Treasury rulings on investment bonds Recently the Department of Treasury restricted Guam and some of the other territories from issuing certain types of tax- exempt investment bonds, or from establishing tax havens for foreign investors and U.S. corporations. These proposed revenue enhancing initiatives and the federal response to them illus- trate the problem caused when the goal of greater selfsufficiency for the territories clashes with U.S. tax and fiscal policy. Some insular officials claim that these actions contribute to growing uncertainty of the overall objective of U.S. policy to the territories. The examples also raise questions whether the territories should ferent than states, under U.S. receive special treatment, tax and fiscal policies. dif- Arbitrage bonds In late 1983, Guam attempted to issue $850 million worth of tax-exempt securities known as arbitrage bonds. Guam hoped to earn revenue from the interest earned when the tax exempt bonds are reinvested at higher rates of interest. Treasury blocked the issuance of the bonds and announced that it was recommending immediate leqislation to end these bonds' tax free status. A Treasury official said that since the states have been prohibited from marketing these bonds since 1969, the action was taken to prevent the territories from taking further advantage of tax loophole which the Congress was seeking to remove. a Guam officials argued that Treasury's action was contrary to the U.S. objective to encourage economic self-reliance. They pointed out that just prior to the Treasury announcement, Puerto Rico had marketed a $450 million bond issue. According to the Governor of Guam, Treasury's decision cost Guam $91 million in potential equity capital. The Governor and other Guamanian officials cited Treasury's action as an example of a federal policy contradicting a U.S. objective to allow the territories to become more self-reliant. Tax havens Another example cited by Guam was a December 1982 Treasury decision to prevent Guam's proposal to become an international finance center. Guam wanted to establish itself as a finance center by enhancing U.S. corporations' access to international ‘capital markets by offering tax free securities, such as Eurobonds, to foreign investors. At the time, the Netherlands Antilles, bond under center tax for treaty mainland with the United companies States, seeking to served tap as a foreign sources of capital. Treasury opposed Guam's attempt to obtain a Similar advantage, citing its general opposition to tax havens. A Treasury official said that such 28 5000238 arrangements are a drain on