S. Rept. 110-438 - 110th Congress (2007-2008)

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Senate Report 110-438 - JUBILEE ACT FOR RESPONSIBLE LENDING AND EXPANDED DEBT CANCELLATION OF 2008

[Senate Report 110-438]
[From the U.S. Government Publishing Office]





                                                       Calendar No. 934
110th Congress                                                   Report
                                 SENATE
 2d Session                                                     110-438

======================================================================



 
 JUBILEE ACT FOR RESPONSIBLE LENDING AND EXPANDED DEBT CANCELLATION OF 
                                  2008

                                _______
                                

                 August 1, 2008.--Ordered to be printed

                                _______
                                

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

                                 REPORT

                         [To accompany S. 2166]

    The Committee on Foreign Relations, having had under 
consideration the bill (S. 2166), to provide for greater 
responsibility in lending and expanded cancellation of debts 
owed to the United States and the international financial 
institutions by low-income countries, and for other purposes, 
having considered the same, reports the bill favorably with 
amendments and recommends that the bill, as amended, pass.

                                CONTENTS

                                                                   Page

  I. Purpose..........................................................1
 II. Committee Action.................................................1
III. Discussion.......................................................2
 IV. Cost Estimate....................................................5
  V. Evaluation of Regulatory Impact..................................8
 VI. Changes in Existing Law..........................................8

                               I. Purpose

    The purpose of S. 2166 is to provide for greater 
responsibility in lending and expanded cancellation of debts 
owed to the United States and the international financial 
institutions by low-income countries.

                          II. Committee Action

    S. 2166 was introduced by Senator Robert P. Casey, Jr., on 
October 16, 2007. It is cosponsored by Senators Biden, Lugar, 
Dodd, Boxer, Coleman, Feingold, Hagel, Kerry, Obama, Menendez, 
Isakson, Bill Nelson, Durbin, Brown, Clinton, Collins, 
Klobuchar, Leahy, Lieberman, McCaskill, Mikulski, Schumer, 
Smith, Snowe, Sununu, and Wyden. A companion bill, H.R. 2634, 
was introduced by Representatives Maxine Waters and Spencer 
Bacchus on June 7, 2007, and approved by the House of 
Representatives by a vote of 285-132 on April 16, 2008. On June 
24, 2008, the committee ordered S. 2166 reported favorably by 
voice vote with an amendment in the nature of a substitute.

                            III. Discussion


A. Overview

    S. 2166, the ``Jubilee Act for Responsible Lending and 
Expanded Debt Cancellation of 2008'' provides for greater 
responsibility in lending and expanded cancellation of debts 
owed to the United States and the international financial 
institutions by low-income countries. The legislation, building 
on previous rounds of bilateral and multilateral debt 
cancellation, calls upon the Treasury Department to negotiate a 
multilateral framework for debt cancellation with those 
countries that are eligible for financing from the 
International Development Association, and that meet various 
other criteria. This group could eventually total as many as 24 
additional poor countries that would benefit from debt 
cancellation in order to promote economic, social, and human 
development goals, including the United Nations Millennium 
Development Goals. The legislation incorporates safeguards to 
help ensure that the money freed up in these countries by debt 
cancellation is used for poverty reduction purposes; moreover, 
eligible countries must meet criteria regarding public 
financial management quality controls, transparency, and other 
good governance benchmarks. The legislation calls for the 
development of a framework to promote more responsible future 
lending practices and to discourage so-called ``vulture fund'' 
activity.

B. Rationale

    Congress has demonstrated its support for bilateral and 
multilateral debt relief through the enactment of comprehensive 
debt relief initiatives for heavily indebted low-income 
countries through various legislation enacted over the past 
decade. In 2005, the United States and other G-8 nations 
reached an agreement to provide cancellation of 100 percent of 
the debts owed by eligible poor countries to Paris Club 
members, the International Monetary Fund, the World Bank, and 
the African Development Bank. The 2005 agreement led to the 
creation of the Multilateral Debt Relief Initiative (MDRI). As 
of April 2007, 22 countries have seen the majority of their 
debts to the IMF, the World Bank and the African Development 
Bank cancelled under the terms of the MDRI. In March 2007, the 
Inter-American Development Bank announced it would provide full 
debt cancellation to 5 Latin American countries on MDRI terms.
    Reports indicate that most resources released by debt 
relief efforts to date are reaching the poor. Cameroon is using 
the $29,800,000 of savings gained from the MDRI for national 
poverty reduction priorities, including infrastructure and 
social sector and governance reforms. Uganda is using its 
$57,900,000 in MDRI savings on improving energy infrastructure 
to try to ease acute electricity shortages, as well as on 
primary education, malaria control, health care and water 
infrastructure (specifically targeting the poor and underserved 
villages). Zambia is using its savings of $23,800,000 under the 
MDRI to increase spending on agricultural projects, such as 
small landholder irrigation and livestock disease control, as 
well as to eliminate fees for health care in rural areas.
    While debt cancellation has a record of success, there 
remains an unfinished agenda on international debt. There are a 
number of challenges to the effective implementation of 
existing commitments, and broader debt cancellation is needed 
if the global community is to reach key development objectives. 
A critical issue which needs to be addressed on debt is the way 
that nonconcessional lenders stand to gain financially from 
lending to poor countries that have benefited from debt relief. 
Those lenders have not contributed to past debt relief efforts 
or faced the prospect of paying for the future relief of 
unsustainable new lending. In these cases, the gains from debt 
relief are at risk of being eroded by new, unsustainable 
lending to countries that have received debt cancellation, as 
well as by so-called ``vulture funds.''
    It is also essential that all lenders and borrowers accept 
responsibility and learn from past mistakes by making more 
productive investment choices and engaging in more responsible 
lending and borrowing in the future. In October 2006, Norway 
became the first creditor to accept responsibility for past 
lending mistakes and cancelled the debt of five countries on 
the grounds that the loans reflected poor development policy. 
There is also an urgent need to look beyond the constraints of 
current debt relief initiatives to address the need for 
expanded debt cancellation. The Government of the United 
Kingdom has proposed that qualification for the MDRI be 
extended to the 67 countries that qualify for assistance 
exclusively from the International Development Association. To 
be eligible for cancellation, countries must meet requirements 
pertaining to public financial management, anticorruption 
measures, and budget transparency.
    The committee affirms that debt cancellation is an 
important component of the United States development assistance 
strategy. The United States has been a leader in supporting 
debt relief efforts to date and should continue to work to 
improve and expand appropriate initiatives in this area.

C. Summary of major provisions

            Sense of Congress on Fully Funding Existing U.S. Arrears on 
                    Previous Debt Relief Commitments
    Section 3 recognizes that the United States has fallen 
behind in funding its appropriate share of previous 
multilateral commitments on debt cancellation for low-income 
countries. It expresses the sense of Congress in support of a 
renewed commitment to fund existing U.S. arrears related to 
debt relief. This section also expresses the sense of Congress 
that any additional commitments made by the United States to 
fund debt cancellation for additional low-income countries 
should not come at the expense of existing U.S. development 
assistance to those countries; likewise, the U.S. Government 
should encourage other countries to adopt a similar principle 
when agreeing upon debt cancellation.
            Cancellation of Debt Owed by Eligible Low-Income Countries
    Section 4 calls upon the Treasury Department to commence 
multilateral negotiations to achieve cancellation for eligible 
countries of their respective debts held by international 
financial institutions and individual countries, including the 
United States. Each eligible country benefiting from debt 
cancellation would be required to allocate the savings from 
debt cancellation toward poverty reduction expenditures and 
produce an annual report documenting how the savings were used. 
The section calls upon the Secretary of the Treasury to 
commence efforts to establish a framework for creditor 
transparency, including greater openness surrounding the 
activities of each creditor institution that makes loans to 
low-income countries.
            Definition of Eligible Low-Income Countries
    Section 4 defines an eligible low-income nation as any 
country that is eligible for financing from the International 
Development Association, has transparent and effective budget 
execution and public financial management systems, has 
demonstrated democratic governance and transparency of 
decisionmaking, does not have an excessive level of military 
expenditures, has not repeatedly provided support for acts of 
international terrorism, is cooperating on international 
narcotics control matters, is not engaging in a consistent 
pattern of gross violations of internationally recognized human 
rights, and is not engaged in the proliferation of weapons of 
mass destruction or related materials and components.
            A Framework for Responsible Lending
    Section 4 calls upon the Treasury Department to commence 
efforts to establish a framework for responsible lending, 
including the development of policies to ensure that all 
creditors contribute to the preservation of gains of debt 
relief for low-income debtor countries. This framework would 
also include appropriate mechanisms to discourage so-called 
``vulture fund'' activity. The section calls upon the 
Government Accountability Office to undertake an audit of 
multilateral loans extended to previous governments in 
countries such as the Democratic Republic of Congo and South 
Africa, where significant concerns existed towards those loans 
at the time they were made, and complete a report on the 
operations and procedures undertaken by the World Bank, the 
IMF, and other international financial institutions for debt 
cancellation.
            Prohibition of Harmful Economic and Policy Conditions
    Section 5 calls on the Treasury Department to commence 
efforts within international financial institutions to ensure 
that the provision of debt cancellation to eligible low-income 
countries is not conditioned on any agreement by such a country 
to implement or comply with policies that deepen poverty, 
significantly increase the costs of public services for low-
income households, or degrade the environment. Examples of such 
policies include: Implementing or extending user fees for 
primary education or primary health care, and increasing the 
costs of basic public services, such as education, health care, 
drinking water, or sanitation, for low-income households. The 
section calls on the Treasury Department to submit a report on 
the degree and extent to which previous rounds of debt 
cancellation for recipient countries were accompanied by such 
conditions.
            Cancellation of Haiti's Debts
    Section 6 states the sense of Congress that, due to the 
current humanitarian and political instability in Haiti, 
including food shortages and political turmoil, the Secretary 
of the Treasury should use his influence to expedite the 
complete and immediate cancellation of Haiti's debts to all 
international financial institutions, or at a minimum, urge 
those institutions to immediately suspend the requirement that 
Haiti make further debt service payments on that debt.
            Temporary Financing to Respond to Temporary Economic Shocks
    Section 7 calls on the Treasury Department to prepare a 
report on the feasibility and design of a potential facility, 
based at the International Monetary Fund or another 
international financial institution, to provide temporary 
financing to relieve debt service burdens in the case of shocks 
to the economies of low-income countries beyond their control, 
including natural disasters and sharp spikes in commodity 
prices. The committee determined that such a report would be 
appropriate in light of testimony to members at the April 
hearing that such a facility could supplement debt cancellation 
activities in boosting the prospects of low-income countries.

                           IV. Cost Estimate

    In accordance with rule XXVI, paragraph 11(a) of the 
Standing Rules of the Senate, the committee provides this 
estimate of the costs of this legislation prepared by the 
Congressional Budget Office.
                            United States Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 18, 2008.

Hon. Joseph R. Biden, Jr.,
Chairman, Committee on Foreign Relations,
U.S. Senate, Washington, DC.

    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2166, the Jubilee 
Act for Responsible Lending and Expanded Debt Cancellation of 
2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sunita 
D'Monte.
          Sincerely,
                                           Peter R. Orszag.

                                ------                                


               Congressional Budget Office Cost Estimate

                                                     July 18, 2008.

                                S. 2166


 Jubilee Act for Responsible Lending and Expanded Debt Cancellation of 
                                  2008


  AS ORDERED REPORTED BY THE SENATE COMMITTEE ON FOREIGN RELATIONS ON 
                             JUNE 24, 2008

Summary

    S. 2166 would require the Secretary of the Treasury to 
cancel all debts owed by certain low-income countries to the 
United States and to work toward cancelling debt owed by those 
countries to international financial institutions (IFIs). 
Countries that received debt relief under this proposal would 
be required to use their savings to fund programs to reduce 
poverty.
    CBO estimates that implementing S. 2166 would result in 
discretionary outlays of $625 million over the 2009-2013 
period, assuming appropriation of the estimated amounts. 
(Additional amounts would be spent after 2013.) In addition, 
enacting S. 2166 would increase direct spending by the amount 
of the subsidy cost of loan modifications, as defined by the 
Federal Credit Reform Act. CBO estimates that forgiving direct 
loans and loan guarantees made to other countries would cost 
$1.1 billion over the 2009-2018 period. Enacting S. 2166 would 
have no effect on revenues.
    S. 2166 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 S. 2166 is shown in the 
following table. The costs of this legislation fall within 
budget function 150 (international affairs).

                                       CHANGES IN SPENDING DUE TO S. 2166
                                     [By fiscal year, in million of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                2009    2010    2011    2012    2013   2008-2013
----------------------------------------------------------------------------------------------------------------
Changes In Spending Subject To Appropriation:
  Estimated Authorization Level..............................       0     250     250     250     250    1,000
  Estimated Outlays..........................................       0      63     125     188     250      625
----------------------------------------------------------------------------------------------------------------
Changes In Direct Spending:
  Estimated Budget Authority.................................     367     367     367       0       0    1,100
  Estimated Outlays..........................................     367     367     367       0       0    1,100
----------------------------------------------------------------------------------------------------------------
Note: Components may not sum to totals because of rounding.

Basis of Estimate

    For this estimate, CBO assumes that the bill will be 
enacted near the start of fiscal year 2009, that the necessary 
amounts will be appropriated (over a 40-year period beginning 
in 2010), and that outlays will follow historical spending 
patterns for similar programs.
            Spending Subject to Appropriation
    Section 4 would require the Secretary of the Treasury to 
work with IFIs to cancel debt owed to them by certain low-
income countries and to absorb the related costs within their 
existing resources. According to the Department of Treasury, 
those countries owe a total of $50 billion to the World Bank, 
the International Monetary Fund, the African Development Bank, 
and the Asian Development Bank.
    In recent negotiations regarding the Multilateral Debt 
Relief Initiative (MDRI)--an effort to provide debt relief to 
certain poor, heavily indebted nations--the United States was 
unable to achieve its goal of funding debt relief from the 
resources of the IFIs. The United States is now responsible for 
20 percent of the costs of MDRI debt relief at the World Bank, 
to be paid over about 40 years to match the loan repayments 
that would otherwise have been made. Assuming negotiations for 
the debt relief that would be authorized by S. 2166 would lead 
to a similar result, CBO expects that negotiations would take 
about a year, that the United States would contribute about 20 
percent (or $10 billion) of the costs of debt cancellation, and 
that those contributions would be made over a 40-year period. 
Therefore, CBO estimates that the United States would 
contribute $250 million a year or about $10 billion in total to 
replenish IFIs and that implementing this provision would cost 
about $625 million over the 2009-2013 period, assuming 
appropriation of $1 billion over that period. The remaining $9 
billion would be provided and spent after 2013.
            Direct Spending
    In addition to cancelling multilateral debt, section 4 
would require the Secretary to cancel all debt owed to the 
United States by low-income countries that meet certain 
qualifications. Recent data from the Department of Treasury on 
direct loans and loan guarantees made to those countries 
indicate that their outstanding loans total about $2.5 billion. 
Cancelling those loans would constitute loan modifications (as 
defined by the Federal Credit Reform Act) and would require the 
federal government to write off the net present value of the 
expected stream of loan repayments, which would reflect the 
current likelihood of each country repaying its loans.
    CBO estimates that such countries would become eligible for 
debt cancellation over the 2009-2011 period and assumes the 
costs would be spread evenly across that period. Based on 
information from the department, CBO further estimates that 
roughly 45 percent of the outstanding loan amounts will be 
repaid (with interest) under current law and that enacting the 
bill would increase direct spending by about $1.1 billion over 
both the 2009-2013 and 2009-2018 periods. That estimate is an 
estimated subsidy cost-calculated as a net present value of 
forgone principal and interest payments-for the debt 
forgiveness.

Intergovernmental and Private-Sector Impact

    S. 2166 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would not affect the budgets of 
state, local, or tribal governments.

Previous CBO Estimate

    On April 9, 2008, CBO transmitted a cost estimate for H.R. 
2634, an identically titled act that was ordered reported by 
the House Committee on Financial Services on April 3, 2008. The 
House legislation would require the Secretary to begin 
negotiations to cancel debt, but agreements to cancel debt 
could not be finalized without further authorization from the 
Congress. CBO estimated that enacting H.R. 2634, by itself, 
would have no budgetary impact.

Estimate Prepared By:

    Federal Costs: Sunita D'Monte
    Impact on State, Local, and Tribal Governments: Neil Hood
    Impact on the Private Sector: Jacob Kuipers

Estimate Approved By:

    Peter H. Fontaine, Assistant Director for Budget Analysis

                   V. Evaluation of Regulatory Impact

    Pursuant to rule XXVI, paragraph 11(b) of the Standing 
Rules of the Senate, the committee has determined that there is 
no regulatory impact as a result of this legislation.

                      VI. Changes in Existing Law

    In compliance with rule XXVI, paragraph 12 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).

International Financial Institutions Act

           *       *       *       *       *       *       *



SEC. 1625. IMPROVEMENT OF THE ENHANCED HIPC INITIATIVE.

           *       *       *       *       *       *       *


SEC. 1626. CANCELLATION OF DEBT OWED BY ELIGIBLE LOW-INCOME COUNTRIES.

    (a) In General.--The Secretary of the Treasury shall 
commence immediate efforts, within the Paris Club of Official 
Creditors, the International Monetary Fund (IMF), the 
International Bank for Reconstruction and Development (World 
Bank), and the other international financial institutions (as 
defined in section 1701(c)(2)), to accomplish the following:
          (1) Cancellation by each international financial 
        institution of all existing debts owed to the 
        institution by eligible low-income countries, and, to 
        the extent possible, financing the debt cancellation 
        from the ongoing operations, procedures, and accounts 
        of the institution.
          (2) Cancellation by the United States of all existing 
        debts owed to it by eligible low-income countries.
          (3) Ensuring that any waiting period for the enhanced 
        debt cancellation is not excessive.
          (4) Requiring the government of each eligible low-
        income country to--
                  (A) allocate the savings from debt 
                cancellation towards poverty-reducing 
                expenditures;
                  (B) engage interested parties, including a 
                broad cross-section of civil society groups, in 
                that allocation process;
                  (C) develop and implement effective policy 
                reforms to ensure that savings from debt 
                cancellation are redirected to poverty 
                reduction efforts and that any future borrowing 
                be conducted in a responsible fashion; and
                  (D) produce an annual report during the 
                period beginning when debt relief is granted 
                and ending 5 years after the debt relief is 
                completed that discloses how the savings from 
                debt cancellation were used, and which is made 
                publicly available and easily accessible to all 
                interested parties, including civil society 
                groups and the media.
          (5) Encouraging the government of each eigible low-
        income country to allocate at least 20 percent of its 
        national budget towards poverty-alleviation programs 
        such as the provision of basic health care services, 
        education services, and clean water services to all 
        individuals in the country.
    (b) Establishment of Framework for Creditor Transparency.--
The Secretary of the Treasury shall commence immediate efforts, 
within the Paris Club of Official Creditors, the International 
Monetary Fund, the World Bank, and the other international 
financial institutions (as so defined), to ensure that each of 
the institutions--
          (1) continues to make efforts to promote greater 
        transparency regarding the activities of the 
        institution, including credit, grant, guarantee, and 
        technical assistance operations, following a policy of 
        maximum disclosure; and
          (2) supports continued efforts to allow informed 
        participation and input by affected communities, 
        including translation of information on proposed 
        projects into official languages, provision of 
        information (including draft documents) through 
        information technology application, oral briefings, and 
        outreach to and dialogue with community organizations 
        and institutions in affected areas.
    (c) Establishment of Framework for Responsible Lending.--
The Secretary of the Treasury shall commence immediate efforts 
to--
          (1) develop and promote policies to ensure all 
        creditors, with no distinction, will contribute to 
        preserving the gains of debt relief for low-income 
        debtor countries;
          (2) collaborate with appropriate government agencies 
        to discourage ``vulture fund'' activity, including by--
                  (A) seeking commitments from non-Paris Club 
                bilateral creditors not to on-sell their debt 
                claims on low-income countries to creditors who 
                do not intend to provide debt relief under the 
                HIPC initiative, and working with finance 
                ministers from other G8 countries to achieve 
                the same goal; and
                  (B) providing technical assistance to 
                recipient governments to advise on measures to 
                address ``vulture fund'' activity;
          (3) provide that the external financing from official 
        creditors of low-income countries are met primarily 
        through grant financing rather than new lending;
          (4) seek the international adoption of a binding 
        legal framework that--
                  (A) guarantees that no creditor can take 
                financial advantage of debt relief through the 
                terms and rates of their new lending to 
                beneficiary countries;
                  (B) is binding on all creditors, whether 
                multilateral, bilateral or private;
                  (C) foresees, as a sanction for creditors who 
                violate it, an equitable share in the burden of 
                the losses from any future debt relief needed 
                by the sovereign debtor to whom lending was 
                provided; and
                  (D) enables fair opportunities for the people 
                of the affected country to be heard; and
          (5) support the development of responsible financing 
        standards by which creditors and aid or loan recipients 
        alike promote transparency, accountability, human 
        rights, and the avoidance of new odious unsustainable 
        debt, while encouraging the development of renewable 
        energy.
    (d) GAO Audit of Debt Portfolios of Countries With 
Questionable Loans.--The Comptroller General of the United 
States should undertake an audit of the multilateral debt 
portfolios of previous governments in countries such as the 
Democratic Republic of Congo and South Africa where significant 
concern exists that unsustainable loans were made to the 
government. Each such audit shall--
          (1) consider debt owed to the World Bank, the IMF, 
        and the other international financial institutions (as 
        so defined) and debt owed to the United States 
        Government and assess whether or not past investments 
        produced the intended results; and
          (2) investigate the process by which the loans were 
        contracted, how the funds were used, and determine 
        whether United States or international laws were 
        violated in the contraction of these loans, and whether 
        any of the loans were odious or onerous.
    (e) Availability on Treasury Department Website of Remarks 
of United States Executive Directors at Meetings of 
International Financial Institutions' Boards of Directors.--The 
Secretary of the Treasury shall make available on the website 
of the Department of the Treasury the full record of the 
remarks of the United States Executive Director at meetings of 
the boards of directors of the International Monetary Fund, the 
World Bank, and the other international financial institutions 
(as so defined), about cancellation or reduction of debts owed 
to the institution involved, with redaction by the Secretary of 
the Treasury of material deemed too sensitive for public 
distribution, but showing the topic, amount of material 
redacted, and reason for the redaction.
    (f) Report From the Comptroller General.--Within 1 year 
after the date of the enactment of this section, the 
Comptroller General of the United States shall prepare and 
submit to the Committees on Financial Services and on Foreign 
Affairs of the House of Representatives and the Committees on 
Banking, Housing, and Urban Affairs and on Foreign Relations of 
the Senate a report on the ongoing operations, procedures, and 
accounts of the IMF, the World Bank, and the other 
international financial institutions (as so defined) for 
canceling the debt of eligible low-income countries.
    (g) Annual Reports From the President.--Not later than 
December 31, 2008, and annually thereafter for 4 years, the 
Secretary of the Treasury shall submit to the Committees on 
Financial Services and on Foreign Affairs of the House of 
Representatives and the Committees on Foreign Relations and on 
Banking, Housing, and Urban Affairs of the Senate a report, 
which shall be made available to the public, on the activities 
undertaken under this section, and other progress made in 
accomplishing the purposes of this section, for the prior 
fiscal year. The report shall include a list of the countries 
that have received debt cancellation, a list of the countries 
whose request for debt cancellation has been denied and the 
reasons therefor, and a list of the countries whose requests 
for debt cancellation are under consideration.
    (h) Eligible Low-Income Country Defined.--In this section, 
the term ``eligible low-income country'' means a country--
          (1) that is eligible for financing from the 
        International Development Association but not the World 
        Bank;
          (2) that has transparent and effective budget 
        execution and public financial management systems which 
        ensure that the savings from debt relief are spent on 
        reducing poverty;
          (3) that has demonstrated democratic governance and 
        transparency of decision-making;
          (4) the government of which does not have an 
        excessive level of military expenditures;
          (5) the government of which has not repeatedly 
        provided support for acts of international terrorism, 
        as determined by the Secretary of State under section 
        6(j)(1) of the Export Administration Act of 1979 (50 
        U.S.C. App. 2405(j)(1)), section 40 of the Arms Export 
        Control Act (22 U.S.C. 2780), or section 620A(a) of the 
        Foreign Assistance Act of 1961 (22 U.S.C. 2371(a));
          (6) the government of which is cooperating on 
        international narcotics control matters;
          (7) the government of which (including its military 
        or other security forces) does not engage in a 
        consistent pattern of gross violations of 
        internationally recognized human rights; and
          (8) the government of which is not engaged in, and 
        has taken effective action to prevent entities in its 
        jurisdiction from engaging in, the proliferation of 
        weapons of mass destruction, related materials and 
        components, or associated delivery systems.

SEC. 1627. PROHIBITION OF HARMFUL ECONOMIC AND POLICY CONDITIONS.

    (a) In General.--The Secretary of the Treasury shall 
commence immediate efforts within the Paris Club of Official 
Creditors, the International Monetary Fund (IMF), the 
International Bank for Reconstruction and Development (World 
Bank), and the other international financial institutions (as 
defined in section 1701(c)(2)), to ensure that the provision of 
debt cancellation to eligible low-income countries (as defined 
in section 1626(h)) is not conditioned on any agreement by such 
a country to implement or comply with policies that deepen 
poverty, significantly increase the costs of public services 
for low-income households, or degrade the environment.
    (b) Report on Previous Rounds of Debt Cancellation.--Not 
later than December 31, 2009, the Secretary of the Treasury 
shall submit to the Committees on Financial Services and on 
Foreign Affairs of the House of Representatives and the 
Committees on Foreign Relations and on Banking, Housing, and 
Urban Affairs of the Senate a report, which shall be made 
available to the public, on the degree and extent to which 
previous rounds of debt cancellation for recipient nations were 
accompanied by the following conditions:
          (1) Implementation or extension of user fees on 2 
        primary education or primary health care, including 3 
        prevention and treatment efforts for HIV/AIDS, 
        tuberculosis, malaria, and infant, child, and maternal 
        well-being.
          (2) Increased costs for low-income households to pay 
        for basic public services such as education, health 
        care, drinking water, or sanitation.
          (3) A prohibition on exempting increased government 
        spending on essential health care or education 
        expenditures from required conditions imposed by the 
        IMF, including national budget caps or restraints and 
        hiring or wage bill ceilings.