Public Papers - 1990 - September
White House Fact Sheet on the Enterprise for the Americas Initiative Act of 1990
The President will transmit to the Congress a legislative proposal to implement the investment, debt, and environmental elements of his Enterprise for the Americas Initiative. The purpose of this legislation is to encourage and support market-oriented reform and economic growth in Latin America and the Caribbean through inter-related actions that will promote investment reforms, debt reduction, and environmental protection.
In the investment area, the proposed legislation will provide for contribution by the United States to the Enterprise for the Americas Investment Fund, a multilateral investment fund to be established at the Inter-American Development Bank. Authorization for contributions of 0 million to the Fund and authorization of appropriations for the contribution will be sought. The President will seek 0 million a year over 5 years for the Fund. The Fund is designed to foster a climate favorable to investment in Latin American and Caribbean countries and would support efforts in these countries to facilitate investment and the reflow of flight capital. It would advance specific, market-oriented investment policy initiatives and reforms and finance technical assistance for privatization efforts, business infrastructure, and worker-training and education programs. The Secretary of the Treasury will seek contributions from other countries to the Fund.
The proposed legislation will also establish the Enterprise for the Americas Facility in the Department of the Treasury to support the objectives through administration of debt reduction operations for nations that meet certain investment reform and other policy conditions.
The legislation would establish criteria to govern eligibility to participate in the debt reduction operations under the Facility. These criteria will aim to encourage economic reform, including measures to liberalize investment regimes. An eligible country should:
have in effect an International Monetary Fund (IMF) standby arrangement, extended fund arrangement, or an arrangement under the structural adjustment facility or enhanced structural adjustment facility, or, in exceptional circumstances, an IMF-monitored program or its equivalent;
as appropriate, have received structural or sectoral adjustment loans under the International Bank for Reconstruction and Development (World Bank) or the International Development Association (IDA);
have in place major investment reforms in conjunction with an IDB loan or otherwise be implementing open investment regimes; and
as appropriate, have agreed on a satisfactory financing program with commercial banks including, if appropriate, debt and debt service reduction.
Clear authority will be necessary to undertake the actions proposed in the debt element of the Initiative. The administration will seek authority to reduce concessional loans extended under the Foreign Assistance Act of 1961 (FAA) and credits extended under title I of the Agricultural Trade Development and Assistance Act of 1954, as amended (P.L. 480). This reduction would be accomplished through an exchange of new obligations for obligations outstanding as of January 1, 1990. Once agreed by the President, the responsibility for executing an exchange of obligations that will result in the debt reduction rests with the agency that holds loans or credits to be affected. Such agency will act at the direction of the Facility.
Once an exchange is undertaken, principal payments on new obligations will be paid in U.S. dollars and credited to the accounts established to receive principal payments on the old debt obligations. Interest payments will be at a concessional rate and will be made in local currency if the debtor country has reached an environmental agreement with the United States establishing an Environmental Fund. Under such an agreement, interest payments would be deposited in an Environmental Fund and jointly programmed by the U.S. and debtor country government. In the absence of such an environmental agreement, interest would be paid in U.S. dollars into the account established for interest payments of the obligations exchanged therefor.
The President would be authorized to enter into agreements with countries receiving debt reduction under the Initiative which, in addition to establishing Environmental Funds and providing for joint programming, could specify the uses of monies in the Funds. The President intends to encourage the involvement of local private environmental groups in decisions on the use of grant funds and to consult with nongovernmental organizations in the United States and abroad regarding the establishment, structure, and operation of the Environmental Fund program.
In addition to the authority to reduce concessional debts, the President would be authorized to sell, reduce, or cancel loans made to an eligible country under the Export-Import Bank Act of 1945, as amended, and assets acquired as a result of credit guarantees made in connection with export sales to eligible countries under programs authorized pursuant to the Commodity Credit Corporation (CCC) Charter Act, as amended, or section 4(b) of the Food for Peace Act of 1966, as amended. Such sale, reduction, or cancellation would only be undertaken for those loans made or assets acquired prior to January 1, 1990 and would be consistent with terms or conditions of prior agreements relating to the loans or assets.
Eligible purchasers for Eximbank loans and CCC assets would depend on the presentation of satisfactory plans for engaging in debt-for-equity or debt-for-nature swaps. Once an eligible purchaser is identified, the Facility will notify the agency that holds the loans or assets to be affected, and that agency will carry out the sale, reduction, or cancellation. Prior to such a transaction, consultations would be undertaken with the eligible country regarding the amounts to be affected and their uses for debt-for-equity or debt-for-nature swaps. The proceeds of any sale, reduction, or cancellation of a loan or asset would be credited to the account established for the repayment of that loan or those assets.
Such sales, reductions, or cancellations of loans or assets would be carried out in a way to maximize return to the U.S. Government. These transactions would not be required to be registered pursuant to the Securities Act of 1933 and, for the purposes of that Act, neither Eximbank nor CCC would be deemed an issuer or underwriter with respect to any subsequent sale or other disposition of such loan or asset pursuant to a debt-for-equity or debt-for-nature swap.
The President would transmit an annual report to Congress on the operation of the Facility.
Implementation of the Initiative
The key investment, debt, and environment components of the ``Enterprise for the Americas'' initiative are as follows:
(1) Contributions to the Enterprise for the Americas Investment Fund to be administered by the Inter-American Development Bank (IDB).
(2) Development of an investment sector lending program in the IDB to provide loans in support of investment reforms.
(3) Creation of the Enterprise for the Americas Facility within the Treasury Department to support the objectives of the Initiative through debt reduction operations for eligible nations.
(4) Reduction of concessional (AID and P.L. 480) debts owed by eligible countries.
(5) Use of interest payments on reduced concessional obligations to support environmental programs in the debtor country.
(6) The sale, reduction, or cancellation of Eximbank loans and CCC assets to facilitate debt/equity or debt-for-nature swaps.
The following provides further detail on the expected operation of these elements.
Enterprise for the Americas Investment Fund
This fund is expected to be multilateral in nature, although it could commence operations based initially on U.S. contributions if other contributions are not available. The administration will be seeking authority to contribute (as grants) 0 million annually to this Fund over five years beginning in FY 1992.
The Fund is expected to provide support for investment policy initiatives and reforms and to finance technical assistance for privatization, development of business infrastructure, and worker training and education programs.
The administration discussed this proposal with other G - 7 industrial countries at the Houston economic summit and will continue to seek contributions from European countries, Japan, and Canada.
Although the IDB would manage the Fund, contributing countries would be expected to provide guidelines for disbursement of grants to eligible countries.
IDB Investment Sector Loan Program
The President has proposed the establishment of an IDB sector lending program to provide fundamental support for investment reforms. Liberalization of investment regimes is particularly important as a means of attracting the scarce capital critical to sustained growth. The objective for Latin America and the Caribbean must be to compete effectively for investment in a world of limited resources and to attract the capital of their nationals back home.
The U.S. Government will work with the Inter-American Development Bank to develop an investment sector lending program consistent with these goals.
Enterprise for the Americas Facility
The Enterprise for the Americas Facility will support the objectives of market-oriented reform and economic growth, investment reform, and environmental protection through the administration of debt reduction operations for eligible countries.
To be eligible for debt reduction, Latin American and Caribbean countries must:
have in effect International Monetary Fund/World Bank economic reform programs;
have in place major investment reforms in conjunction with an IDB loan, or otherwise be implementing an open investment regime; and
for countries that owe a substantial part of their debt to commercial banks, have negotiated a satisfactory financing program with commercial banks, including debt and debt service reduction if appropriate.
Decisions on country eligibility, based on these criteria, will be made through an interagency process chaired by the Secretary of the Treasury. The Enterprise for the Americas Facility will issue instructions to the appropriate Federal agencies to effect the debt reduction, sale, or cancellation which has been negotiated with eligible countries (see below). It will also provide technical support for an interagency team, to include relevant agencies, which will negotiate the terms of debt reduction with individual countries.
Reduction of Concessional Debts
Decisions on the extent of debt reduction on Agency for International Development and P.L. 480 obligations of individual eligible countries will be made through an interagency process chaired by the Secretary of the Treasury.
Debt reduction will be effected through the exchange of outstanding obligations for new, reduced AID and P.L. 480 obligations bearing concessional interest rates (see environmental support discussion below).
Reduction, Sale, or Cancellation of Eximbank and CCC Obligations
Decisions on the amount of Eximbank loans (and loans acquired pursuant to its guarantee and insurance programs) and the amount of CCC assets acquired as a result of its export sales guarantees which will be available for reduction, sale, or cancellation for eligible countries will be made through an interagency process chaired by the Secretary of the Treasury.
Such reductions, sales, or cancellations will be made solely to facilitate debt/equity swaps or debt-for-nature swaps. Specific mechanisms will be developed to assure that this objective is realized.
Enterprise for the Americas Environmental Funds
The administration will seek to negotiate an environmental agreement with each country determined eligible for debt reduction. Conclusion of such an agreement would allow the eligible country to make interest payments on new obligations resulting from debt reduction in local currency. The agreement would establish an Environmental Fund to receive interest payments and would determine the operation of the Fund and the use of its resources to provide grants for environmental projects and programs.
The local currency interest payments would be deposited in an eligible country's Environmental Fund and would be jointly-programmed by the United States and that country. It is contemplated that local committees -- composed of U.S. Government representatives, eligible country representatives, and representatives of local private environmental groups -- would have a significant role in formulating programs and projects funded by each country's Environmental Fund.
The administration is committed to encouraging the involvement of local nongovernmental environmental groups in the decision-making process. We have heard preliminary views from nongovernmental organizations in Washington and believe it will be important to consult with these groups regarding the establishment, structure, and operation of the Environmental Fund program.
We anticipate that annual programs for individual countries would be formulated at the local committee level, as would proposals for specific projects to be funded. Annual programs would be subject to the joint approval of the U.S. Government and the debtor government.