[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
                      IDA-14--HISTORIC ADVANCE OR
                       INCREMENTAL CHANGE IN DEBT
                         AND DEVELOPMENT POLICY

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                       DOMESTIC AND INTERNATIONAL
                 MONETARY POLICY, TRADE AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 27, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-56




                    U.S. GOVERNMENT PRINTING OFFICE
25-952                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North          HAROLD E. FORD, Jr., Tennessee
    Carolina                         RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
VITO FOSSELLA, New York              STEVE ISRAEL, New York
GARY G. MILLER, California           CAROLYN McCARTHY, New York
PATRICK J. TIBERI, Ohio              JOE BACA, California
MARK R. KENNEDY, Minnesota           JIM MATHESON, Utah
TOM FEENEY, Florida                  STEPHEN F. LYNCH, Massachusetts
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida           ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   AL GREEN, Texas
KATHERINE HARRIS, Florida            EMANUEL CLEAVER, Missouri
RICK RENZI, Arizona                  MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin,
RANDY NEUGEBAUER, Texas               
TOM PRICE, Georgia                   BERNARD SANDERS, Vermont
MICHAEL G. FITZPATRICK, 
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina

                 Robert U. Foster, III, Staff Director
 Subcommittee on Domestic and International Monetary Policy, Trade and 
                               Technology

                       DEBORAH PRYCE, Ohio, Chair

JUDY BIGGERT, Illinois, Vice Chair   CAROLYN B. MALONEY, New York
JAMES A. LEACH, Iowa                 BERNARD SANDERS, Vermont
MICHAEL N. CASTLE, Delaware          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California
RON PAUL, Texas                      BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           PAUL E. KANJORSKI, Pennsylvania
DONALD A. MANZULLO, Illinois         BRAD SHERMAN, California
MARK R. KENNEDY, Minnesota           LUIS V. GUTIERREZ, Illinois
KATHERINE HARRIS, Florida            MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin
TOM PRICE, Georgia                   JOSEPH CROWLEY, New York
PATRICK T. McHENRY, North Carolina   BARNEY FRANK, Massachusetts
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 27, 2005...........................................     1
Appendix:
    September 27, 2005...........................................    23

                                WITNESS
                      Tuesday, September 27, 2005

Adams, Timothy D., Under Secretary for International Affairs, 
  Department of the Treasury.....................................     7

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    24
    Biggert, Hon. Judy...........................................    26
    Maloney, Hon. Carolyn B......................................    29
    Pryce, Hon. Deborah..........................................    31
    Waters, Hon. Maxine..........................................    34
    Adams, Timothy D.............................................    36

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Letter to Foreign Operations Subcommittee conferees, 
      September 9, 2005..........................................    41
    Letter to Hon. Paul D. Wolfowitz from G-8 finance ministers, 
      September 23, 2005.........................................    43


                      IDA-14--HISTORIC ADVANCE OR
                       INCREMENTAL CHANGE IN DEBT
                         AND DEVELOPMENT POLICY

                              ----------                              


                      Tuesday, September 27, 2005

             U.S. House of Representatives,
         Subcommittee on Domestic and International
            Monetary Policy, Trade, and Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2 p.m., in Room 
2128, Rayburn House Office Building, Hon. Judy Biggert 
presiding.
    Present: Representatives Biggert; Manzullo, Neugebauer, 
Oxley (ex officio), Maloney, Waters, Moore and Frank (ex 
officio).
    Mrs. Biggert. This hearing of the Subcommittee on Domestic 
and International Monetary Policy will come to order. Without 
objection, all Members' opening statements will be made part of 
the record.
    And I would like to welcome everyone here today. And 
today's hearing will review recent developments for debt relief 
to heavily indebted poor countries.
    First of all, let me thank Chairman Pryce for holding this 
hearing. And I would also like to thank my colleagues from this 
side and the other side of the aisle for their support on this 
historic decision to provide debt relief to the world's poorest 
countries.
    Canceling Cold War debts is a major step towards 
integrating the poorest countries on Earth into the global 
economy. But for these indebted and impoverished countries, 
many a loan has never been the answer. Without good government, 
better education, and sound business practices, the 
indebtedness and poverty only grow deeper. This time we have a 
chance to get it right. The administration has taken a bold and 
long and overdue step in proposing responsible and sustainable 
debt relief and development, including the complete 
cancellation of debt for many of the world's poorest nations.
    This hearing is timely as it follows this weekend's World 
Bank meetings where the U.S. committed in writing to the debt 
relief deal. I am pleased that this committee will work again 
this year to exercise its jurisdiction and authorize the funds 
that we have committed to the debt relief, which comes in the 
form of U.S. contributions to the International Development 
Association. The first disbursement of these funds is due by 
the end of this calendar year, so it is now up to Congress to 
ensure that we deliver on this historic commitment.
    America has proven time and time again that it is one of 
the most generous countries in the world both on the domestic 
and international fronts. I reiterate my full support for the 
administration's leadership in crafting the successful and 
historic IDA-14 and debt relief agreement. I am committed to 
working with the Department of Treasury again this year as our 
country moves towards delivering on its promise.
    I might add that in July, the Group of 8 Gleneagle 
communique also highlighted global goals for climate change, 
energy, and sustainable development, and aid to Africa. Through 
meetings the group addressed issues relating to the global 
economy, oil trade, intellectual property rights, regional 
issues, post-tsunami recovery, counterterrorism, safety, 
nonproliferation, and reform in the broader Middle East. It is 
my hope that this committee will take an active role in the 
coming months to examine the U.S. position and role in 
promoting many of these initiatives that further impact the 
developing world and the United States. In particular, I 
support further discussions on the relationship between 
development, trade and energy policy.
    So I would like to welcome the witnesses today, and I would 
now recognize the ranking member for 5 minutes.
    [The prepared statement of Hon. Judy Biggert can be found 
on page 26 in the appendix.]
    Mrs. Maloney. Thank you, Congresswoman Biggert, and I thank 
also Chairwoman Pryce. This is a very important moment for debt 
relief and development funding, and I would like to take a 
moment to thank Under Secretary Adams and Deputy Assistant 
Secretary Pittman for their dedication and work in this cause 
of debt relief for the HIPC countries. I am sure many of my 
colleagues, especially those who, like myself and Mr. Frank, 
have been strong supporters of the JUBILEE bills introduced by 
Congresswoman Waters, I am sure that they all join us in 
appreciation for your contributions and for this very historic 
agreement.
    It is not too much to say that we stand at the threshold of 
a new day for HIPC nations. Freed of the crushing burdens of 
debt, they will be able to fund social initiatives such as 
health and education that their people desperately need. It is 
not too much to hope that with some trade and tariff 
assistance, some of these nations will move out of acute 
poverty and be able to stand on their own. If we want to spread 
democracy, we need also to spread economic freedoms as well, 
and this is one critical way to begin.
    Debt forgiveness is a global cause. It has been compared to 
the civil rights movement of the 1960s and the antiapartheid 
movement of the 1980s, and I would say it is just a matter of 
doing what is right.
    But we still have more work to do. The debt forgiveness 
agreement by the International Monetary Fund and the World Bank 
reached this weekend was made possible by the pledge of the G-8 
countries, including, and very crucially, the United States, to 
cover the loan payments lost by debt forgiveness dollar for 
dollar.
    For the U.S. to live up to that commitment requires 
congressional authorization of the U.S. contribution to the 
replenishment of the ID-14 and the African Development Fund, 
and I understand the first payment is due in November, so we 
need to move promptly.
    It is not an option for the United States to be the first 
country to renege on its commitment towards debt forgiveness. 
The agreement has been made. Now it is time for Congress to do 
its part and to appropriate the necessary funding.
    I look forward to your testimony. Thank you.
    [The prepared statement of Hon. Carolyn B. Maloney can be 
found on page 29 in the appendix.]
    Mrs. Biggert. I am very pleased that the ranking member of 
the Financial Services Committee is here. Now I recognize Mr. 
Frank.
    Mr. Frank. Thank you, Madam Chair. I continue to regret 
that this very important issue draws little interest from the 
membership and the--I guess we have--we have--we get slightly 
more people when we talk about housing for poor people, but if 
we would talk about real money, this place would be filled. And 
I regret the fact that we don't have that same interest.
    I do appreciate the movement by the administration--and 
this is a subject which I began to talk about with Mr. Adams's 
predecessor, Under Secretary Taylor, and, in fact, had a 
breakfast at Treasury, and the one issue which seemed to some 
of us to be a concern is one that has now been resolved, and 
that is the reflow issue, the commitment to replace the money 
that was coming in with new money. And I have always strongly 
agreed with the administration's--this administration's 
position--that we should not just be doing debt relief, but we 
should be doing grants rather than loans going forward. I don't 
understand why some of my friends on the liberal side sort of 
resisted that. It almost seemed to me to be guilt by inartful 
association.
    If you recognize the importance of debt relief now, why 
would you think that generating new debt was a useful thing, 
except, of course, for the fact that this was a question about 
where the new money would come from. So I am very pleased that 
we have done that.
    And I would hope--well, Madam Chairwoman, let me ask that 
we make the letter from the G-8 finance ministers to President 
Wolfowitz from September 23rd a part of the record in which our 
Government, as one of the G-8, reaffirms our commitment, namely 
that we will, as I understand it, and they will, and we will, I 
hope, agree, appropriate or provide new money sufficient to 
offset whatever losses would have come from the repayments, and 
enough so that we can do grants going forward in the amount of, 
I guess, 30 percent.
    Mr. Frank. And I--I would say this to the administration: 
As long as we replace the money that would otherwise be coming 
in debt repayments, I am in complete agreement with you about 
going forward with grants, and I very much appreciate that.
    One other point I would like to mention, and I would like 
to put it into the record at this point, too, Madam Chair, a 
letter from the group of the responsible organizations, 
nongovernment organizations, that have been monitoring this 
process, Care USA, Catholic Relief Services, Environmental 
Defense, Human Rights Watch, and a number of others.
    And what this letter does is to support language in the 
Senate version of the foreign operations bill for reforms, 
transparency and accountability. And it is really building on 
work that this committee did in the previous session, and our 
committee and the staffs of our committee worked very closely 
with Treasury previously to get language. And frankly, I know 
there are people who don't want to see us undermine the work of 
the banks, and neither do I. I believe this strengthens it.
    One of the problems we have had is--and I have heard this 
from officials at the banks--we get recipient countries 
basically saying, ``Give us the money, but what we do with it 
is none of your business.'' and you have the leadership of the 
banks and the staff of the banks running a resistance. I am not 
talking about dictating budgetary choices to them. I think 
there was an era when the IMF did that in late 1990s, which was 
a mistake. We are talking about openness and accountability.
    And what we do with the language that is in the Senate is 
strengthen the ability of the banks to impose on the 
expenditures of these funds not substantive choices, but 
accountability, openness, and transparency. I think these are 
very important.
    So I am urging the Senate to adopt it. It is actually 
within our jurisdiction technically, but I would hope we would 
say to the Senate it does build on stuff we have done before. I 
would hope that the conference committee in foreign ops would 
adopt this language because it is not adversarial to the banks, 
but, in fact, strengthens it. And to the extent that these 
policies are implemented, you will avoid the kind of bad news 
from the banks that would undercut our ability to continue to 
support it.
    So I congratulate the administration for resolving the 
problem of the reflows of the continued revenues. I think it is 
very important that we commit ourselves to supporting the 
implementation of that. And remember, all of this is 
conditional, obviously, on this happening.
    And I also will be following up on this with our colleagues 
on the conference committee, House and Senate, to urge them, 
and I know there are negotiations going on with Treasury, to 
build on this. I really believe that this strengthens the work 
of the international banks.
    Thank you, Madam Chair.
    Mrs. Biggert. Thank you.
    It is not only a pleasure to have the ranking member here 
from full committee, but also being joined by the chairman of 
the full committee. Mr. Oxley is recognized.
    Mr. Oxley. Thank you, Madam Chairwoman. I am delighted to 
have a chance to discuss today what has turned out to be an 
historic agreement to retire Third World debt which originated 
in the Cold War. The Bush administration deserves a great deal 
of credit for its leadership in crafting this agreement, and I 
am delighted that the new Under Secretary of the Treasury for 
International Affairs will testify to us today for the first 
time on this topic.
    And I also thank the subcommittee Chairwoman Pryce for 
holding the hearing, and the Vice Chair Biggert for your work, 
in recognition for all the years that you have been working on 
development issues and your leadership regarding these issues.
    It is particularly relevant that we should receive 
testimony on this issue now. The Financial Services Committee 
is responsible for authorizing U.S. participation in and 
funding for various multilateral development institutions, and 
this committee's views are therefore indispensable to and must 
be reflected in any discussion of U.S. support for 
developmental assistance through these entities. Our role takes 
on heightened importance now when the mechanism for U.S. 
Participation in debt cancellation for the poorest nations on 
Earth flows through the International Development Association, 
the International Monetary Fund, and regional development 
banks.
    Over the weekend the Boards of the IMF and World Bank 
approved an historic package crafted by the Group of 8 
countries to eliminate the debt burden of highly indebted poor 
countries which they were unlikely ever to pay back. The deal 
also eliminates the debilitating round trip of lending to 
finance interest payments rather than real development in these 
countries. It uses the existing HIPC framework to ensure that 
only countries that make real reforms qualify for that debt 
relief. This means that governments must demonstrate commitment 
to meaningful dialogue with their citizens and invest in 
developing the human potential of their citizens in order to 
qualify for a fresh start.
    The Treasury Department also deserves credit for finding a 
way to fund the U.S. share of debt cancellation in a way that 
will no doubt will not unduly burden U.S. taxpayers. As I 
understand it, the U.S. usually disburses its contribution to 
the International Development Association on an as-needed 
basis. Delivering our contribution through a mechanism known as 
accelerated encashment will permit the interest earnings to 
accrue to the benefit of IDA.
    I look forward to hearing more about how this mechanism 
will work to fund debt cancellation. The Treasury has been 
working hard to secure the global consensus on how to make debt 
cancellation a reality. With this weekend's historic agreements 
with the Boards of the IMF and World Bank, it is now time to 
work with Congress, which has the constitutional responsibility 
to guide the appropriations process on this deal.
    In this context I would like to signal two questions for 
consideration as we start the discussion for how to authorize 
the U.S. contribution to IDA and debt cancellation. First I 
refer to a letter from the Group of 8 finance ministers to the 
President of the World Bank, dated September 23, which Mr. 
Frank has already made part of the record and is the exact 
letter I referred to.
    Finance ministers say they, quote, will make available 
immediately additional funds to cover the full cost during the 
IDA-14 period. And these funds will be fully additional to the 
resources already agreed during the IDA-14 replenishment, 
endquote. It would be good to know whether that text covers 
accelerated encashment or whether additional funds are expected 
by the international community from the United States in the 
future.
    Secondly, I note that little has been said so far in the 
debt cancellation discussions about the role that 
anticorruption programs and trade promotion can have to 
breaking the lend and forgive cycle and to promote democracy. I 
would look to underscore the importance that ensuring that any 
continued U.S. participation in IDA be paired with continued 
and meaningful reforms to fight corruption in development. We 
must do everything we can to make sure that development funds 
reach the communities and entities that need it most rather 
than corrupt contractors and local government officials. We 
must do everything we can to promote local capacity for 
individuals and firms to tap the benefits of the global market 
and increase their standard of living through trade rather than 
aid.
    I look forward to hearing how the Treasury Department plans 
to move the ball forward on these issues in IDA-14 and beyond. 
With that, the Chair just yields back the rest of his time.
    Mrs. Biggert. Thank you very much.
    The gentlelady from Wisconsin. Do you have an opening 
statement?
    Recognized for 3 minutes.
    Ms. Moore. Thank you, Madam Chair. And it is certainly an 
exciting period of history for me to be a member of the 
Subcommittee on the Domestic and International Monetary Policy 
when I have spent so many years watching with feeling helpless 
and frustrated about dealing with this problem.
    Really, everything has been said. I just wanted to add my 
voice to those of the ranking member of our committee, Barney 
Frank, and others who have talked about the importance of the 
grants in eliminating the debt cycle so there can, in fact, be 
reinvestments in poverty reduction, health education, and other 
programs that we need to reinvest in, quite frankly, in this 
country as well because it doesn't do enough, as the academic 
research points out, to merely cancel the debt unless, in fact, 
you can build those other institutions to make sure that people 
have the proper educational opportunity and health delivery 
systems that they can indeed create businesses and increase 
their trade capacity.
    It is very, very exciting, and I am very pleased that the 
United States has stepped up its initiatives in this area and 
look forward to monitoring these funds and making sure that we 
get the desired results. Thank you, and I yield back.
    Mrs. Biggert. Thank you.
    We are fortunate to have with us today the U.S. Treasury 
experts who were on the front lines negotiating this weekend's 
historic debt and development deal. Congratulations, gentlemen, 
and I am eager to hear your testimony today and anticipate that 
it will give us a detailed account of what happened and outline 
our role in helping you to deliver on the U.S. Financial 
commitment to IDA-14.
    So our witnesses today are Mr. Tim Adams, Under Secretary 
for International Affairs at the Department of Treasury. Mr. 
Adams was sworn in 2 months ago, but he is no stranger to this 
field. He held several policy-related positions in the 
administration of President George H.W. Bush, including 
positions at the Export-Import Bank, the Treasury Department, 
and the House of Management and--Office of Management and 
Budget. Most notably he served in the White House Office of 
Policy Development working on a broad range of economic issues. 
A native of Kentucky, he holds undergraduate and graduate 
degrees from the University of Kentucky. Welcome.
    Also sitting at the table is another gentleman who also 
hails from the Department of Treasury, Mr. Bobby Pittman, 
Deputy Assistant Secretary For Multilateral Development 
Institutions and Policy. Mr. Pittman served as Director for 
African Affairs at the National Security Council, worked as an 
economist for the CIA, and worked as a consultant with RCF 
Economic and Financial Consulting. Mr. Pittman graduated first 
in his class from Florida State University and received an MA 
in economics from, and did doctoral work at, the University of 
Chicago.
    Please welcome both of our witnesses.
    What happens now is we recognize you for 5 minutes, and we 
will certainly be lenient on the time since we don't have that 
many witnesses or that many people that will be asking 
questions. So--but if you can keep your oral testimony close to 
5 minutes, and with that--and then we will ask questions for 5 
minutes. And your statements will be made part of the record.
    So without objection, your witness statements will be made 
part of the record. So ordered.
    So I will turn to Under Secretary Adams for your testimony.

      STATEMENT OF TIMOTHY D. ADAMS, UNDER SECRETARY FOR 
       INTERNATIONAL AFFAIRS, DEPARTMENT OF THE TREASURY

    Mr. Adams. Thank you, Chairman Pryce, Vice Chairwoman 
Biggert, Ranking Member Maloney and members of the 
subcommittee. I am very pleased to be here today to talk to you 
about the key elements of the Bush administration's 
international development agenda, including the historic debt 
relief initiative that was just agreed to over this past 
weekend.
    The President's vision, his approach on development which 
gained international consensus in Monterrey in 2002, focuses on 
results, not just inputs, not just the resources spent. It 
recognizes that developing countries must take a primary 
responsibility for their development. This vision affirms 
private sector activity as the primary engine of poverty 
reduction and growth and accordingly supports reforms and 
policies that promote trade and investment.
    Some of the highlights of this agenda include a $15 billion 
emergency plan for AIDS relief launched in 2003, 1.2 billion 
over 5 years to help eliminate malaria as a major killer of 
children in Africa, the Millennium Challenge Account that now 
the President is leading the charge on the Doha round for 
multilateral trade.
    Building on this strong track record of achievement, the 
President launched an ambitious proposal for 100 percent debt 
cancellation to the eligible heavily indebted poor countries, 
known as HIPCs. For many of the poorest countries, there has 
been a history of repeated lend and forgive cycles. HIPCs alone 
have accounted for nearly 250 debt relief treatments in the 
Paris Club for over the last 25 years. This means that many 
countries have been getting debt restructurings or partial debt 
reduction every 2 or 3 years. At the same time, the 
international financial institutions have been increasing their 
lending volume to fill up any space created by the temporary 
debt treatments. Between 1989 and 2002, debt relief to HIPCs 
totaled $40 billion, while new loans totaled more than twice 
that, close to 100 billion.
    Shifting to grants going forward helps to break this cycle, 
but there also needs to be a cleaning up of the balance sheets 
so that future generations can work to achieve higher economic 
growth, and we can alleviate poverty without the burden of 
unsustainable debt.
    In early June of this year, President Bush and Prime 
Minister Blair reached an agreement to launch a comprehensive 
debt package. This led to an agreement at the G-8 heads of 
state meeting at Gleneagles in July.
    There are four key elements of this historic proposal. The 
first is 100 percent cancellation of the debt stock held by 
IDA, the African Development Fund, and the IMF.
    Two, it concerns additional donor contributions to IDA and 
the African Development Fund. Donors will provide additional 
contributions based on agreed burden shares to offset foregone 
debt repayments to IDA and the African Development Fund. 
Additional funds will be made available immediately to cover 
the IDA-14 and African Development-10 period and through 
regular replenishments for subsequent periods. For IDA-14 and 
the Africa Development Fund-10, the U.S. will fulfill this 
commitment to the MDBs by utilizing flexibility in the timing 
of planned annual payments and will not require appropriations 
in addition to those already requested.
    Three, focus on strong performance. The additional donor 
contributions will be allocated to all IDA-only countries based 
on the existing IDA and African Development Fund performance-
based allocation system. This approach ensures equity between 
the HIPCs and the non-HIPCs, and creates an incentive for 
countries to pursue responsible pro-growth policies.
    Four, utilize grant financing for IDA and African 
Development Funds to ensure that countries do not immediately 
reaccumulate unsustainable external debts.
    Under this historic plan, 18 HIPC countries will be 
immediately eligible for IDA, African Development Fund, and IMF 
debt forgiveness. The remaining 20 will also become eligible as 
they reach their HIPC completion point.
    The total amount forgiven for the 18 HIPC completion point 
countries will be $40 billion. The full application of the 
cancellation of existing debt repayments could amount to as 
much as $60 billion as countries complete this process.
    At the World Bank and IMF annual meetings that ended just a 
few days ago, shareholders strongly endorsed this important 
initiative.
    The debt relief alone is not enough. We must also ensure 
that aid is effective. IDA-14, which the U.S. has pledged 2.85 
billion over the next 3 years, establishes a two-tiered system 
to monitor results. One includes country outcomes, and two is 
the IDA's contribution to country outcomes.
    Not only will IDA-14 focus on achieving results, it will 
also deliver significantly more assistance to countries that 
are well governed and enact pro-growth policies. The Bank's 
strategy, the World Bank's strategy, for fiscal year 2006 
through 2008 envisions providing the top 10 percent of country 
performers with nearly seven times as much assistance on a per 
capita basis as the lowest 10 percent.
    In addition to the emphasis on results, IDA-14 also marks a 
significant increase in the grant share of IDA. About 31 
percent of IDA-14 resources and 45 percent of assistance to the 
very poorest IDA-only countries will be provided in the form of 
grants. This represents a 60 percent increase over the IDA 
level 13. Recognizing that growth is the key to poverty 
reduction, IDA-14 also encompasses a private sector growth 
strategy that includes improving the investment climate, 
especially for micro, small, and medium-sized enterprises, and 
improving access to basic infrastructure and social services 
through private sector participation.
    Finally, allow me to address the issue of fighting 
corruption which I have heard about here today. IDA-14 
represents great strides in improving transparency. Tranparency 
is an essential ingredient in fighting corruption because it 
places accountability with countries and institutions alike. 
The IDA-14 agreement helps reinforce the World Bank's 
accountability by calling on the World Bank Board to do such 
things as disclose Board minutes and strengthen procedures for 
documenting public consultation processes.
    We are firmly committed to every possible effort to help 
prevent, detect, and punish corruption associated with the 
development assistance provided by the MDBs. Our efforts to 
strengthen anticorruption efforts are focused on three levels. 
First, at the institutional level, we are focused on improving 
the functioning of MDB internal control processes and 
increasing the disclosure and accountability of MDB operations.
    Second, at the project level, we are focusing on 
encouraging the MDBs to conduct analysis and design projects 
that help reduce opportunities for corruption. We want to 
strengthen the fiduciary standards and help ensure that MDB 
funds will be well spent.
    Third, at the country level, we will focus on enhancing the 
transparency and accountability of recipient countries' 
governance systems and disclosure in MDB operations and 
analysis, and to channel MDB resources toward countries that 
have good governance in place. Treasury reports annually to the 
Congress on the country-specific anticorruption programs 
supported by each MDB and actions taken by recipient countries.
    Overall, the MDBs have taken important steps to combat 
corruption, and the United States is at the forefront of 
continuing efforts to broaden and deepen those initiatives.
    In conclusion, I want to once again thank the subcommittee 
for giving me the opportunity to testify and for its past 
support--enthusiastic support, I might add--for this 
administration's international development programs. We believe 
we have built a recent record that merits your continued 
support.
    Our collective efforts have a concrete impact on the 
ability of the poorest countries to generate economic growth 
and reduce poverty. I look forward to continuing those efforts 
in this position and will be pleased to answer any questions 
you may have. Thank you.
    Mrs. Biggert. Thank you.
    [The prepared statement of Timothy D. Adams can be found on 
page 36 in the appendix.]
    Mrs. Biggert. Mr. Pittman, you are here to answer 
questions, also.
    Thank you. All right, with that, then, we will go to 
questions from the committee. Now I will recognize myself for 5 
minutes.
    I understand that before this weekend, there was some 
concern that debt cancellation could weaken the ability of the 
World Bank to fund development because the loss of interest 
income associated with HIPC debt and because of concerns that 
donors over time would pledge less money to IDA.
    Could you let us know what percentage of IDA resources is 
represented by the interest payments commonly referred to as 
the reflows?
    Mr. Adams. It is about 3 percent of disbursements. If you 
look at the 2004 numbers, that is about 300 million per year. 
The disbursements to HIPC was about 3-1/2 billion per year, and 
total disbursement was about 9- to 10 billion per year. So it 
is about 300 million per year.
    Mrs. Biggert. All right, then, could you tell us whether, 
in fact, the development resources available to all the 
countries within IDA will shrink following this weekend's debt 
cancellation agreement?
    Mr. Adams. Madam Vice Chairman, the additional funds that 
we put in to compensate for these reflows actually go in for 
all of IDA, so it is available for HIPCs and non-HIPCs alike, 
and that was one of the concerns that many of the non-HIPCs had 
is that they felt that they weren't getting equal treatment. 
But the additional funds going in to compensate will actually 
be available, and it is based on performance. So the good 
performers, irrespective of HIPC or non-HIPC, will have access 
to this new funding.
    Mrs. Biggert. And how are those countries chosen, like the 
non-HIPC countries, or the HIPC; in other words, about 
approximately how many countries will receive this?
    Mr. Adams. Of the HIPC?
    Mrs. Biggert. Yes.
    Mr. Adams. Well, it is 18 immediately and another 20 that 
are in the process, that are between the decision point and 
completion point. Probably about 9 or 10 of those 20 that are 
in the process could come through in the next year or so. The 
remaining remains to be seen. It depends on good performance on 
behalf of those in the HIPC process.
    Mrs. Biggert. And the other countries that are involved in 
this right away are countries that pay back their loans or part 
of their loans?
    Mr. Adams. Those countries that are not a part of HIPC only 
benefit because of additional flows that go into the full IDA 
pot which makes additional money for the non-HIPCs, too. So 
they also benefit. Again, that is distributed--it is allocated 
based on a performance system. So the good performers, 
irrespective of HIPC or non-HIPC, will see additional 
resources.
    Mrs. Biggert. Thank you.
    I noted that the World Bank's 2006 world development report 
makes the case that inequality of opportunity sustains extreme 
deprivation and often weakens prospects for overall prosperity 
and economic growth. And I might add that this also increases 
the opportunity for corruption to thrive. So the report goes on 
to recommend that increased access by the poor to education, 
among other things, can reduce poverty. And I think that World 
Bank President Wolfowitz in his first address to the IMF World 
Bank annual meeting said this weekend emphasized the importance 
of improved women's access to education, health, and credit as 
a key component to fostering sustainable development.
    Could you provide your perspective on the role that 
increased education development assistance can play in 
fostering economic growth and decreasing the local government 
corruption?
    Mr. Adams. Indeed, education is a critical catalyst for 
development, and it is an issue which this administration is 
focused on. The First Lady in a recent trip to Africa focused 
on the issue of young women's education in Africa, and I 
suspect that we will be hearing more from the First Lady on 
these issues.
    I am firmly committed to women's education, education 
generally. And, in fact, I was just joking with my staff, I 
recently sat down with Gene Sperling, who is across the aisle 
from me and someone who I had many debates with last year 
during the election year. But there is one thing that Gene and 
I firmly believe in, and that is education for young women 
globally and especially in Africa. So I think you will find in 
the Treasury Department, and me specifically, someone who is 
very interested in this issue.
    Mrs. Biggert. Thank you.
    My time is about to expire, so I will recognize the 
gentlelady from New York, Mrs. Maloney.
    Mrs. Maloney. I thank the lady for yielding, and I want to 
note that Maxine Waters, the author of the debt relief bill, 
has been a leader on this in Congress, has joined the panel 
now.
    Mr. Adams, Mr. Wolfowitz has stated that fighting 
corruption will be one of his top priorities at the World Bank, 
and what reforms does Treasury believe are needed to make the 
multidevelopment banks' anticorruption units more effective? 
Specifically does Treasury support the two key reforms in Title 
7 of the Senate ops bill that would require, number one, that 
the MDBs must undertake independent forensic audits when 
corruption is suspected in their programs or projects; and 
number two, that the multilateral development banks must cross 
debar sanctioned firms across all the MDBs and coordinate their 
sanction and debarment procedures to publicly list debarred 
firms or individuals? Does Treasury specifically support these 
two requirements that are in the Senate ops bill, and also, 
does Treasury support additional funding for the anticorruption 
units of the MDBs?
    Mr. Adams. Thank you for the question. I am going to 
respond generally, and then I am going to ask my colleague to 
respond to your specific questions. As I said in my opening 
statement, we are firmly committed to strengthening efforts to 
eliminate corruption, and I mentioned three aspects of our 
focus. One is at the institutional level, the other is at the 
project level, and third is at the country level. And I think 
prior to my recent arrival to the Treasury, there has been 
great leadership out of this institution. And I pledge to you 
here today that you will see additional leadership on fighting 
corruption.
    Mr. Pittman. I would just add additionally, I mean, 
building on Section 581 legislation, which we have been working 
on for the last 2 years, which we have implemented a number of 
key reforms. I think the Senate legislation that currently 
exists intends to build on that. I would say that the cross 
disbarment is an example of something that we very much agree 
with, something that we just even this last weekend talked with 
all of the new heads of the institutions about.
    On the forensic audits, the only thing I would say is 
again, as part--as we put in place all these different pieces, 
one of the constraints on some of the pieces is the costs to 
the institution and the trade-offs of the different costs. And 
so it is just something we have to look at. We have certainly 
been pushing for transparency and outside auditing. But on some 
of the specifics, the only possible constraint at times is the 
cost of additional measures.
    Mrs. Maloney. Mr. Adams and Mr. Pittman, specifically does 
Treasury support the reform in the Senate foreign ops bill that 
requires companies and governments to disclose the payments 
they make, the revenues they receive, and the contracts showing 
amounts owed to the government by any oil, gas, or mining 
projects supported by the multidevelopment banks? Those 
transparency measures--instead of a general statement, can you 
say specifically, do you support that which was in the Senate 
bill?
    Mr. Pittman. I think we are continuing to work with the 
Senate staff to come up with legislation that we think is 
consistent with some of our domestic regulations on 
transparency in the energy sector. One of our concerns--I mean, 
again, this is something that we have been pushing quite 
forcefully on. I think if you look at our record of voting, we 
have not been afraid to vote against many projects because we 
don't think the tranparency pieces are in place, especially on 
energy. But what we want to make sure is that when we get into 
a spot that we are not able to vote for any projects, which 
essentially locks us out of the discussion at the Board and 
with some of the different actors and institutions--so, again, 
it is just a--it is just a question of what we think is the 
most effective way to implement, I think, what are our shared 
goals.
    Mrs. Maloney. Specifically does the Treasury support the 
reform in the Senate foreign ops bill that requires evaluations 
of MDB personnel to include a factor reflecting the quality of 
the lending operations they are designing and supervising? In 
other words, what reforms does Treasury need to combat the oft-
cited pressure to lend problem at the MDBs and ensure that 
projects are better designed and more effectively supervised so 
that, in fact, the help gets to the people and not some special 
interest?
    Mr. Pittman. Again, this particular piece that we have been 
quite passionate on I think links to something that was 
mentioned earlier, which is measurable results on the ground of 
the dollars. And it is true that historically a number of these 
institutions in terms of the performance evaluations for many 
of the staff have been based on lending volumes, which we--I 
think we all agree is the wrong goal. And so one of the things 
in IDA-14 which we just recently completed negotiations on is 
now these measurable results will be incorporated into each 
staff person's review and benefits. And, of course, what that 
really helps is it also pushes staff away from middle-income 
countries. You know, you get the best staff then going to work 
on Niger to work on developmental impacts in a very difficult 
environment instead of going to easier countries in the middle-
income areas and working on my high-volume lending.
    So this is something that we have been very focused on.
    Mrs. Maloney. My time is up, but I certainly hope that 
other countries that are outside of the HIPC definition that 
have huge debts will also be considered for debt cancellation.
    Mrs. Biggert. Ranking Member Mr. Frank is recognized.
    Mr. Frank. Thank you, Madam Chair.
    One of the things that is really, I think, not fully 
recognized is the extent to which we have made real progress 
here in a very bipartisan way. I know agreement is not news. 
Unfortunately things get into the media because of their 
controversial nature, not their inherent importance, and then 
the public gets the wrong view.
    Obviously there are areas where we have some disagreement. 
Unless you have reversed Mr. Taylor's position, I continue to 
think that making it a condition of every free trade agreement 
that people foreswear forever any capital control is a great 
mistake.
    And there also is great agreement. I was especially 
pleased, Mr. Adams, in your testimony in page 2 your very 
gracious note acknowledging the work of this committee, members 
of this subcommittee. The gentlewoman from California has been 
in the lead on this. We had a bipartisan coalition of myself 
and--me and the gentleman from Iowa, Mr. Leach; the gentleman 
from Alabama, Mr. Bachus; and this has really been a case going 
back to the previous administration, frankly, where first we 
took the lead in the previous administration, and we have had 
great mutuality here, and this is a great success, I think, for 
public policy achieved in a wholly bipartisan way. And again, 
it is one of these things that hasn't yet been notified--
noticed, and that includes the current Chairman of the 
committee, the previous Chairman of the committee. We have all 
worked very well together on this.
    In fact, I was going to suggest to the Chairman that I 
think, frankly, this is a time when this subcommittee can take 
a lot of credit for it. Much of this initiative to both the 
debt relief and the efficiency improvements, transparency, et 
cetera, came out of this committee. And so while we are in a 
situation now where it is important for the Appropriations 
Committee to move, I am going to suggest to the Chairman of the 
full committee that we send a letter to the appropriators 
acknowledging our agreement with what they are doing just to 
remind people that this is still something within our 
jurisdiction.
    I just have a couple questions for Mr. Adams. And I think 
it is very important for us to reaffirm here and elsewhere that 
we agree with your commitment that we will make up whatever 
loss comes. And as the Chairman's question elicited it is not a 
huge amount of money. It is well within our capacity to do it. 
So I think we should make that very clear.
    The one question I had on page 2 of the letter to Mr. 
Wolfowitz, the first paragraph referring to our commitment, 
U.S.'s commitment, it says you support a congressional bill 
that would approve the initiative, et cetera. I assume that 
would be covered by the appropriation; that is, it does not 
seem to me that we would need a special piece of legislation to 
carry out our commitments. I wouldn't want us to have 
unnecessary obstacles. So is it--you would agree that this is 
something that you would have the authority to do, as long as 
we provide the funding?
    Mr. Adams. Yes. Congressman, your reference to that letter 
and actually a letter from the subcommittee that was extremely 
important as we went around both within the G-7 and outside 
the--within the G-8, I should say, and outside the G-8 to show 
that we speak with one voice across the aisle and up both ends 
of Pennsylvania Avenue, that we are committed to doing this. 
And I will say that it was very important----
    Mr. Frank. So the way in which we carry out is not 
important. We are committed to do it, and I think that is very 
important.
    Let me ask a question that arose, Mr. McGlinchy noted in 
this the CRS report. I am sure there is an answer. You just 
don't want to give it to me. It says in the--we got a CRS 
report on page 4, which IDA countries are eligible for grants 
depends on their level of debt distress.
    Well, I wonder--I hope you can explain to me how we can 
avoid a circularity here, because the purpose of this is to 
take debt distress off these countries. So if we, in fact, make 
them not debt-distressed by forgiving their debt, do we then 
penalize them because they are not eligible for the grants? How 
do we prevent this from being kind of a closed loop? Mr. 
Pittman.
    Mr. Pittman. This has actually been one of the most 
difficult points for us in the last 6 months because 6 months 
ago we had this agreement on increasing the amount of grants 
before the debt relief agreement, and that agreement was based 
on debt levels for many of these countries.
    And so we wanted to make sure that the debt relief didn't 
result in a number of countries that we just gave debt relief 
to getting grants. And I think the biggest piece is that in the 
new system at work at the institutions is a forward-looking 
component of 20 years forward, including sensitivity analysis 
that includes historic shocks and all these other things. And 
if in any of those projections going forward 20 years they 
reach any of these what are relatively conservative levels of 
debt, they are given grants. And so I think because--the point 
you raised is quite critical. The grant is the piece that----
    Mr. Frank. The fact is that countries will not find 
themselves ineligible for grants because they were the 
beneficiary of debt cancellation. It would obviously be 
paralyzing if the poorest countries were in that. The ways in 
which you worked that out we don't have to deal with directly 
here because--but that reassurance is very helpful.
    Thank you, Madam Chair.
    Mrs. Biggert. Thank you.
    Mr. Frank is absolutely right, Mr. Under Secretary, we 
all--and this is such a bipartisan issue; this is a nice warm-
up for your future testimony.
    With that, Ms. Moore is recognized for 5 minutes.
    Ms. Moore. Well, thank you so much, Madam Chair.
    I was very curious, Mr. Adams, about your testimony. I 
listened very carefully when you talked about conditions for 
this debt relief as being countries that were willing to 
undergo pro-growth strategies and improving the investment 
climate, and those are very laudable goals. But I am reminded 
of how people see these initiatives very differently.
    Sometimes when people talk about pro-growth strategies and 
improving investment climates, they are talking about things 
like not having a minimum wage to discourage investment, or not 
allowing union activity, or having lax environmental standards, 
or privatizing many services that would otherwise be 
government-related. That country might choose, for example, to 
have national health care. Would these be barriers? The devil 
is always in the details. So I am just wondering, where are we 
going to start in our negotiations with these countries in 
terms of requiring pro-growth strategies and improving the 
investment climate?
    Mr. Adams. Thank you, Congresswoman Moore.
    That is meant to look at issues that attract capital, 
because capital formation, especially private capital 
formation, is really the key to growth. We can only give so 
much in aid to countries around the world, but to really put 
them on a sustainable path, they need to create their own 
engine of growth. And if you are talking about the elements of 
that, it really is things that we actually just take for 
granted here, which are property rights and enforceable 
contracts, a legal system which is dependable, absence of 
corruption, so that, as the old saying goes, capital is a 
coward; it goes where it is treated well, and it flees where it 
is treated poorly. And we need to make sure that there is an 
appropriate investment climate that attracts capital and in a 
sense retains capital.
    You know, in many emerging markets around the world, 
capital is leaving. Some of it is coming to the United States. 
But it is not being put to work at home. And we need to make 
sure there is an appropriate climate there so local capital 
stays locally and is put to work creating jobs and building 
businesses.
    Ms. Moore. So I am really comfortable if you are talking 
about some broader things like institutions, like courts and 
enforceable contracts versus really interfering with those 
things like labor organizations and things that a country may 
choose to engage in with its private citizenry.
    I do appreciate your testimony, and I want to congratulate 
you all for your involvement in developing these benchmarks 
back in July and coming to these agreements over the weekend.
    Madam Chair, I yield back.
    Mrs. Biggert. Thank you for all that you have done on this 
issue.
    The gentlewoman from California is recognized.
    Ms. Waters. Welcome. Welcome. As Barney said, this has been 
a true bipartisan effort. It has been a pleasure to work with 
my colleagues from both sides of the aisle for debt relief. And 
I want to thank Carolyn Maloney along with Barney Frank for 
their work on this issue. They have been consistent. They have 
been knowledgeable. And really Barney is one of those Members 
of Congress that really got me interested when I came here on 
this issue.
    And I would like to thank them for their support on the 
JUBILEE Act. Again, while we are kind of basking in the glow of 
success on something around here, let me mention Mr. Leach and 
Mr. Bachus as being real leaders and original cosponsors of my 
JUBILEE Act.
    You know, Barney, I was thinking about all of the 
discussion about faith-based initiatives, and a lot of it is 
very political. But the involvement of the church community, 
the international church community, the year of the JUBILEE was 
something to behold. Not only did they weigh in very heavily, 
they gave such credibility to the work that I give them great 
credit for the point that we have reached today.
    Mr. Frank. If the gentlewoman would yield, it is the very 
concept of the Jubilee year comes out of the Bible, and it is 
one where they really did put their energy where the doctrine 
was.
    Ms. Waters. That is right. And I learned a lot from that 
also. So we are on our way. And we have all these people to 
thank. I even want to thank Bono today, because Bono was in 
there and had people who never thought they would stand in the 
same room with him embracing. They talk to me from afar. But it 
was a sight to behold.
    I have just a few comments. It is very difficult to work 
complicated agreements, and I think we have covered 18 
countries in this agreement, and there are about 20 more that 
could be covered. And I think in my JUBILEE Act I am asking for 
50 countries to be covered because I think that we have these 
other countries who are very, very poor, very much in need, and 
very debt-laden.
    I need to ask a little bit about Haiti and why Haiti was 
not included in the agreement; the countries Haiti, Kenya, 
South Africa, Bangladesh, Philippines, Nigeria. And I can see a 
little bit and I understand a little bit about South Africa and 
maybe Nigeria, but Haiti I just don't understand, as poor as it 
is, as debt-ridden as it is, why we can't include them in the 
agreement. And would you please help me with that?
    Mr. Adams. Congresswoman, Haiti actually stands a very good 
chance of being included. There are about a handful of 
countries that are so-called sunset countries that will very 
likely qualify for HIPC. Haiti is one of those, and we should 
know in about 6 months. We are waiting on the data and a number 
of reports. But we included in a group of countries that we 
expect and certainly will plan for to be a part of the HIPC 
process.
    Ms. Waters. So does this mean that Haiti could be included 
no matter what happens politically, whether or not the 
elections take place, whether or not there is a new Prime 
Minister? Is that true?
    Mr. Adams. They would still--Congresswoman, they would 
still have to go through the same process that all of to other 
HIPCs have gone through, or are going through as we speak. But 
indeed they would be eligible for debt relief, and, again, we 
should probably know early 2006 on a handful of other countries 
based on end-of-2004 data.
    But I think it is a high likelihood that they will be part 
of the process.
    Ms. Waters. All right. Speaking of 2006, I have concern 
that the G-8 finance ministers' agreement will not be 
implemented immediately. It was reported that IMF debt will not 
be canceled to the end of the year, and World Bank debt will 
not be canceled until July of 2006, the start of the World 
Bank's financial year in July of this year. After the agreement 
was announced, the Government of Zambia announced plans to use 
their savings to provide AIDS drugs to almost 100,000 infected 
people this year. If the implementation of the agreement is 
postponed, thousands of Zambians will be unable to receive 
treatment for HIV at least until next year.
    Would you clarify for me the timing of debt cancellation, 
and will all 18 countries see their IMF debts canceled and thus 
their debt service payments suspended beginning in January 1 of 
2006? Will all 18 countries see their World Bank debts canceled 
and thus their debt service payments suspended beginning on 
July 1st, 2006?
    Mr. Pittman. Congresswoman, I would say this has been a big 
concern for us for many months now and the different timing at 
the IMF and the World Bank, and, of course, there is also the 
African Bank which would be implemented on January 1st, or the 
African Fund, and that is tied to their fiscal years.
    In fact, many--for the World Bank now they have already 
done their country allocations to the countries for this fiscal 
year. And so to adjust those allocations which the deal needs 
to do, they have to wait for the next fiscal year, but frankly, 
and more importantly, it was to get all the shareholders to 
agree. We still need to get final votes in both the Boards. 
That is something we are working very actively on. We would 
have liked to have seen the agreement be implemented this past 
July 1st, but at that point it was only a G-8 agreement, so we 
had to get buy-in from the other shareholders, and that is one 
of the pieces that has delayed the implementation date.
    Mr. Frank. Would the gentlewoman yield?
    Ms. Waters. Yes.
    Mr. Frank. This is an important point I have not fully 
focused on, and I will say this: They may be unable to do that, 
but one of the fall-backs would seem to me to be if any of 
those countries were in--technically in default, the 
institutions could simply not take any adverse action. I would 
assume they have the power so that if they, in fact, don't make 
the payments, that they could see that nothing bad happened to 
them.
    Mr. Pittman. I mean, I think the important piece in terms 
of the immediate fiscal year is that the 18 countries that we 
are talking about, and even, in fact, the further 9 that we 
expect to come in within the next 12 months, their payment to 
the World Bank is on average less than 10 percent of what they 
will be getting from the Bank this fiscal year. So, in fact, 
you know, we will be able, I think, to manage with each country 
on an individual basis to make sure that you have a smooth 
transition, and, of course, the complete financial transaction 
would take place on July 1, 2006. That is certainly our hope as 
the next target date to get this done.
    Ms. Waters. Thank you very much.
    Mrs. Biggert. Gentlelady yields back.
    The gentleman from Illinois, Mr. Manzullo, is recognized 
for 5 minutes.
    Mr. Manzullo. Thank you. I think I have more of a comment 
than a question, but you could comment on my question--on my 
comment--or question my comment.
    I am just wondering what type of a signal it sends to a 
recipient country of foreign aid that if they fail, that 
somewhere down the line forgiveness of the debt is available.
    I am sure you have thought about that, Mr. Pittman. You are 
an economist. And I know you think about lots of stuff like 
that. That is more of a social question, I guess, than a 
financial question. Either of you care to take a stab at that?
    Mr. Adams. Yes, Congressman. You know, it is an issue that 
we actually spent a lot of time this past weekend during the 
bank fund meetings talking about, among the 20 or 30 different 
countries around the table. You know, the issue is many of 
these loans were made decades ago, and the individuals who took 
out those loans or who were responsible for them at the time 
have long gone. And in the meantime there have been wars and 
famines and a variety of other exogenous shocks that have hurt 
many of these countries such that they simply can't repay. 
Also, many of these loans aren't really loans in the sense that 
you and I might think of one. They are highly concessional 
long-term low interest; in a sense they are grants, but we just 
call them something else. And part of this process is just 
recognizing them for what they are and also recognizing the 
fact that they are unlikely to ever be repaid.
    But it is a concern of ours, the signals we send. And it 
is--we are also accountable for the money we are writing off. 
It is close to $50 billion. And as one of my colleagues put it 
this weekend, where did all that money go? Well, unfortunately, 
some of it was lost to corruption. Some of it was just simply 
lost to bad projects and bad timing and some of the events I 
described. But we have to put in place a system that builds 
positive incentives, not negative incentives. But sir, I 
certainly share your concern.
    Mr. Manzullo. We--about, I think it was 3 years ago, when 
there was the coup in Nigeria, and I can't think of the new 
President of Nigeria, came into a room. Is he--is Nigeria one 
of the countries seeking debt relief?
    Mr. Adams. Nigeria actually has a separate debt relief 
package that we are doing through the Paris Club. They are 
going to prepay or buy back approximately $12 billion worth of 
their debt at a 60 percent discount, which is what the market 
is trading the debt at. It has no cost to the United States. 
But they have been able to take some of the resources they have 
earned from oil revenues to essentially buy back their debt at 
market rates. And we thought this was a pretty good deal for 
the creditor community to take.
    Mr. Manzullo. Well, you answered the second question on it.
    Mr. Adams. I am sorry, sir. What was the second question?
    Mr. Manzullo. My second question would have been, why would 
we give relief to Nigeria when they belong to OPEC and have all 
the oil reserves? So essentially they are discounting at a fair 
market price the value of their obligation and buying it back.
    Mr. Adams. Yes, sir. Well, despite being an oil producer, 
they are an extremely poor country. They have a population of 
about 130 million. They have a GDP per capita of probably 360, 
$350, so it makes them an extremely poor country. They also 
have a difficult time, a real challenge in getting their oil to 
market and capitalizing on that natural resource. And as you 
noted, they have had periods of instability, and so the 
creditors, the G-8, and others, thought it was an appropriate 
policy for them to essentially recognize----
    Mr. Manzullo. Get your money while you can.
    Mr. Adams. To recognize what the marketplace is saying.
    Mr. Manzullo. Thank you. Appreciate it.
    Mrs. Biggert. Thank you. I think we will go for a second 
round if people have questions.
    Ms. Waters. I did have a question, if I may.
    Mrs. Biggert. Okay.
    Ms. Waters. Is it timely? Is that okay?
    Mrs. Biggert. The gentlelady from California is recognized.
    Ms. Waters. Thank you very much. I am concerned about the 
conditions--the International Monetary Financial Committee 
communique mentions the importance of poor countries following 
sound policies in order to remain eligible for debt 
cancellation. I am concerned that this could mean that the 18 
countries included in the agreement may be required to comply 
with additional conditions in order to receive debt 
cancellation. These 18 countries have already implemented 
economic and governance reform policies in order to qualify for 
debt relief. They should be able to receive debt cancellation 
without additional requirements. Are we going to pile on some 
additional requirements and new hoops to jump through?
    Mr. Pittman. I think it is a very good question, and 
frankly, this is something that once again I think in our 
conversations here in Congress and our conversations with civil 
society, I think we have all been very much agreed that if a 
country has made it through the HIPC process and we do in 
addition the debt relief, that is enough. I mean we certainly 
want to give new resources based on performance, and that is a 
key piece of this initiative, is that new resources will be 
based on performance. But we fought very hard, along with the 
British Government, to make sure that there was 100 percent 
cancellation based on the previous conditions that were put in 
place under HIPC.
    Now, that said, there will be kind of a diagnostic taken 
just to see where countries are at. You do have one or two 
countries that have had a fundamental change since they got 
their debt relief under the HIPC initiative. But it is 
certainly our expectation that that will affect a very small, 
if any, number of these countries that have already made it 
through the HIPC process. But we do think it is important to 
take stock of where the country is, since maybe 2 years ago it 
was decided that they reached their completion point under the 
HIPC initiative. But--so there won't be a continual monitoring 
process, to answer your question, or that is certainly not our 
expectation and certainly not how we see the agreement.
    Ms. Waters. Well, if I can just continue, despite the fact 
that you are very much on top of it and aware of what I am 
talking about, this communique that I am made aware of, 
somewhat aware of, what were they talking about in terms of 
other conditions?
    Mr. Pittman. I think the important piece is that--I mean 
this isn't a secret--that there were many nonG-8 countries that 
wanted the debt cancellation to be conditional each year, 
basically progressive cancellation. Basically, each year you 
would review and turn the spigot on or off, and this is 
something that we definitely didn't like. I mean if you think 
about it, if a country is having problems and having problems 
meeting conditions, then all of a sudden they have a shock of 
500 million which is all of a sudden due in debt as well, that 
is certainly not the way we saw the program.
    That said, it was important for many of these other 
countries to highlight that we will be continually engaging 
with these countries and will be monitoring their performance 
and their governance over time, and I think that is certainly 
something that we agree with. It is just that we don't agree 
that the debt relief would be turned on and off as a result of 
it. So I think it is highlighting the importance without 
actually linking it to the debt relief.
    Ms. Waters. I see.
    Mr. Frank. Would the gentlewoman yield?
    Ms. Waters. Yes.
    Mr. Frank. You said that was in the IMF. Whose communique 
was that? Can you tell us? The IMF? So these were IMF member 
countries, IMF donor countries outside G-8 that had raised this 
concern? I think you should tell them that that is a not a good 
way to win friends around here.
    Mrs. Biggert. Mr. Under Secretary, recent research from the 
Institute of International Economics indicates that global free 
trade and the elimination of tariffs would confer income gains 
of at least $90 billion annually in developing countries, and 
at that pace the GDP growth is positively correlated with 
export growth. And this means that, on the average, a 1 percent 
growth in GDP can translate into a 2 percent decrease or 
reduction in the number of poor people. So with the progress in 
achieving free trade through the Doha Round could free an 
estimated 110 million people from poverty, and related 
productivity gains could lift an additional 200 million people 
out of poverty, how do you review the relationship of--between 
the multilateral development assistance debt cancellation and 
trade policy?
    Mr. Adams. Thank you, Vice Chairman. I think the trade 
agenda is the next chapter in our approach toward development. 
You know, the President laid out in his speech of about 2-1/2 
weeks before the U.N. General Assembly an extremely visionary 
approach to trade, and that is we would be willing to drop all 
tariffs and all subsidies if everyone else would too. And the 
biggest beneficiaries of that would be the poor and developing 
countries, not only because it allows them to export into the 
developing world, but to export next door. Some of the highest 
tariffs and barriers to trade are internal to some of these 
regions; for example, Africa.
    So we will continue to press for another historic agreement 
following on this historic agreement to do what we have done 
with debt, to do the same thing with trade.
    Mr. Frank. There goes bipartisanship.
    Mrs. Bigget. Oh, by then I am sure there will be some 
changing of minds maybe.
    Gentleman from Massachusetts?
    Gentlelady from--well, I guess we have exhausted our 
questions so I would like to really thank the panel for being 
here. Thank both of you, and certainly for your expertise in 
this issue, and I am sorry it wasn't more controversial. But 
maybe next time.
    So the Chair notes that some members may have additional 
questions for this panel which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and to place their responses in the record. So 
without further ado, this hearing is adjourned.
    [Whereupon, at 3:12 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                           September 27, 2005


[GRAPHIC] [TIFF OMITTED] T5952.001

[GRAPHIC] [TIFF OMITTED] T5952.002

[GRAPHIC] [TIFF OMITTED] T5952.003

[GRAPHIC] [TIFF OMITTED] T5952.004

[GRAPHIC] [TIFF OMITTED] T5952.005

[GRAPHIC] [TIFF OMITTED] T5952.006

[GRAPHIC] [TIFF OMITTED] T5952.007

[GRAPHIC] [TIFF OMITTED] T5952.008

[GRAPHIC] [TIFF OMITTED] T5952.009

[GRAPHIC] [TIFF OMITTED] T5952.010

[GRAPHIC] [TIFF OMITTED] T5952.011

[GRAPHIC] [TIFF OMITTED] T5952.012

[GRAPHIC] [TIFF OMITTED] T5952.013

[GRAPHIC] [TIFF OMITTED] T5952.014

[GRAPHIC] [TIFF OMITTED] T5952.015

[GRAPHIC] [TIFF OMITTED] T5952.016

[GRAPHIC] [TIFF OMITTED] T5952.017

[GRAPHIC] [TIFF OMITTED] T5952.022

[GRAPHIC] [TIFF OMITTED] T5952.023

[GRAPHIC] [TIFF OMITTED] T5952.018

[GRAPHIC] [TIFF OMITTED] T5952.019

[GRAPHIC] [TIFF OMITTED] T5952.020

[GRAPHIC] [TIFF OMITTED] T5952.021

