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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

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

BARNEY FRANK, Massachusetts 

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 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON DOMESTIC AND INTERNATIONAL MONETARY POLICY, TRADE AND

TECHNOLOGY

DEBORAH PRYCE, Ohio, Chair

JUDY BIGGERT, Illinois, Vice Chair 

JAMES A. LEACH, Iowa 

MICHAEL N. CASTLE, Delaware 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

MARK R. KENNEDY, Minnesota 

KATHERINE HARRIS, Florida 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

CAROLYN B. MALONEY, New York 

BERNARD SANDERS, Vermont 

MELVIN L. WATT, North Carolina 

MAXINE WATERS, California 

BARBARA LEE, California 

PAUL E. KANJORSKI, Pennsylvania 

BRAD SHERMAN, California 

LUIS V. GUTIERREZ, Illinois 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

JOSEPH CROWLEY, New York 

BARNEY FRANK, Massachusetts 

(V)

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

(1)

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. 

2

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 G8 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 

3

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. 

4

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. 

5

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 corVerDate 0ct 09 2002 16:42 Apr 24, 2006 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\DOCS\109.56 RODNEY
6

ruption 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 IDA14. 

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. 

7

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. 

8

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 

9

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 countryspecific 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.] 

10

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 nonHIPC 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 recVerDate 0ct 09 2002 16:42 Apr 24, 2006 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\DOCS\109.56 RODNEY
11

ommend 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 

12

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 

13

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 

14

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 

15

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. 

16

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 endof-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 

17

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 G8 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. 

18

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. 

19

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. 

20

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 

21

place their responses in the record. So without further ado, this 

hearing is adjourned. 

[Whereupon, at 3:12 p.m., the subcommittee was adjourned.] 

(23)

A P P E N D I X

September 27, 2005

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