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[Senate Report 106-425]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 844
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-425

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    THE INTERNATIONAL DEBT FORGIVENESS AND INTERNATIONAL FINANCIAL 
                    INSTITUTIONS REFORM ACT OF 2000

                                _______
                                

  September 28 (legislative day, September 22), 2000.--Ordered to be 
                                printed

                                _______
                                

   Mr. Helms, from the Committee on Foreign Relations, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 3129]

    The Committee on Foreign Relations, having had under 
consideration an original bill (S. 3129) provide for 
international debt forgiveness and the strengthening of 
anticorruption measures and accountability at international 
financial institutions, reports favorably thereon and 
recommends that the bill do pass.

                                CONTENTS

                                                                   Page

  I. Committee Action.................................................1
 II. Section-by-Section Analysis......................................2
III. Cost Estimate....................................................5
 IV. Evaluation of Regulatory Impact..................................8
  V. Changes in Existing Law..........................................8

                          I. Committee Action

    On March 23, 2000 the Committee unanimously ordered 
reported S. 2382, the Technical Assistance, Trade Promotion and 
Anti-Corruption Act of 2000. S. 2382 was reported and placed on 
the Senate Legislative Calendar on April 7, 2000, and 
subsequently referred to the Committee on Banking, Housing, and 
Urban Affairs pursuant to paragraph 1(j)(10) of rule XXV of the 
Standing Rules of the Senate on April 11, 2000. Paragraph 
1(j)(10) of rule XXV of the Standing Rules of the Senate 
provides that, ``at the request of the Committee on Banking, 
Housing, and Urban Affairs, any proposed legislation relating 
to [the International Monetary Fund] reported by the Committee 
on Foreign Relations shall be referred to the Committee on 
Banking, Housing, and Urban Affairs.'' The Banking Committee 
has taken no action on S. 2382 as of the writing of this 
report.
    On Wednesday, June 28, 2000, the Committee on Foreign 
Relations considered and unanimously approved by voice vote the 
International Debt Forgiveness and International Financial 
Institutions Reform Act of 2000, which is identical to Title IV 
of S. 2382, the Technical Assistance, Trade Promotion, and 
Anti-Corruption Act of 2000.

                    II. Section-by-Section Analysis

Sec. 1. Short Title

    This section provides the short title for the act will be 
``International Debt Forgiveness and International Financial 
Institutions Reform Act of 2000.''

Sec. 2. Debt Relief Under the Heavily Indebted Poor Countries (HIPC) 
        Initiative

    This section provides authorization, as requested by the 
Administration, for full U.S. participation in the HIPC Trust 
Fund. The HIPC Initiative was established in 1996 and reformed 
and expanded in 1999, to provide debt relief to the world's 
poorest and most heavily indebted nations. Last year, the 
President asked Congress to appropriate funds for both 
multilateral (through the HIPC Trust Fund) and bilateral debt 
relief, and to authorize U.S. support for the IMF to draw on 
resources in a reserve account and to engage in an off-market 
revaluation of its gold holdings in order to raise the 
necessary resources for the Fund to extend debt relief under 
HIPC terms. In the Consolidated Appropriations Act for Fiscal 
Year 2000, Congress approved bilateral debt relief 
appropriations and authorized U.S. backing for the IMF 
proposals. Congress, however limited to 9/14ths the amount of 
the interest earnings raised through the investment of the IMF 
gold transactions that could be applied to HIPC debt relief and 
denied funding for the HIPC Trust Fund. The Administration has 
asked Congress this year to authorize these two remaining 
matters.
    Subsection (a) repeals the 9/14th limitation enacted in 
1999 as part of a new Section 62 of the Bretton Woods Agreement 
Act. This action will permit the U.S. Executive Director to the 
IMF to support the IMF use of the remaining 5/14ths of interest 
earnings derived from the investment of profits from the off-
market sale of IMF gold for HIPC debt relief.
    Subsection (b) authorizes $600 million for the period of 
fiscal year 2000 through 2003 for U.S. contributions to the 
HIPC Trust Fund.
    Subsection (c) requires the Secretary of the Treasury to 
certify to Congress within 30 days of enactment of the Act that 
several requirements concerning the International Bank for 
Reconstruction and Development (IBRD) and the IMF have been 
satisfied. Both the Bank and Fund must have given the 
Comptroller General access to Bank and Fund information and 
documents allowing the GAO to audit and monitor Bank 
operations. The Treasury Secretary must also certify that the 
IBRD is implementing a number of policies to:

          (1) suspend loans if funds are diverted for 
        unintended purposes;
          (2) ensure that Bank loans do not displace private 
        sector financing;
          (3) disburse loans (other than project loans) based 
        on prior reforms or incrementally upon implementation 
        of specific reforms instituted after the initial loan 
        disbursement;
          (4) minimize the number of projects that would 
        displace people involuntarily, or that would have a 
        negative impact on a people or culture of the area into 
        which the displaced population is moved;
          (5) promote open markets and trade liberalization in 
        goods and services;
          (6) concentrate Bank financing on economic and social 
        programs and projects rather than short-term liquidity 
        financing; and
          (7) establish qualitative and quantitative indicators 
        to measure progress toward country graduation from 
        concessionary financing, together with an estimated 
        timetable of which countries might graduate during the 
        next 15 years. The intent is to indicate a category of 
        borrowers who will not even be able to graduate in 15 
        years.

    The Treasury Secretary must further certify that the IMF is 
also implementing policies to:

          (1) suspend financing if funds are diverted for 
        unintended purposes;
          (2) ensure that IMF financing normally serves as a 
        catalyst for, and does not displace private sector 
        financing;
          (3) disburse financing based on prior reforms or 
        incrementally upon implementation of specific reforms 
        instituted after the initial disbursement;
          (4) promote open markets and trade liberalization in 
        goods and services;
          (5) concentrate IMF financing primarily on short-term 
        balance of payments financing; and
          (6) to use, in conjunction with the IBRD, qualitative 
        and quantitative indicators to measure progress toward 
        country graduation from concessionary financing, 
        together with an estimated timetable of which countries 
        might graduate during the next 15 years. The intent is 
        to indicate a category of borrowers who will not even 
        be able to graduate in 15 years.

    In the event that the Treasury Secretary is unable to 
certify that all of the these requirements have been satisfied, 
the Secretary must report to the Committees within 30 days of 
enactment of this Act on the progress, if any, the IBRD and IMF 
have made in granting access to the Comptroller General or in 
implementing the required policies. If the Comptroller General 
is subsequently denied access to Bank and Fund information and 
documents after the Treasury Secretary has either certified or 
reported to Congress regarding the requirements of this 
subsection, or 30 days after enactment of this Act, whichever 
is earlier, the Comptroller General must report this situation 
to the Committees and the Secretary.
    The Committee is concerned that many governments receiving 
assistance from the International Monetary Fund and the World 
Bank are mistreating foreign investors and tolerate corruption 
to such an extent that it distorts economic development. These 
actions undermine many of the objectives that IMF and World 
Bank lending are designed to promote. Consequently, the 
Committee recommends that the Administration urge both the IMF 
and the World Bank to make it clear to recipient governments 
that future assistance will be jeopardized if they do not act 
in a timely manner to resolve trade and investment disputes and 
to reduce, and eventually eliminate, corruption.

Sec. 3. Strengthening Procedures for Monitoring Use of Funds by 
        Multilateral Development Banks

    The purpose of this section is to strengthen U.S. policy 
and influence at the multilateral development banks (MDB) to 
improve MDB procedures and management controls over how funds 
are utilized by borrowers. The intent is to ensure that MDB 
loans are used for their intended purposes and comply with 
conditions set out in the loans. The Treasury Secretary, when 
requested, must make available to appropriate Congressional 
committees Bank information regarding MDB compliance with these 
conditions. The material may be submitted on a confidential 
basis if necessary. If the Secretary cannot obtain the 
necessary information within 30 days of a Congressional 
request, he must report to the Committees within another 30 
days why the material cannot be acquired. Within six months of 
the enactment of this Act, the Treasury Secretary must report 
to the appropriate Congressional committees with an evaluation 
of the extent to which MDBs are achieving the goals set out in 
this section. The report will specifically address progress 
made by each multilateral development bank in improving 
monitoring and auditing operations in order to curtail bribery 
and corruption, developing priorities for allocating anti-
corruption aid, implementing country-specific anti-corruption 
programs, identifying and disciplining employees suspected of 
corrupt activities, and harmonizing procurement practices among 
all such banks.

Sec. 4. Reports on Policies, Operations, and Management of 
        International Financial Institutions

    This section creates four new reporting requirements and 
amends an existing requirement regarding various aspects of 
multilateral development bank (MDB) operations that are to be 
transmitted to appropriate Congressional committees. Subsection 
(a) requires the Comptroller General to submit an annual report 
regarding the sufficiency of audits of the financial operations 
of each MDB conducted by persons or entities outside the bank.
    Subsection (b) calls for an annual report from the Treasury 
Secretary addressing how borrowing countries have improved 
governance and anti-corruption standards, and how projects 
funded by the World Bank's International Development 
Association (IDA) contribute to the eventual graduation of a 
representative sample of borrowing nations from reliance on IDA 
financing.
    Subsection (c) amends Section 1705 of the International 
Financial Institutions Act by adding to an existing annual 
report regarding the IMF a requirement for a discussion of the 
progress made by the Fund in adopting and implementing the 
policies outlined in Section 401(c).
    Subsection (d) requires from the Treasury Secretary a 
report within 90 days of enactment of this Act concerning the 
history of debt relief programs led by, or coordinated with 
international financial institutions (IFIs). In particular, the 
report must address how poor countries and the poorest segments 
of their population have benefitted from debt relief, and 
whether debt relief has contributed to a country graduating 
from reliance on concessionary financing and international 
development assistance.
    Subsection (e) calls for the Comptroller General to prepare 
within six months of enactment of this Act a report listing the 
salaries, benefits, and operating expense account of each IFI 
for the previous fiscal year.

Sec. 5. Repeal of Bilateral Funding for International Financial 
        Institutions

    This section repeals Sec. 209(d) of the Foreign Assistance 
Act of 1961 (FAA). Enacted in 1971, Sec. 209(d) authorizes the 
President to transfer bilateral economic aid funds provided 
under part I of the FAA to the World Bank, the Asian 
Development Bank, and other MDBs to enable these organizations 
to make loans to foreign countries. Prior to 1971, Sec. 205 of 
the FAA, until repealed in 1971, had permitted the transfer of 
10 percent of bilateral economic aid to MDBs. These transfer 
authorities, however, have not been operative since 1970. 
Beginning with the Foreign Assistance Appropriations Act, 1970, 
Congress annually has included a provision prohibiting the use 
of bilateral economic assistance for transfer to MDBs under the 
provisions of first, Sec. 205 of the FAA, and from 1971 on, 
under Sec. 209(d). In short, Sec. 405 repeals an authority that 
has been blocked by Congress for 30 years.

Sec. 6. Definitions

    This section defines seven terms used in this title: 
appropriate Congressional committees, Bank, Comptroller 
General, Fund, international financial institutions (IFIs), 
multilateral development banks (MDBs), and Secretary. 
Appropriate Congressional committees include the Senate Foreign 
Relations and Appropriations Committees, and the House 
International Relations and Appropriations Committees. The Bank 
refers to the World Bank's International Bank for 
Reconstruction and Development (IBRD), while IFIs include the 
IMF and multilateral development banks. The term MDBs refers to 
the three major facilities of the World Bank, and the regional 
banks operating in Asia, Latin America, Africa, Eastern Europe, 
the Middle East, and North America. The Secretary refers to the 
Secretary of the Treasury.

                           III. Cost Estimate

    In accordance with rule XXVI, paragraph 11(a) of the 
Standing Rules of the Senate, the committee provides the 
following estimate of the cost of this legislation prepared by 
the Congressional Budget Office:
                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 29, 2000.
Hon. Jesse Helms,
Chairman, U.S. Senate Committee on Foreign Relations,
Washington, DC.

    Dear Mr. Chairman:
    The Congressional Budget Office has prepared the enclosed 
cost estimate for the International Debt Forgiveness and 
International Financial Institutions Reform Act of 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Joseph C. 
Whitehill.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

Summary
    The International Debt Forgiveness and International 
Financial Institutions Reform Act of 2000 would authorize $600 
million over the 2000-2003 period to pay a portion of the cost 
of reducing the debt that highly indebted poor countries (HIPC) 
owe to multilateral development banks. In addition, the bill 
would require new reports on the operations of international 
financial institutions. Assuming the appropriation of the 
authorized amount, CBO estimates that implementing the bill 
would cost $590 million over the 2001-2005 period.
    The bill would permit the International Monetary Fund (IMF) 
to use all of its earnings from the investment of the net 
proceeds from revaluing part of its gold holdings for debt 
relief to HIPC courtries. That would lower the IMF's net income 
and could lower its interest payments to the U.S. Treasury. 
Based on information from the Treasury Department, CBO does not 
expect that to occur. Because it could affect direct spending, 
the bill would be subject to pay-as-you-go procedures.
    The International Debt Forgiveness and International 
Financial Institutions Reform Act of 2000 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would not affect the 
budgets of state, local, or tribal governments.
Estimated Cost to the Federal Government
    The estimated budgetary impact of the bill is shown in the 
following table. The costs of this legislation fall within 
budget function 150 (international affairs).

                    Spending Subject to Appropriation
                 By Fiscal Year, in Millions of Dollars
------------------------------------------------------------------------
                                 2000   2001   2002   2003   2004   2005
------------------------------------------------------------------------
Estimated Authorization Level.      0    200    200    200      0      0
Estimated Outlays.............      0     50    120    190    150     80
------------------------------------------------------------------------

Basis of Estimate
    The bill would affect spending subject to appropriation and 
direct spending. For this estimate, CBO assumes that the bill 
will be enacted by the start of fiscal year 2001 and that the 
full amount of the authorized funds will be appropriated over a 
three-year period.
    Spending Subject to Appropriation. The bill would authorize 
the appropriation of $600 million over the 2000-2003 period for 
a contribution to a HIPC trust fund. That trust fund would be 
managed by the World Bank to compensate the various 
multilateral development banks for a portion of the cost of 
reducing their loans to certain countries under a proposal 
announced in June 1999, at a summit in Cologne, Germany.
    While the authorization would be available in fiscal year 
2000, none of the supplemental appropriations bills as passed 
by the two houses of Congress as of this date have included 
funding for this year. CBO assumes that the contribution under 
the bill would be funded over a three-year period with the 
first installment in fiscal year 2001. We also assume that the 
contribution would be provided as a letter of credit issued to 
the HIPC trust fund at the time a country and its creditors 
agree upon a plan for debt relief and poverty reduction and 
that the outlay would occur when the country satisfies all 
conditions in the plan.
    CBO estimates that the additional reporting requirements 
would cost less than $500,000 each year, assuming the 
appropriation of the necessary funds.
    Direct Spending Public Law 106-113 authorized the U.S. 
Executive Director of the IMF to vote for the Fund's plan to 
revalue a portion of its gold holdings and to transfer 
resources held in a special reserve account to a trust fund to 
be used for debt relief. That law permits the IMF to use only 
9/14 of such earnings for debt relief. The bill would strike 
that restriction, but CBO does not expect that change to have a 
budgetary impact
    The revaluation and transactions with member countries will 
lower the TMF's net income by an estimated $120 million a year. 
Lower income for the IMF could affect the U.S.. budget if the 
IMF should lower the rate of interest that it pays on the U.S. 
reserve position in the Fund. Based on information from the 
Treasury Department, CBO assumes the United States would oppose 
reducing the rate of remuneration.
Pay-As-You-Go Considerations
    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. Although enacting this bill could affect 
direct spending by a significant amount, CBO does not expect 
that to occur.
Previous CBO Estimate
    On April 6, 2000, CBO transmitted a cost estimate for S. 
2382, the Technical Assistance, Trade Promotion, and Anti-
Corruption Act of 2000. That bill contained the provisions of 
this bill, but the cost estimates are somewhat different. In 
estimating spending under the earlier bill, CBO assumed that 
$200 million of the proposed funding would be provided in a 
supplemental appropriation bill for 2000. This estimate assumes 
that funding would begin in 2001 because House- and Senate-
passed supplemental bills do not currently contain such 
funding.
Intergovernmental and Private-Sector Impact
    The International Debt Forgiveness and International 
Financial Institutions Reform Act of 2000 contains no 
intergovernmental or private-sector mandates as defined in UMRA 
and would not affect the budgets of state, local, or tribal 
governments.
Estimate Prepared By
    Federal costs: Joseph C. Whitehill.
    Impact on state, local, and tribal governments: Leo Lex.
    Impact on the private sector: Lauren Marks.
Estimate Approved By
    Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                  IV. Evaluation of Regulatory Impact

    In accordance with rule XXVI, paragraph 11(b) of the 
Standing Rules of the Senate, the Committee has concluded that 
there is no regulatory impact from this legislation.

                       V. Changes in Existing Law

    In compliance with paragraph 12 rule XXVI of the Standing 
Rules of the Senate, changes in existing law made by the bill, 
as reported, are shown as follows (existing law proposed to be 
omitted is enclosed in black brackets, new matter is printed in 
italic, existing law in which no change is proposed is shown in 
roman):

                     Foreign Assistance Act of 1961

           *       *       *       *       *       *       *

    Sec. 209. Multilateral and Regional Programs.--(a) * * *
    [(d) In furtherance of the provisions of subsection (a) of 
this section, any funds appropriated under this part I may be 
transferred by the President to the International Development 
Association, the International Bank for Reconstruction and 
Development, the International Finance Corporation, the Asian 
Development Bank or other multilateral lending institutions and 
multilateral organizations in which the United States 
participates for the purpose of providing funds to enable any 
such institution or organization to make loans to foreign 
countries.]

           *       *       *       *       *       *       *

              The International Financial Institutions Act

           *       *       *       *       *       *       *

SEC. 1705. ANNUAL REPORT AND TESTIMONY ON THE STATE OF THE 
                    INTERNATIONAL FINANCIAL SYSTEM, IMF REFORM, AND 
                    COMPLIANCE WITH IMF AGREEMENTS.

    (a) Reports.--Not later than October 1 of each year, the 
Secretary of the Treasury shall submit to the Committee on 
Banking and Financial Services of the House of Representatives 
and the Committee on Foreign Relations of the Senate a written 
report on (1) the progress (if any) made by the United States 
Executive Director at the International Monetary Fund in 
influencing the International Monetary Fund to adopt the 
policies and reform its internal procedures in the manner 
described in section 262o-2 of this title, and (2) the progress 
made by the International Monetary Fund in adopting and 
implementing the policies described in section 3(c)(1)(C) of 
the International Debt Forgiveness and International Financial 
Institutions Reform Act of 2000.

           *       *       *       *       *       *       *

                   The Bretton Woods Agreements Act

           *       *       *       *       *       *       *

SEC. 62. APPROVAL OF CONTRIBUTIONS FOR DEBT REDUCTIONS FOR THE POOREST 
                    COUNTRIES.

    For the purpose of mobilizing the resources of the Fund in 
order to help reduce poverty and improve the lives of residents 
of poor countries and, in particular, to allow those poor 
countries with unsustainable debt burdens to receive deeper, 
broader, and faster debt relief, without allowing gold to reach 
the open market or otherwise adversely affecting the market 
price of gold, the Secretary of the Treasury is authorized to 
instruct the United States Executive Director of the Fund to 
vote--
          (1) to approve an arrangement whereby the Fund--
                  (A) sells a quantity of its gold at 
                prevailing market prices to a member or members 
                in nonpublic transactions sufficient to 
                generate 2.226 billion Special Drawing Rights 
                in profits on such sales;
                  (B) immediately after, and in conjunction 
                with each such sale, accepts payment by such 
                member or members of such gold to satisfy 
                existing repurchase obligations of such member 
                or members so that the Fund retains ownership 
                of the gold at the conclusion of such payment; 
                and
                  (C) uses the earnings on the investment of 
                the profits of such sales through a separate 
                subaccount, only for the purpose of providing 
                debt relief from the Fund under the modified 
                Heavily Indebted Poor Countries (HIPC) 
                Initiative (as defined in section 1623 of the 
                International Financial Institutions Act); and
                  [(D) shall not use more than 9/14 of the 
                earnings on the investment of the profits of 
                such sales; and]
          (2) to support a decision that shall terminate the 
        Special Contingency Account 2 (SCA-2) of the Fund so 
        that the funds in the SCA-2 shall be made available to 
        the poorest countries. Any funds attributable to the 
        United States participation in SCA-2 shall be used only 
        for debt relief from the Fund under the modified HIPC 
        Initiative.

        

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