Sovereign Debt Contract Capacity Act
Floor Speech
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Ms. WATERS. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 4111) to require the Secretary of the Treasury to direct the United States Executive Director at the International Monetary Fund to advocate that the Fund provide technical assistance to Fund members seeking to enhance their capacity to evaluate the legal and financial terms of sovereign debt contracts, and for other purposes.
The Clerk read the title of the bill.
The text of the bill is as follows: H.R. 4111
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.
This Act may be cited as the ``Sovereign Debt Contract Capacity Act''. SEC. 2. SUPPORT TO ENHANCE THE CAPACITY OF INTERNATIONAL MONETARY FUND MEMBERS TO EVALUATE THE LEGAL AND FINANCIAL TERMS OF SOVEREIGN DEBT CONTRACTS.
(a) In General.--Title XVI of the International Financial Institutions Act (22 U.S.C. 262p-262p-13) is amended by adding at the end the following: ``SEC. 1630. SUPPORT TO ENHANCE THE CAPACITY OF FUND MEMBERS TO EVALUATE THE LEGAL AND FINANCIAL TERMS OF SOVEREIGN DEBT CONTRACTS.
``The Secretary of the Treasury shall instruct the United States Executive Director at the International Monetary Fund to use the voice and vote of the United States to advocate that the Fund promote international standards and best practices with respect to sovereign debt contracts and provide technical assistance to Fund members, and in particular to lower middle-income countries and countries eligible to receive assistance from the International Development Association, seeking to enhance their capacity to evaluate the legal and financial terms of sovereign debt contracts with multilateral, bilateral, and private sector creditors.''.
(b) Report to the Congress.--Within 1 year after the date of the enactment of this Act, and annually thereafter for the next 4 years, the Secretary of the Treasury shall report to the Committee on Financial Services of the House of Representatives and the Committee on Foreign Relations of the Senate on--
(1) the activities of the International Monetary Fund in the then most recently completed fiscal year to provide technical assistance described in section 1630 of the International Financial Institutions Act, including the ability of the Fund to meet the demand for the assistance; and
(2) the efficacy of efforts by the United States to achieve the policy goal described in such section and any further actions that should be taken, if necessary, to implement that goal.
(c) Sunset.--The amendment made by subsection (a) shall have no force or effect after the 5-year period that begins with the date of the enactment of this Act.
Mr. Speaker, earlier this year, the Financial Services Subcommittee on National Security, International Development and Monetary Policy held a hearing on China's lending practices and their impact on the international sovereign debt architecture. The hearing examined China's dominant position as the largest official creditor in the world, with China's outstanding claims larger than those of all other bilateral creditors combined. We also examined how China lends with respect to the terms and conditions China imposes on borrowing countries through its sovereign debt contracts.
Among the witnesses who testified were authors of a recent study that examined 100 China sovereign debt contracts, which found that since 2014, every sovereign debt contract examined contained strict nondisclosure requirements that prohibited the borrower from disclosing the terms of, and even the existence of, the debt itself.
Many of the contracts examined sought to elevate Chinese Government loans over other creditors by requiring the creation of China- controlled offshore collateral accounts and by explicitly prohibiting the debt from being included in any multilateral debt restructuring initiative.
The study also found a number of contracts with cross-default and accelerated payment provisions that give China substantial leverage over an array of domestic and foreign policy decisions that a borrowing country might undertake.
The absence of transparency not only prevents citizens from holding their governments accountable for their borrowing decisions, but it also obscures a country's true financial picture from other creditors, which can undermine sovereign debt rescheduling operations that are based on systems of trust and equitable burden sharing among all of a country's creditors.
For example, in Zambia, one of three countries that has applied for debt relief under the new G20 Common Framework initiative, new revelations about undisclosed Chinese debt nearly doubled its total official amount owed from $3.4 billion to $6.6 billion.
Opacity also creates greater opportunity for political capture and corruption and undermines debt risk management and surveillance work.
It was this context in which I introduced, with Ranking Member Patrick McHenry, H.R. 4111, the Sovereign Debt Contract Capacity Act, which directs the Secretary of the Treasury to instruct the United States executive director at the International Monetary Fund to use the influence of the United States at the IMF to advocate that the Fund provide technical assistance to bolster the capacity of developing country debt managers to evaluate and negotiate both the financial and the legal terms in sovereign debt contracts.
It is important that this kind of capacity building also be available through multilateral channels like the IMF, which have a wider global reach. Multilateral approaches can also be more effective since national programs risk being perceived as an instrument of power politics and beholden to certain interest groups within a country.
To be sure, some countries sign bad contracts for the wrong reasons, including corruption and governance problems. In a country that is running up oppressive, hidden debt because its leaders are corrupt, training is not going to help a lot. But ensuring that technical assistance is available to any developing country that requests help in assessing the technical, legal complexities of sovereign debt contracts would be an important step in reform of the sovereign debt crisis management system.
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Ms. WATERS. Mr. Speaker, I am prepared to close, and I reserve the balance of my time.
In closing, I want to note that H.R. 4111 also directs the U.S. to advocate for the IMF to develop and promote a shared understanding of standard terms and sound practices with respect to sovereign debt contracts.
Officials for countries that sign oppressive debt contracts are often told that the proposed terms are market standard where either there is no standard or where the standard is quite different from what is being proposed. This would be another positive reform of the sovereign debt architecture.
I would like to thank Ranking Member McHenry for working with me on this important bill. H.R. 4111 has been endorsed by Oxfam, Bread for the World, ONE, and the AFL-CIO.
Mr. Speaker, I urge my colleagues to support this bipartisan bill, and I yield back the balance of my time.
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Ms. WATERS. Mr. Speaker, on that I demand the yeas and nays.
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