2:30 P.M. EDT

MS. NISBET: Good afternoon. I'd like to welcome back Dr. John Taylor, Under Secretary for International Affairs at the Department of Treasury. He's here to discuss with us today progress made at the Iraq donors conference, and I thank you so much for taking the time to be with us.

We'll start out with two questions from Washington after his brief opening remarks, and then we'll come back to New York. Please state your name and affiliation before asking your question.

UNDER SECRETARY TAYLOR: Okay, thank you very much. As you know, the donors conference in Madrid was a tremendous success. We're now getting more of the information in, and just to summarize: The combination of the IMF and the World Bank and the Japanese and the Europeans, and many other countries around the world have got a total which is close to $18 billion of funding.

That, combined with the efforts in the United States that's going onin the Congress to pass President Bush's requested supplemental will be amounting to nearly $38 billion. And that, along with the -- as the World Bank has always indicated -- continued revenues coming in, in the future from oil, from the private sector, really gets the goal of the $55 billion that the World Bank laid out accomplished. And I think it's something that we need to be very grateful to the international community for, and the Iraqis have already indicated their immense pleasure with the pledges that have been made.

Now, of course, the objective is to make this work on the ground to bring a successful reconstruction in Iraq, working on the security issues, and working on the economic issues as well.

There's two things I would highlight about this -- about the economic reconstruction part -- one is that on a parallel basis to the official sector's role in the donors conference, the private sector
participated, and it was really a first time ever event like this at a donors conference where you had a whole day devoted to the opportunities to the Iraqi people of private sector development; both Iraqis starting firms, building firms, expanding firms, as well as participants from other countries. Over 300 firms participated in this listening to the presentation by the Iraqis about their open investment policies, about their good tax policies and good customs policies.

47 countries were represented, and the Iraqis indicated that they welcome this interest from abroad in improving their economy. There were representatives from Europe, from Japan, from the United States, from France, and all of these countries are welcome. And the Iraqis made that clear. And in particular, I noted the active participation by the French actively in this meeting. And all of that is welcome, but the goal here is to improve the well-being of the Iraqi people.

And then finally, one thing that we have been working on a lot with the Central Bank of Iraq in the last few weeks is the currency exchange. It's going very well. As you know, the new currency, which the Iraqis themselves chose to replace the old currency is being distributed. It's six denominations of currency. It's going very well. This money is being printed all over the world and they have -- it's been shipped in by twenty-seven 747 aircraft. It's being distributed throughout the country, and it's going to make a difference with respect to the overall well-being of the Iraqi people and their economy.

So I'll take some questions. Thank you.

Yes.

QUESTION: Hi, Angela Pruitt from Dow-Jones Newswires. I wanted to know of the total that was committed, like, $38 billion. How much is that going to be a loan compared to grants?

UNDER SECRETARY TAYLOR: Well, what we do know is that the part contributed by the IMF and the World Bank will be in the form of loans. And that's because those institutions are set up to provide loans. The loans are a low interest rates. They're for projects over a number of years. The remaining numbers are things that you're going to address with the individual countries. Even in the case where there are loans coming from countries, they are very concessional and have a large grant element, if you like: long grace periods before anything has to be paid back, extremely low interest rates.

So in terms of divvying it up, loans or grants, the most important thing I could say is IMF/World Bank provide loans and [in the case of the] others it's a mixture. It depends on how you measure the grant element in the pledges. A substantial grant element has been pledged.

QUESTION: The $5 billion, from $13 to $18, how did we -- when we left Madrid, it was $33, now we're talking $38. How do you bridge that gap?

UNDER SECRETARY TAYLOR: What is important to recognize is that the IMF and the World Bank have committed up to $9 billion. That's $5 billion from the World Bank and $4.25 billion from the IMF. The numbers that were put out represented conservative estimate of the total amount, and it said it was greater than $13, or greater than $33 when you include the United States. And when you recognize the amount that the international financial institutions can provide up to that amount, you get the total being the number I just indicated to you.

QUESTION: (Inaudible.)

UNDER SECRETARY TAYLOR: Yes, exactly. Right.

QUESTION: (Inaudible.)

UNDER SECRETARY TAYLOR: This is a way to describe the amount that has been raised in terms that represent what can be delivered to the Iraqi people over the next four years, yes.

QUESTION: (Inaudible.)

MODERATOR: Washington. We're ready for your questions.

QUESTION: Thomas Gorguissian, An Nahar, Lebanon. The Secretary said one of the monies that was frozen in country -- that there is a UN resolution regarding the return of this money to the Iraqi Development Fund. And I know that Treasury Department interested to get this money and doing talks with -- what is the latest development in the debt of in particular with regarding Syria, Lebanon and Jordan because I know that these yesterday there was a story published that still they are helpless to give this money back?

UNDER SECRETARY TAYLOR: Well, first, I'd say that one of the more significant things that's happened recently on this is that UN Security Council Resolution 1511 called on all countries that have frozen assets from Saddam's regime to return them to the Iraqi people through the Development Fund for Iraq.

And since that resolution has occurred, there has been more discussion and more interest about how to make that happen. And not only in the countries that you mention, but in many other countries around the world, where there are still frozen assets, which the UN called to go back to Iraq, and which we are supportive of the UN in this respect.

So we're working multilaterally to make more of this happen. And I can't report anything specific on individual countries at this point and time, but I believe that progress is picking up and ccelerating.

QUESTION: Yes, my name is Samir Nader. I'm with Radio Sawa in Washington. Mr. Secretary, Senator John Kerry of Massachusetts said last week in a press conference that he wrote to President Bush asking to appoint The Patriot Act against the governments of Syria, Lebanon toward this money laundering and to block any money to terrorists in Iraq. Is this applicable for these two countries, or are you considering such action at Treasury?

UNDER SECRETARY TAYLOR: What we are doing in the U.S. Government is pursuing the delivery of these assets back to the Iraqi people in various different ways. We welcome support from any country to do this, but it's a whole wide range of ways that we're doing this. And I would not focus on any particular effort at this point, other than we're beginning to make more progress. I can see it happening. But it's not, at this point, progress that we can be announcing about particular countries.

QUESTION: Alex Rozens with Reuters News Agency. We saw a pick up in violence over the weekend, a lot of casualties. And I wondered, so far it doesn't appear to have an immediate effect on capital markets or the stock markets or bond markets, which in some ways, would affect the cost of the reconstruction.

And I wonder if you could tell me, has Treasury monitored how the markets respond to what is happening in Iraq and the violence? And is there a point where people in the markets might worry that this war might be a prolonged war? Or this, I should say, the reconstruction could keep the U.S. mired in there -- and the Vietnam phrase keeps coming up in a lot of people's minds -- do you think there is a point where there is a little concern in the cap market?

UNDER SECRETARY TAYLOR: We're monitoring markets all the time. And these days, we're also getting good information about the markets in Iraq. And we see that the new Iraqi dinar, which I just held up, is maintaining a stable value. And that's very important for stability in Iraq.

And what we see is a great amount of business activity that's going on in the streets: shops opening, people enjoying themselves, and these incidents are a terrible issue, which we're going to address and are addressing. But basically, in all the analysis of the markets we see, we see a great degree of stability in the global markets.

QUESTION: Felix Salmon from Euromoney - and I have two questions about the loan commitments in Madrid. Firstly, in terms of the bilateral commitments, insofar as they are loans and not grants, how -- have the countries concerned made any efforts to ensure that the new money that they lend is going to be senior to the hundreds of billions of billions of dollars in stuff in liabilities, which Iraq already has?

UNDER SECRETARY TAYLOR: The debt [that] is going to be resolved in the next few months is old debt that was largely incurred during the days of Saddam Hussein. And those debts will be negotiated and there's an effort, as we have said, to have a substantial reduction in their value. And I see that moving ahead in due course, and it's very important for the Iraqi people to get that debt overhang off of them. We are working with them to do that. They recognize the importance, and so do the lenders, like the IMF and the World Bank.

So for example, in Dubai both IMF and the World Bank stress that their support would be very much related to the reduction in that debt. So our effort now is to work with the Iraqi people and the international community to restructure and thereby reduce the value of that debt. And that's what we're going to be doing in the next few months.

QUESTION: (Inaudible.)

UNDER SECRETARY TAYLOR: Well, all the details about what's senior to what will be worked out. Technically the cutoff date, which has to be determined, and when that will be, the international community working with the Iraqi people will decide. But, of course, debt coming in the future will be debt to support the Iraqi people and will have to be senior to the old debt that's forgiven.

QUESTION: And just to follow up on the loans, in terms of the timing of this conference, before Congress has approved the $20 billion as grants, is it not politically a bit more difficult now to pass the bill in the Congress against the congressional push for some loan element now that virtually all of the other countries who are taking part seem to be having that as well?

UNDER SECRETARY TAYLOR: No, in fact, it's not true that virtually all the other countries are taking that route. The international financial institutions are [providing loans] because that's all they can do. And we think it is tremendous that the World Bank has indicated it could lend up to $5 billion, some of which is at extraordinarily low interest rates. We think it's important that the IMF has indicated it could potentially loan up to $4.25 billion that, again, are at interest rates lower than Iraq would have to pay otherwise. So those are very important things. Everyone recognizes, and always has recognized, that that support would be in the form of loans of low interest rate and concessional.

[Regarding] the other countries -- there is a significant grant element in all those pledges. Even the cases where there are some loans, there are grant elements in those loans because the interest rates and the grace periods are so long. So I don't see any reason why it should affect the Congressional decision. And as President Bush has stated and Ambassador Bremer has stated and as Secretary Snow has stated, it's very important that the support from the United States be in the form of grants so that it can be delivered quickly and not put undue burden on the Iraqi people with respect to debt.

QUESTION: Alberto Armendariz from La Nacion Argentina. I understand that in the Iraq, state of Iraq has already resumed the exportation of oil. I wanted to know if you could give us an idea of how much money does that represent, and where is that money going to?

UNDER SECRETARY TAYLOR: For the rest of this year and for 2004, the oil that is generated and the revenues that come from the oil will go to the operating budget in Iraq; that is, to pay Iraqi people's salaries, to pay for the Oil-for-Food program, the distribution of food -- all the things
that are in the operating budget of the government. And our best estimate is that will continue through next year.

In 2005, 2006, 2007 and so on, the expectation of the World Bank and others who have done the forecasts is that the revenues will begin to exceed the operating costs of the budget, and therefore could be used for reconstruction, thereby achieving the $55 billion target.

QUESTION: How much (inaudible)?

UNDER SECRETARY TAYLOR: Well, it's still just going for the operating budget. It's still covering the operating budget, and some of the operating budget is also being financed by the return of the frozen assets from the United States, and hopefully from other countries, as I said in those previous questions, so I can't put a precise number on just the oil alone, but it's still going entirely for operating costs of the budget for the Iraqi people.

Yeah.

QUESTION: A couple of questions. Countries like -- sorry, yeah.  Abderhaim Foukara from Al-Jazeera Television. Saudi Arabia has pledged about $1 billion, of which it's said has already spent $500 million and the rest it wants to negotiate with the Iraqis. There are many other countries and institutions that have opted to operate along similar lines. So how does that square up with the figure you've just quoted to us, $38 billion?

And my second question is the Iraqi Governing Council is saying that it is against the principle of paying interest on any pledges that countries may have made. Where do you -- where do you stand on that as the CPA?

UNDER SECRETARY TAYLOR: With respect to the paying of interest, the IMF and the World Bank have a mechanism for which people will pay some small interest, even on loans to very poor countries. And so there's no way around that. And with respect to the Governing Council's views, I've not really heard those articulated in any formal sense. Individuals could have been speaking on it, but those loans do have interest rates associated with them where people pay interest back, and of course, in the past of Iraq, before the days of Saddam, interest was paid on debt, as it will be in the future. There's no reason to expect that would not be the case. That's exactly what all the Iraqi people that we've spoken to would indicate.

What was the first part of your question?

QUESTION: (Inaudible.)

UNDER SECRETARY TAYLOR: In questions like this, it's really necessary for you to go to the Saudis and get your question answered. But in general, what happens in pledges is there is a period where the pledge will be made, then the money will be spent. It's overlapping periods. It's frequently hard to count. What we have tried to stress is new money. In the United States, President Bush proposed the $20.3 billion package a while ago. That represents to us new money. Right now there is an effort to focus on fundraising in Afghanistan. And what we're trying to do in Afghanistan is ask countries to bring forward some of their pledges, to spend them now, so there can be more activity, more construction taking place now. So that's a good contribution, but it's money that would have come down the road earlier.

So there's different ways to look at this. The devil is in the details. We see the significant contributions that have been made by these countries, but I think to get these details, you have to go to the countries themselves.

Yes, in the back.

QUESTION: Paolo Mastrolilli U.S. correspondent for the Italian newspaper, La Stampa. I would like to know if you are satisfied or disappointed with the position that the European Union and the various European countries like Italy, for example, or France and Germany, took in Madrid? Do you consider their position there as something that might change in the future, and if you expect more from them in the future?

UNDER SECRETARY TAYLOR: Well, we do hope that people contribute more -- those who have not contributed very much or contributed what they're capable of. We will continue to work on that. And we'll work on other ways to get the support as well.

And there's a wide variety of participation. One of the most satisfying things about this is the great sacrifices that very small countries have made, like Sri Lanka contributing to this effort. And the amount of participation by countries is very large.

So it is something that needs to be addressed further, and countries that didn't contribute as much as they're capable of or could do, recognizing the very great importance of doing this, we would like to continue with them and engage in the future. This is going to be a job for which there is plenty of opportunities to participate, and I am very much hoping that people that didn't participate as much now as they might, will participate more in the future.

QUESTION: Can I ask about the -- I know that the money from the pledges is supposed to go to a special fund; basically is managed by the UN and the World Bank and a committee of Iraqis, but in terms of redeeming the checks, who will actually be signing the checks to get the money out of that fund?

UNDER SECRETARY TAYLOR: The money from sales abroad and from the frozen assets go to the Development Fund for Iraq. That's what you're referring to. And those monies are to be spent for the Iraqi people. Some of it just straight on salaries that are paid to people, that would be coming from the Finance Ministry or from the Agricultural Ministry that's paid to people. Some of it will be to go to purchase supplies for the Iraqi Government. In that case, the ministries will be, really, making the payments.

Right now, for salaries, for example, the ministries, as of last week, will begin to pay in the new currency. To get the funds for the new currency, there still will be revenues coming from abroad: of frozen assets, of oil revenues and other contributions, so you'll have to exchange those monies into dinars, and the dinars themselves will be used as cash to pay, in those cases. It's a wide variety of things.

Some of the countries, in terms of this fundraising effort, will be supporting the Iraqis through their own aid agencies. That is not -- for example, the British, and the DFID will be contributing directly. The United States will be contributing directly in many cases. And certain other countries will contribute directly as well, in which case their own procurement rules will take place.

So it depends very much on the source and the mechanism, but it's a wide variety of actual physical payments, whether it's checks or delivering of currency.

Yes, in the front here.

MODERATOR: This should be the last one.

QUESTION: It's about Argentina.

UNDER SECRETARY TAYLOR: Oh, change the topic.

(Laughter.)

QUESTION: No, I just wanted to get your view on the recent restructuring proposal the government proposed, which, guest investors will face a loss, about 92 percent in net present value terms. And given that the creditor -- there's a standoff between the government and the creditors, with most creditors rejecting the offer, and I just wanted to get your viewpoint of the way negotiations are headed.

UNDER SECRETARY TAYLOR: Well, the negotiations have just begun. There was an important initial engagement in Dubai. Now there's more information that's going to be exchanged. It's very important in these negotiations for Argentina to present the options in a clear and transparent way. And that will enable people to make judgments about what is the reduction in net present value of the creditors, and what is the means of Argentina to make the remaining payments, and what the period of time is involved there.

But what -- what we're very much hoping and expect is the negotiations between Argentina and the creditors are in good faith, are transparent, where people can understand where the funds come from and where they go. And other than that, we will not be able to, and shouldn't, take a position on the size of the reduction. That is something for the creditors and Argentina to work out in a good faith, transparent way.

QUESTION: (Inaudible.)

UNDER SECRETARY TAYLOR: Okay.

MS. NISBET: Washington, we're ready for your question.

QUESTION: Mara Lavsonia for El Cronista, Argentina. It's to follow up Argentina. Well, I want to -- I want to know the positions of the U.S. Treasury about the perception that, if you can explain what it takes or if, if the U.S. Treasury will help this operation between creditor and Argentina?

UNDER SECRETARY TAYLOR: I think, if I understand the question, my answer is pretty much the same as the answer to the previous question, and that is, it's important here for transparency, for good discussion, good faith negotiation, revealing the sources and the uses of the funds.  And that's our interest, that's the interest of the International Monetary Fund. And we'll continue to stress that, and at this point in time we have every expectation that negotiations will continue that way, in a good faith way. But it is a negotiation, after all, and one can't predict the outcome, and it's not wise for the United States or the IMF or any other country to take a position in a negotiation like this between one country and their creditors.

MS. NISBET: Thank you Dr. Taylor.
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