Carrots for Foreign Investors

In financing its $175 billion budget deficit, the U.S. Government has relied heavily on foreign investors. To attract investment from abroad, Congress passed a law two months ago that eliminated the 30% withholding tax that foreigners had been paying on interest from American securities. Overseas banks and other institutions have been major buyers of U.S. Treasury bills, notes and bonds. Many individual foreigners, however, have been reluctant to buy Treasury bonds because they must supply their names and addresses when investing. Europeans, in particular, have long preferred making investments anonymously to avoid the scrutiny of tax collectors. Last week Treasury Secretary Donald Regan announced that his department would issue a new type of security available only to foreigners. Overseas buyers of the new bonds would not have to identify themselves to the U.S. Government.

A securities dealer who sells one of the bonds must certify to the Treasury that it was not bought by a U.S. investor. That is a safeguard to prevent Americans from dodging taxes by buying the new bonds through a foreign dealer. Asked how the Treasury would make sure dealers were telling the truth, Regan said, "We have ways to check. We don't wish to reveal our many secrets."