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H.R. 2634, THE JUBILEE ACT FOR

RESPONSIBLE LENDING AND EXPANDED

DEBT CANCELLATION OF 2007

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

NOVEMBER 8, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–80

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on: 

November 8, 2007 ............................................................................................. 1

Appendix: 

November 8, 2007 ............................................................................................. 23

WITNESSES 

THURSDAY, NOVEMBER 8, 2007

Caliari, Aldo, Director, Rethinking Bretton Woods Project, Center for Concern ........................................................................................................................ 10

Flood, Gerald F., Counselor, Office of International Justice and Peace, United 

States Conference of Catholic Bishops ............................................................... 8

Watkins, Neil, National Coordinator, Jubilee USA Network .............................. 4

Woods, Emira, Co-Director, Foreign Policy in Focus, Institute for Policy Studies .......................................................................................................................... 6

APPENDIX 

Prepared statements: 

Waters, Hon. Maxine ........................................................................................ 24

Caliari, Aldo ...................................................................................................... 26

Flood, Gerald F. ................................................................................................ 38

Watkins, Neil .................................................................................................... 46

Woods, Emira .................................................................................................... 61

(1)

H.R. 2634, THE JUBILEE ACT FOR 

RESPONSIBLE LENDING AND EXPANDED 

DEBT CANCELLATION OF 2007

Thursday, November 8, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Waters, Moore of Kansas, Green, Cleaver, Bean, Moore of Wisconsin, Sires; Bachus and 

Bachmann. 

The CHAIRMAN. We will begin. Our senior Republican, who is of 

course one of the major sponsors of this program both in the past 

and today, will be joining us shortly. We are returning to a subject 

in which this committee has played a leading role, and it is time 

to resume that role. 

It was members of this committee—our former chairman, Mr. 

Leach, whose picture is appropriately there to my left in the rear; 

the current ranking member, Mr. Bachus; the gentlewoman from 

California, the chairwoman of the Housing Subcommittee; and myself—who pushed for this to happen in the first place over the objection of many, including people in the Clinton Administration, 

and it was frankly one of the rare times in recent years when both 

the Republican House leadership and the Clinton Administration 

were overruled by a vote on the Floor of the House. The religious 

communities also participated strongly, and the four of us worked 

on this, and we are back at it. 

Let me say that I think the moral case for debt relief is almost 

self-evident. No matter what you think about past practices, and 

in many cases, past practices were wrong on the part of the borrowing countries, on the part of the lending institutions in countries, whatever you think, sadly today, overwhelmingly the victims 

are innocent people, residents of these countries, and our job is to 

alleviate their misery. There is a great deal of talk about how we 

go forward with economic development, and there are legitimate 

concerns about that. But there is no room for any intellectual doubt 

that getting rid of this overhang of debt is an essential precondition 

to any progress. 

And so the committee is resuming this. We take a good deal of 

heart from the fact that—well, let me put it this way. It is a common lie for people to say that they do not like to say, ‘‘I told you 

2

so.’’ In my experience, everybody likes to say, ‘‘I told you so,’’ and 

in fact, personally, I can say—and people have heard me say this 

before—that it is one of the few pleasures that improves with age. 

And those of us on the committee, and I’m joined by the gentleman 

from Alabama who is one of the leading advocates of it, those of 

us who were in the lead on the debt relief previously can say, ‘‘We 

told you so.’’ It has worked well. It has been very helpful. It has 

been one of the most—given the situation in Africa and some other 

places, it’s hard to say it was a positive thing, but it did more to 

diminish the negatives that we confront than any other single 

thing I can think of. 

So, we think it worked well enough for us to do it again, and we 

will be pushing the governments, the international financial institutions, to move forward with that. I very much welcome this 

panel, and it is the beginning of a serious legislative effort, once 

again, in a bipartisan way, and you will see this committee, I believe, pushing forward with this. With that, I will recognize the 

gentleman from Alabama, the ranking member, who as I said—

when we did this the first time—was one of the leading sponsors 

and advocates, and he continues to be in that category. Mr. Bachus. 

Mr. BACHUS. I thank the chairman. I thank you for holding this 

important hearing on the Jubilee Act, and for your leadership, as 

well as the leadership of Subcommittee Chairwoman Waters. I welcome the witnesses. Many of you, we’ve worked together, worked 

with our colleagues on debt reduction and poverty alleviation legislation for the poor countries of the world, for nearly a decade now. 

And I’m happy to say that those efforts have been remarkably successful. 

Mr. Chairman, as you know, myself and many of my colleagues 

on this committee took part last month in a fast in support of the 

Jubilee Act. The momentary hunger that I felt was nothing like the 

courageous weeks-long fast of Reverend David Duncan, of course. 

But fasting for one day cannot begin to compare with the constant 

hardships and the pangs of hunger experienced daily by millions of 

little boys and girls and even their parents and their families, who 

were born into what seems to be perpetual poverty, disease, and 

hunger in dozens of countries around the world. 

Congress can be a tough environment, and we say on occasion 

that we had a really bad day, a tough day. But we ought to be reminded that for billions of people throughout the world, that even 

on our worst days, we have more food, more shelter, more clothes, 

more security, more healthcare, and more of everything than our 

poor brothers and sisters have on their best days. 

In debating debt relief, I’ve often quoted Sister Rebecca Trujillo, 

a nun in Nicaragua. She was asked, ‘‘How do the poor get through 

the day? How do they survive?’’ Her answer was, ‘‘Often they do 

not.’’ 

Mr. Chairman, we started something big with the Jubilee movement. NGOs, our witnesses, millions of people around the world 

joining together to make a historic commitment to debt relief in the 

year 2000. Since then, there has been even more or further debt 

forgiveness on the part of the G–8 nations. In countries where debt 

relief has been implemented, debt is down by two-thirds, and 

3

spending on reducing hunger and improving health, education, and 

social services is now 4 times the size of the previous debt payments. 

Since the start of the new millennium, the poverty rate in subSaharan Africa is down 6 percent. There are more children receiving healthcare and medical treatment, in fact, over a million more 

children in that area alone. Vaccinations are up, and throughout 

Africa, the percentage of students enrolled in primary school has 

gone up significantly. 

The Jubilee Act will build on those successes by making it possible to cancel the debts of up to 25 countries that are not now eligible for debt relief. Debt relief has improved the lives of millions 

of people at almost no monetary cost to the United States. If the 

Jubilee Act is successful, the U.S. share of debt reduction for the 

nine or so countries that would be eligible immediately would be 

$100 million. That’s less than 50 cents apiece for every man, 

woman, and child in this country. Surely the most generous country in the world can afford a commitment of 50 cents. 

Doing the right thing is the imperative here. But even if we consider cost, let us realize that the cost of not acting is not only hopelessness and unrest throughout the world, but also an increased 

threat of terrorism. Poverty breeds unrest and instability and creates the types of conditions that allow dictators and terrorists to 

survive and thrive. So, combatting global poverty is clearly in our 

own economic and national security interest. 

Debt relief is not the total solution to poverty, hunger, and disease, but it is a necessary first step. It is where the journey should 

begin to free these countries of the burden of debt, the chains of 

poverty, and the shackles of despair and enable them to minister 

to the economic and social needs of their citizens. Accordingly, I 

will continue to work with my colleagues to advocate this legislation both in the committee and in the House as a whole. 

I yield back the balance of my time, and I again welcome our witnesses. 

Ms. WATERS. [presiding] Are there any other members who wish 

to make an opening statement? If not, I will recognize myself for 

5 minutes. First, I’d like to begin by thanking Chairman Barney 

Frank and Ranking Member Spencer Bachus for organizing this 

hearing and for their support of the Jubilee Act. I also would like 

to thank the Jubilee Movement for all of their efforts over the past 

10 years to cancel the debts of the world’s poorest countries. 

The Jubilee Movement is one of the most outstanding humanitarian efforts I have seen in my entire career. Over the past 10 

years, Jubilee has convinced Members of Congress, officials of the 

Clinton and Bush Administrations, and political leaders from 

around the world to cancel poor country debts. I’m so proud of my 

affiliation with the Jubilee Movement because it brought the needs 

of the world’s poorest people to the attention of the world’s most 

powerful leaders. 

I introduced the Jubilee Act to cancel the debts of additional 

needy and deserving poor countries and to ensure that the benefits 

of debt cancellation will not be eroded by vulture funds and irresponsible lending. Because of the tireless efforts of Jubilee Movement activists, the Jubilee Act now has 86 cosponsors. I look forVerDate 0ct 09 2002 13:07 Feb 05, 2008 Jkt 040432 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\40432.TXT HFIN PsN: TERRIE
4

ward to hearing the views of the witnesses on how the Jubilee Act 

can be effectively implemented and how it will benefit the world’s 

poorest countries and their people. I’m not going to get into the details of the Jubilee Act, because I know that is what the witnesses 

are here to do, but I request unanimous consent to have my complete statement included in the hearing record. And so without objection, it is so ordered. 

Without further delay, I will yield back the balance of my time, 

and we will now hear from our witnesses: Mr. Neil Watkins, national coordinator, Jubilee USA Network; Ms. Emira Woods, co-director, Foreign Policy in Focus, Institute for Policy Studies; Mr. 

Gerald F. Flood, counselor, Office of International Justice and 

Peace, U.S. Conference of Catholic Bishops; and Mr. Aldo Caliari, 

director, Rethinking Bretton Woods Project, Center of Concern. 

Thank you for being here, and we will start with Mr. Watkins. 

STATEMENT OF NEIL WATKINS, NATIONAL COORDINATOR, 

JUBILEE USA NETWORK 

Mr. WATKINS. Well, thank you, Congresswoman Waters. And before I begin, I would just like to offer a profuse thank you on behalf 

of the entire Jubilee Network to Chairman Frank, Ranking Member Bachus, and Congresswoman Waters. Your tireless leadership 

and support on debt cancellation has truly been a blessing, and you 

have all been long-time champions. We are really grateful for your 

leadership and all of this committee’s leadership in addressing the 

crisis of international debt. 

I want to begin my testimony with a story about how debt cancellation works in Zambia. Earlier this year I had the opportunity 

to see the impact of debt cancellation firsthand when a Jubilee delegation visited the Siavonga Rural Health Clinic in the Zambian 

countryside. As we toured the clinic, Grace Chibanda, a pharmacist, showed us the pharmacy, which was full of anti-retroviral 

drugs for HIV/AIDS. Debt relief is a good thing, Grace told us. It 

is getting medicines for people who didn’t have it before. Zambia is using its debt cancellation savings of $23.8 million in 

2006 in part to eliminate user fees for healthcare for impoverished 

people in rural areas. This means that an unpayable fee no longer 

stands between Zambia’s poorest people and basic health services. 

Nurses and doctors we talked with confirmed that they had seen 

an increase in patients after the user fees were removed. It was 

truly inspiring to see the impacts of debt relief firsthand and to 

know that the relief is getting to Zambians who need it. 

In another example, Tanzania is also putting its debt savings to 

work, sending two million children to primary school. Since 1996, 

more than 30 countries have received some form of debt relief. 

Twenty-two nations have reached what is called completion point 

in the IMF and World Bank’s Heavily Indebted Poor Country or 

HIPC initiative, and they have received now 100 percent cancellation of eligible debt stock. 

Debt cancellation committed under these programs to date is expected to reduce the debt stock of the 32 HIPCs, eventually canceling a total of $96 billion in debt under the Multilateral Debt Relief Initiative. This year alone, annual debt service savings from 

the MDRI will amount to $1.3 billion, almost all of which will go 

5

directly to fighting extreme poverty around the world. Congress 

and the Administration have each played important roles in achieving a bipartisan consensus for debt cancellation and should be 

proud of what has been accomplished so far. 

As supporters and advocates of debt cancellation, we must continue to be vigilant, to ensure that proceeds from debt cancellation 

reach the most impoverished people, but we are encouraged by the 

positive impacts of debt relief on the ground. 

Debt cancellation now has a 10-year record of success, and it is 

a proven tool to fight global poverty. But even after the debt cancellation provided to date, the world’s most impoverished nations 

continue sending $100 million each day to the United States, the 

IMF, the World Bank, and other creditors. A majority of the world’s 

impoverished countries remain mired in a debt crisis. A 2007 study 

of 41 poor countries that had not reached completion point in the 

HIPC initiative found that most of these countries were actually 

paying more on debt servicing today than they were in 1996. These 

are funds and payments that could be going towards meeting the 

millennium development goals. 

That is why we are saying that it is time to extend the promise 

of debt cancellation. The UK government has already begun to extend debt relief to impoverished countries who don’t qualify for the 

HIPC initiative but who have proven that they can spend the 

money well and who need the relief to meet the MDGs. 

The Jubilee Act is modeled after this initiative and would extend 

debt cancellation to well-governed countries that need it to fight 

poverty. The Act could initially expand debt cancellation to nine 

more countries and ultimately could add 15 beyond that. 

One of the countries that could benefit is Kenya. When I traveled 

to Kenya earlier this year, I saw crushing poverty similar to what 

I saw in Zambia. In Kibera, Africa’s largest slum, we met children, 

parents, and community leaders. One of the people I will never forget was a 13-year-old girl named Mary, who was orphaned by 

AIDS. She dramatized and recited two poems for us while we were 

there, one about the devastation of AIDS for her and the people of 

Africa, and the other about AIDS leaving her and her other young 

friends without parents. Her strong spirit and resilience shone 

through as she spoke and moved to the rhythm of her powerful 

words. I didn’t see the progress in Kenya, however, that I had seen 

in Zambia. Why? In part, because Kenya does not qualify for the 

current debt relief initiative, despite its strong need and improving 

public financial management. They don’t qualify despite the fact 

that Kenya spends more servicing debt than on healthcare or 

water. 

Expanded debt cancellation can make a real difference for people 

in countries like Kenya and elsewhere. As we expand debt cancellation, however, we must be careful to learn the lessons of the past 

11 years. We need to work for more responsible lending practices 

in the future and make reforms in the way debt cancellation is delivered by removing harmful conditions that are undermining the 

promise of debt cancellation. 

To conclude, the Jubilee Act is the smart thing to do. Debt cancellation is an effective and tested strategy for fighting poverty, 

6

and it is a good investment in our security and our image abroad. 

It is also the right thing to do. 

Thank you. 

[The prepared statement of Mr. Watkins can be found on page 

46 of the appendix.] 

The CHAIRMAN. Next, Ms. Woods. 

STATEMENT OF EMIRA WOODS, CO-DIRECTOR, FOREIGN 

POLICY IN FOCUS, INSTITUTE FOR POLICY STUDIES 

Ms. WOODS. Good morning, Chairman Frank, Ranking Member 

Bachus, and Subcommittee Chairwoman Waters. It is an honor to 

be here with you today. I really want to begin, as Neil began, by 

thanking you for your steady, sustained, and moral leadership on 

this issue. It is your bipartisan leadership that has brought already 

such tremendous strides on debt relief. 

My primary focus today will be to explain how I feel so strongly 

that debt cancellation should be granted without harmful conditions of past debt initiatives. My testimony is based on both my 

professional and personal experiences. I’m originally from Liberia 

and have seen firsthand the painful burdens of debt not only 

throughout the continent, but even in my own family. 

Congress and the President, together with your leadership, took 

a huge step forward 10 years ago when they stated that it was a 

moral imperative to give poor people in poor countries debt relief. 

Through your leadership, the burden of repaying debts incurred by 

rich and often irresponsible leaders began to be lifted. Yet today, 

we recognize that the bold steps forward from a decade ago did not 

go far enough. Previous schemes left out many eligible countries 

and also had onerous strings attached, conditionalities. 

The Jubilee Act before you today will extend debt cancellation to 

all impoverished countries that need relief to meet their millennium development goals. On average, low-income countries spend 

about $100 million a day just to pay interest on their debts, vital 

resources that could be spent on essential services. The Jubilee Act 

will bring relief where debts incurred by dictators and also debts 

that have been paid many times over through high interest payments can be relieved. 

I’d love to begin by sharing with you the story—it’s a very difficult story—of my cousin, now 22 years old. For the sake of this 

testimony, and to protect her identity, I’ll call her Anna. Anna and 

I met 2 years ago when I went home to Liberia after the decades 

of war. Anna had also just returned home after living much of her 

life in a refugee camp in Ghana called Bujumbura. At 20 years old, 

Anna had already experienced more of the direct impact of debt 

and conditionalities than a roomful of economists. My aunt and 

uncle had left Liberia for Ghana on foot when the war started in 

1990. Anna was just 5 years old. The ruthless dictator, Samuel 

Doe, accrued debt as he used U.S. taxpayer monies from the 

Reagan era as ‘‘loans’’ to train and equip an army that he then unleashed against primarily innocent civilians. Charles Taylor unseated Doe and continued the ruthlessness until over 250,000 Liberians had been killed and Does’ debt had ballooned to $3 billion. 

Ghana, where the camp was, had approved its first Economic 

Structural Adjustment Facility loan in May of 1995. In that year, 

7

the agreement led Ghana to begin selling off—privatizing—14 

state-owned enterprises. Massive job losses in Ghana airways, 

Ghana railways, and the Electricity Company of Ghana, among 

many others, were the result. With Ghanaians forced out of jobs, 

the job market for Liberian refugees was of course much worse. My 

aunt and uncle could not find work in spite of their graduate degrees. Little Anna, then barely 10 years old, could no longer go to 

school. This was because of the conditions of the international financial institutes which actually imposed user fees on the students 

at community-level schools in Ghana at that time. 

At the age of 13, my cousin practically lived in the streets. On 

Sunday afternoons, as my aunt went to church, Anna and other 

teenage girls would parade around the camp, scantily clothed, waiting for older men, many of whom did not live in the camp, to solicit 

them. This was their employment since school was no longer an option. When we met 2 years ago, Anna had two children, the eldest 

born when she was just 15 years old. Anna returned to Liberia, 

ready to start her life anew. But as Liberia repays its debt to the 

international financial institutions, there are no functioning hospitals. I fear that Anna may be one of the many undiagnosed yet 

living with HIV/AIDS, and the same conditionalities that denied 

her an education may now keep her from treatment, unless Liberia 

and many other countries in Africa and throughout the developing 

world can spend their scare resources on health, education, and 

basic services for their citizens, Anna’s children, and many other 

children throughout the continent will continue to pay the heaviest 

price for the debt of dictators and the conditionalities of the international financial institutions. 

We know that this story is repeated throughout the continent. 

We recognize also the harmful impact of conditions throughout the 

continent. Many claim that the international financial institutions 

no longer impose these conditionalities. We have clear evidence 

from countries throughout the continent that in fact privatization 

of core industries, as well as liberalization of opening up of markets, particularly financial and banking sectors, continues today. 

We are incredibly concerned that unless the conditions, the 

harmful macroeconomic conditions attached to these initiatives are 

removed, there will continue to be disastrous implications even as 

we advance debt relief. 

There are many instances that we would love to share; I wanted 

to talk in particular about Mali. Mali, which had conditions tied to 

its poverty reduction strategy papers and its PRGF, the Poverty 

Reduction Growth Facility arrangement with the IMF, those conditions included water, banking, telecommunications, and agriculture, especially in companies dealing with cotton, Mali’s biggest 

export earner. Mali sold off its rights to the French company SAUR 

in 2000. The process forced impoverished communities to pay for 

the first time for access to clean water. 

In a few short years, there were numerous complaints about mismanagement and claims by the Malian government that the companies had failed to run the water services according to contract. 

By 2005, the Malian government re-nationalized water and yet was 

seen as ‘‘off track’’ by the IMF. 

8

Countries that go a different path from the IMF are actually 

threatened not only from being tossed out of debt relief schemes 

but also from accessing other core financing from the development 

community. It is this stranglehold of the IMF through 

conditionalities that we must end. 

I urge this committee to support the Jubilee Act to fix the flawed 

debt relief by canceling odious debt, by eliminating harmful 

conditionalities, and by advancing steadfastly towards an Africa, 

Latin America, Asia, a developing world where people can pursue, 

health communities can pursue education for their children, can 

live lives of dignity. 

I believe this is what you all as members of this committee intended when you advanced debt relief a decade ago. If we take the 

necessary steps now to remove harmful conditionalities, we can 

meet your moral imperative of lifting the burden of debt for Africa 

and for much of the world. 

Debt has kept Africa in bondage long after the end of slavery and 

colonialism. This legislation could help break those chains. It won’t 

solve all the problems of the world’s poorest country, and it won’t 

give my cousin back her childhood, but it will give these struggling 

nations a better chance of building strong, secure, and healthy societies. 

Thank you. 

[The prepared statement of Ms. Woods can be found on page 61 

of the appendix.] 

The CHAIRMAN. Next, we have Gerald Flood. 

Mr. Flood. 

STATEMENT OF GERALD F. FLOOD, COUNSELOR, OFFICE OF 

INTERNATIONAL JUSTICE AND PEACE, UNITED STATES CONFERENCE OF CATHOLIC BISHOPS 

Mr. FLOOD. Thank you, Mr. Chairman. Mr. Chairman, and members of the committee, I would like to thank you for the opportunity 

to testify here today. Debt relief for poor countries has been a high 

priority for our Bishops Conference for many years. In my testimony I will be focusing on a number of issues at a level of technical 

detail which the Bishops would not normally address and on which 

therefore they would not have a position. Thus I offer my testimony 

primarily as a former development agency official who has worked 

on debt and related issues with both the World Bank and the 

Bishops Conference over quite a few years. 

I would like to begin by reiterating the expressions of thanks and 

appreciation which have already been mentioned by the previous 

witnesses, especially to Chairman Frank and Representatives 

Bachus and Waters for their strong and untiring, faithful—I don’t 

know how many adjectives one could find to adequately express the 

leadership which they have exercised over many years in an effort 

to bring debt relief to millions of poor people in low-income countries around the world. 

Before getting to some of the issues, I had wanted to mention one 

specific case showing how the HIPC program is enabling Catholic 

Relief Services and a broad group of allies in Cameroon to lead a 

path-breaking effort to unite sustainable forestry management with 

9

rural community development throughout the country, but time 

won’t permit, so I refer you to my written testimony on this. 

In looking at H.R. 2634, some members of the committee may be 

wondering why additional debt cancellation is necessary when so 

much debt relief is already being provided under HIPC and the 

more recent Multilateral Debt Relief Initiative. The problem is that 

there are a substantial number of poor countries that are not eligible for the HIPC program, let alone the MDRI. 

The disparity of treatment between HIPC countries and nonHIPC countries became clear when the World Bank and IMF conducted an examination of so-called ‘‘debt sustainability’’ in the 

poorest countries, the so-called IDA-only countries, the countries 

that are only allowed to receive from the World Bank funds from 

their most concessionary arm. The primary objective of the exercise 

was to determine which countries should receive their future IDA 

financing either wholly or partially in the form of grants. When the 

exercise was conducted in 2005, it showed that 42 countries were 

at sufficiently high risk of debt distress to be eligible for grant financing, instead of the usual loans. The list included 29 HIPC 

countries plus 18 other countries. This meant that there were 18 

non-HIPC countries rated as having a risk of debt distress equal 

to or greater than the HIPC countries. Like the HIPC countries, 

now they were going to get some grants going forward. But unlike 

the HIPCs, they would get no debt relief. 

One of the 18 non-HIPCs in this list is Lesotho, which reminds 

me of a remark made by the country’s finance minister when he 

learned about the MDRI debt cancellation agreement. He told Reuters that one of the reasons Lesotho was not classified as an MDRI 

country was it had never defaulted on its debt. It is important, he 

said, that those who have paid their debts well, who run their 

mega-finances well, should be rewarded with debt forgiveness. 

The debt cancellation provisions of H.R. 2634 would address the 

concern expressed by the minister and bring deep debt relief within 

the reach of virtually all of the world’s poorest countries. Some will 

note that the IDA-only criterion for eligibility under the bill will 

capture some countries with relatively low levels of external debt. 

Assuming one accepts the debt sustainability analysis as fully 

valid, and there are some questions about it, in determining really 

whether these countries who are so-called not at high risk of debt 

distress really are in bad shape as far as their debt, the fact is that 

however you slice it, the countries, all of these countries are ones 

with very high levels of poverty, and thus they need to maximize 

the amount of resources that they can marshal to promote human 

development and move toward the millennium development goals 

for reducing poverty. 

We believe that the IDA-only requirement is a reasonable standard for determining which countries should be eligible for debt cancellation. I would also like to address briefly the cost of the debt 

cancellation. I have made a rough estimate of the amount of funds 

the United States needs to commit through the next three IDA replenishment periods—Fiscal Year 2008 through Fiscal Year 2017—

in order to finance the cost of the debt cancellation. I’m unable to 

provide a firm estimate because much of the information required 

for an accurate estimate is not publicly available. My rough estiVerDate 0ct 09 2002 13:07 Feb 05, 2008 Jkt 040432 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\40432.TXT HFIN PsN: TERRIE
10

mate then is that the cost to the United States would be roughly 

$1.5 billion for the 3-year IDA 15 period, from Fiscal Year 2008 to 

Fiscal Year 2010, and that would mean an average of about $500 

million a year. In the next IDA replenishment period, the figure 

would rise to $3.5 billion. The reason for that is the assumption 

that Bangladesh would come in during that period to debt cancellation and they have a very high level of multilateral debt. And then 

in the following 3 years, it would drop to $2.4 billion, and the figure for future years would drop still further. 

Just a reminder that we’re talking about debt that is going to become payable over the next 30 to 40 years, because these are very 

long-term debts. And what we’re talking about is the cost of reducing or eliminating the need for these countries to pay their debt 

service each year over these 40 years. This is why the cost has to 

be calculated over a long period of time. 

An important assumption is that IDA and the other international 

financial institutions would be replenished dollar-for-dollar for the 

foregone principal and interest payments of the debt canceled. This 

is the principle adopted for the MDRI and would be in line with 

the requirement of additionality contained in Section 3 of H.R. 

2634. 

Other assumptions are explained in my written testimony, which 

also explains that the cancellation schedule I have assumed may 

slip substantially, resulting in lower initial costs and lower overall 

costs. And if, as likely, Vietnam does not apply for cancellation, 

this would also reduce costs considerably. There’s much reason, 

therefore, for expecting that the estimate could be revised downward as more information becomes available. 

Thank you for your attention. 

[The prepared statement of Mr. Flood can be found on page 38 

of the appendix.] 

The CHAIRMAN. Mr. Caliari? 

STATEMENT OF ALDO CALIARI, DIRECTOR, RETHINKING 

BRETTON WOODS PROJECT, CENTER FOR CONCERN 

Mr. CALIARI. Thank you very much, Mr. Chairman. It is an 

honor for me to have the opportunity to testify today before this 

committee. I am going to be focusing on the provisions of the Jubilee bill that address responsible lending and borrowing. I am going 

to talk about the rationale for those provisions, some of the futures 

of the currency system, which I would argue discourages responsible lending, and I am going to talk about how the provisions in 

the bill will improve over the current system in different ways that 

I am going to explain. 

Mr. Chairman, members of the committee, the unfinished agenda 

on debt that the Jubilee Act addresses involves an expansion of 

debt cancellation, but we are also aware that if we want these, as 

well as the recent round of debt cancellation, to have lasting effects, we also need to look at the way ahead. That is why provisions in the bill to ensure responsible lending and borrowing are 

an inseparable part of this unfinished agenda on debt. 

Why is this important? Because the promotion of debt cancellation in impoverished countries comes from the belief that debt cancellation can free resources currently spent in servicing debt for 

11

productive and social spending that are required in those countries. 

However, if after the cancellation, debtor countries engage again in 

excessive borrowing, we will soon be back in the same situation 

where social and productive spending is curtailed by large amounts 

of debt service. Jubilee is also concerned with ensuring that the affected population has a say in the process of public debt generation. 

In the past, too many debts were taken on via mechanisms that 

were non-transparent, non-accountable, and, ultimately, of little 

benefit to the population in the indebted country. 

Today, the gains that a number of low-income countries expected 

to achieve through recent debt cancellation are starting to be eroded. There are two main concerns I want to raise in this regard. 

The first is that the debt levels of countries benefitting from debt 

cancellation are rapidly rising again because of new borrowing on 

a non-concessional basis. This concern has been underscored by the 

G–8 and the international financial institutions. There are a number of creditors that have not participated in debt cancellation that 

may actually free-ride on the cancellation, that is take advantage 

of the newly attractive debt profile of countries receiving debt cancellation for providing financing on a non-concessional basis. 

This dynamic is especially acute in beneficiaries of the Multilateral Debt Relief Initiative. The lower debt ratios of the beneficiaries in this initiative put them back in a position where they 

represent an attractive debt profile. After the MDRI, this is, excluding new lending after the MDRI, the debt stock ratios in most 

recipient countries will be significantly lower. In this situation, 

creditors that may not have participated in the debt relief effort 

may seek to profit by lending on a non-concessional basis. 

This non-concessional financing comes mostly from bilateral 

creditors not in the Paris Club, or emerging creditors, such as 

China, Brazil, India, Korea, Kuwait, etc., but there is also considerable non-concessional financing that comes from export credit agencies that are ironically in OECD countries. These are the same 

countries that are providing, on the other hand, the relief. 

Also, there are, of course, commercial credits and bonds. Some of 

these countries are now able to issue instruments in the international capital markets, something they were not able to do before. 

Second, the threat to the gains from debt relief comes from litigating creditors, such as ‘‘vulture funds.’’ These are creditors who 

profit by buying cheap sovereign debt in secondary markets and 

then maximize recovery via litigation and other pressure mechanisms. And it is a key reason why the debt these vulture funds 

bought cheaply now has become something that they can sue for 

in a higher amount, the reason to this is the debt cancellation received by some of the debtor countries on the other side of these 

contracts. 

So what about the current system? Do we have a current system 

to stop unsustainable, irresponsible debt? Well, to prevent countries receiving debt relief from falling back into debt due to nonconcessional borrowing is that the international financial institutions adopted 2 years ago something called the Debt Sustainability 

Framework. And in Annex 1 of my statement, you will find a summary of how the framework works. The framework has as a purVerDate 0ct 09 2002 13:07 Feb 05, 2008 Jkt 040432 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\40432.TXT HFIN PsN: TERRIE
12

pose to determine how much new borrowing on a non-concessional 

basis low-income countries can incur. And based on a number of 

factors, it assigns a debt threshold to each country and it is assumed that the financial needs of those countries that go beyond 

that threshold need to be satisfied via grants. This framework is 

what we can say the current system is doing to discourage 

unsustainable lending, and it is quite ineffective and unfair, especially to the debtor but also, and I have to say this, for many of 

the creditors, for a number of reasons. 

What the system does is, with regard to the creditors, the international financial institutions are doing outreach to foster a culture 

of coordination around the framework. It is no surprise that this 

is proving quite difficult. In fact, the rate of success of the HIPC 

initiative to bring onboard non-Paris Club creditors was very low. 

Why would anybody think that the creditors would suddenly put 

their heart into joining an initiative where they have to match even 

more debt relief? If anything, the incentives out there for them to 

do that are exactly the opposite. There is more debt forgiveness at 

stake, so creditors that are not part of the initiative can profit even 

more from staying out of it and even lending on a profitable basis 

to countries whose debts have been wiped out. At the same time, 

international financial institutions would sanction the debtor. Either reduce the grant allocations or give assistance in harder terms 

to countries that are found to be borrowing beyond their acceptable 

debt ceilings. 

Now how effective is this? Everybody knew at the time of establishing the Debt Sustainability Framework that in order for it to 

work, countries were going to need a significantly higher volume of 

grants than before. Now, if you know what has been happening 

with grant assistance, it has been going down. So discretionary 

grants is why countries go around to get funding on a nonconcessional basis and the solution to this is that they say, ‘‘Okay, 

if you do that, we will cut your grant allocation further.’’ Well, of 

course, this is only going to worsen the problem and the creditors 

know it, and I quote in my testimony documents from IDA that 

leave no doubt that this is known by the creditors. 

So what we are proposing is a package of measures that we believe will significantly improve the current situation. Chief among 

these measures is that the bill calls on the executive to seek the 

international adoption of a binding legal framework that guarantees that no creditor can take or expect to take financial advantage 

of acquired or newly awarded debt relief through the terms and 

rates of their new lending to beneficiary countries. The way these 

measures will stop irresponsible lending is of a striking simplicity: 

It is based on setting the incentives right for new lending and borrowing. This is why it needs to be a binding framework; a mere 

code of conduct would not realign the incentives. If unsustainable 

lending occurs and the debtor needs debt forgiveness in the future, 

the creditor that engaged in unsustainable lending will have to 

take an equitable share in the burden of the losses. So every creditor lending to a country has an incentive to make sure its lending 

is not above what the borrower can safely undertake, which is exactly the opposite of today where creditors that typically do not 

provide debt relief have every incentive to lend above safe levels, 

13

knowing that they will be protected in the event debt forgiveness 

is required. 

The hope, of course, is that no new debt forgiveness will be necessary. This is the beauty of this measure, that it is first and foremost a preventive measure. 

Mr. Chairman, the bill also contains measures on transparency, 

the availability of grants, and measures dealing with vulture funds. 

I will be happy to address them in a question and answer session. 

With that, I will finish. 

[The prepared statement of Mr. Caliari can be found on page 26 

of the appendix.] 

The CHAIRMAN. Thank you. I neglected to ask unanimous consent that all the written statements be put into the record in their 

entirety, along with any other material the members might like. I 

will begin the questioning with our colleague from California who 

has been a consistent leader on this issue. 

Ms. WATERS. Thank you very much, Mr. Chairman. And I would 

like to thank all of our witnesses who are here today helping us 

to understand more and more about debt relief. I would like to address a question to Ms. Woods. The Jubilee Act would eliminate 

harmful economic conditions for debt cancellation in the future, but 

this will not undo the harmful effects of IMF conditions on countries that have already received debt cancellation, countries like 

Mali and Ghana, which you described in your testimony. And I 

have to share with you that many of our members are very proud 

of complete debt relief, but they do not understand how it could be 

that a country could receive debt relief and find themselves worse 

off after they have gotten the debt relief than before. You talked 

about the conditions that are placed on getting this debt relief. 

Could you describe a little bit more how some of these conditions 

create more poverty, and would you describe how this Act could 

help with that problem? 

Ms. WOODS. Thank you so much for that brilliant question. I 

think it goes to the heart of the matter. The issue is that the conditions attached to the Debt Relief Initiative actually first take away 

the space for developing countries to choose their path to development. That is the first problem. It is inherently undemocratic because essentially you have institutions based in Washington telling 

countries what they should prioritize in their spending, so it all 

sounds like tossing words around, ‘‘privatization,’’ and ‘‘liberalization,’’ but essentially what is happening is that countries around 

the continent have their citizens paying taxes. So if you take for 

example Mali, citizens may be paying taxes and may assume that 

key services like water which have been provided in the past would 

continue to be provided through their taxes, but instead the IMF 

says, ‘‘No, sell off your key industries to the highest bidder.’’ And 

it is often the multinational corporations that are swooping in and 

saying we can manage those services better. 

It is based in a political argument that says government should 

be shrunk, that services should be provided by corporations, and so 

what is happening is corporations are coming in but as we see in 

example after example, corporations are not necessarily doing it 

better. We do not have to go to Mali, we can look right here in D.C. 

at healthcare as one example to see that it is not always the priVerDate 0ct 09 2002 13:07 Feb 05, 2008 Jkt 040432 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\40432.TXT HFIN PsN: TERRIE
14

vate sector that does the best job, right? So that is a broader argument but in the African continent, it impacts people’s lives in a 

more desperate manner because people are already after decades 

of resources being extracted, even in wealthy countries, relatively 

wealthier countries like Nigeria, oil is flowing out of communities 

that have no schools, no hospitals, not even decent housing. So as 

corporations are coming in with their search for profits, ignoring 

communities, the services are not necessarily being provided better, 

and yet it is almost as if people are being asked to pay more. So 

the intent in seeking out the moral imperative of debt relief was 

to actually lift the burden off of poor communities but in fact what 

you have is the selling off of core services, which means people are 

forced out of their jobs as those services shrink, and also people 

have to then pay for those services to be provided. So whether it 

is telecommunications or water or healthcare or education, it is 

people already at the brink who are paying the heaviest price. 

Ms. WATERS. Thank you very much. 

Ms. WOODS. Thank you. 

The CHAIRMAN. I would just interject briefly that there is a lot 

of debate about the place of morality in politics, today we are talking about morality in politics, and I think we should in the deepest 

sense. The gentleman from Alabama? 

Mr. BACHUS. I would like the panel to just comment if you would 

on the ‘‘vulture funds,’’ and what would be the most effective way 

to counter their negative activities? One thing I am concerned 

about is in the bill we propose to give the countries that are subject 

to suit or are targeted by the vulture funds to make legal counsel 

available to them or legal advice in combating these things, I am 

wondering about is that the most effective? I think that is obviously one of the things we should do. And are we going to be successful in court or are they going to be successful in court in fending these funds off, and that there are contracts, as much as we 

hate that fact? But any comments you would like to make just to 

inform us? 

Mr. WATKINS. Yes, thank you for that important question. The 

vulture fund issue is not new. The original vulture cases actually 

happened in the 1990’s. But, unfortunately, in the past year, actually we have seen an up-tick in the number of cases, perversely because the countries that have gotten debt relief now have money, 

more resources, and so the creditors are saying, well, this is a good 

opportunity to swoop in. It is a really perverse system. 

A couple of things, you mentioned the language in the bill, which 

would basically ask the U.S. Treasury Department to provide 

greater legal and technical assistance to countries. I think that is 

an important first step, just so that countries know what their options are when they are faced with these sort of suits. Another approach, which could help in the short term, would be the World 

Bank actually has something called the Debt Reduction Facility, 

which buys back at-risk private debt from poor countries. So what 

that can do is, and it has done, is actually take debts, which are 

not yet the subject of lawsuits, and actually buy them back from 

the private sector so that it sort of takes that off the market. So 

there are a couple of—basically that fund could be increased. 

15

There are a couple of policy changes that could happen. The fund 

could be made available to pre-decision point countries. One of the 

countries right now that we are very concerned about with the vulture fund issue is Liberia, and we think that Liberia should have 

access to this sort of support. And basically countries should be 

able to go back more than once to this fund if they again see that 

future debts are threatened by these lawsuits. So those are I think 

what is in the bill and some work around the Debt Reduction Facility could help in the short term. Ultimately though the reality is 

that two-thirds of these suits, these lawsuits that have happened, 

have been brought in either the United States or the United Kingdom. So if we are going to address the problem at its root, we need 

to look at I think legal changes in the United States and look at 

a way to address the problem of U.S. courts, that a lot of these 

cases in fact are happening right now in courts in the United 

States. 

Mr. BACHUS. Mr. Caliari? 

Mr. CALIARI. Thank you very much for that question. Just to 

complement what Neil was saying, just to emphasize, some of the 

measures that are in the bill, as Neil has said, are short term, not 

only short term but in fact when you are talking about for example 

providing financing for countries to be able to buy back the debt 

from these vulture funds, what you are basically doing is also subsidizing an activity that in the first place is morally questionable—

for example, just take the case of Zambia, when they bought debt 

at $308 million and then sued for $55 million and the court then 

did award them $15 million. So probably in a case like that, what 

you would have had if the country had been able to buy that debt, 

it is buying the debt for the $55 million, right, just to stop the 

threat. And that is not ultimately what we want to do, although 

in the short term it is necessary. But in the long term, I just want 

to emphasize there is no really way around having a framework, 

a legally binding framework that will ensure that all creditors have 

to share equitably on the losses when a country needs debt relief, 

and this really requires that the bill calls on the executive to pursue, to seek the adoption of this multilaterally binding framework. 

It is a long-term solution but it is ultimately the only one that is 

really going to solve the problem. 

The CHAIRMAN. We will take the gentleman from Missouri next, 

and then we will break. There is only the one vote and if the 

panel—this is a very important issue, so I assume you would not 

mind waiting? I will come back, and the gentlewoman from Wisconsin, and maybe some others, so we will have time for the gentleman from Missouri to ask his questions. We will be back probably in about 20 minutes. Mr. Cleaver? 

Mr. BACHUS. Mr. Chairman? 

The gentleman from Missouri went on a fast as part of this effort, and I would like to commend him and he has spoken out very 

forcefully on debt relief. I would like to compliment him. 

The CHAIRMAN. I thank the gentleman for that. The gentleman 

is recognized. 

Mr. CLEAVER. Thank you, Mr. Chairman, and I thank the ranking member. As I read through your testimony, it was, ‘‘Damned 

if you do and a damned if you do.’’ If you do not request financial 

16

assistance from the World Bank and other institutions, you are not 

going to be able to address the mammoth problems you face. And 

then if you do receive it and if you repay it, you are going to deepen 

the mammoth problems that you face. I am not so sure that we 

should not make corrections on the other end when the loans are 

being made. The question is this, would it be in the best interest 

of those nations receiving the largesse from richer nations or the 

World Bank, if on the receiving end, the repayment period is 

stretched out years and years and years and years as opposed to 

trying to repay the loan over a short period of time or the beginning of the repayment of the loan over a short period of time. What 

we do sometimes in municipal government is that we will lease 

land to some entity that has a government purpose for one dollar 

for 75 years, and everybody knows and understands when you do 

that, that there is a public purpose and so you do not want to burden this entity. So I am wondering, I support debt relief obviously, 

but I am wondering if maybe we should not do something on the 

front end to even remove the psychological trauma of wondering 

how you are going to make it when you have to begin to repay the 

loan, am I clear? Okay. 

Mr. FLOOD. Well, that is a very important question. I think that 

is a question actually which a lot of these—many of the shareholders of the multi-lateral development institutions have been 

concerned about in recent years, and I give credit to the Administration; they were concerned about the kind of issue you are talking about. If you take a look at most of this multi-lateral debt, 

which is the kind of debt we are talking about trying to get canceled, most of it is already on very long term and very low interest. 

The IDA loans, for example, are 40 years long, and they have a 10-

year grace period where you do not have to pay any principal and 

you only pay a small service charge. The problem is that in spite 

of those easy terms, these countries still managed over time to accumulate an awful lot of debt and get themselves in an 

unsustainable position so that they needed debt relief. That was 

one of the reasons for of course the HIPC program and the subsequent debt relief programs that were developed. But even then, a 

couple of years ago, the Treasury Department, our Treasury Department, said it is obvious that a country like Niger cannot pay 

back anything. Why are we kidding ourselves? They are so poor, 

they are not in a position to be repaying debt. And what happens 

is you have kind of a lend-and-forgive cycle. The World Bank would 

make a loan to Niger and then after a few years, Niger would have 

trouble paying it back, so the World Bank would make another 

loan so that they would have the funds with which to repay the 

earlier loan. This is a kind of a never-ending cycle of lend and then 

not getting paid, so you have to lend again so they can have the 

money that they can use to pay you back. The money is just revolving in a circle. So they said you have to give them grants, this is 

what is going to happen. So a lot of these countries now are receiving grant funds, not loans at all from IDA for example, but getting 

the money without having to pay any of it back. And this is a new 

feature. The question though is whether the criteria that are used 

for determining which countries should receive grants are adequate, and this is a debate that goes on. But it is an advance, they 

17

are making an advance in that respect. But there is still the question, for all the countries we are talking about, is even though a 

lot of them, most of them, are going to be in a position to get some 

grants going forward, they still have this large overhang of debt 

from the past, which is hanging over them and which they really 

need to get rid of. 

Ms. WOODS. So we are all here as member of the Jubilee Network and strong supporters of debt cancellation, 100 percent, no 

strings. We will keep telling you that daily. I think we are also, 

and you see it in much of our testimony, recognizing that debt relief is just a small part, an important part, but a part of the picture. Debt relief must be accompanied by changes in trade in particular. If you think about Africa, you should think richness, you 

should think resources, right? But those resources, whether it is 

the oil or the uranium, I could go on and on in terms of the richness of the continent. 

The CHAIRMAN. Well, you could if we did not have a vote. 

Ms. WOODS. Sorry, you have a vote. The point is that debt cancellation is a critical first step. But in looking at the big picture, 

which your question goes to, we have to also look at changes that 

will bring a fair trade opportunity so that African countries do not 

have to continuously go asking for loans but that the richness of 

the continent can actually benefit the citizens of the continents 

themselves. 

The CHAIRMAN. We are going to have to break now for the vote, 

but we will come back. There could be a second round. This is a 

very important subject, and I will be back. The gentlewoman from 

Wisconsin and other members may also come back and have some 

further questions. We should be back in about 20 minutes or less. 

Ms. WOODS. Thank you. 

[Recess] 

The CHAIRMAN. We will reconvene. Other members may be back 

but, as I listened, there are obviously a number of things we want 

to deal with here, but the vulture fund issue is obviously a tough 

one for us to get a handle on legally. And I remembered and I 

checked with my staff, which has been doing such good work, I remembered the proposal that had been forwarded by Ann Krueger 

at the IMF for some international bankruptcy regime. Would someone get that door, please, and close it? And it does seem to me that 

if that had been in place, we would be a lot better off. I would be 

interested in your views about whether you think an international 

bankruptcy regime would be useful and, if so, what could we do? 

Obviously, we cannot simply legislate it, but how would we go 

about pushing for that, should that be part of what we are trying 

to do in this? Let me start with Mr. Caliari. 

Mr. CALIARI. Thank you very much. I think you are absolutely 

right, ideally an international bankruptcy system would be the way 

to replicate. I was talking about incentives. What you have at a domestic level in every country is the domestic bankruptcy system 

where the creditors know that if a debtor goes bad, they are going 

to have to take some losses, right? There is a system for that. We 

do not have that system at an international level. What we de facto 

have is the combined work of different systems that have been created, one on top of the other, to try to develop a solution and the 

18

solution is driven by the creditors alone, so there you have already 

a significant difference with what happens at the domestic level 

where there is an independent authority usually issuing judgment. 

So in the bill we do not go into the details of—we do not say actually it needs to be a bankruptcy system— 

The CHAIRMAN. That is why I asked you. 

Mr. CALIARI. Yes, okay, we are saying that there is a need to actually address this incentive problem and the only way to address 

the incentive problem is with a binding legal framework. What you 

have here is the problem of collective action, where no individual 

country and no individual creditor would have a willingness to take 

action on its own. 

The CHAIRMAN. No, in fact, they are afraid that they will then 

be disadvantaged. 

Mr. CALIARI. Right. 

The CHAIRMAN. It will be a ‘‘beggar thy neighbor’’ situation. 

Mr. CALIARI. Exactly. 

The CHAIRMAN. Let me go on— 

Mr. CALIARI. But just let me say one thing about the SDRM proposal, which you referred to, which actually I am not sure we will 

be necessarily in a better place because the problem with the 

SDRM is that it did put the IMF, which is— 

The CHAIRMAN. Well, it does not have to be that one. 

Mr. CALIARI. Right, exactly. 

The CHAIRMAN. That would be the question I would ask people 

to think about, when we come back, for us in February, let me put 

it this way: In some cases, if you are afraid bad things are going 

to happen, you can condition what you are doing and say to people, 

‘‘Well, do not do that.’’ But you really cannot say to the poor countries, ‘‘We are not going to give you the relief,’’ because they are 

being driven to this. So it did seem to me that is one that we 

should be thinking out and then how to do it. Mr. Flood, on the 

bankruptcy issue? 

Mr. FLOOD. I guess I have not thought about this for a while, so 

I am not going to be able to give you a very good answer. 

The CHAIRMAN. Okay. 

Mr. FLOOD. But I do remember one of the problems with it, the 

idea floated around for an international bankruptcy system, was 

that the debtors did not like it. They were afraid that they were 

going to be thrown into bankruptcy against their will. This would 

cause them more problems than it would solve. So you had that 

sort of lack of interest on the part of many of the debtors to get 

involved with that kind of a thing. 

The CHAIRMAN. But would that be curable if it was drafted properly? 

Mr. FLOOD. I think it would have to be drafted as a voluntary 

system. 

The CHAIRMAN. Okay. Ms. Woods? 

Ms. WOODS. I think the critical thing here is a fair and a transparent process. And, yes, I think there are a lot of us that will 

quibble with the process that was already presented, the sovereign 

debt restructuring mechanism,— 

The CHAIRMAN. Forget that. 

19

Ms. WOODS. —and we can debate that. But, overall, a process 

that brings open, transparent discussion so that there are not backdoor deals with hedge funds and other type funds, I think brings 

up a bit more openness. So what we need is a process where parliaments, where citizens and really everyone can see what is the 

actual debt and have a more open process. 

The CHAIRMAN. I really urge you to start working on that. Frankly, conceptually and intellectually, debt relief is kind of easy, and 

I think we will put that bill through, but we want to do some of 

the other things. And also when we do debt relief, we are going to 

be told about moral hazard, and it does seem to me that the greatest moral hazard here is the absence of a bankruptcy system. That 

is the license for not worrying about whether people can repay, the 

absence of a bankruptcy system is probably one of the major ones. 

Mr. Watkins? 

Mr. WATKINS. I would agree with what other panelists have said, 

that I think it is a missing feature in the international system 

right now, that such a system—we are seeing all these problems 

with vulture funds, with creditors not participating, and that is 

fundamentally, there needs to be put in place less of a patchwork 

of these initiatives involving certain creditors here and there and 

more of an over-arching framework. 

The CHAIRMAN. Well, I appreciate that and I really urge you, 

there is a great deal of expertise here, and I think again some of 

these questions are relatively easy, although they can become difficult politically. I was struck as I listened, it just occurred to me 

as my staff briefed me and I listened, that the vulture fund is a 

very significant issue, and we need to be able to deal with it. 

The other question is similar in the sense that we have the people who are willing to discharge their debts may be feeling they are 

being taken advantage of and that is additional third country lending. So Country A forgives the debt of Country B, and then Country C, as in China, then decides to make more loans. Is there any 

way we can deal with that or should we? Mr. Caliari? 

Mr. CALIARI. Yes, certainly the only way a system like this can 

work is if it includes all public and private creditors, so in public 

creditors you have to include a country’s lending through different 

windows also, which is important. 

The CHAIRMAN. What is the likelihood of their agreeing, do people have any sense of it? 

Mr. CALIARI. Yes, for any measure like this, a request for collective action, you always need a leader, a champion, to start, and so 

it may take some years. Of course, this is not something that is 

going to happen tomorrow, but you do need somebody who is going 

to start. If you wait until everybody agrees to start the process, 

then it is never going to happen. 

The CHAIRMAN. Yes. 

Mr. CALIARI. Sorry, and I do not think that has deterred the U.S. 

Government in the past when there are things that the government 

feels strongly that need to be pushed at an international level, taking the leadership, finding allies to go ahead and do it, I do not 

think that has been a deterrent. And so I think it is important that 

the Congress calls on the Executive Branch to pursue this at the 

international level. 

20

The CHAIRMAN. Mr. Flood? 

Mr. FLOOD. Yes, well, I think that this gets into geopolitical 

issues, a lot will depend on what China thinks is in its own interest here. If you are talking about China, that is the big player here, 

but India to some extent as well. But one thought that had occurred to me is that why not try to get them more to the table 

where they are discussing these issues in a forum where they 

would be willing to listen and be willing think that perhaps their 

point of view about how some of these development issues should 

be addressed would be taken into account, like giving a bigger voice 

to the board of the World Bank, something like that. That might 

help, get them sort of—I hate to use the word ‘‘co-opt,’’ but get 

them into the dialogue on all these issues with the others instead 

of operating independently. 

The CHAIRMAN. Ms. Woods? 

Ms. WOODS. I think the principle that you are recommending is 

a good one, and that is for donors to coordinate a bit better and 

that you do not have the United States coming in, or the United 

Kingdom coming in with all their protocols and essentially adding 

demands on the developing countries independently, so some type 

of better coordination I think is a good principle to move forward. 

But I think it goes a step further, I think there is also a need for 

the debtor countries to have sort of a cartel, so to speak, and to 

be able to come together to kind of map out their plan. And it may 

be that they are wanting to go to China or Malaysia or a number 

of other countries that are offering development finance without 

conditions. 

The CHAIRMAN. One of the things I was reminded of by Mr. 

Caliari is that we, the United States, are in significant arrears to 

IDA, and so that may be one of the factors driving countries to do 

this. One of the ways we should deal with this is—and I think we 

may be writing, some of us, this is our fault, this is not a campaign 

of the President, this is a congressional problem, we need to do better on the IDA thing. Mr. Watkins? 

Mr. WATKINS. Yes, just a bit on that. One of the problems is, as 

Aldo Caliari mentioned earlier, that countries do not have access 

to concessional finance, so they are turning to China. 

The CHAIRMAN. So the IDA thing would be— 

Mr. WATKINS. IDA is a source, more grant-based finance is critical for this move forward. I think the other thing, as we talk about 

bankruptcy or arbitration processes, the importance of thinking 

about responsible lending, what does responsible lending practice 

look like, what sort of standards should be in place so that we do 

not again accumulate new odious debt. 

The CHAIRMAN. Well, I agree but the problem is to deal with responsible lending, you need sort of unanimous consent of the lenders because one irresponsible lender can in fact profit from the others. Let me add this, and then I am going to call on the gentlewoman from Wisconsin, who has been one of our active members 

who has an interest in this. The governmental responsibilities, that 

is why we are here, but it does seem to me with some of the lending, when we think about some of the countries, that the non-governmental organizations of civil society can be relevant. It does 

seem that here is a case where it is a moral persuasion. There are 

21

countries doing the lending that do not want to be thought ill of, 

that have a self-image that I think you can affect, so we are not 

abdicating, it is our part too. But I think this is an important thing 

for us to be able to do together. 

The gentlewoman from Wisconsin is recognized for 5 minutes. 

Ms. MOORE OF WISCONSIN. Thank you, Mr. Chairman. I guess I 

want to start out by asking, I believe it is Mr. Watkins, a question. 

You had with respect to the vulture funds, you say that the World 

Bank should buy back some of the debt and increase this fund and 

that countries ought to be able to come back more than once. What 

do you see as the under-riding obstacles or conditions that exist 

within the World Bank structure to prevent countries from doing 

that? I know that president certainly is very worried about vulture 

funds at this time. If this were so easy, why would not she just do 

it, what are the barriers? 

Mr. WATKINS. As I understand it, it is simply World Bank policy 

that countries cannot access the fund prior to reaching decision 

point on the Debt Reduction Facility. So it should be a matter of 

being able to change that policy, and that would make it possible 

for countries like Liberia to move forward. I think another point 

that is interesting on the vulture fund piece, it is just a question 

of information and disclosure. One, progressive reform that we 

could, just building on what I suggested earlier, that we could—we 

do not know a lot about who these vulture funds are, even if they 

are U.S. citizens who are involved. So could we somehow find a 

way to disclose what are these funds paid, who are they, what actions are they taking? That sort of basic information on the if you 

in essence by debt on the secondary market and you are distressed 

debt fund or U.S. individual, should we not have access to that sort 

of information in addition to the World Bank level work? 

Ms. MOORE OF WISCONSIN. Right, well, they will say that they 

are private funds and so that is why this disclosure is very difficult. It is a challenge that this committee deals with all the time. 

Let me ask another question that is perhaps is a very theoretical 

and macroeconomic, and perhaps, Ms. Woods, you would like to 

weigh in on this as well with Mr. Watkins or other members of the 

panel, would it be useful to try to have the United Nations, I understand that most of these cases have been brought in the United 

Kingdom and the United States’ courts, but would it be useful to 

have the G–8 countries or the United Nations define odious debt 

so that it would be a preemptive strike and discourage investors 

from in fact lending and having financial transactions with countries where there are dictators, where they are financing these 

wars? I think the story of Africa is a story of these criminals, I 

think that are in charge of government, and so if we were to define 

odious debt at the level of the United Nations, do you think that 

that would be something that we can pursue at the United Nations 

level that would discourage these investors and in fact prevent 

these folks from winning in court? 

Ms. WOODS. Well, Aldo spends a lot of time on UN issues, so I 

am sure he will want to comment on this as well, but essentially 

yes, I think it is critical to begin to have international law that 

says that dictator debt essentially is illegitimate. And we have a 

practice from 1898 set forward by the United States when they esVerDate 0ct 09 2002 13:07 Feb 05, 2008 Jkt 040432 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\40432.TXT HFIN PsN: TERRIE
22

sentially took over Cuba and said that the debt owed to Spain was 

odious debt and took steps to have that debt canceled. You had the 

Bush Administration again with Iraq use that same principle of 

odious debt, and so you do have established practice. I think it 

would be extraordinary and extremely timely for this committee to 

encourage the administration at the United Nations and elsewhere 

to advance an international convention or some type of international legal binding mechanism that actually— 

Ms. MOORE OF WISCONSIN. Vulture funds did not even come up 

at the last UN meeting, Mr. Chairman and Ms. Waters. 

Mr. WATKINS. Right. 

Ms. MOORE OF WISCONSIN. It did not even come up. 

Mr. WATKINS. Right. 

Ms. MOORE OF WISCONSIN. So that is why I asked that question. 

Mr. WATKINS. Now, I do think there is an opportunity because 

the UN in 2008 is going to be advancing the Financing for Development Conference that was held in Monterrey, Mexico is re-convening, and so you will have an international conference looking at 

development finance issues, and clearly issues of debt are on that 

agenda, so there is an opportunity. What would be needed is leadership from the United States. 

Ms. MOORE OF WISCONSIN. Well, Ms. Waters, for example, is on 

the Judiciary Committee, I do not know which jurisdiction, which 

committee has that, but she is also on this committee too, so I am 

so happy that she is here to hear this. Mr. Chairman, will you yield 

me just 30 more seconds? 

The CHAIRMAN. Yes. 

Ms. MOORE OF WISCONSIN. Thank you because I would like Mr. 

Caliari to be able to respond at the suggestion of Ms. Woods. 

Mr. CALIARI. I really think she has covered it quite well. I totally 

agree with her opinion. You need a convention that is going to be 

binding on domestic courts because at some point the place where 

these debts is enforced is in court. So if there is a convention like 

that, that is multilaterally agreed, then as you say you can prevent 

these folks from winning in court, and I think that will be very important progress. 

Ms. MOORE OF WISCONSIN. Thank you so much. I yield back. 

Ms. WOODS. Thank you. 

The CHAIRMAN. I want to thank you. And we really do want to 

keep working with you on how to—we are going to move on this, 

this committee will be voting on this bill next year, and designing 

a bankruptcy system will be part of the other safeguards we can 

put in. We will also be urging that we pay up our IDA debt because 

that reduces the push factor there. I appreciate this, and the members of our staff, myself, the gentlewoman from California, and others will remain in contact. The hearing is adjourned. 

[Whereupon, at 11:40 a.m., the hearing was adjourned.] 

(23)

A P P E N D I X

November 8, 2007

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