[Senate Report 106-425]
[From the U.S. Government Publishing Office]
Calendar No. 844
106th Congress Report
SENATE
2d Session 106-425
======================================================================
THE INTERNATIONAL DEBT FORGIVENESS AND INTERNATIONAL FINANCIAL
INSTITUTIONS REFORM ACT OF 2000
_______
September 28 (legislative day, September 22), 2000.--Ordered to be
printed
_______
Mr. Helms, from the Committee on Foreign Relations, submitted the
following
R E P O R T
[To accompany S. 3129]
The Committee on Foreign Relations, having had under
consideration an original bill (S. 3129) provide for
international debt forgiveness and the strengthening of
anticorruption measures and accountability at international
financial institutions, reports favorably thereon and
recommends that the bill do pass.
CONTENTS
Page
I. Committee Action.................................................1
II. Section-by-Section Analysis......................................2
III. Cost Estimate....................................................5
IV. Evaluation of Regulatory Impact..................................8
V. Changes in Existing Law..........................................8
I. Committee Action
On March 23, 2000 the Committee unanimously ordered
reported S. 2382, the Technical Assistance, Trade Promotion and
Anti-Corruption Act of 2000. S. 2382 was reported and placed on
the Senate Legislative Calendar on April 7, 2000, and
subsequently referred to the Committee on Banking, Housing, and
Urban Affairs pursuant to paragraph 1(j)(10) of rule XXV of the
Standing Rules of the Senate on April 11, 2000. Paragraph
1(j)(10) of rule XXV of the Standing Rules of the Senate
provides that, ``at the request of the Committee on Banking,
Housing, and Urban Affairs, any proposed legislation relating
to [the International Monetary Fund] reported by the Committee
on Foreign Relations shall be referred to the Committee on
Banking, Housing, and Urban Affairs.'' The Banking Committee
has taken no action on S. 2382 as of the writing of this
report.
On Wednesday, June 28, 2000, the Committee on Foreign
Relations considered and unanimously approved by voice vote the
International Debt Forgiveness and International Financial
Institutions Reform Act of 2000, which is identical to Title IV
of S. 2382, the Technical Assistance, Trade Promotion, and
Anti-Corruption Act of 2000.
II. Section-by-Section Analysis
Sec. 1. Short Title
This section provides the short title for the act will be
``International Debt Forgiveness and International Financial
Institutions Reform Act of 2000.''
Sec. 2. Debt Relief Under the Heavily Indebted Poor Countries (HIPC)
Initiative
This section provides authorization, as requested by the
Administration, for full U.S. participation in the HIPC Trust
Fund. The HIPC Initiative was established in 1996 and reformed
and expanded in 1999, to provide debt relief to the world's
poorest and most heavily indebted nations. Last year, the
President asked Congress to appropriate funds for both
multilateral (through the HIPC Trust Fund) and bilateral debt
relief, and to authorize U.S. support for the IMF to draw on
resources in a reserve account and to engage in an off-market
revaluation of its gold holdings in order to raise the
necessary resources for the Fund to extend debt relief under
HIPC terms. In the Consolidated Appropriations Act for Fiscal
Year 2000, Congress approved bilateral debt relief
appropriations and authorized U.S. backing for the IMF
proposals. Congress, however limited to 9/14ths the amount of
the interest earnings raised through the investment of the IMF
gold transactions that could be applied to HIPC debt relief and
denied funding for the HIPC Trust Fund. The Administration has
asked Congress this year to authorize these two remaining
matters.
Subsection (a) repeals the 9/14th limitation enacted in
1999 as part of a new Section 62 of the Bretton Woods Agreement
Act. This action will permit the U.S. Executive Director to the
IMF to support the IMF use of the remaining 5/14ths of interest
earnings derived from the investment of profits from the off-
market sale of IMF gold for HIPC debt relief.
Subsection (b) authorizes $600 million for the period of
fiscal year 2000 through 2003 for U.S. contributions to the
HIPC Trust Fund.
Subsection (c) requires the Secretary of the Treasury to
certify to Congress within 30 days of enactment of the Act that
several requirements concerning the International Bank for
Reconstruction and Development (IBRD) and the IMF have been
satisfied. Both the Bank and Fund must have given the
Comptroller General access to Bank and Fund information and
documents allowing the GAO to audit and monitor Bank
operations. The Treasury Secretary must also certify that the
IBRD is implementing a number of policies to:
(1) suspend loans if funds are diverted for
unintended purposes;
(2) ensure that Bank loans do not displace private
sector financing;
(3) disburse loans (other than project loans) based
on prior reforms or incrementally upon implementation
of specific reforms instituted after the initial loan
disbursement;
(4) minimize the number of projects that would
displace people involuntarily, or that would have a
negative impact on a people or culture of the area into
which the displaced population is moved;
(5) promote open markets and trade liberalization in
goods and services;
(6) concentrate Bank financing on economic and social
programs and projects rather than short-term liquidity
financing; and
(7) establish qualitative and quantitative indicators
to measure progress toward country graduation from
concessionary financing, together with an estimated
timetable of which countries might graduate during the
next 15 years. The intent is to indicate a category of
borrowers who will not even be able to graduate in 15
years.
The Treasury Secretary must further certify that the IMF is
also implementing policies to:
(1) suspend financing if funds are diverted for
unintended purposes;
(2) ensure that IMF financing normally serves as a
catalyst for, and does not displace private sector
financing;
(3) disburse financing based on prior reforms or
incrementally upon implementation of specific reforms
instituted after the initial disbursement;
(4) promote open markets and trade liberalization in
goods and services;
(5) concentrate IMF financing primarily on short-term
balance of payments financing; and
(6) to use, in conjunction with the IBRD, qualitative
and quantitative indicators to measure progress toward
country graduation from concessionary financing,
together with an estimated timetable of which countries
might graduate during the next 15 years. The intent is
to indicate a category of borrowers who will not even
be able to graduate in 15 years.
In the event that the Treasury Secretary is unable to
certify that all of the these requirements have been satisfied,
the Secretary must report to the Committees within 30 days of
enactment of this Act on the progress, if any, the IBRD and IMF
have made in granting access to the Comptroller General or in
implementing the required policies. If the Comptroller General
is subsequently denied access to Bank and Fund information and
documents after the Treasury Secretary has either certified or
reported to Congress regarding the requirements of this
subsection, or 30 days after enactment of this Act, whichever
is earlier, the Comptroller General must report this situation
to the Committees and the Secretary.
The Committee is concerned that many governments receiving
assistance from the International Monetary Fund and the World
Bank are mistreating foreign investors and tolerate corruption
to such an extent that it distorts economic development. These
actions undermine many of the objectives that IMF and World
Bank lending are designed to promote. Consequently, the
Committee recommends that the Administration urge both the IMF
and the World Bank to make it clear to recipient governments
that future assistance will be jeopardized if they do not act
in a timely manner to resolve trade and investment disputes and
to reduce, and eventually eliminate, corruption.
Sec. 3. Strengthening Procedures for Monitoring Use of Funds by
Multilateral Development Banks
The purpose of this section is to strengthen U.S. policy
and influence at the multilateral development banks (MDB) to
improve MDB procedures and management controls over how funds
are utilized by borrowers. The intent is to ensure that MDB
loans are used for their intended purposes and comply with
conditions set out in the loans. The Treasury Secretary, when
requested, must make available to appropriate Congressional
committees Bank information regarding MDB compliance with these
conditions. The material may be submitted on a confidential
basis if necessary. If the Secretary cannot obtain the
necessary information within 30 days of a Congressional
request, he must report to the Committees within another 30
days why the material cannot be acquired. Within six months of
the enactment of this Act, the Treasury Secretary must report
to the appropriate Congressional committees with an evaluation
of the extent to which MDBs are achieving the goals set out in
this section. The report will specifically address progress
made by each multilateral development bank in improving
monitoring and auditing operations in order to curtail bribery
and corruption, developing priorities for allocating anti-
corruption aid, implementing country-specific anti-corruption
programs, identifying and disciplining employees suspected of
corrupt activities, and harmonizing procurement practices among
all such banks.
Sec. 4. Reports on Policies, Operations, and Management of
International Financial Institutions
This section creates four new reporting requirements and
amends an existing requirement regarding various aspects of
multilateral development bank (MDB) operations that are to be
transmitted to appropriate Congressional committees. Subsection
(a) requires the Comptroller General to submit an annual report
regarding the sufficiency of audits of the financial operations
of each MDB conducted by persons or entities outside the bank.
Subsection (b) calls for an annual report from the Treasury
Secretary addressing how borrowing countries have improved
governance and anti-corruption standards, and how projects
funded by the World Bank's International Development
Association (IDA) contribute to the eventual graduation of a
representative sample of borrowing nations from reliance on IDA
financing.
Subsection (c) amends Section 1705 of the International
Financial Institutions Act by adding to an existing annual
report regarding the IMF a requirement for a discussion of the
progress made by the Fund in adopting and implementing the
policies outlined in Section 401(c).
Subsection (d) requires from the Treasury Secretary a
report within 90 days of enactment of this Act concerning the
history of debt relief programs led by, or coordinated with
international financial institutions (IFIs). In particular, the
report must address how poor countries and the poorest segments
of their population have benefitted from debt relief, and
whether debt relief has contributed to a country graduating
from reliance on concessionary financing and international
development assistance.
Subsection (e) calls for the Comptroller General to prepare
within six months of enactment of this Act a report listing the
salaries, benefits, and operating expense account of each IFI
for the previous fiscal year.
Sec. 5. Repeal of Bilateral Funding for International Financial
Institutions
This section repeals Sec. 209(d) of the Foreign Assistance
Act of 1961 (FAA). Enacted in 1971, Sec. 209(d) authorizes the
President to transfer bilateral economic aid funds provided
under part I of the FAA to the World Bank, the Asian
Development Bank, and other MDBs to enable these organizations
to make loans to foreign countries. Prior to 1971, Sec. 205 of
the FAA, until repealed in 1971, had permitted the transfer of
10 percent of bilateral economic aid to MDBs. These transfer
authorities, however, have not been operative since 1970.
Beginning with the Foreign Assistance Appropriations Act, 1970,
Congress annually has included a provision prohibiting the use
of bilateral economic assistance for transfer to MDBs under the
provisions of first, Sec. 205 of the FAA, and from 1971 on,
under Sec. 209(d). In short, Sec. 405 repeals an authority that
has been blocked by Congress for 30 years.
Sec. 6. Definitions
This section defines seven terms used in this title:
appropriate Congressional committees, Bank, Comptroller
General, Fund, international financial institutions (IFIs),
multilateral development banks (MDBs), and Secretary.
Appropriate Congressional committees include the Senate Foreign
Relations and Appropriations Committees, and the House
International Relations and Appropriations Committees. The Bank
refers to the World Bank's International Bank for
Reconstruction and Development (IBRD), while IFIs include the
IMF and multilateral development banks. The term MDBs refers to
the three major facilities of the World Bank, and the regional
banks operating in Asia, Latin America, Africa, Eastern Europe,
the Middle East, and North America. The Secretary refers to the
Secretary of the Treasury.
III. Cost Estimate
In accordance with rule XXVI, paragraph 11(a) of the
Standing Rules of the Senate, the committee provides the
following estimate of the cost of this legislation prepared by
the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 29, 2000.
Hon. Jesse Helms,
Chairman, U.S. Senate Committee on Foreign Relations,
Washington, DC.
Dear Mr. Chairman:
The Congressional Budget Office has prepared the enclosed
cost estimate for the International Debt Forgiveness and
International Financial Institutions Reform Act of 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Joseph C.
Whitehill.
Sincerely,
Dan L. Crippen, Director.
Enclosure.
CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
Summary
The International Debt Forgiveness and International
Financial Institutions Reform Act of 2000 would authorize $600
million over the 2000-2003 period to pay a portion of the cost
of reducing the debt that highly indebted poor countries (HIPC)
owe to multilateral development banks. In addition, the bill
would require new reports on the operations of international
financial institutions. Assuming the appropriation of the
authorized amount, CBO estimates that implementing the bill
would cost $590 million over the 2001-2005 period.
The bill would permit the International Monetary Fund (IMF)
to use all of its earnings from the investment of the net
proceeds from revaluing part of its gold holdings for debt
relief to HIPC courtries. That would lower the IMF's net income
and could lower its interest payments to the U.S. Treasury.
Based on information from the Treasury Department, CBO does not
expect that to occur. Because it could affect direct spending,
the bill would be subject to pay-as-you-go procedures.
The International Debt Forgiveness and International
Financial Institutions Reform Act of 2000 contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act (UMRA) and would not affect the
budgets of state, local, or tribal governments.
Estimated Cost to the Federal Government
The estimated budgetary impact of the bill is shown in the
following table. The costs of this legislation fall within
budget function 150 (international affairs).
Spending Subject to Appropriation
By Fiscal Year, in Millions of Dollars
------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005
------------------------------------------------------------------------
Estimated Authorization Level. 0 200 200 200 0 0
Estimated Outlays............. 0 50 120 190 150 80
------------------------------------------------------------------------
Basis of Estimate
The bill would affect spending subject to appropriation and
direct spending. For this estimate, CBO assumes that the bill
will be enacted by the start of fiscal year 2001 and that the
full amount of the authorized funds will be appropriated over a
three-year period.
Spending Subject to Appropriation. The bill would authorize
the appropriation of $600 million over the 2000-2003 period for
a contribution to a HIPC trust fund. That trust fund would be
managed by the World Bank to compensate the various
multilateral development banks for a portion of the cost of
reducing their loans to certain countries under a proposal
announced in June 1999, at a summit in Cologne, Germany.
While the authorization would be available in fiscal year
2000, none of the supplemental appropriations bills as passed
by the two houses of Congress as of this date have included
funding for this year. CBO assumes that the contribution under
the bill would be funded over a three-year period with the
first installment in fiscal year 2001. We also assume that the
contribution would be provided as a letter of credit issued to
the HIPC trust fund at the time a country and its creditors
agree upon a plan for debt relief and poverty reduction and
that the outlay would occur when the country satisfies all
conditions in the plan.
CBO estimates that the additional reporting requirements
would cost less than $500,000 each year, assuming the
appropriation of the necessary funds.
Direct Spending Public Law 106-113 authorized the U.S.
Executive Director of the IMF to vote for the Fund's plan to
revalue a portion of its gold holdings and to transfer
resources held in a special reserve account to a trust fund to
be used for debt relief. That law permits the IMF to use only
9/14 of such earnings for debt relief. The bill would strike
that restriction, but CBO does not expect that change to have a
budgetary impact
The revaluation and transactions with member countries will
lower the TMF's net income by an estimated $120 million a year.
Lower income for the IMF could affect the U.S.. budget if the
IMF should lower the rate of interest that it pays on the U.S.
reserve position in the Fund. Based on information from the
Treasury Department, CBO assumes the United States would oppose
reducing the rate of remuneration.
Pay-As-You-Go Considerations
The Balanced Budget and Emergency Deficit Control Act sets
up pay-as-you-go procedures for legislation affecting direct
spending or receipts. Although enacting this bill could affect
direct spending by a significant amount, CBO does not expect
that to occur.
Previous CBO Estimate
On April 6, 2000, CBO transmitted a cost estimate for S.
2382, the Technical Assistance, Trade Promotion, and Anti-
Corruption Act of 2000. That bill contained the provisions of
this bill, but the cost estimates are somewhat different. In
estimating spending under the earlier bill, CBO assumed that
$200 million of the proposed funding would be provided in a
supplemental appropriation bill for 2000. This estimate assumes
that funding would begin in 2001 because House- and Senate-
passed supplemental bills do not currently contain such
funding.
Intergovernmental and Private-Sector Impact
The International Debt Forgiveness and International
Financial Institutions Reform Act of 2000 contains no
intergovernmental or private-sector mandates as defined in UMRA
and would not affect the budgets of state, local, or tribal
governments.
Estimate Prepared By
Federal costs: Joseph C. Whitehill.
Impact on state, local, and tribal governments: Leo Lex.
Impact on the private sector: Lauren Marks.
Estimate Approved By
Peter H. Fontaine, Deputy Assistant Director for Budget
Analysis.
IV. Evaluation of Regulatory Impact
In accordance with rule XXVI, paragraph 11(b) of the
Standing Rules of the Senate, the Committee has concluded that
there is no regulatory impact from this legislation.
V. Changes in Existing Law
In compliance with paragraph 12 rule XXVI of the Standing
Rules of the Senate, changes in existing law made by the bill,
as reported, are shown as follows (existing law proposed to be
omitted is enclosed in black brackets, new matter is printed in
italic, existing law in which no change is proposed is shown in
roman):
Foreign Assistance Act of 1961
* * * * * * *
Sec. 209. Multilateral and Regional Programs.--(a) * * *
[(d) In furtherance of the provisions of subsection (a) of
this section, any funds appropriated under this part I may be
transferred by the President to the International Development
Association, the International Bank for Reconstruction and
Development, the International Finance Corporation, the Asian
Development Bank or other multilateral lending institutions and
multilateral organizations in which the United States
participates for the purpose of providing funds to enable any
such institution or organization to make loans to foreign
countries.]
* * * * * * *
The International Financial Institutions Act
* * * * * * *
SEC. 1705. ANNUAL REPORT AND TESTIMONY ON THE STATE OF THE
INTERNATIONAL FINANCIAL SYSTEM, IMF REFORM, AND
COMPLIANCE WITH IMF AGREEMENTS.
(a) Reports.--Not later than October 1 of each year, the
Secretary of the Treasury shall submit to the Committee on
Banking and Financial Services of the House of Representatives
and the Committee on Foreign Relations of the Senate a written
report on (1) the progress (if any) made by the United States
Executive Director at the International Monetary Fund in
influencing the International Monetary Fund to adopt the
policies and reform its internal procedures in the manner
described in section 262o-2 of this title, and (2) the progress
made by the International Monetary Fund in adopting and
implementing the policies described in section 3(c)(1)(C) of
the International Debt Forgiveness and International Financial
Institutions Reform Act of 2000.
* * * * * * *
The Bretton Woods Agreements Act
* * * * * * *
SEC. 62. APPROVAL OF CONTRIBUTIONS FOR DEBT REDUCTIONS FOR THE POOREST
COUNTRIES.
For the purpose of mobilizing the resources of the Fund in
order to help reduce poverty and improve the lives of residents
of poor countries and, in particular, to allow those poor
countries with unsustainable debt burdens to receive deeper,
broader, and faster debt relief, without allowing gold to reach
the open market or otherwise adversely affecting the market
price of gold, the Secretary of the Treasury is authorized to
instruct the United States Executive Director of the Fund to
vote--
(1) to approve an arrangement whereby the Fund--
(A) sells a quantity of its gold at
prevailing market prices to a member or members
in nonpublic transactions sufficient to
generate 2.226 billion Special Drawing Rights
in profits on such sales;
(B) immediately after, and in conjunction
with each such sale, accepts payment by such
member or members of such gold to satisfy
existing repurchase obligations of such member
or members so that the Fund retains ownership
of the gold at the conclusion of such payment;
and
(C) uses the earnings on the investment of
the profits of such sales through a separate
subaccount, only for the purpose of providing
debt relief from the Fund under the modified
Heavily Indebted Poor Countries (HIPC)
Initiative (as defined in section 1623 of the
International Financial Institutions Act); and
[(D) shall not use more than 9/14 of the
earnings on the investment of the profits of
such sales; and]
(2) to support a decision that shall terminate the
Special Contingency Account 2 (SCA-2) of the Fund so
that the funds in the SCA-2 shall be made available to
the poorest countries. Any funds attributable to the
United States participation in SCA-2 shall be used only
for debt relief from the Fund under the modified HIPC
Initiative.
* * * * * * *