WASHINGTON, DC–U.S. Senator Bob Casey (D-PA) today chaired a Foreign Relations Committee hearing on the Jubilee Act. The Jubilee Act is a bipartisan measure introduced by Senator Casey that would expand eligibility for comprehensive debt relief to 24 new nations in Africa, Asia and Latin America. The following is his opening statement from the hearing:
“Today, the Committee meets to assess the utility provided by international debt relief initiatives in alleviating poverty and promoting development in the world’s poorest nations. A primary purpose of this hearing is to assess the lessons learned from recent debt relief initiatives, including the HIPC and MDRI initiatives undertaken during the past dozen years. These two broad debt relief initiatives, when combined and completed, are expected to reduce the debt stock of those 32 nations eligible under these initiatives by a total of $96 billion. In 2007 alone, those nations included in the MDRI initiative benefited from $1.3 billion of annual reductions in debt service payments, or approximately one percent of their overall gross domestic product. The Bush Administration should be congratulated for having provided strong leadership in initiating the MDRI effort and promoting a greater awareness of the real benefits afforded by comprehensive debt relief.
“I recognize the numbers that I just provided are abstract, but it is essential to recognize the real savings for impoverished nations that can now use scarce resources for the benefit of their people. The government of Zambia benefited from the forgiveness of almost $24 million in outstanding debt in 2006 under the MDRI initiative. Using proceeds from that debt relief, the Zambian government ended user fees for rural health clinics, ensuring that medical care and prescription drugs were free and available for all.
“Or just listen to the former President of Tanzania, who wrote in 2004:
“In 2001, Tanzania was granted significant debt relief … We have already witnessed tremendous successes. The primary school population has increased by 66 per cent – the greater part of an extra two million children – and the shortfall in the enrollment of girls has been eliminated. We have built 45,000 classrooms, 1925 new primary schools and over 7500 homes for teachers in partnership with their communities.”
“The purpose of this retrospective look is to establish whether additional international debt relief today makes sense for nations not already included in the HIPC and MDRI initiatives. Last week, the House of Representatives passed on a bipartisan basis HR 2634, the Jubilee Act for Responsible Lending and Expanded Debt Relief. Last October, I introduced S. 2166, the Senate version of this legislation, which differs in some respects from its House counterpart, but retains the overall goal of expanding debt cancellation to an additional 24 nations. These new nations, which range from Georgia and Moldova in the former Soviet Union to Kenya and Lesotho in Africa, qualify on the basis of their low per-capita income levels and their subsequent eligibility to receive special assistance from the World Bank. I am proud to be joined by 25 other Senators who have agreed to co-sponsor this legislation, including a majority of the Senators who sit on the Foreign Relations Committee.
“In recent years, the world has witnessed a coming together of a diverse coalition of groups on behalf of the cause of forgiving the debts of those nations at the lowest rungs of the world’s economic ladder. A grass roots religious coalition has organized itself under the Jubilee Network to press for greater debt relief and has been joined by academics, entertainers and world leaders. Jeffrey Sachs of Columbia University and a former advisor to the UN Secretary General has declared that “No civilized nation should try to collect the debts of people who are dying of hunger and disease and poverty.” The late Pope John Paul the Second, whose successor, Pope Benedict the Sixteenth, just visited the United States last week, made international debt relief a key priority for his Papacy, calling on the international community to “reduce substantially, if not cancel outright, the international debt which seriously threatens the future of many nations.” Finally, we have seen the United Kingdom under the leadership of Prime Minister Gordon Brown maintain a sustained focus on expanding the benefits of debt relief for all worthy recipients.
“I recognize that the Jubilee Act bill before the Committee is not perfect and can be improved. One of my purposes in calling this hearing was to solicit the views of the Administration and outside experts for just that purpose.
“However, I do want to take this opportunity to briefly address some of the critiques of expanded debt relief – and I look forward to a fuller exchange on those issues with our witnesses on both panels during the time for questions.
Critique # 1: Debt relief has already been made available to those nations with “unsustainable debt levels” and we should not squander scarce resources on those nations that are able to manage their debt flows.
“A recent analysis undertaken for the United Nations Development Programme demonstrated that, of the 24 nations that would be made newly eligible for debt relief under the Jubilee Act, 14 of those nations are actually poorer, in terms of human poverty levels, and carry more debt as a percentage of gross national income than nations already eligible for debt relief under the HIPC initiative. The 24 new nations that would receive debt relief under the Jubilee Act are designated only because they are eligible to receive special assistance from the World Bank on account of their deep poverty levels.
“More to the point, nations judged to have “sustainable debt levels” means that those nations have borrowed responsibly and have not been in danger of defaulting on their debt. Yet these nations, which remain poor and economically struggling, may also be sending valuable payments every year to foreign creditors that can be spent more effectively at home for the benefit of their people. It is a curious approach to cite moral hazard in arguing that nations that have borrowed heavily and irresponsibly should be eligible for debt relief, but not so those nations with more responsible debt burdens.
Critique # 2: Expanded debt relief will only serve to crowd out other valuable development assistance.
“Some observers have expressed concern that the resources required to fund expanded debt relief initiatives for as many as 24 new nations will put at risk existing development assistance programs. In other words, there is a fixed pool for development assistance – and a new debt relief initiative will only take funds away from other good programs. That is a valid concern. Indeed, we in the Congress have been guilty at times of not fully funding the U.S. share of debt forgiveness initiatives approved by the United States. We must commit to ensure that debt relief initiatives are additive to existing programs and provide a real benefit to struggling nations – and not simply substitute for other efforts.
“That said, continuing debt payments by nations that in turn receive grants and other assistance from the international community is also a form of “robbing Peter to pay Paul.” It strains common sense to send foreign assistance to impoverished nations on the one hand, and on the other hand, see an exodus of valuable foreign exchange reserves from those very same nations in the form of debt payments.
Critique # 3: Debt relief by itself is meaningless without accompanying policy reforms.
“Let me make clear that I do not believe debt relief alone is a complete panacea for the ills that beset the world’s poorest nations. Instead, only when combined with other effective policy instruments can debt relief succeed. Greater transparency and accountability in national budgets, investments in the rule of law, strengthening educational systems, and other measures are often necessary prerequisites if debt relief initiatives are to promote real economic growth and alleviate poverty in developing nations. Debt relief is an important piece of the puzzle, but it is only one piece.
“That is why the Jubilee Act legislation is so promising – it imposes rigorous requirements on recipient states before they are granted complete debt relief. Those nations eligible for debt relief under Jubilee Act provisions must allocate all savings from debt cancellation towards poverty-reducing expenditures, commit to future borrowing in a responsible fashion, develop transparent and effective budget mechanisms, and refrain from excessive military expenditures. In other words, these nations must undertake the type of policy initiatives that will help ensure that debt relief proceeds are used in the most effective fashion and are not wasted or diverted to other purposes. This legislation ensures there is no free ride for those governments benefiting from new debt relief measures.
“We are honored to be joined today by an illustrious group of witnesses. On our first panel, The Honorable Clay Lowery, the Assistant Secretary for International Affairs at the Department of Treasury will testify on behalf of the Executive Branch. Mr. Lowery will offer the Administration’s overall perspective on the utility of debt relief initiatives and provide specific views on the provisions of the Jubilee Act. On our second panel, we will have a group of three non-governmental witnesses, all of whom have devoted much of their careers to better understanding the role of debt relief in promoting international development. I will make their introductions when we are ready for their testimony in the second panel.
“I’d like to turn now to the distinguished Ranking Member, Senator Lugar, for his opening statement.”
“Today, the Committee meets to assess the utility provided by international debt relief initiatives in alleviating poverty and promoting development in the world’s poorest nations. A primary purpose of this hearing is to assess the lessons learned from recent debt relief initiatives, including the HIPC and MDRI initiatives undertaken during the past dozen years. These two broad debt relief initiatives, when combined and completed, are expected to reduce the debt stock of those 32 nations eligible under these initiatives by a total of $96 billion. In 2007 alone, those nations included in the MDRI initiative benefited from $1.3 billion of annual reductions in debt service payments, or approximately one percent of their overall gross domestic product. The Bush Administration should be congratulated for having provided strong leadership in initiating the MDRI effort and promoting a greater awareness of the real benefits afforded by comprehensive debt relief.
“I recognize the numbers that I just provided are abstract, but it is essential to recognize the real savings for impoverished nations that can now use scarce resources for the benefit of their people. The government of Zambia benefited from the forgiveness of almost $24 million in outstanding debt in 2006 under the MDRI initiative. Using proceeds from that debt relief, the Zambian government ended user fees for rural health clinics, ensuring that medical care and prescription drugs were free and available for all.
“Or just listen to the former President of Tanzania, who wrote in 2004:
“In 2001, Tanzania was granted significant debt relief … We have already witnessed tremendous successes. The primary school population has increased by 66 per cent – the greater part of an extra two million children – and the shortfall in the enrollment of girls has been eliminated. We have built 45,000 classrooms, 1925 new primary schools and over 7500 homes for teachers in partnership with their communities.”
“The purpose of this retrospective look is to establish whether additional international debt relief today makes sense for nations not already included in the HIPC and MDRI initiatives. Last week, the House of Representatives passed on a bipartisan basis HR 2634, the Jubilee Act for Responsible Lending and Expanded Debt Relief. Last October, I introduced S. 2166, the Senate version of this legislation, which differs in some respects from its House counterpart, but retains the overall goal of expanding debt cancellation to an additional 24 nations. These new nations, which range from Georgia and Moldova in the former Soviet Union to Kenya and Lesotho in Africa, qualify on the basis of their low per-capita income levels and their subsequent eligibility to receive special assistance from the World Bank. I am proud to be joined by 25 other Senators who have agreed to co-sponsor this legislation, including a majority of the Senators who sit on the Foreign Relations Committee.
“In recent years, the world has witnessed a coming together of a diverse coalition of groups on behalf of the cause of forgiving the debts of those nations at the lowest rungs of the world’s economic ladder. A grass roots religious coalition has organized itself under the Jubilee Network to press for greater debt relief and has been joined by academics, entertainers and world leaders. Jeffrey Sachs of Columbia University and a former advisor to the UN Secretary General has declared that “No civilized nation should try to collect the debts of people who are dying of hunger and disease and poverty.” The late Pope John Paul the Second, whose successor, Pope Benedict the Sixteenth, just visited the United States last week, made international debt relief a key priority for his Papacy, calling on the international community to “reduce substantially, if not cancel outright, the international debt which seriously threatens the future of many nations.” Finally, we have seen the United Kingdom under the leadership of Prime Minister Gordon Brown maintain a sustained focus on expanding the benefits of debt relief for all worthy recipients.
“I recognize that the Jubilee Act bill before the Committee is not perfect and can be improved. One of my purposes in calling this hearing was to solicit the views of the Administration and outside experts for just that purpose.
“However, I do want to take this opportunity to briefly address some of the critiques of expanded debt relief – and I look forward to a fuller exchange on those issues with our witnesses on both panels during the time for questions.
Critique # 1: Debt relief has already been made available to those nations with “unsustainable debt levels” and we should not squander scarce resources on those nations that are able to manage their debt flows.
“A recent analysis undertaken for the United Nations Development Programme demonstrated that, of the 24 nations that would be made newly eligible for debt relief under the Jubilee Act, 14 of those nations are actually poorer, in terms of human poverty levels, and carry more debt as a percentage of gross national income than nations already eligible for debt relief under the HIPC initiative. The 24 new nations that would receive debt relief under the Jubilee Act are designated only because they are eligible to receive special assistance from the World Bank on account of their deep poverty levels.
“More to the point, nations judged to have “sustainable debt levels” means that those nations have borrowed responsibly and have not been in danger of defaulting on their debt. Yet these nations, which remain poor and economically struggling, may also be sending valuable payments every year to foreign creditors that can be spent more effectively at home for the benefit of their people. It is a curious approach to cite moral hazard in arguing that nations that have borrowed heavily and irresponsibly should be eligible for debt relief, but not so those nations with more responsible debt burdens.
Critique # 2: Expanded debt relief will only serve to crowd out other valuable development assistance.
“Some observers have expressed concern that the resources required to fund expanded debt relief initiatives for as many as 24 new nations will put at risk existing development assistance programs. In other words, there is a fixed pool for development assistance – and a new debt relief initiative will only take funds away from other good programs. That is a valid concern. Indeed, we in the Congress have been guilty at times of not fully funding the U.S. share of debt forgiveness initiatives approved by the United States. We must commit to ensure that debt relief initiatives are additive to existing programs and provide a real benefit to struggling nations – and not simply substitute for other efforts.
“That said, continuing debt payments by nations that in turn receive grants and other assistance from the international community is also a form of “robbing Peter to pay Paul.” It strains common sense to send foreign assistance to impoverished nations on the one hand, and on the other hand, see an exodus of valuable foreign exchange reserves from those very same nations in the form of debt payments.
Critique # 3: Debt relief by itself is meaningless without accompanying policy reforms.
“Let me make clear that I do not believe debt relief alone is a complete panacea for the ills that beset the world’s poorest nations. Instead, only when combined with other effective policy instruments can debt relief succeed. Greater transparency and accountability in national budgets, investments in the rule of law, strengthening educational systems, and other measures are often necessary prerequisites if debt relief initiatives are to promote real economic growth and alleviate poverty in developing nations. Debt relief is an important piece of the puzzle, but it is only one piece.
“That is why the Jubilee Act legislation is so promising – it imposes rigorous requirements on recipient states before they are granted complete debt relief. Those nations eligible for debt relief under Jubilee Act provisions must allocate all savings from debt cancellation towards poverty-reducing expenditures, commit to future borrowing in a responsible fashion, develop transparent and effective budget mechanisms, and refrain from excessive military expenditures. In other words, these nations must undertake the type of policy initiatives that will help ensure that debt relief proceeds are used in the most effective fashion and are not wasted or diverted to other purposes. This legislation ensures there is no free ride for those governments benefiting from new debt relief measures.
“We are honored to be joined today by an illustrious group of witnesses. On our first panel, The Honorable Clay Lowery, the Assistant Secretary for International Affairs at the Department of Treasury will testify on behalf of the Executive Branch. Mr. Lowery will offer the Administration’s overall perspective on the utility of debt relief initiatives and provide specific views on the provisions of the Jubilee Act. On our second panel, we will have a group of three non-governmental witnesses, all of whom have devoted much of their careers to better understanding the role of debt relief in promoting international development. I will make their introductions when we are ready for their testimony in the second panel.
“I’d like to turn now to the distinguished Ranking Member, Senator Lugar, for his opening statement.”
