*EPF410 07/25/2002
Text: Treasury's O'Neill Sounds Confident Note on U.S. Economy
(Welcomes congressional action on corporate responsibility bill) (1500)

Treasury Secretary Paul O'Neill says the U.S. economy "is growing and poised to do even better" and that recent corporate scandals have created a "disconnect" between the stock market and the fundamentals of the economy.

"Over time, the market will again focus on our economy's fundamentals," O'Neill said in a July 25 speech to the National Association of Manufacturers (NAM). "The reality is that our economy remains solid and our recovery is well under way."

O'Neill cited positive economic data, including strong auto, retail, and home sales, along with signs that business investment is rising following a lengthy period of decline. He repeated his earlier forecast that U.S. economic growth would reach 3 to 3.5 percent in 2002.

The Treasury chief said he was "delighted" with the agreement reached the previous day by congressional negotiators on a bill to crack down on corporate abuses.

"This legislation is one of many important changes happening in corporate governance since the financial scandals came to light," he said. "Holding CEOs [chief executive officers] accountable and strengthening our audit system will insure investors that they have the necessary facts to make informed decisions."

O'Neill said that an August 14 deadline for company executives to re-certify their financial results would offer the corporate world "a clean start" towards restoring full confidence in U.S. markets.

"I am confident that no CEO [chief executive officer] will take the risk of certifying falsely," he said. "It's a fundamental American strength: we face problems, we deal with them and we move on."

O'Neill also reiterated his call for tax reform, especially in corporate taxes, and for trade negotiating authority for the Bush administration.

Following is the text of his remarks as prepared for delivery:

(begin text)

U.S. Department of the Treasury
Office of Public Affairs
July 25, 2002

Treasury Secretary Paul H. O'Neill
Remarks to the National Association of Manufacturers

Good Morning.

Let me take a minute to say I am delighted that the House and Senate have reached agreement on legislation that will nail on the wall the clear requirement for corporate accountability. This legislation is one of many important changes happening in corporate governance since the financial scandals came to light. The SEC, the stock markets, and individual companies have taken steps to improve the timeliness and accuracy of corporate financial disclosures. Holding CEOs accountable and strengthening our audit system will insure investors that they have the necessary facts to make informed decisions.

The SEC has asked the nation's biggest firms to certify the accuracy of their financial reports by August 14. I am confident that no CEO will take the risk of certifying falsely. So we're providing the basis for a clean start. That's great -- and it's a fundamental American strength: we face problems, we deal with them, and we move on.

In the end, confidence comes not from the talking heads on television, but from the fundamentals. And the fundamental strength of our economy is good. Since the beginning of my tenure as Secretary of the Treasury, I have made it my business to talk on a regular basis to people across the country about what they see in their part of the economy.

Earlier this week, I spent time talking with CEOs, economists and investment managers in NY. I said this to them: All of the evidence I have supports the proposition that our economy is making headway and that by the end of the year we will be growing at a rate of 3 to 3.5 percent. Every person I met with in New York agreed. You, the members of NAM, are helping to create that reality through constant innovation, flexibility and hard work. Your efforts help to make this nation the envy of the world, and the engine of freedom in the world.

In our history we have seen times when there is a disconnect between the stock market and the fundamental productive power of our economy. This is such a time but, over time, the market will again focus on our economy's fundamentals.

The reality is that our economy remains solid, and our recovery is well underway. Gross domestic product surged in the first quarter, beyond anyone's expectations, and when the second quarter data come in next week I believe it will show continuing growth, an indicator of the unfolding recovery. As I said, we are on track to reach 3 to 3.5 percent growth by the end of the year. Auto and retail sales are strong, new home sales are setting records and facts on non-defense capital goods suggests a rise in equipment investments in the second quarter, following almost a year and a half of declines. The housing sector continues to expand, the inventory adjustment process is just about over, and industrial production is increasing at a 5.8 percent annual rate through the first 6 months of this year.

In short, our economy is growing, and poised to do even better because the Federal Reserve cut rates at the right time and President Bush and the Congress cut taxes at the right time. Both acted quickly to stem and reverse the downturn.

Importantly, people are returning to work. The number of new jobs was up for the second month in a row in June. President Bush would like to see people getting back to work faster, and we are actively advancing an agenda to strengthen our economic fundamentals, as we have since the first days of this administration.

The President came to office expressing his belief that economic freedom is the foundation for individual success. He's delivering on that vision for long-term growth, by working for lower and simpler taxes, smarter regulation, freer trade, homeland security, and fiscal restraint.

Expanding economic freedom means lowering and simplifying taxes, so that investment decisions stay in the hands of businesses and individuals, not the government's. You know very well the stranglehold our tax code has placed on employers of every size -- forcing you to hire tax accountants who produce paperwork instead of engineers and line workers who build products. It diminishes your ability to invest in new plants and equipment.

Our tax code is an abomination -- and it hurts our competitiveness. That's why we are facing complaints from the World Trade Organization. And that complexity has facilitated an explosion of abusive tax avoidance transactions. The taxes we place on corporations are part of the cost of a product. These taxes end up in the price. In today's highly competitive world, every employer has to keep prices down or lose customers. And they are inundated with promoters selling complicated transactions to reduce their tax burden. Some of these practices are legal, and some aren't. We are cracking down on the promoters who pitch illegal schemes and on those who adopt them. But the real solution isn't a raft of tax investigators. The real solution is a more competitive tax code. This nation deserves a better tax code, and I believe we can achieve it.

We are also working with Congress to get trade promotion authority for the President. Congress has been sitting on this for too long, even after TPA has passed both the House and Senate. Our world-beating manufacturing employers and workers understand better than anyone the importance of freer international trade in creating American jobs.

And there is no higher priority for President Bush than securing our homeland against the threat of terrorism. Preventing terrorist attacks is a crucial component of our economic security. As we work to complete the President's plan for creating the Department of Homeland Security this year, we will continue to pursue the twin goals of increased border security and swift, safe transit for goods and services. We've already proven, through the Customs Service's Customs Trade Partnership Against Terrorism, that increasing the use of technology and cooperating with manufacturers, we can speed the movement of goods and services while at the same time increasing our security.

We are also pressing Congress to act on terrorism risk insurance, which would further enhance economic security. We cannot allow the threat of terrorist acts to hinder new construction and investments in this country.

Finally, even as we target government spending to enhance our physical and economic security, we need to avoid runaway spending in the Congress. Our economy will do best in an environment of low taxes, low interest rates, and free enterprise -- which wasteful government spending would undermine.

Our nation's strength and our economy's strength are one and the same. Both rely on the drive and creativity of manufacturers and other idea creators who continue to push the cutting edge, creating new products, new technologies, and new jobs. We are the envy of the world because we are the engine for freedom and prosperity in the world. President Bush and I believe that, and we appreciate your support for our common cause -- economic freedom, security, growth and prosperity.

Thank you.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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