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Press Room
 

FROM THE OFFICE OF PUBLIC AFFAIRS

October 14, 2004
JS-2030

Implementing Reforms that Drop and Stop the Debt of the
Heavily Indebted Poor Countries
John B. Taylor
Under Secretary of Treasury for International Affairs
Remarks at the Poverty and Debt Relief Photo Exhibit
United States Senate
October 14, 2004

It is a pleasure to join you here today. I want to thank all of you for the help and advice that you have given to the Bush Administration, and the Treasury in particular, in our efforts to help poor countries address their serious debt problems, especially their debts to the international financial institutions. I have benefited from many interactions with you in my office at Treasury and elsewhere.

The Reform Agenda So Far

It was more than three years ago that President Bush--in a speech at the World Bank in July 2001--made a proposal that in his words "doesn't merely drop the debt; it stops the debt" of the poorest countries.  The proposal called for a dramatic increase in grant funding to the world's poorest countries from the multilateral development banks.

I recall the welcoming support that many of you gave to that proposal and the help you gave us in winning essential international support in a very tough and skeptical environment. It took about a year, but with this help, the Bush Administration was able to win broad international support and thereby substantially shift funding from loans to grants at IDA and the African Development Fund. And this summer we obtained agreement at the Asia Development Fund for substantially increased grant funding. The aim of the President's proposal was to augment the heavily indebted poor country program by reducing the amount of debt counties would accumulate in the future.

  Assessing Progress

Now, three years later, we are able to assess how this new grants program is working, and I have made several trips to Africa this year to do just that. Experts from the World Bank and from the U.S. Treasury have accompanied me on these trips. We visited schools, health care centers, and small village construction projects.  We traveled to some of the world's poorest rural villages (especially in Niger) and some of the world's worst urban slums (especially in Nairobi).  We talked with village chiefs, teachers, principals, nurses, doctors, AIDS patients, and school children and their parents.  We talked with finance ministers--Kaberuka of Rwanda, Mwiraria of Kenya, Zeine of Niger, and Diop of Senegal, Osafo-Maafo of Ghana, and Manuel of South Africa--and asked how they assessed the new grants programs from IDA and from the African Development Fund. We also met with health ministers and education ministers, and we interviewed World Bank people responsible for administering the programs.

I am happy to report that President Bush's new grants initiative is very popular and enormously well received in all the places we visited, especially by those in the heavily indebted countries.  They like how the grants deal with the debt problem.  But they also pointed to other advantages of grants, including fewer bureaucratic hurdles and a greater show of support by donors. The Health Minister in Rwanda (where the grants were for HIV/AIDs) was particularly appreciative of what he called the "Bush Grants."  The Education Minister in Kenya (where the grants are used to buy textbooks) said he was surprised, thrilled, and grateful that the World Bank had given grant support. The Finance Minister of Niger concluded our meeting by saying, "Long Live the Doctrine of Grants."  They all thanked the U.S. because they knew that these grants would not exist had President Bush not proposed them. 

Next Steps: Completing the Reform Agenda

Based on this success we would like to work with the international community to implement additional reforms to help countries fully achieve debt sustainability.  Debt sustainability is a prerequisite for private investment, economic growth, and the reduction of poverty. In a nutshell, we need to complete the "drop the debt and stop the debt" vision put forth by President Bush at the start of his administration.

How do we do this?  As Secretary Snow indicated in a recent speech at the Bretton Woods Committee, we should help poor countries make their debt sustainable and we should not make loans (as they are made now) when it is highly probable that they will be forgiven.  To do so, we should substantially increase both grant financing and debt relief--up to 100 percent--from the international financial institutions.  Moving boldly in this way would give lagging countries an opportunity to wipe the slate clean and begin anew following a prudent and sustainable path to financing development. 

In addition, at the IMF we should create a new non-borrowing facility aimed at promoting strong country ownership.  Such a facility would allow the IMF to work with countries to set and assess policy benchmarks in the absence of further debt accumulation.  This would strengthen the IMF as an institution of international economic cooperation where each country assumes its responsibility for growth and stability.

As we engage with the international community, we must insist that no reform inadvertently causes a reduction in the funding for poor countries.  On the contrary, with these additional reforms we feel we can greatly improve the case for additional support for effective development assistance to the poorest countries, and thereby increase economic growth, reduce poverty, and improve the lives of people around the globe.

I am looking forward to working with you as we continue our reform agenda.