USCCB - (SDWP) - Summary of New Debt Legislation

Summary of New Debt Legislation

On November 29, President Clinton signed legislation which makes notable progress towards greater debt relief for many of the world's poorest countries. It provides new funding for debt owed to the U.S. Government and new authority to reduce debt owed to the International Monetary Fund. It does not, however, provide the final element necessary for major new debt relief in the Jubilee Year 2000 -- funding for the Heavily Indebted Poor Countries'(HIPC) Trust Fund, the special fund for relieving debt owed to multilateral institutions such as the Inter-American Development Bank and the African Development Bank. We will have to work hard early next year to obtain Congressional approval of funding for the HIPC Trust Fund.

The new legislation has the following main features:

Funding for Debt Relief

Debt owed the U.S. Government (bilateral debt)

Directs the President to cancel 100% of almost all debt owed to the United States (bilateral debt) by eligible countries, subject to the appropriation of the necessary funds by Congress
Appropriates $110 million for bilateral debt relief in FY 2000 (ending September 30, 2000)
Requires the financial benefits from bilateral debt relief to be used to combat poverty

Debt owed to international institutions (multilateral debt)

Most debt is owed, not to the U.S. government, but to other governments and to international institutions, such as the IMF, the World Bank, and regional development banks

Approves the revaluation by the IMF of a portion of its gold holdings, and the use of about 2/3's (i.e., about $1
billion) of the income generated by the investment of the profits exclusively for relief of IMF debt under the
Cologne Initiative (the new program of more generous debt relief agreed to by the G-7 countries at the Summit
Meeting in Cologne last June)
Approves the use of the U.S. share (about $300 million) of funds in the IMF's Special Contingency Account (SCA-2) for relief of IMF debt under the Cologne Initiative

Countries Eligible for Debt Relief

Forty-four (44) countries are potentially eligible for cancellation of bilateral debt; priority will be given to approximately 39 of the 44 which are eligible for bilateral and multilateral debt relief under the Cologne Initiative
The Administration should use best efforts to ensure that determination of eligibility for debt relief under the Cologne Initiative is made for as many countries as possible by the end of the year 2000; the IMF and World Bank hope to decide the eligibility and amount of debt relief for about 27 countries by that time

Conditions for Receiving Debt Relief

Countries are not eligible for bilateral debt relief if they have excessive military expenditures, support terrorism, fail to cooperate on narcotics control, or are gross violators of human rights
Bilateral debt relief is conditioned on a country's commitment to programs of economic reform and poverty reduction, and requires these programs to be designed and adopted through transparent and participatory processes
Calls on the Administration to use best efforts to ensure that multilateral debt relief includes these same conditions concerning economic reform and poverty reduction