIA Increoses by 90 cents for eoch additional dollar of AIME;
• For AIME between 22 and 131 percent of the economy-wide overage wage In the year a new beneficiary is 0se 60, the PIA increases by 32 cents for each additional dollar of AI ME; ond,
• For higher levels
of
AIME, the PIA increases by
15
cents for each additional dollar of AIME
4
2
ror example, such a 115' can oe foune 0' Ihe Socd Se:,ullty Administration's web site
htfp//www ssa gov/OACT/solvency/provlslons/ ndexhtml
3
Under SOCH]I Securrly, onnual e:rnlngs o'e taxed up to a maximum level ($102,000 'r, 20C8), '·lox8ble earnings"
therefore refers to earnln·gs that are below thiS level ThiS tOX08·8 'nOXlrlum IS Indexed lu Ihe gruwl~ of economywlde
4
Since only earnings below the toxcb:e rraxlmum ar8 li1c:uded in the Altv\E computa'lon, there .s a maximum PA Ihat
can be obtoined In nn'y given yeo' (II IS the PIA tho· corresponds to the AIME of a war<er whose eanlngs were 01 ;Y
aveloge wages
above the taxable maximum for
35
or more yems)
Figure 1: Current-Law Primary Insurance Amount Formula
PIAlAverage Wage
0.8 ~-------------------------,
•
,
0.4
'PIA Increases $0.15 for
Every $1 Increase in AIME
PIA Increases $0.32 for Every
$1 Increase in AIME
•
,
PIA Increases $0.90 for Every $1
Increase in AIME
O.O~------------~--------------------------------~
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
AIMEI Average Wage
Source: Department of the Treasury
The Altv'lE lelE:1 o'nhich the sbG~ d the PIA, :er:ru!o changes IS referred !o C)s a bsrld pcrll,Nhi e the slopsof a linear segment of the formula bs-t lIeen bend pcints is referred to 8S a Plf'I multipllcotlor factor ~he fact
that the multipllcJtlon bctors get srr,'Jller for successlJe ,LirA: ranges ,S Nhat makes Socio' Securlt/s b02ne:'
fo"mulo progreso! 102 scedicallv eoch o(Jdltiono, dollar d J\ltlE s'erts out by' /Ieldng 90 cw,ts I', initlOl benefits, t~en 32 cents, and finoll; 15 csnts. The absolute Ie leis d the bend points are indexed to economY-Nide
average wages, herlce, ,f the f'lIME and PIP., values are exp-essed os a sha,e of economY-'Hide a/eroge
wages in the year that a neN beneficiary IS age 60-os ,s done in Figure 1 then the resultrng benefit for.'TIuio
wll be the sa'TIe for every birth cd'ort
'
/'\ :;:'olgrt[orNard I/O / :0 sd,ust oenefilsn i'~J /'C;S eLiect: / changing the paramete's of the Geneflt fo"mu a
For el<arrplo, redu~ing the multlpkollGll foctols 'Jseo'o trans'Clte Cl/erc:g8 Inde/ed mont"l/ eOT,ings Int':)
the primory ins'Jrance amol>ntNould 10 lier Ir,ltiol 'oenefr:s fer on / 'ecipl'C;n', as each ddlGr 0: ,feTime 0 leroge eornir,gsNould ma~e a smc:ler cortrlbutlon '0 nlliC] 602nefi's Il'oreol'::r changes :0 tho; ~lniJli
cation factors car, be dO'1e'1 such a /10 I as Is enhance tre progressi /i'/ of tre bene:I' formuia b I rr,ding larger proportional reductions tG the factClrs that OOP! to higher le/e's of AI j,E, ClS +,iSIIOlJld rrd.l
trot the reductien in the c.ontribu';on of f'lltfE to eenetlls would be brrjest [ornoryers ,\lIth high oleroge
c!
lifetime earnings For Instor,ce, 0 refor~, pion p'ouosed
Pete' Dlomor,rJ ClWJ Deter Orszagrcludes 8
reduction in the 'op rr,ul~'pllcation foetor in the PIP formula frorr 15 peree'11 '0 10 peres-cll, This "'Guld reduce benefrts for on indl/rduol Nirh or A.I! /,E I::; Ie' Jreo'er +on greater than tl-8 second bend POlc,t !131
percent
of
the overege 'Nage in the /eor tr,e:di j!duol turned
te'l
and !/oub ,'0 Ie 1-: //ered o'C;rerls
fer
roughly the top flftr of new retirees In 2007 Likewise, the Nonpartisan Reform Plan proposed by Jeffrey
Liebman, Mayo MocGuineas, and Andrew SamwiCk calls fer cutting the top and middle foctors in half
Ifrorn 15 percent arld 32 percent to 75 percent and 16 percent, respectively), while the bottom PIA factor would enly be reduced by a quarter (from 90 percent to 676 percent)
,A.n assessment of whether the odlustmerts to the benefit formula in a particular reform plans result In a
nore pro~ressive Social Securlt'( system depends on on analysis of a complete p~opCJSol thot makes
Social Secu~ity permanently solvent. This WOUld include not only benefit adlustments, but al~o revenue
changes and any benefits payable from potential personal retirement accounts The Diamond-Orszag
and Liebman-MacGuineos-SarTlwrck pions contain elements in addition to benefit adlustments-slJch as
increases In the maximum taxabie earnings bose :both plans) and personal retirement accounts (the latter
only)-that Will affect Social Securit/s overall progressivity
Under the current-low benefiT mmputation, new ini'lol retirement benefits for successive birth cohorts tend
to grow at the some ra:e os economy-vine overage vvages. Over time, nominal wage growth Will tend
outpace price Inflation The growth rate d real wages (wages adlusted for price changes) tends to be
posrlive, os productiVity gains result in a higher real wage Hence, one W8y to reduce the growth of benefits involves modifying the bC1efit computolton so that new benefit awards :or succ8s:,ive birth cohorts tend
'0 grow With prices rather than with wages ThiS reform proposal is known as price Indexing.
'0
',abellng this strategy for reducing t1e benefit growth rate os "price indexing" is confUSing In that it incorrectly suggests t1at the procedures for calculating benefits under currer11 low that employ wage Indexoton
would be modified to use pr1cendexotlon instead. In iact, all aspects of curlent low that rely on wage
Indexation would be uncnan~;:Jed under price IndeXing What would change is that benefits os defined
by current low would be multiplied by the ratio of economy-wide overage real wages in 0 bose year to
economY-Wide overage real wages in the year the indiVidual turns 60-thot is, benefits would Simply be
scaled down by the amount by which nominal wages have outpaced prices. Current projectiorls are that
economy-wide overage real wages will grew at aboCJt 1 1 percent per yeor; thus, In this case price index
ing reduces future benefits frorr scheduled curlent-Iaw levels by 1.1 percent for the first birth cohort affected,
by 2.2 percc;nt for the second birth cohort affected, and so on
For example, conSider two people, A ::lnd B, whose wages In each year of working life are equal to
economy-wide overage wages and who retire and collect benefits at the some age If A is a member
of the 1925 birth cohort end B IS a meillbe' of the 1930 birth cohort, then under current low 8's benefrt
would be 25 percent higher than A's benefit, whele 25 percent represents the growth In econcmy-wlde
average wages during the five-year period that extend~ f!arn 1985 (w1en A is age 60) to 1990 (wherl B
is age 60) Altemalively, if price indexing had been 1Il effect for these two birth cohorts, S's benefit would
have been 21 percent higher than A's, where 21 percent repiesents the growth in prices between 1985
and 199C. These some calculations would apply If A and B were of any other point in the relative distribution of wages for their respeclive birth cohorts, for exomrle, if they each earned 1-1/2 limes economywlde
average earnings in each yeor
of
their wcr<ing lives
As was disclJssed in Treasury's second and :hird issue briefs, Ihe wilh,n-generolian fo;rness of a set of
reforms can be 05sessed With reference 10 the effect that it hCls 0:-1 Ihe lifetime net benefit rate For on
individual the lifetinre net benefit rote is defined as the present value of net lifetime Social Securit'( benefits
(benefits I~ss taxes) as a percentage of the present value of the individual's lifet!me wages Social Security
is progressive to the extent that the lifetime net benefit rate decli1es with the level of Ifetlme wages earned.
Because price indexing is an across-the-board profJortional benefit reduction for each birth cohort, with the
proportional reduction becoming ever larger for successive bdh cohorts, making Social Security permanently solvent with price indexing alone would couse Social Securit'y' to become ncreaslngly less progressive
over time Th,s occurs because current-law scheduled benefits as a .s~cre of lifelme wages are larger Ihe
lower are lifetime wages, so a given proportiollol reduction in benefits from current-low levels represents a
larger share of I,fellme wuges for a Iowwage worker than for a high-wage worker
Under current low, benefits
erage wages
cf
successive birth cohorts tend 10 grow at the some rate as econOl1y-wide av-
As noted obove, these scheduled benefits cannot be paid under current low
Nevertheless,
in the long run benefits would be expected 10 grow ot the some rate as average wages under a reformed
defined-benefit-only systerr that is fair, permanently solvent, and has a conslant payroll tax rate loxes paid
by successive birth cohorts ir such Cl system grow with wages, so intergenerotlonCli fairness implies that
benefits likewise would grow with wages once a reduction in benefits Icompared to what was scheduled
but not payable) that acheives solvency has fully phased In.
Under price indeXing and on unchangi'lg payroll tax rate, the real present value of lifetime benefits for
successive birth cohorts would tend to grow orlly because of Increasing longevity lot about 02 percent pel
cohort) while the real presem value of taxes oaid Il1tO Social Security would grow at the sorre rate as real
wages 11 r:;ercent or more per cohort) Maintanlng price indeXing Indefinitely, therefore. would result in a
declining lifetime net benefit rate for successive cohorb Ibenefits would be riSing less rapidly than taxes), 0
situation that most would view os being unfair to distant future generations.
As a result, pricendexing can be thought of as providing a way to transition to lower benefits so as to help
make Socioi Security permmently solvent This is why when price Indexing was examined in Treasury's third
issue brief, price indeXing was assumed 10 be In place only between 2009 and 2036. To obtain a fair reform plan price Indexing was then combined with on additiorol reform that scaled dow'l the benefit formula
to offset the effect of increasing longevity ("iongevity indexing") after 2036 It is only during the first 28 years
of the reform when pure price indexing IS In effect that the I,fetime net benefit rate by birth cohort declines;
after that time, longeVity indexing serves to mOlntain on ur.chonging lifetime net benefit rate :,
Some critics of the curre,t-Iaw benefit colculdon pont out that it yields on AIME that is Iorger than it
would be if it were sinoly computed os arl overage of real wages earned, and conclude that bene~its
ore therefore "too high" in some sense But this conclusion is not correct, because the PIA formu,a is itself
calibrated to how the Alfv\E is computed Suppose, for exump,e, trot the AIME as currently computed
is x percent higher on overage thor it it were insfeod computed os the sirrple overage of real earnings
(as would result if wages were Indexed to prices when computing the AIMr:l In this case, irragine on
alternatrve system if' whiCh the AIME is the simple average of the hiSJhest 35 years of earnillgs and the
PIA formulo is as depicted Ifl Figure 1 except that the bend points os a shore of the overage wage ore
x percent smaller and the Pi,D., multiplication facto's are 011 x percent lorger Thefl benefits would be the
some on overage ur,de this alternative system as they me under current low AIME levels would be
smaller than they are under current law, bul recolibrating the PIA formu:a to toke account of the new
lower AIME levels would couse benefits
to be the some on overage!
5
As wos noted In Treasury.\ thrro Issue brlGf, th s plDll wos inter',ded 10 be used far dlustratii)C] only
6
Vvhile benefits under thiS scheme would be the so~e on overage as they ole under curreri I low. It ere would 'oc
distributional consequences~ln portlcuior. wage IndeXing puis relollvely /fIore welghl on ccr'y-Ide cornlngs In the Altv\E
calculation 'hor doe) pr ce index'ng
Moreover, this argument makes clear that the reliance on wage Indexation under current law does rot
couse the benehts of successive birth cohorts to grow at the some rate as wages. This would remain true
In the event that the AI ME were calculated using price IndeXing rothe~ than wage IndeXing
To reinforce these pOints, imogine arother pm~ible be'lefit calcu:atlon. Suppose the AIME were calculated
as the hypothetical account balance that would result If paYloil taxes were Invested at some fixed rotc of
return, and consider individuals who pay taxes at (] 106 percent rate for exactly 35 years If the annual
rate of return credited to the hypothetical account were equal to the annual rate of economY-Wide wage
growth, it turns out that the resulting account balance would be close to 45 times the current-low AIME for
all such indiViduals If in addition the PIA bend points were mode larger by a factor of 4S and the PIA
multiplication factors were all made smaller by a iactor of .022 (= 1 -7- 451, then benefits In this olternative
system would be close to current-low levels/
Wage indeXing is also used to update the PIA fo~mulo each year. In Figure 1, the bend points are constont
os a shore of economy-wide overage wages In the year the cohort is age 60, which means t'~lat the bend
points in absolute dollars are growing at the some rate as economy-wide overage wages-the bend points
ore indexed to averoge wages Ths is necessary in order to maintain Social Security's progressivity If t~e
ber.d poin~s vvere not indexed, ther -he shm3 of AIMEs that receive the advantage of the ~Igh PIA multiplication factors would decline over time. I,ndeed, if the benefit formJIa were neither regreSSive nor progressive by
wage level, there would be only one PIA multiplication foctor and no bend points to index
Progressive price Indexing is a modifimtion of the price IndeXing proposal that preserves and oossibly
even enhances SOCia' Security's progressivity
like pure price indexing, progressive price mdexlng represents a modification to SOCIal Security's PIA
forrTiula It is tflerefole not fundamentally different from other reforns thot reduce the rate of growth of
defined benefits, it only illlplements the reductions in a particular way SpeCifically, whde most other
plans Simply dictate specific reductions in the PIA mJltiplication factors In specific years, progressive
p-ice indexirg ties the reductiolls to the evolution of average economy-wide real wages. Given a path
of economy-wide real wages, therefure, it would oe possible to exactly mimic the effects of progressive
price Indexirg on benefits by naklng direct adiustments to 'he para metes of the benefrt formJla.
Figure 2 plots the PIA :ormula that would result under progressive price indexing for the 28th birth cohort
subject to this proposal under the assumption that ec:moilly-wide overage reol wages grow at on annual
rate of 1 1 percent For comparison, the figure also Includes the PIA forrnula under current low and un
der pure price Indexing (again for the 28th birth cohort subleet to pure price irldexlng) The 28th cohort
is chosen for thiS IlIus:ration because It is the lost cohorl s~biect to pure price indexing under ;he illustrative reform plan In T,eoslJry's third Issue bllef (which involves pure price IlJdexing between 2009 and
2036 and longevity indexing ofter 2036)
7
Benefits in this alternetive system would not be exactly tne some os they ere under current low tor 'wo reasens First thenypo
thetical OCOLint babrlce would increase If taxes wele paid b- more than 35 Vee)!S Second, current ow Indexes orly woges
earned prior 10 ege 60. which correspol'ds te 0 hy pot'leticcl ac:count that receives no mlelesl cred I ofte'
uge
60
Figure 2: Primary Insurance Amount Formula
PIAlAverage Wage
O.8r-----------------------------------------~
PIA Formula Under Current Law
Scheduled Benefits
..
~..
PIA Formula for 28th Cohort Subject to
Progressive Price Indexing
....
...
.. ....•..
\
•
•
• •
0.4
••
••
.•
•
PIA Formula for 28th Cohort Subject to
Price Indexing
O.O+---~--r-~--~--~--~--~--~--~--~--~--~
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
AIMEI Average Wage
Source: Department of the Treasury
Under pure plice indexing, the PIA multiplication factors become smaller at the rate of 1 1 percent per
'lear (tre rate of growth of real wages), or 26 percent in total over 28 years Reducing all multiplication
foctors by 26 perce:lt reduces everyone's benefit by 26 percent relative to current-law scheduled benefits
Under progressive price irldexng
• A third PIA bend pOint .S introduced between the first and second current-low bend points (at on
AIME level equal to 57 percent d the overage wagel,
• The PIA multlplicallon factors for the first two AI,Iv\E regions are held fixed
Of
their current-low levels
(090 ar'ld 032, respectively); and,
• The PIA multiplication factors for the third and fourth AI ME regions (initially set equal to 0.32 and
15, respectively) are both reduced proportionately 50 that an IndiVidual With maximum taxable
earnings in 35 or nnore years (a "Maxrmum" earner with AIME about 24 times os large as overage
o
earnings) receives the same benefit as would result under pure price indeXing
Relative to pure prrce indexing, progressive price indexing leads to higher real benefits over time for everyone
except the less than one percent shore of workers who ore maximum earners The bottom 30 percent of
earners will not see changes in benefits from what is now scheduled. In betweer, the bollorr, 30 percent
and the top one percent, the reductron relative to scheduled benehts IS larger as earnings rise so that people
with higher lifetime earnings wi I' bear more :Jf the burden of reform than people With lower lifetime ealilings
Progressive price indexing thus results in a more progressive benefit fornnula than pure price indeXing
The retirerJent benefits of the bottom 30 percent of earners would not be chO'iged from what is flOW scheduled because it is estimated that 30 percent of recent new-benefit awards are to workers with an AIME level
rhat is below the second bend point of the PIA formula under progressive price indexing Hence, 05SUlllng
the distribution of real wages across birth cohort members will remain about unchanged, progressive price
Indexing maintains current-low scheduled benefits lor roughly the lowest 30 percent of workers, and redJCes
benefits relative 10 Iheir current-law scheduled levels for about the top 70 percent of earners.
As With pure price indexing, progressive pi ice ind:;xlng IS a means of phaSing In a reduction in benefits
i'eloti'Je to what is scheduled but not payable: so os to help make Social Security permanently solvent
There is a limit, however, to how long progressive price indexing can be left in place Without problematic consequences arising If annual real wage growth were to overage 1.1 percellt, for example, this limit
turns out to be 80 years In that year, the PIA formula shown in Figure 3 is flat for levels of AIME that
are greater fhan the second bend point If progressive price indexrng were continued ofler 80 yeals,
the PIA would octually decline as AIME rises beyond the second bend pOint Many would view thiS as
an unacceptable outcome because it Implies that Increases in overage indexed monthly eornlngs past
the seco'ld bend pOint would actually result in a lower Social Securi;y benefit
Figure 3: Primary Insurance Amount Formula
For Cohort Turning 62 in 2088
PIAl Average Wage
0.8
Current Law
Scheduled Benefits
.. . . ..
.
.
.
..
.
. . . . ...
.•. . Price Indexing 2009 to 2036,
~
Longevity Indexing Thereafter
~
0.4
.
•
'
"
."
•
Progressive Price Indexing Starting 2009
[2088 is First Year Formula is Completely Flat)
o.o--~~--~--~--~--~--~~--~--~------~~
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
AI MElAverage Wage
Source: Department of the Treasury
1.6
1.8
2.0
2.2
2.4
When the PIA formula becomes flat for levels of AIME above the second belld POI'lt, all workers whose
AIME falls in this region of the benefts formula (about 70 percent of workers under current projections)
would receive the some benefit despite the fact rhat t~e present value of lifetime payroll taxes paid tends
to be higher the higher IS one's AIME.'
After plogresslve price indexing has run its course, one possbility would be to leave the PIA formLla
(shown in Figure 3) unchanged except that bendits would be reduced proportionately for succeS:iIVC
bir'h cohorts so as to offset the effect of increosing longevity or the value of lifetime benefits Unfortu
nately, this plan-progressive price indeXing plus longeVity IndeXing-would not make Sociol Security
permanently solvent. Over 75 years, this plan has been estimated to close about 80 percent of Social
Security's financial shortfall. ' Those estimates show Social Security's defICIt in the 75th and finol year
of the projection period equaling about 1 I percent of covered payroll, or 7 percent of benefits paid If
:he imbolance in 011 later years were to perSist at 1 1 percent of covered payroll, which is (1 reasonable
assumphon given that longevity indeXing would be in place, then the infinite-horizo'l ifY1bolonce would
0150 be reduced by about 80 percent.
vVhy progressve price indexing connot by itself make Social Security permanently solvent can be
understood by considering the lifetime net benefit rate by birth cohort As was exploirled in Treasury's
first issue brief, current and future workers must pay into SOCial Security about $136 trillion nrore than
they get bock in benefits III order to finance the net benefits (benefits less taxes) that the system has paid
or promised to earlier blrlh cohorts. The implication is that making SOCial Security permanently solverl!
requires that the lifetime net benefit rate be substantially negative for current and future workers
Figure 4 shows estimates of the lifetime net benefit role by birth cohort urder progressive price indexing
plus longevity indexl'lg, os well as under pure price indexing plus longevity indexing (which was ludged
to be about permanelltly so'vent ir Treasury's third issue brief) The fact that the plan with progressive
price incexing conveys a larger lifetime net benefit rote for all cohorts subject to reforM (henceforth, the
"reform cohorts") implies that it levies less net tax from reform cohorts than does the plan With pure price
indeXing This reflects the foc~ that progressive indexing involves a smaller reduction In scheduled uenefits
for nearly all retirees than pure price indeXing-the 30 percent of earners at the bottom would see no
change at all, while nearly all of the rest would hove a smaller reduction than under purp. price indexing
Hence, if the plan with pure price indeXing is just solvent, 'he plan with progressive price indexing mus'
be less than solvent.
8
The plesent vCllue of lifetime laxes paid would lend to be proport onallo AIME If Ihere were no "yste'Tlcllc relallonshlp
belween overage IdelilT'e earnings ard Ihe liming of earnings over wO'king life Alrernallvciy, if people: wI'h relallvely high
lifetime eornlngs lend 10 cern 0 relolvely larger porlion of Ihose earnings lole tr life, Ihen Ihe presenl 'Ialue of lifellme payroll
taxes WOlJld l'loeose less Iho1 proporlionolely wi'h the AIME In etlhe case, Ihere would be a pOSitive associetlo'l between
AIME end the present value
9
of toxes
pOle-!
Social Security's score of progressve price Irldexlng beglr,nlng In 2012 IS at hllp / /wwwsso gov/OACI/solvency/p'ovl'
sions/beneftilevel hlml The SCOflng assume:, progressive nde<lng of both retirement benefits and disability benefils. If
progressive l,ldexing were applied 10 only rehrem'?'lt benefits. II would close leso ul Soed Secuflt/s flnonclCl' shorlfoll
Figure 4: OASt Lifetime Net Benefits As Percent of Lifetime
Wages (Lifetime Net Benefit Rate) by Birth Cohort
Percent
o
Current Law Scheduled Benefits and Taxes
-2
Progressive Price Indexing 2009-2088,
Longevity Indexing Thereafter
. . ... . . ...
-4
. . . . . . . . ... . .. ... . . . .. .. .
Price Indexing 2009-2036,
Longevity Indexing Thereafter
1940
1960
1980
2000
Date
2020
2040
2060
2080
2100
of Birth
• Estimates include only OASI payroll taxes and benefits. OASI taxes on benefits are not included.
Source: Department of the Treasury
Soth of these plans result in a lifetime net benefit rate that IS flat in the long run, which many would
consider br MOleover, the long-run lifetime net benefit rate IS about the some under either plan. What
makes the plan with progress've price indexing less potent is Its relatively slow phose-in. The first cohort
sublected to the full brunt of reform is the 2026 birth cohort, while the 1974 birth cohort is fully sublect to
reform under the plan with pure price indexing.
Could the plan with progressive price Indexing be modified to make it permanently solvent by phasing
in its benefit reductions more rapidly? For example, one could ilnaglne accelerating the evoluhon of
the PIA formula by doubling the rate ct which the PIA multiplication factols were reduced, in which case
the PIA formula changes would be complete in the 40th year of the reform rather thon after 80 years
However, this would lead to declining real benefrts levels for successive cohorts of workers in much of
the upper part of the wage distribution in iuture birth echorts For example, cOlisider a maximum earner
If overage real wages were to grow 1.1 percent annually, real benefits for a maximum ea:ner would
decline at a l l percent rate for the first 4D reform cohorts and would then increase at a 09 percent annual rate Ithe assumed growth rate of real wages less 02 percentage paint per year for longevity indexing) for later cohorts A Similar but less severe pattern would be evident for other earners ;n the upper
port of the wage distribution. As a result, a more rapid phose in of progressive price indexiCig would
require redudons in actual real benefit levels between successive cohorts over much of the Ircome
distributlon-ull outcome not envisioned in most Social Securrty leform proposals
A pion with progressive price indexing \NoIJlrl naturally phose in more rapidly if real wage growth were
more rapid For example if real wage growth were to overage 2 percent per year rather than 1.1
percent, the plan woule be completely phased In aher 44 years rather than after 80 years Even in thiS
unlikely event, however, the plan would not phase in as rapidly as a plan With pure price IndeXing, and
so would not achieve permanent solvency '-'
Because progressive price indexing cannol by itself make Socd Security permanently solvent, it is not
o complete plan and hence cannot be hJlly evaluated with respect to brness and benefit adequacy
Before any such evaluation con be done, It would be necessary to specify the additional reforms that
would be comblfled With progressive price Indexing to make Social Security permanently solvent.
Again, however, a key pOint to note about progressive price indeXing IS that it represents away to odius'
benefits that is quite similar to the approaches used In other reform pions.
There is Vvidpspread agreement that :Jny reform to Social Security willillvolve aOlustments to reduce
benefits relative to what is cLJrrenriy schedUled but unpayable, and that these adlustments will fall relatively
more heavily on high-income workers There is likewise a consensus that workers with low lifetime earnings will be shielded from the burden of reform \I\;'hile there are many ways to implement progressive
benefit adlustments of this sort, the essential mechanics of any benefit adiustment are the some In some
proposals these mechanics are obVIOUS because they moke specifiC adjustments to the parameters of the
benefit formu~a It is less obvious-but no less rrue-for reform proposals such as progressive price indexIng, where adlustments '0 the parameters of the benefit forrlula are tied changes to to economic variables
such as woge and price growth.
While progressive benefit adlustments will represent on important component of some future reform plan,
they arc unlikely to be the entire plan-that IS, progreSSive od/ustments to benefits will be combined with
other reforms Because these other reforms can also IrlfluerlCe SOCIal Security's overall progresslvity, a
meaningful assessment of the effect that proposed changes to benefits would have on SocJOi Security's
fairness across and within generations will need to specify those oddirional reforms.
10
The effect d real wage ,rowlhorl real bereflts whrle progressive price 11dexlng i~ In effect C01 ce understood Wllh reference
to Ihlee earning) groups maximum eorners. earners wltn A MI:: levels thai ole less -han or eqLollo II~e second bend pOlnl,
end eOlners With AIME levels thot fell between t~,e second berlo pOint ond tre rroxlmum All'v\E Higher real wage grcwh
has no effect or Ihe ohsoiule real bel~efits received by a maximum eor1er of any given brth cohorl, but the 'eol benefrl
exp'essed as a shale of Ihe oveloge reel wage wril be S'floller the higher IS real \lvoge growlh For earners wllh .I\IME le'/els
that are less them or equal to the sec:cJnd bend pOint. obsolule real bene',rs increase In lockstep with reo! wages, so 'he real
benef l' os a shere of overnge reel woges IS unaffected lor eorrers wltn AIME levels that are between the second bend
pOint and the max,mum AIME, higher leo wage growth increases real be~eflts, bul the proo::dlonote increase IS less than
t1e proporli:Y10le IrLreose In real wages lence,llgher real woge growlh Incremes real berrefils 01 all wor',ers ex:::ept
mO/i'flum eOll'elS, bul real ber'ehts ClS a shClle 01 0ler;)ge 1801 wages 1011011 overoge And because reol pO'frall laxE'::, ore
propo't anal to r",ol WCJges, hrgher real wage growth Jr :Jny 9 ven year thet progressive Incexlng IS In ",:fect Will ect 10 Improve
Soeol Security's long-term I11011(e5
)~:Testimony of Treasury B~n~frts Tax Counsel Thomas Reeder <br>before the House Ways and ... Page lof5
·t~~~1 PRESS ROOM
\:1}
u.s.
DEPARTMENT Of THE TREASURY
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June 26, 2008
HP-1058
Testimony of Treasury Benefits Tax Counsel Thomas Reeder
before the House Ways and
Means Subcommittee on Select Revenue Measures on
Individual Retirement Arrangements
Washington, DC--Chairman Neal, Ranking Member English and Members of the
Committee, I appreciate the opportunity to appear today to discuss the issue of
individual retirement arrangements (IRAs) and their vital role in generating and
maintaining retirement savings of American workers and their beneficiaries.
Background
IRAs are available to all Americans with compensation income (including net
earnings from self-employment involving personal services), Certain tax
preferences of IRAs, however, are dependent on the individual's level of income
and whether the individual is covered by an employer-sponsored retirement plan.
There are several types of IRAs, including traditional deductible IRAs, traditional
nondeductible IRAs, and Roth IRAs. In addition, there are special types of IRAs
available in the employment context referred to as SEP IRAs and SIMPLE IRAs.
Individuals under age 70% may make contributions to a traditional IRA, subject to
certain limits. The contributions are generally deductible, The deduction is phased
out, however, for workers with incomes above certain levels who are covered by an
employer-sponsored retirement plan. For taxpayers covered by employer plans in
2008, the deduction is phased out for single and head-of-household filers with
modified adjusted gross income (1) (AGI) between $53,000 and $63,000, for
married couples filing jointly with AGI between $85,000 and $105,000, and for
married couples filing separately with AGI between $0 and $10,000. For a married
individual filing jointly who is not covered by an employer-sponsored plan, but
whose spouse is covered, the deduction is phased out between $159,000 and
$169,000 in AGI. IRA earnings are not includible in gross income until distributed.
Distributions (including both pre-tax contributions and account earnings) are
includible in gross income for income tax purposes.
To the extent a taxpayer cannot or does not make deductible contributions to a
traditional IRA, a taxpayer under age 70},; may make nondeductible contributions.
Distributions representing a return of basis are not includible in gross income, while
distributions representing account earnings are includible in gross income. There is
no income limit for nondeductible contributions to a traditional IRA.
Individuals of any age with sufficiently low income may make contributions to a
Roth IRA. The contributions are not deductible. Allowable contributions are phased
out for workers with incomes above certain levels, In 2008, contributions are
phased out for single or head-of-household filers with AGI between $101,000 and
$116,000, for married couples filing jointly with AGI between $159,000 and
$169,000, and for married couples filing separately with AGI between $0 and
$10,000. Account earnings accumulate tax free, and qualified distributions
(including account earnings) are not included in gross income for income tax
purposes. Distributions from Roth IRAs prior to age 59/"2 or before the individual
has had a Roth IRA for 5 years are included in income to the extent they exceed
basis, unless the distribution is on account of death or disability or, for an amount
up to $10,000, for a first-time home purchase. Distributions are deemed to come
from basis first.
The annual aggregate limit on contributions to, all of a taxpay~r's IRAs (traditional,
nondeductible, and Roth) is the lesser of earnings or $5,000 In 2008, and will be
httPIIWWw.treal:..gov/press/releaseslhp10)8.htm
7/2/2008
\~:Testimony of TreasUIY
lkm::frts Tax Counsel Thomas Reeder <br>before the House Ways and... Page 2 of 5
indexed for price inflation after 2008. Individuals age 50 and over may make an
additional "catch-up" contribution of up to $1,000.
Taxpayers (other than married taxpayers who file separately) with AGI of $100,000
or less can convert a traditional IRA to a Roth IRA. In general, the conversion
amount is included in gross income (but not for purposes of determining eligibility to
convert). The Tax Increase Prevention and Reconciliation Act of 2005 repealed the
income limitation for conversions from a traditional IRA to a Roth IRA made after
December 31,2009. Taxpayers who make such conversions in 2010 may elect to
delay half of the income inclusion resulting from the conversion to 2011 and the
other half of the income inclusion to 2012. Conversions made on or after January 1,
2011 will result in the full amount of the converted amount not previously included in
taxable income to be included in they year of the conversion.
Distributions from traditional IRAs prior to age 59;/;" or from Roth IRAs prior to age
59;/;, or 5 years after the first Roth contribution, are generally subject to an
additional 10 percent income tax. The tax is imposed on the portion of an early
distribution that is includible in gross income. It applies in addition to ordinary
income taxes on the distribution. The additional tax does not apply to a rollover to
an employer plan or to another IRA, or if the distribution is made in the case of
death or disability, certain medical expenses, first-time homebuyer expenses,
qualified higher-education expenses, health insurance expenses of unemployed
individuals, to a qualified reservist, or as part of a series of substantially equal
periodic payments.
Beginning at age 70;/;" minimum distributions gauged to life expectancy of the IRA
holder (or the joint life expectancy of the IRA holder and beneficiary) must be taken
from a traditional IRA. Roth IRAs are not subject to minimum distribution rules
during the account owner's lifetime.
Employers with 100 or fewer employees and no other retirement plan may establish
SIMPLE IRAs. Unlike traditional IRAs, participants may defer up to $10,500 and
SIMPLE participants aged 50 or over may make additional "catch-up" deferrals of
up to $2,500. All contributions are immediately fully vested. In lieu of the
nondiscrimination tests applicable to most other employer-sponsored retirement
savings plans, SIMPLE IRAs are subject to special contribution rules, including a
lower annual elective deferral limit and either a matching employer contribution for
each employee up to 3 percent of compensation (which may be reduced to 1
percent under certain circumstances) or non-elective contribution of 2 percent of all
eligible employees' compensation.
An employer may contribute to its employees' IRAs under a simplified employee
pension (SEP). Under a SEP, the employer must contribute to all employees' IRAs
in the same percentage (with certain exceptions). Employee contributions to SEPs
are not permitted, except with respect to grandfathered salary reduction SEPs that
were in existence on December 31, 1996.
An employer may also establish payroll deduction IRAs under which employees
may elect to have a portion of their pay contributed to a traditional or Roth IRA in
any amount up to the annual limits for individual traditional or Roth IRAs (plus the
catch-up amount, if applicable). Like a SIMPLE IRA, these may be set up on an
automatic basis. That is, the employee may be deemed to elect to participate in the
program at a certain level unless the employee affirmatively elects not to participate
or to participate at a different level. Although a payroll deduction IRA is essentially
the same as an individual IRA, there are tremendous advantages to the payroll
deduction process. It is generally accepted that employees are more likely to save if
the amounts are automatically diverted to an IRA before they reach the employee's
hands or checking account.
In summary, IRAs provide a valuable long-term savings tool. They are particularly
valuable to those individuals who do not have access to other employer-sponsored
savings plans and they are quite useful as a portable enti.ty into .which employees
can combine the retirement savings they amass over their working careers. With all
their retirement assets in a single trust or custodial account, employees can more
efficiently and cost-effectively diversify their investments and otherwise manage
their retirement savings.
Interpretive and Enforcement Authority over IRAs
httPIJwww.trea~.goY/press/releaseslhpl058.htm
7/2/2008
j8: Testimony of Treasmy Benefits Tax Counsel Thomas Reeder <br>before the House Ways and... Page 3 of 5
The Treasury Department and the Internal Revenue Service (IRS) generally have
interpretive and enforcement authority over the establishment and operation of
individuallRAs and payroll deduction IRAs. The Employee Benefits Security
Administration (EBSA) of the Department of Labor. however. has jurisdiction over
various aspects (including fiduciary and disclosure requirements) of SEP IRAs and
SIMPLE IRAs, as well as certain payroll deduction IRAs that entail such employer
involvement that they constitute an employee benefit plan under Title I of the
Employee Retirement Income Security Act of 1974. EBSA also has jurisdiction with
respect to the interpretation of the prohibited transaction rules applicable to IRAs
and has statutory authority to issue individual and class exemptions from the
prohibited transaction rules for transactions involving IRAs. (2)
Treasury Department Activities Promoting Employer-Sponsored Savings
Programs
The Administration has long been concerned that the rules of employer retirement
savings plans are unreasonably complicated, This complexity imposes substantial
compliance. administrative, and enforcement costs on employers, participants. and
the government (and hence, taxpayers in general). Moreover. because employer
sponsorship of a retirement plan is voluntary. this complexity discourages many
employers from offering a plan at all. This is especially true of small employers,
which employ a majority of American workers. Complexity is commonly cited as a
reason the coverage rate of employer-sponsored plans has not grown above about
50 percent overall and has remained under 25 percent among employees of small
firms. Thus, the Administration is dedicated to reducing the complexity through
proposed legislation and providing tools for employers - especially small employers
- to use in creating and administering plans.
The Administration continues to be dedicated to educating employers about
retirement plan options. Although most large employers sponsor workplace
retirement savings programs, such as 401 (k), 403(b}, or 457 plans. many small
employers lack the knowledge or resources to adopt these plans. Along with the
Department of Labor. the Treasury Department and the IRS have taken significant
steps to publicize the advantages of employer-sponsored IRA-based savings
programs and to educate employers and individuals on the ease of setting them up.
For example, the IRS has developed model plan documents for SIMPLE IRAs and
SEPs and has created the following pUblications:
•
•
•
•
•
•
•
•
Retirement Plans for Small Business (SEP, SIMPLE, and Qualified plans)
(Publication 560)
Individual Retirement Arrangements (Publication 590)
Choosing a Retirement Solution for Your Smafl Business (co-produced by
the IRS and EBSA) (Publication 3998)
SEP Retirement Plans for Small Businesses (co-produced by the IRS and
EBSA) (Publication 4333)
SIMPLE IRA Plans for Small Businesses (co-produced by the IRS and
EBSA) (Publication 4334)
SIMPLE IRA Plan Checklist (Publication 4284)
SEP Checklist (Publication 4285)
Have you had your checkup this Year? For SIMPLE IRAs, SEPs and Similar
Retirement Plans (Publication 4405)
In addition to these publications, the IRS operates an extensive on-line resource for
IRA-based retirement plans for small employers, "The IRA Online Resource Guide,"
which is also available as a CD-ROM. There is also video entitled "How to Set up a
Retirement Plan for Yourself and Your Employees" available on the IRS online
classroom site for small businesses (vvww II~ ~lOv!busll1e':)~es.',:)l11all), Of particular
note is the Retirement Plan Navigator geared to small employers
(tHtpl!www liS CjCJV/pIJ[)/II-S-kUCIOIl!llll; IklVlU atol pdf), which includes a video and
leads small employers through the process of choosing a type of plan and goes
through the process of adopting and maintaining the plan.
The Employee Plans division of the IRS part~cipated in over 300 events last ye~r
throughout the country, many of which are directed at small .employers. and their
advisors. The IRS has partnered with various .groups, including the U,ntted States
Chamber of Commerce, the National Federation of Inde~endent Business, and the
Small Business Administration. in putting together matenals and events for small
employers.
httPIIWWw.treai..!!oy/oress/relcasesthpt058.htm
7/2/2008
)~:Testimony of Treasury Benefits Tax Counsel Thomas Reeder <br>before the House Ways and...
Page 4 of 5
One of the key features that makes employer-sponsored IRAs attractive to small
employers with limited resources is the fact that the employer is not required to file
annual reports with the Department of Labor or the IRS. This feature, however,
makes it more difficult to determine precisely how many employers are adopting
them and how many employees participate. Requiring more reporting would make it
harder for employers with limited administrative resources to adopt employmentbased IRA programs. But the IRS has data on the level of individual contributions
and year-end account balances because those data are reported to the IRS by the
IRA custodian. In 2004, contributions were made to the SEP IRAs of 1.6 million
taxpayers in an amount of $13.8 billion, or approximately $8,625 per taxpayer. This
amount was 28.2 percent of all IRA contributions in 2004. Contributions were made
to the SIMPLE IRAs of 1.9 million taxpayers, in the amount of $7.6 billion, or about
$4,000 per taxpayer. This amount was 15.6 percent of all IRA contributions in 2004.
As of the end of the 2004, 3.5 million taxpayers held $169 billion in SEP IRAs and
2.5 million taxpayers held $34 billion in SIMPLE IRAs. This difference is likely due
to the fact that SEP accounts are very common in businesses in which only the
owner participates, have much higher contribution limits than SIMPLE IRAs, and
have been in existence much longer than SIMPLE IRAs. (3)
Legislative Proposals
Because the Administration has been concerned about the hurdles employers face
in trying to establish savings plans for their employees, the Administration's Budget
has included for the past several years a proposal (the "Employer Retirement
Savings Account" or ERSA) to combine the various types of employer-sponsored
savings plans into a single type of plan (with simplified administrative rules for small
employers). Of course the Administration would be open to other proposals that
decrease the complexity or administrative burden on small employers that want to
provide savings opportunities for their employees.
While the Treasury Department and the IRS have been promoting employersponsored retirement savings programs and developing new ideas to make plan
sponsorship easier, we are concerned about imposing mandatory requirements that
could affect the ability of an employer, particularly a small employer, to run its
business efficiently and compete effectively in its marketplace. Operating a
business already involves a significant amount of investment (typically the
employer's time and money) and adding yet another stringent requirement could
have an adverse effect, particularly on small employers, which are an essential
sector of America's economy. Moreover, mandating a particular benefit on small
employers, particularly to the extent such benefits imposes a significant cost on the
employer, could affect the employer's decision to offer other employee benefits that
may be more relevant for the employer's workforce, particularly health coverage.
Finally, we should not lose sight of the fact that IRAs generally are not as powerful
of a retirement savings tool as other tax-qualified retirement plans, such as 401 (k),
403(b} and other defined contribution plans and defined benefit plans. This is
primarily because the restriction on pre-retirement distributions in such plans avoids
much of the pre-retirement leakage that occurs in IRAs. We should not encourage
employers to adopt IRA programs if they are instead willing and able to adopt these
more sophisticated and flexible retirement plans to benefit their employees.
Conclusion
Mr. Chairman and Members of the Committee, thank you for the opportunity to
appear today, and I will be happy to respond to any questions.
(1) Modified adjusted gross income for !his purpos.e is adjuste~ gross income plus
income from education savings bonds, Interest paid on education loans, employerprovided adoption assistance benefits, IRA dedu~tions, deductions for qualified
higher education expenses, and certain other adjustments.
(2) For example, if a non-exempted prohibited transaction ?~curs, under ~ules
enforced by the IRS, an excise tax would apply. If the prohibited. transaction
involves the IRA-owner or a beneficiary of the IRA, the balance In the IRA would be
subject to income tax.
(3) SEPs have been available since 1979, while SIMPLE IRAs have been available
only since 1997.
.treas.gov/press/releaseslhp 1058.htm
7/212008
Page I of 4
IS ROOM
June 26, 2008
1008-6-26-13-40-29-10636
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 $74,508 million as of the end of that week, compared to $74,160 million as of the end of the
~rior week,
I Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
I
[
[
IIJune 6, 2008
[A. Official reserve assets (in US millions unless otherwise specified)
IIEuro
IIYen
IITotal
~1) Foreign currency reserves (in convertible foreign currencies)
II
II
11 74 ,508
Ila) Securities
11 16 ,192
11 12 ,138
11 28 ,330
lofwhich issuer headquartered in reporting country but located abroad
II
II
11 0
lib) total currency and deposits with:
II
II
II
11 5,986
1121.139
Iii) banks headquartered in the reporting country
II
11°
IOfWhiCh: located abroad
II
11
I(ili) banks headquartered outside the reporting country
II
11°
11 0
15,153
I(i) other national central banks, SIS and IMF
lofwhich located in the reporting country
II
1(2) IMF reserve position
11 4 ,246
1(3) SDRs
11 9 ,752
1(4) gold (including gold deposits and. if appropriate, gold swapped)
11 11 ,041
[.volume in millions of fine troy ounces
11261499
~5) other reserve
11 0
assets (specify)
[..financial derivatives
II
[loans to nonbank nonresidents
II
I
I
I
0
I
[other
~ Other foreign
currency assets (specify)
I
..securities not included in official reserve assets
I
I
.. jeposits not included in official reserve assets
.. oans not included in official reserve assets
..'1nancial derivatives not included in official reserve assets
Itgold not included in official reserve assets
[other
J"
I
I
II
II
II
I
I
I
II Predetermined short-term net drains on foreign currency assets (nominal value)
~============~I'=====4!~!====~!~!======1='====~I~I====~!I
httP/IWWw.treac;.gov/press/releases!2008112613402910636.htm
7/212008
Page 2 of 4
L
IIMaturity breakdown (residual maturity)
II
[
Total
1. Foreign currency loans, securities, and deposits
~tflowS (-)
II PrinCipal
[
IIlnterest
[0nows (+)
[
I
More than 1 and
up to 3 months
Up 101 monlh
II
I
More than 3
months and up to
1 year
II
II
"
IlprinCipal
II
II
IIlnterest
II
II
II
II
2 Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I
Oa) Short positions ( - )
-62,000
-62,000
UbI Long positions (+)
II
~3 Other (specify)
[ -trade cred it (-)
II
II
"
"
1/
I··trade cred it (+)
II
II
II
I··other accounts payable (-)
II
II
II
I··other accounts receivable (+)
II
[-outfloWS related to repos (-)
[.inflows related to reverse repos (+)
II
I
II
I
1/
"
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
I
II
[
ITolal
[~Contingent
1/
II
II
I Maturity breakdown (residual maturity, where
applicable)
liabilities in foreign currency
II
II
year
@l Other contingent liabilities
options (puttable bonds)
II
[Undrawn, unconditional credit lines provided by:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
II
II
I
I
II
II
~F(+)
II
I
II
II
(b) with banks and other financial institutions
headquartered in the reporting country (+)
II
lei with banks and other financial
Institutions
headquartered outside the reporting country (+)
Undrawn, unconditional credit lines provided to:
II
II
(alother national monetary authorities, BIS, IMF, and
other international organizations
JI
··other national monetary authorities (-)
JI
BIS(.)
II
r-oo;;
II
httPIIWWW.tre3~.gov/press/re[eases!200G62613402910636.htm
II
t
II
II
II
"II..
I
I
I
I
"
II
"
"
"
II
II
II
t]:IS (+)
II
II
I
-·other national monetary authorities (+)
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 month
(a) Collateral guarantees on debt falling due within 1
2. Foreign currency securities issued with embedded
I
II
Ii
II
I
II
II
Ii
7/2/2008
Page 3 of 4
If!'l(bi ! I-I
I
banks and other financial institutions headquartered
in reporting country (- )
(e) banks and other financial Institutions headquartered
outside the reporting country ( - )
4, Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
§l Short positions
~BOUght puts
II
II
I
II
II
I
II
/I
I
I
II
I
II
II
I
WJiWritten calls
II
~ Long positions
I
~ Bought calls
I
II
II
II
II
II
I
§Written puts
&0 MEMORIA: In-the-money options 11
~) At current exchange rate
~) Short position
~) Long position
~) + 5 % (depreciation of 5%)
I
[a) Short position
~bl Long position
1(3).5% (appreciation of 5%)
I
I
I(a) Short position
I
lib) Long position
II
1(4)+10 % (depreciation of 10%)
II
II
I
II
I
Ila) Short position
lib) Long position
II
1(5) ·10 % (appreciation of 10%)
I(a) Short position
I(b) Long position
(6) Other (specify)
Ila) Short position
~) Long position
II
II
IV, Memo items
II
[To be reported with standard periodicity and timeliness:
(a) short-term domestic currency debt indexed to the exchange rate
,(b) financial Instruments denominated in foreign currency and settled by other means (eg, in domestic
[currency)
)
I
II
II
~ndeliverable forwards
[Short positions
Gong positions
~er instruments
ffiledged assets
~uded in reserve assets
1\
,::ncluded in other foreign currency assets
11
~nt or repoed and included in Section I
II
II
~curities lent and on repo
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I
712/2008
Page 4 of 4
I
-lent or repoed but not included in Section I
..borrowed or acquired and included in Section I
_borrowed or acquired but not included in Section I
I
Ie) financial derivative assets (net, marked to market)
I
80rwards
~tures
I
Gwaps
~Ptlons
~ther
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one year,
which are subject to margin calls.
··aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
II
II
II
(a) short positions ( - )
[b) long positions (+)
~-aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I
II
II
I(a) short positions
I
(i) bought puts
\(il) written calls
lib) long pOSitions
I(i) bought calls
1(11) written puts
1(2) To be disclosed less frequently:
II
\Ia) currency composition of reserves (by groups of currencies)
11 74 ,508
I--currencies In SDR basket
11 74 ,508
I--currencies not in SDR basket
IIi
[by individual currencies (optional)
[
II
I
.
I
I
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 markedto-market values, and deposits reflect carrying values,
2IThe items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/doliar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.s. Treasury to IMF data for the prior month
end,
3/ Gold stock is valued monthly at $42,2222 per fine troy ounce,
41 The short positions reflect foreign exchange acquired under reciprocal currency arrangements with certain foreign central banks.
The foreign exchange acquired is not included in Section I, "official reserve assets and other foreign currency assets," of the template
for reporting international reserves. However, It is included In the broader balance of payments presentation as "U.S. Government
assets, other than official reserve assets/U .5. foreign currency holdings and U.S. short-term assets."
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,9: Fiscal Assistant S~cl~tary Kenneth E. Carfine<BR>Testimony Before the Senate Committee 0... Page I of 5
'/~~~\I PRESS ROOM
u.s. DEPARTMENT Of THE 'Il!EASURY
{IJ'
June 26, 2008
HP-1059
Fiscal Assistant Secretary Kenneth E. Carfine
Testimony Before the Senate Committee on
Homeland Security and Governmental
Affairs, Subcommittee on Federal Financial
Management, Government Information
Federal Services, and International Security
Washington - Mr. Chairman and Members of the Subcommittee:
Thank you for inviting me to this hearing to discuss the Financial Report of the
United States Government (Financial Report) for Fiscal Year 2007. Your interest in
improving Federal financial management and, in particular, fiscal sustainability is
appreciated. The Financial Report, incorporating the consolidated government-wide
financial statements, is designed to report on the financial position and condition of
the federal government pursuant to generally accepted accounting principles
(GAAP).
The Financial Report reflects Treasury's long-standing responsibility to provide the
Congress and the public with timely, reliable, and useful information on the cost of
the government's operations, the sources used to fund them, and the implications
of the government's financial commitments. It is designed to encompass and does
substantially cover the financial results of all three branches of the federal
government. Treasury constantly strives to improve the utility and value of the
Report as well as the process by which it is produced.
This year, all 24 CFO Act agencies published their audited financial statements by
November 15, and we issued the government-wide Report approximately a month
later on December 17. These timely submissions are evidence that both the
Federal agencies and Treasury continue to improve their systems and processes.
As I will discuss, these improvements notwithstanding, due to long-standing
material weaknesses, the Government Accountability Office again issued a
disclaimer of opinion on most of the statements in the Financial Report. However,
this year's report brings with it two significant achievements: 1} an unqualified audit
opinion on the Statement of Social Insurance and 2) the issuance of a Citizen's
Guide to the Report.
Highlights from the Financial Report
As Treasury and OMB reported in October, for Fiscal Year 2007, revenues
increased to a record level of $2.6 trillion--an 8 percent increase over the previous
fiscal year. Consequently, the 2007 federal net operating cost of $276 billion was
better than anticipated and was a significant improvement over the 2006 net
operating cost of $450 billion.
The Government's balance sheet shows that its liabilities exceed its assets by more
than $9 trillion dollars. Much of this difference is attributed to: 1) the government's
debt to the public of more than $5 trillion and 2) another nearly $5 trillion in
anticipated federal employee and veterans postemployment benefits and
commitments for which funding (i.e., employee and employer contributions) has not
yet been obtained. The Statement of Net Cost presents cost by agency.
Because the Budget Deficit is such a well-publicized. and genera"y-a.~c~pted figure,
we provide two statements that facilitate the comparison and reconCiliation of the
government's activity.
The Reconciliation of Net Operating Cost and the Unified Budget Deficit statement
ties the more widely recognized budget results (e.g., $163 billion unified budget
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Sc;Lldary Kelllleth E. Carfine<BR>Testimony Before the Senate Committee 0... Page 2 of 5
deficit) to the government's net operating cost of $276 billion.
The budget deficit and net operating cost differ because the government uses a
different basis of
accounting for each. The budget is prepared generally on a cash basis, which more
appropriately pertains to the inflow and outflow of funds during the fiscal year,
regardless of the amount or nature of the transaction. By comparison, the
government's audited financial statements are prepared generally on the accrual
basis pursuant to GAAP promulgated by the Federal Accounting Standards
Advisory Board. Accrual accounting recognizes revenues when earned--not
necessarily collected; and expenses when incurred--not necessarily expended. The
bulk of this difference is due to the inclusion of actuarial increases in both federal
employee pension and health liabilities, and environmental liabilities in net
operating cost, but not in the budget deficit.
The Report also contains a Statement of Social Insurance (SOSI), which shows the
present value cost of the government's exposures of its social insurance programs,
primarily Social Security and Medicare. As indicated earlier, the SOSI became the
first and, to date, the only government-wide financial statement to receive an
unqualified audit opinion from the Government Accountability Office (GAO).
The FY 2007 Report adds new information related to fiscal sustainability. It provides
a discussion of the extent to which the government will be able to financially support
its critical programs in the near and distant future. This discussion is largely based
on the information contained in the SOSI as well as the government's stewardship
report (which is drawn from the Social Security and Medicare Trustees Reports).
Regarding the Social Security program, an important milestone was reached this
year when the first baby boomers began drawing retirement benefits from Social
Security. The retirement of the baby boom generation will have a profound impact
on the finances of Social Security and Medicare. There are currently 3.3 covered
workers per Social Security beneficiary; that number will fall to 2.1 by 2034.
Medicare faces the same demographic challenges as Social Security, but
additionally must cope with the rapid expected growth in health care costs. While
Social Security expenditures are expected to grow considerably over the next 75
years, from 4.3 percent of GOP in 2007 to 6.3 percent of GOP in 2081, Medicare's
expenditure growth is expected to increase from 3.2 percent of GOP in 2007 to 11.3
percent of GOP in 2081.
From a government-wide perspective, Medicare obligations are expected to dwarf
those of Social Security. The 75-year present value of prOjected Medicare
expenditures less tax and premium revenue is $34 trillion (4.7 percent of the
present value of GOP), rising to $36 trillion in the 2008 report, while the 75-year
present value of projected Social Security expenditures less tax revenue is $4.7
trillion (0.6 percent of GOP).
The Financial Report shows that the Federal Government's current policies,
particularly with respect to Social Security and Medicare, are unlikely to be
sustainable. Total expenditures, including interest, are expected to grow to 50
percent of GOP by 2070 and 60 percent by 2080. Such spending levels have only
been witnessed once before--during World War 1/, when Government expenditures
reached a then-record high of 44 percent of GOP. If revenues in the future continue
at the historical average level of 18 percent of GOP, they will barely cover 1/3 of
total government expenditures and would not be sufficient to cover the net interest
on the Government's debt.
The consequence of the projected growing gap between revenues and
expenditures would be a rapidly-increaSing debt-to-GOP ratio. By 2030, the need to
fund government deficits will drive the debt-to-GDP ratio to 68 percent--far .
surpassing the non-wartime peak of 49 percent In 1993. By 2040, thiS ratio IS
prOjected to reach 128 percent, well above the World War 1/ peak of 109 percent.
Thereafter the ratio of debt held by the publiC to GOP rises sharply to 300 percent
by 2060, d~ubling again to 600 percent by 2080. A rapidly rising debt-to-GOP ratio
creates uncertainty over the form of future government finanCing, portends adverse
long-run consequences for the economy and could impact other countries'
willingness to lend money to or invest in the United States.
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,9: Fiscal Assistant Secretary Kenneth E. Carfine<BR>Testimony Before the Senate Committee 0... Page 3 of 5
As noted earlier, these are merely projections based on a myriad of assumptions
that can change and alter the outlook. Yet, the projections provide an important
signal about the difficulties that the Government faces in attempting to sustain
current policies. The Government can neither reasonably grow into nor tax its way
back to sustainability. Nor can it realistically expect to continue to borrow without
incurring a substantial negative impact on the economy. Avoiding the
consequences of this fiscal path will require actions to bring program expenditures
in line with available resources. How soon those actions are taken will greatly
influence their ultimate impact on the Nation.
Addressing the Auditor's Findings
For Fiscal Year 2007, GAO was unable to express an opinion on the financial
statements, due to long-standing material weaknesses. I recognize that until our
financial statements can withstand audit scrutiny, we will not benefit from the
Report's full value in informing the Congress and the Public about the
Government's fiscal position and condition.
We agree with GAO on the following three principal material weaknesses:
1.
2.
3.
Serious financial management control issues at the Department of Defense,
The government's inability to properly eliminate transactions between
agencies, and
The government's deficiencies in the process for preparing the consolidated
financial statements.
GAO raised many valid points in its audit, and there is no one more than I who
would like to see a "clean" audit opinion on the consolidated financial statements.
Across government, we have been addressing the weaknesses relating to the
elimination of intragovernmental balances and the report preparation process, and
are making progress.
We concur with GAO that the out-of-balance condition, resulting from
intragovernmental transactions, continues to represent a significant material
weakness. This occurs when two agencies conducting business with each other as
trading partners record and report the same transaction differently. We are
addressing this issue in several ways:
•
We have started requiring significantly greater detail from the agencies. In
addition, we have developed tools to track the imbalances, identify the
problems, analyze the data, and implement solutions. We have also formed
inter-agency groups to examine each pair of related transactions to resolve
the imbalances.
• Partnering with OMB, we developed a method and vehicle to report these
inter-agency transactions throughout the government. Agencies use these
reports, which are posted on the Web, to analyze their transactions and
balances. We have also worked with OMB to develop a "watch list" of
agencies with the largest intragovernmental differences.
• We worked with the CFO Council to develop new intragovernmental
transaction "business rules," which are helping to bring about more
consistent accounting among business partners. Finally, we require agency
auditors to review the intragovernmental balances in the hope that greater
auditor involvement will encourage agencies to accurately record these
transactions and correct the imbalances.
These and other actions have reduced the differences in reporting
intragovernmental transactions from $86 billion in FY 2006 to approximately $67
billion in FY 2007.
We continue to address the report preparation issues by developing and following
corrective action plans, which include strategies for short-term and long-term
solutions. At the beginning of this fiscal year, there were 81 outstanding
recommendations from GAO for improving the internal controls over the report
preparation process. This year, we closed out 35 recomme~dati?ns relating to prior
year's reports. Based on the audit of the 2007 report, ~AO Identified .an.addltlonal
10 recommendations for improving the report preparation process bringing the
current total recommendations to be resolved to 56. Our plan is to resolve 8 of the
10 new recommendations by the end of the fiscal year and continue to aggressively
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hpWS9: Fiscal Assistam ~e-emmy Kenneth E. Carfine<BR>Testimony Before the Senate Committee
0 ...
Page 4 of 5
address the 46 prior years' findings and recommendations.
We have strengthened our report preparation processes, by enhancing our data
collection systems to meet disclosure requirements prescribed by generally
accepted accounting principles. We have also focused our attention and resources
on improving and fully documenting our standard operating procedures to increase
the efficiency and effectiveness of our processes. Additionally, we have continued
to enhance and clarify our guidance to federal program agencies for accurate and
complete information and to ensure consistency of agency information for the
Financial Report.
The Federal Government's Financial Health: A Citizen's Guide
A common critique of the Financial Report of the U.S. Government is that, despite
the fact that it contains more than 180 pages of detailed information on the
government's financial position and condition, it is not a practical document for
communicating with the American citizen or the Congress. At a minimum, the
Report should provide an opportunity for all interested parties to easily gain an
understanding of the significant fiscal challenges that the federal government faces
now and in the future. In 2005, the Treasury Department consulted with a number
of communication and accountability reporting experts (including some international
colleagues) to identify ways to improve the Report's informative value and, more
importantly, its ability to communicate with the general public.
In response, for the first time, the Treasury Department and OMB, in cooperation
with GAO developed and issued a summary report entitled, The Government's
Financial Health--A Citizen's Guide to the Financial Report of the U.S. Government.
This Guide provides a summary of the key data and issues addressed in the full
report in a "user-friendly" manner to the general public. We attempted to minimize
the use of detailed technical and political jargon to make it easy to read. We have
made a point of sharing this document not only with members of Congress, but also
educational institutions around the country and in public professional forums. The
document is eight pages in length and while printing was limited, it is freely
accessible on the Internet. We have received valuable feedback, thus far, and are
looking forward to improving on the Guide in subsequent editions.
As the primary investors in our country, U.S. citizens are entitled to, and our
government is obligated to provide, up-to-date financial performance results about
the government's current and future financial health. It is our hope that this
document is the first of many of its kind--and that it sparks interest not only among
committee members but the general public and encourages continued discussion of
these important issues.
Outlook for Financial Reporting
I am committed to working with OMB and the Chief Financial Officers Council on
developing the government's financial management strategy for the near future.
The improvements in financial systems and business processes that many
agencies have made as a result of audited financial statements and accelerated
timelines has led to better underlying financial data. We are now looking toward
improving efficiency through standard systems and processes and a common
language and structure for exchanging information and financial data among
agencies and between agencies and Treasury.
Conclusion
The process of producing the Financial Report of the U.S. Govern.ment and annual
agency financial reports and the reports themselves c~n ~ave an Impact on
improving management and control of the government s finances. However, th~se
reports are of limited or even minimal value If they g~ unread: As such.' In addition
to continuing to pursue resolution of the Government s financial reporting
weaknesses, this year, the Treasury focused on how to make the docur:'ent and the
information that it contains more relevant and useful to the general publiC. We
believe that the Citizen's Guide is a solid first step and hope that its visibility will
inspire the public to ask questions about the government's and our own financial
future.
Thank you, Mr. Chairman. This concludes my formal remarks. I look forward to your
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tIp lO59: Fiscal Assistant
:secretary I(el1neth E. Carfine<BR>Testimony Before the Senate Committee 0... Page 5 of 5
questions.
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/~~~, PRESS
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June 26, 2008
HP-1060
Statement For the Record of the Senate Committee on Finance Hearing on
International Tax Reform Held on June 26,2008
Chairman Baucus, Ranking Member Grassley, and Members of the Finance
Committee, the Office of Tax Policy of the United States Department of the
Treasury is pleased to present these comments for the record, as well as the
attached Treasury Department report entitled, Approaches to Improve the
Competitiveness of the US. Business Tax System for the 21st Century.
The global economy has changed markedly over the past half century. and so too
has the U.S. role in that global economy. Trade and investment flow across borders
in greater volume and with greater ease. As we look to the future, many factors,
including education, immigration, and trade policies play an important role in the
lives and living standards of U.S. workers and in the ability of U.S. companies to
compete globally. By influencing incentives to acquire and use capital, the U.S.
international tax regime, and U.S. business taxes more generally, also play an
important role in economic deCision making.
Increasingly, the ability of U.S. companies to grow and prosper depends on their
ability to do business globally. In the 1960s, the decade during which many of our
current tax rules regarding cross-border activities and investment were first
enacted, international trade and investment flows were much less important than
they are today to the U.S. economy and to U.S. companies. Thus, the United States
was free to make decisions about its tax system based primarily on domestic
considerations. Moreover, our trading partners generally followed the U.S. lead in
tax policy.
Circumstances have changed since the 1960s. Globalization - the growing
interdependence of countries resulting from increasing integration of trade, finance,
investment, people, information, and ideas in one global marketplace - has resulted
in increased cross-border trade and the establishment of production facilities and
distribution networks around the globe. Businesses now operate more freely across
borders, and business location and investment decisions are more sensitive to tax
considerations than in the past.
As barriers to cross-border movement of capital and goods have been reduced,
differences in nations' tax systems have become a greater factor in the success of
global companies. Globalization has made it imprudent for the United States, or any
other country, to enact tax rules that do not take into account what other countries
are doing. Our major trading partners recognize this. Many have modified or plan to
modify their business tax systems to improve their global competitiveness. For
example, during the past two decades, many of our major trading partners have
lowered their corporate tax rates, causing the United States to go from being a low
statutory corporate tax-rate country to being a high statutory tax-rate country.
Moreover, during the same period, many of the member countries of the
Organisation for Economic Co-operation and Development (OECD) have changed
how they tax the foreign earnings of their companies, increasingly moving toward
systems that exempt from tax the active foreign earnings of their multinational
companies.
As our major trading partners respond t? the realities of the global econo.my, U.S.
companies increasingly suffer a competltlv~ disadvantage. The U.S. ~u.slness tax
system imposes a burden on U.S. companies .and U.S. worker~ by raising the cost
of investment in the United States and burdening U.S. companies as they compete
with foreign companies in foreign markets. Business ta.xes playa key ~ole in the
economy because they influence the incentive to acq~lre and use capital - the
plants, offices, equipment, and software that corporations employ to produce goods
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and services. In general, an economy with more capital is more productive and
ultimately attains a higher standard of living than economies that have accumulated
less capital. Workers gain when businesses have more capital and,
correspondingly, workers stand to lose when the tax system leads businesses to
invest less and have a smaller capital stock.
The current U.S. system for taxing multinational companies has been developed in
a patchwork fashion, resulting in a web of tax rules that is unlikely to promote
maximum economic efficiency. The United States cannot afford to be left behind as
other nations modernize their business tax systems, including the taxation of
foreign earnings. In general, inaction would make the United States a less attractive
place in which to invest, innovate, and grow. As capital moves more freely across
borders, and emerging countries begin to approach U.S. levels of education and
training, some advantages that the United States currently has will erode.
Americans deserve a tax system that is simple, fair, and pro-growth - in tune with
the nation's dynamic economy.
The tax relief proposed by President Bush and enacted by Congress in the past few
years has helped lay the foundation for considering ways to ensure that the U.S. tax
system helps U.S. businesses and U.S. workers compete in a global economy. In
2005, the President established the President's Advisory Panel on Federal Tax
Reform to identify the major problems with the current tax system and to provide
recommendations on making the tax code simpler, fairer, and better suited to the
modern economy. The Tax Panel's report recommended two options for
comprehensive overhaul of our federal income tax system - the Growth and
Investment Tax plan and the Simplified Income Tax plan. These approaches differ
somewhat, but both would reduce taxes on business and capital income.
Last year Secretary Paulson, recognizing that an examination of our business tax
system in the context of the global marketplace was overdue if the competitiveness
of U.S. businesses and U.S. workers in a global economy is to be maintained,
initiated a review of the nation's system for taxing businesses. On July 26,2007,
the Secretary hosted a conference on Business Taxation and Global
Competitiveness, where distinguished business leaders and policy experts
discussed how the current business tax system can be improved to make U.S.
businesses more competitive in today's global economy. The conference
highlighted the need for reform. The participants stressed that the U.S. business tax
system has not kept pace with changes in the world economy. The conference
participants expressed a conviction that in order for U.S. companies and U.S.
workers to compete and thrive in today's global economic climate, the U.S.
business tax system also must adapt to these changes.
Treasury Report on Bl,Isiness Taxation and Global Competitiveness
In December 2007, the Treasury Department released a comprehensive study
addressing business taxation and global competitiveness as a follow-up to the July
2007 conference. This report, Approaches to Improve the Competitiveness of the
U.S. Business Tax System for the 21 st Century, examines how business taxation in
the United States compares with that of the United States' major trading partners. It
also outlines several broad approaches to business tax reform, including some
approaches to taxing foreign earnings.
International Comparison of Business Taxation
Since 1980, the United States has gone from a high statutory corporate tax-rate
country to a low-rate country, following the Tax Reform Act of.1986, and, based on
some measures, back again to a high-rate country today. DUfl~g the past two
decades, many of our major trading partners have lowered their corporate tax rates,
some dramatically. Within the OECD, the United States now has the second
highest statutory corporate tax rate at 39 percent (including state corporate taxes)
compared with the average OECD statutory tax rate of 31 percent.
Statutory corporate income tax rates are themost common measure of the tax
burden imposed on corporations. The evolution of OECD corporate tax rates over
the past two decades suggests that corpor~te tax rate s~t.ting is an interactive
process subject to the pressures of international competition. In the early 1980s, the
United States had a relatively high statutory corporate tax rate of nearly 50 percent
(i.e., combined federal and average state rates). The Tax Reform Act of 1986
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lowered the U.S. federal statutory corporate tax rate to 34 percent, and the U.S.
combined statutory corporate tax rate fell to 38 percent, well below the thenprevailing OECD corporate tax rates. OECD rates trended steadily down over the
ensuing decade, while the top U.S. federal statutory corporate tax rate increased to
35 percent in 1993. The average and median OECD statutory corporate tax rates
fell below the U.S. corporate tax rate in the 1990s and have continued to decline.
Now, the United States is once again a high corporate tax rate country.
The decline in OECD corporate tax rates appears likely to continue. Other countries
are reducing their corporate tax rates, leaving the United States further behind.
Effective this year, Canada reduced its corporate income tax rate from 21 percent
to 19.5 percent, lowering its combined central and local corporate rate to
approximately 33 percent. Canada has indicated also that it will reduce its central
corporate tax rate to 15 percent by 2012. Germany reduced its total corporate tax
rate from 38 percent to 30 percent, Italy reduced its corporate tax rate from 33
percent to 27.5 percent, and the United Kingdom reduced its corporate tax rate
from 30 percent to 28 percent. Smaller countries among the OECD also have been
particularly aggressive in cutting their corporate tax rates, with Iceland, Ireland,
Hungary, Poland, the Slovak Republic, Greece, Korea, and Luxembourg reducing
their corporate tax rates significantly in recent years.
Of course, statutory corporate tax rates provide an incomplete picture of the
corporate tax burden because they reflect neither the corporate tax base nor
investor-level taxes. Depreciation allowances - the rate at which capital investment
costs may be deducted from taxable income over time - are a key determinant of
the corporate tax base and an important factor distinguishing the statutory
corporate tax rate from the effective marginal corporate tax rate. The difference
between the statutory corporate tax rate and the effective marginal corporate tax
rate varies depending on the source of finance - debt or equity - because interest
is generally deductible, but dividends are not. The required rate of return for debtfinanced investment, therefore, is lower than the required return for equity-financed
investment. Most OECD countries offer accelerated depreciation for equipment
investment. However, in contrast to its high statutory corporate tax rate relative to
other OECD countries, the United States has relatively generous depreciation
allowances for equipment. In the OECD, only Greece and Italy have more generous
depreciation allowances.
Worldwide
VS.
Territorial Tax Systems for Taxing Foreign Earnings
The increased globalization of U.S. businesses and the decline in corporate tax
rates abroad have focused attention on the U.S. corporate tax rules in the
international context.
Under current law, corporations formed in the United States are subject to tax on
their worldwide income, meaning that they are subject to immediate U.S. tax on all
of their direct earnings, whether earned in the United States or abroad. However,
U.S. corporations with foreign subsidiaries generally are not taxed on the foreign
subsidiaries' active business income (such as from manufacturing operations) until
the income is repatriated. That is, until that active business income is returned to
the United States, typically through a dividend to the parent corporation, U.S. tax is
deferred. Not all foreign subsidiary income is subject to deferral, however. For
example, U.S. tax is not deferred on passive or easily moveable income of foreign
subsidiaries of U.S. corporations, under the anti-deferral rules in subpart F of the
Internal Revenue Code.
To prevent double taxation of income by both a foreign country and the United
States, a U.S. corporation is generally allowed a foreign tax credit for foreign taxes
paid by it. In addition, a U.S. corporatio~ is generallyallowed a foreign tax credit for
foreign taxes paid by a foreign corporation, of wh~ch It own~ 10 percent o~ more of
the voting stock, on earnings the foreign corporation repatriates. The foreign ta.~
credit is claimed by a taxpayer on its U.S. tax return, and reduces U.S. tax ilablhty
on foreign source income.
The major alternative to a worldwide system is a .territoria.1 system in which the
home country exempts all or a portion of the foreign earnings from home-country
taxation.The U.S. system was developed at a .time when the United States was the
primary source of capital investment and dominated world markets. T.he global
landscape has shifted considerably over the past several decades, With other
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hp.1 060Statemenr Porttre Kecurd of the Senate Committee on Finance Hearing on International Tax R... Page 4 of 5
countries challenging the U.S. position of economic pre-eminence.
Although a predominantly worldwide approach to the taxation of cross-border
income was once prevalent, it is now used by less than one half of OECD countries.
Instead, many of these countries now use predominantly territorial tax systems.
Furthermore, the United Kingdom and Japan, large U.S. trading partners that still
have a worldwide system of taxation, are both studying the adoption of a more
territorial tax system.
Approaches to Business Tax Reform
Approaches to Improve the Competitiveness of the US. Business Tax System for
the 21st Century, attached to this statement, seeks to advance the dialogue on the
key linkages between tax policy and American competitiveness in the global
economy. To that end, the study outlines specific business tax areas that can be
addressed, including the taxation of cross-border corporate income. Shaped by the
discussion at the Treasury Department's July 2007 conference on competitiveness
and the evolution of the global marketplace, the report discusses three bold
approaches for business tax reform: (1) replacing business income taxes with a
business activities tax (BAT), a type of consumption tax, (2) eliminating special
business tax provisions coupled with a business tax rate reduction, and (3)
eliminating special business tax provisions coupled with faster write-off of business
investment, potentially combined with the exemption of active foreign earnings. The
study also discusses implementing specific changes to our current system of taxing
business income that focus on important structural problems within our business tax
system. As noted in the study, these changes could take place within or outside the
context of broad tax reform.
Rather than present a particular recommendation, the report examines the
strengths and weaknesses of the various approaches. The various policy ideas
discussed in the report represent just some of the approaches that could be
considered. The report does not advocate any specific recommendation nor does it
call for or advance any legislative package or regulatory changes. The report
discusses the issues posed in this statement for the record in greater detail.
Each of the approaches discussed in the report would improve the competitiveness
of the United States compared to our current system for taxing U.S. business.
Nevertheless, the approaches differ in a number of dimensions. The BAT described
in Chapter II of the report would possibly provide the largest benefit in terms of its
effect on expanding the size of the economy - ultimately increasing output
(measured in terms of Gross Domestic Product, or GDP) by roughly 2.0 percent to
2.5 percent - but raises a number of serious implementation and administrative
issues.
The second and third approaches focus on fundamental reform of the existing
system for taxing business income by broadening the tax base, and either lowering
the business tax rate or providing a faster write-off of the cost of investment. These
approaches would replace a vast array of special tax provisions, which are
sometimes highly targeted to encourage particular economic activity, with broad tax
relief for U.S. businesses.
These approaches also examine the possibility of the adoption of a territorial tax
system in the United States. The report outlines a few types of territorial tax
systems. It describes a type of territorial tax system that exempts dividends from
abroad from home-country tax and that is generally referred to as a "dividend
exemption" system. The report describes a "basic dividend exemption system." It
also describes a few alternative territorial types of tax systems.
The present U.S. system for taxing the foreign source income of U.S. multinational
corporations has several undesirable effects. The pr~sent system distorts. ~conomic
behavior. For example, corporations may forgo U.S. Investment opportunities to
avoid the imposition of U.S. taxes. The current system also dist~rts the choice of
where to exploit intangible assets, such as patents, and the chOice of whe:e to
locate income and expenses for tax purposes. Finally, the current system IS very
complex, and a dividend exemption syst~m would reduce some of the complexity
related to the taxation of repatriated earnings.
Moving to a type of territorial system, therefore, could have several advantages as
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7/2/2008
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Statement For the ~ecuTrt ufthe Senate Committee on Finance Hearing on International Tax R... Page 5 of 5
compared to present law. More than half of OECD countries use some type of
dividend exemption system, and a dividend exemption system could reduce some
of the economic distortions imposed by the current U.S. tax system.
However, there may be drawbacks to the adoption of a dividend exemption system
in the United States. Various complex provisions would need to remain in the
Internal Revenue Code, including those related to non-exempt income as well as
income inclusions resulting under the current subpart F rules. Moreover, rules
regarding the pricing of transactions between U.S. corporations and their foreign
affiliates (the so-called "transfer pricing" rules) would come under increased
pressure, as the move to a territorial system would increase the incentive to shift
income and assets to low-taxed offshore jurisdictions. However, extending the
exemption system to include additional forms of business income (such as active
royalties) could relieve some of that pressure and in addition allow for further
simplification, but could raise other issues and concerns.
Last, the study also discusses implementing specific changes to our current system
of taxing business income with a focus on important structural problems within the
current system, including the taxalion of certain foreign earnings. The international
tax issues considered in the report include targeted reforms to the anti-deferral
rules of subpart F and simplifying the U.S. tax rules for taxing the foreign earnings
of small businesses.
Conclusion
The U.S. business tax system must help U.S. companies and workers compete
globally by laking into account the increasingly integrated global economy. With a
view to maintaining our competitiveness, U.S. tax policy must respond to and
anticipate changes in the global marketplace. The current U.S. system is far from
optimal, and we cannot afford 10 be left behind as other nations modernize their
business lax systems, including Ihe taxation of foreign earnings. The U.S. system
for taxing businesses needs to be reevaluated to consider how it can be improved
to attract and generate the investment and innovation necessary to advance the
living standards of all Americans. The Administration looks forward to working with
the Finance Committee on this important topic.
Attachment:
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)61: Week 9 Wrap-Up:<5r:>Treasury Sent 9.674 Million Stimulus Payments This Week
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June 27, 2008
HP-1061
Week 9 Wrap-Up:
Treasury Sent 9.674 Million Stimulus Payments This Week
This week the Treasury Department sent out 9.674 million economic stimulus
payments to American households totaling $7.522 billion. So far, Treasury has sent
out 94.849 million total econom'lc stimulus payments totaling $78.304 billion.
Cumulative Total
Total Number of Payments: 94.849 million
Total Amount of Payments: $78.304 billion
Week Nine (June 23-27)
Total Number of Payments: 9.674 million
Total Amount of Payments: $7.522 billion
Week Eight (June 16-20)
Total Number of Payments: 9.071 million
Total Amount of Payments: $6.919 billion
Week Seven (June 9-13)
Total Number of Payments: 9.526 million
Total Amount of Payments: $7.032 billion
Week Six (June 2-6)
Total Number of Payments: 9.143 million
Total Amount of Payments: $6.789 billion
Week Five (May 26-30)
Total Number of Payments: 5.757 million
Total Amount of Payments: $4.320 billion
Week Four (May 19-23)
Total Number of Payments: 6.211 million
Total Amount of Payments: $4.927 billion
Week Three (May 12-16)
Total Number of Payments: 15.575 million
Total Amount of Payments: $13.562 billion
Week Two (May 5-9)
Total Number of Payments: 22.180 mi!lion
Total Amount of Payments: $20.138 billion
httPIIWWw.trp?so()v/nre::::::/reteases/hpW61.htm
7/2/2008
hpl061: Week 9 Wrap-Up:<br>Treasury Sent 9.674 Million Stimulus Payments This Week
Page 2 of2
Week One (April 28-May 2)
Total Number of Payments: 7.708 million
Total Amount of Payments: $7.091 billion
The Treasury Department will announce at the end of every week the total number
of payments that have been sent to households. and the total amount of payments
sent. Payments began April 28 and will continue via direct deposit or paper check
through mid-July. For a single filer, the minimum payment is generally $300 and
the maximum payment is $600. For joint filers, the minimum is generally $600 and
the maximum $1,200. There is also an additional $300 payment for each qualifying
child.
For tax returns processed by the Internal Revenue Service by April 15 households
will receive their payments according to the last two digits of the Social Security
number on the tax form. On a joint return, the first number listed will determine
when a stimulus payment will be sent.
REPORTS
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7/2/2008
Direct Deposit Payments
If the last two digits of your Social Security Your economic stimul us payment deposit
number are:
should be transmitted to your bank account
by:
00-20
21-75
76-99
May2
May 9
May 16
Paper Check
If the last two digits of your Social Security Your check should be in the mail by:
number are:
00-09
10-18
19-25
26-38
39-51
52-63
64-75
76-87
88-99
May 16
May 23
May 30
June 6
June 13
June 20
June 27
July 4
July 11
A small percent of tax returns will require additional time to process and to compute a
stimulus payment amount. For these returns, stimulus payments may not be issued in
accordance with the schedule above, even if the tax return was processed by April 15. In
these cases, the stimulus payment will be issued approximately 2 weeks after the tax
return is ultimately processed.
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