Sovereign Debt Contract Capacity Act

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.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days in which to revise and extend their remarks on this legislation and to insert extraneous material thereon.

Mr. Speaker, I yield myself such time as I may consume.

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.

Mr. Speaker, for these reasons, I urge my colleagues to support this bill, and I reserve the balance of my time.

Mr. Speaker, I am prepared to close, and I reserve the balance of my time.

Mr. Speaker, I yield myself 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.

Mr. Speaker, on that I demand the yeas and nays.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise in strong support of H.R. 4111, the Sovereign Debt Contract Capacity Act, an important piece of legislation sponsored by our chairwoman and cosponsored by our committee's lead Republican.

China has now become the world's largest official creditor, but the details of its lending remain notoriously opaque.

At a hearing in May, the Financial Services Committee examined how China has been using strict confidentiality arrangements, cross-default provisions, and other tools to hide the details of its loans and potentially influence borrowers' domestic and foreign policies.

A recent analysis by the research group AidData has also shown that 42 countries now have public debt exposure to China in excess of 10 percent of their GDP, which is largely hidden from conventional reporting to the World Bank.

H.R. 4111 would address this problem by supporting technical assistance from the International Monetary Fund to help developing countries better assess these debt contracts.

This legislation builds on a bipartisan law authored by our colleague, Congressman Hill from Arkansas, that requires the Treasury Department to push for greater Chinese debt transparency at the international financial institutions.

Together, these two bills are a clear statement that our committee wants the Treasury Department to prioritize the threat of China's hidden debt and give countries the necessary technical assistance to push back on Beijing.

H.R. 4111 is especially timely since the IMF is confronting serious difficulties carrying out new programs since China has been so slow negotiating its loans to IMF borrowers.

If the International Monetary Fund can't accurately assess borrowers' liabilities to Beijing, it will have trouble providing its own financing. In other words, China's opaque lending practices are not just a threat to borrowing countries; it puts at risk the operations of the IMF, World Bank, and other multilateral lenders. This is unacceptable.

I commend the chairwoman for sponsoring this legislation and hope that our committee can continue to work in such a bipartisan manner to address

China's exploitation of countries around the world.

Mr. Speaker, I urge my colleagues to support H.R. 4111, and I reserve the balance of my time.

Mr. Speaker, I thank the chairwoman, again, for her strong legislation. I would urge all my colleagues to support H.R. 4111, the Sovereign Debt Contract Capacity Act, and I yield back the balance of my time.