QUE SE CELEBRA EL 30 DE ENERO DE 1997, ENTRE NACIONAL FINANCIERA, S.N.C. (EL "ADQUIRENTE"), LA SECRETARIA DE HACIENDA Y CREDITO PUBLICO (EL "AGENTE PAGADOR"), CONSERVATION INTERNATIONAL MEXICO,A.C. (EL "INVERSIONISTA"),Y SIGNET BANK (EL "BANCO/TENEDOR").

CONSIDERANDO:

1. Que el Adquirente tiene conocimiento del contenido de los Convenios del Paquete Financiero para México 1989-1992 y bajo los cuales por la firma del presente podrán intercambiarse bonos en la fecha determinada para tal efecto y de acuerdo a las condiciones aquí contenidas.

2. Que el Gobierno Mexicano has establecido el Programa de Intercambio de Deuda Pública para apoyar Proyectos Educativos, Ecológicos, Agropecuarios y de Asistencia Social, y ha publicado las Reglas para autorizaciones en 1995 que regirán al mismo, y que ambas constituyen, junto con la Ley Orgánica de la Administración Pública Federal, la Ley General de Deuda Pública, el Presupuesto de Egresos de la Federación para 1995, el Reglamento Interior de la Secretaría de Hacienda y Crédito Público, la Ley Organica de Nacional Financiera, S.N.C., y los acuerdos tomados en las reuniones del Comité Técnico Intersecretarial del Programa de Intercambio de Deuda Pública para apoyar Proyectos Educativos, Ecológicos, Agropecuarios y de Asistencia Social, el fundamento jurídico de todas las autorizaciones, incluyendo el acuerdo del Comité Técnico Intersecretarial, por medio del cual se autorizó al Agente Pagador para autorizar de manera especial a instituciones con fines non lucrativos, operaciones de intercambio de deuda por Conversión Calificada, con fundamento en las nuevas reglas enviadas el 26 de junio de 1995.

3. Que el Inversionista desea participar en el Programa de Intercambio de Deuda Pública para apoyar Proyectos Educativos, Ecológicos, Agropecuarios y de Asistencia Social, con el fin de intercambiar Bonos con la intermediación del Banco/Tenedor, por Conversión Calificada (Qualified Consideration), en favor del inversionista.

4. Que el Banco/Tenedor está de acuerdo en que el Inversionista lleve a cabo algún tipo de Conversión Calificada (Qualified Consideration).

5. Que el Banco/Tenedor y el Inversionista han recibido todas las autorizaciones necesarias

para el intercambio de los Bonos y para la realización del Proyecto Específico, respectivamente.

6. Que las partes del presente han manifestado conocer el contenido del Programa de Intercambio de Deuda Pública para apoyar Proyectos educativos, Ecológicos, Agropecuarios y de Asistencia Social, así como las estipulaciones relativas del Paquete Financiero, y que por ese motivo los términos, las condiciones y los plazos ahí fijados son de su absoluto conocimiento.

Por lo anterior, las partes convienen al tenor de las siguientes disposiciones y cláusulas:

A menos que se establezca de otra manera en el presente, los términos que aparezcan en mayúscula definidos en los Convenios del Paquete Financiero y a los que se hace referencia más adelante, se usarán en este Convenio tal como se definen en los mismos.

Asimismo, los términos que aparecen a continuación tendrán el siguiente significado. "Agente Fiscal" o "Agente de Cierre" cuando así proceda significa Citybank,N.A., tal y como se define en el Convenio de Intercambio de Bonos a Descuento y a la Par.

"Agente Pagador" significa la Secretaría de Hacienda y Crédito Público, actuando en su capacidad de Agente Pagador de Nacional Financiera, S.N.C.

"Autorizaciones del Gobierno Mexicano" significan las aprobaciones necesarias para llevar a cabo las transacciones previstas bajo este Convenio, expedidas por la Secretaría de Hacienda y Crédito Público mediante Oficio No. 305.1.3240 del 13 de septiembre de 1996, que se adjunta al presente como Anexo "A", y que no estará sujeto a variación en sus términos y condiciones, salvo que la misma entidad que autorizó inicialmente determine lo contrario mediante la expedición del oficio modificatorio correspondiente.

"Aviso de Intercambio" (Exchange Notice) significa el documento a ser firmado por separado por el Banco/Tenedor y el Adquirente, bajo los Términos de la Cláusula 5 y adjunto al presente como Anexo "B".

"Bonos" significa Bonos a Descuento (Discount Bonds) y/o Bonos a la Par (Par bonds).

"Cedel" significa Centrale de Livrasion de Valeurs Mobiliéres, S.A.

"Certificado de Conversión Calificada" significa el documento expedido por el Adquirente, el cual otorga a su titular el derecho a desembolsar el Depósito para realizar el Proyecto Específico.

"Conversión Calificada" (Qualified Consideration) significa lo establecido en la Parte 4 (C) de los Términos y Condiciones de los Bonos.

"Depósito" significa para cada Fecha de Intercambio, la transferencia de fondos a la cuenta que el inversionista mantiene a nombre de Conservation International México,A.C., de conformidad con lo establecido en la Cláusula Primera Inciso (b) del presente, y a su vez, los rendimientos de dichos fondos que formarán parte del capital que se aplicará para financiar el Proyecto Específico.

"Día Hábil" significa un día distinto del sábado, domingo u otros días en que los bancos estén autorizados u obligados a cerrar, tanto en la Ciudad de México como en Nueva York, N.Y.

"Euroclear" significa Euro-clear Clearance System.

"Fecha de Intercambio" significa cada fecha en la que se lleve a cabo un intercambio de Bonos por Conversión Calificada la cual será determinada por el Agente Pagador y notificada conjuntamente por el Adquirente y por el Banco/Tenedor a Cedel, Euroclear o el Agente Fiscal, según corresponda, mediante un Aviso de Intercambio, en las condiciones especificadas en la Cláusula Primera y Quinta del presente, previo cumplimiento de las condiciones establecidas en la Cláusula Segunda. El intercambio tendrá lugar en la Tesorería de la Federación, Ciudad de México, pudiendo las partes fijar otro lugar de común acuerdo.

"Moneda de los Bonos" significa la divisa (o divisas) en la cual están denominados los Bonos en la Fecha de Intercambio.

"Monto de Bonos Autorizado" significa E.U.A. $2,000,000.00 (Dos Millónes de Dólares de los Estados Unidos de América) valor nominal, de Bonos a Descuento y/o a la Par. Estos Bonos serán objeto de intercambio de conformidad con el presente contrato.

"Monto de Pago en Dólares" significa la cantidad especificada como tal en un aviso enviado por el Banco/Tenedor al Inversionista y que será pagada al Banco/Tenedor de acuerdo con las disposiciones pactadas entre éste y el Inversionista.

"Monto de Pago en Pesos" significa que el gobierno de México a través de la Secretaría de Hacienda y Crédito Publico pagará los bonos de su deuda, ya sean en bonos de descuento o bonos a la par a un precio de canje no mayor a 20 puntos porcentuales sobre el precio de los bonos comprados por el beneficiario del SWAP. Para ello se requerirá de la comprobación del precio de compra.

"Obligaciones de Pago bajo la Legislación Mexicana", significan aquellas comisiones, derechos e impuestos contemplados en la Ley Federal de Derechos y en su caso, la Ley del Impuesto sobre la Renta y que deben ser pagados en los términos de dichos ordenamientos por el Banco/Tenedor, y el Inversionista, tomando en cuenta lo establecido en la Cláusula Segunda Inciso (h) del presente.

"Paquete Financiero" (1989-1992 Financing Package for Mexico) significan, conjuntá o separadamente, los siguientes documentos: (1) el Convenio de Intercambio de Bonos a Descuento y a la Par (Discount and Par Bond Exchange Agreement) así como los Documentos de Bono (Bond Documents) definidos en el mismo Convenio; (2) el Convenio de Représtamo y Comercio Exterior (Onlending and Trade Credit Facility Agreement); (3) el Convenio de Subscripción de Bonos de Dinero Nuevo y los Documentos de Bono (New Money Bond Subscription Agreement; (4) el Convenio de Crédito 1989-1992 (1989- 1992 Credit Agreement); (5) los Convenios Combinados de Reestructuración Multi-Anual (Combined MYRAS); (6) el Convenio Combinado del Antiguo Dinero Nuevo (Combined Old New Money Agreement and Bond Documents); (7) el Convenio de la Facilidades 2 y 3 Combinadas (Combined Facilities 2 and 3 Agreement); y (8) la Enmienda de 1990 (1990 Amendment), todos ellos fechados y suscritos el 4 de febrero de 1990, por los Estados Unidos Mexicanos, los obligados del Sector Público Mexicano y la Comunidad Bancaria Internacional, en el entendido de que dichos Convenios pueden ser enmendados, modificados o adicionados cuando así se requiera bajo las condiciones fijadas en los mismos. "Período de Intercambio" significa de la fecha de firma del presente hasta enero de 1998 en la cual se llevará a cabo el último intercambio de Bonos para constituir el Depósito y financiar el Proyecto Específico.

"Proyecto Específico" significa las inversiones autorizadas por la Secretaría de Hacienda y Crédito Público bajo las Autorizaciones del Gobierno Mexicano. La Cláusula Cuarta del presente Convenio contiene una explicación global de la inversión a realizarse, misma que se expresa de manera detallada en el Anexo "C" del presente.

"Valor Equivalente en Dólares E.U.A." significa el valor en dólares americanos equivalente al Monto de Pago en Pesos en cada Fecha de Intercambio, y que se tomará como referencia en cada disposición contra el Depósito, el tipo de cambio será el que determine para dicho efecto la Secretaría de Hacienda y Crédito Público.

PRIMERA. Disposiciones Generales para la Fecha de Intercambio.

(a) Sujeto a los términos y condiciones del presente, el Banco/Tenedor, en base al acuerdo que por separado suscriba con el Inversionista, conviene en transmitir a éste los derechos derivados de los Bonos a ser intercambiados en cada Fecha de Intercambio. El Banco/Tenedor conviene, por cuenta del Inversionista, en transmitir los Bonos al Adquirente, simultáneamente a la entrega por parte del Agente Pagador del Monto de Pago en Pesos en favor del Inversionista en cada Fecha de Intercambio, en su caso, que formalice la Conversión Calificada (Qualified Consideration) objeto del presente Convenio. Para efectos de la Fecha de Intercambio, el Banco/Tenedor y el Adquirente por separado enviarán el Aviso de Intercambio en el plazo y con las especificaciones previstas en la Cláusula Quinta del presente.

(b) Mediante la presentación por parte del Banco/Tenedor del Aviso de Intercambio, el Adquirente, si no existiere inconveniente y previa revisión de los Documentos del Bono presentados con oportunidad por el Banco/Tenedor, enviará simultáneamente con éste el citado Aviso de Intercambio a Cedel, Euroclear o el Agente Fiscal, según corresponda, y acuerda pagar por medio del Agente Pagador al titular del Certificado de Conversión Calificada el Monto de Pago en Pesos en la Fecha de Intercambio.Tratándose de intercambio de Bonos emitidos en forma definitiva deberán presentarse al Adquirente, el original del Bono junto con la documentación que solicite el Agente Pagador. El Agente Pagador efectuará dicho pago para constituir el Depósito con fecha valor del mismo día, o por cualquier otro medio convenido por el Agente Pagador y el Inversionista. El Depósito será respaldado por un recibo oficial entregado por la Tesorería de la Federación que especificara el Monto del Pago en Pesos y su Valor Equivalente en Dólares E.U.A. El inversionista podrá hacer disposiciones de dicho Depósito de conformidad con el programmea de desembolsos conteniendo en el Anexo "C-1" que detalla la inversión a realizarse en el Proyecto Específico.

(c) Al recibo del Monto de Pago en Pesos el Inversionista tendrá la obligación de iniciar el Proyecto Especifico y por lo tanto de llevar a cabo la Conversión Calificada.

(d) Una vez llevado a cabo el intercambio de Bonos por Conversión Calificada, el Banco/Tenedor conviene en que todos los derechos derivados de los Bonos intercambiados por Conversión Calificada en la Fecha de Intercambio al amparo del presente, habrán sido transmitidos al Adquirente.Asimismo, el Inversionista conviene en que toda responsabilidad del Banco/Tenedor con respecto a la participación en dichos Bonos se entenderá extinguida con excepción de cualquier obligación a su cargo que pudiera derivarse posteriormente como consecuencia de la firma del presente Convenio.

El Agente Pagador verificará que el tipo de Conversión Calificada llevada a cabo por el

Inversionista cumpla con los requisitos fijados para la misma en el Convenio de Intercambio de Bonos a Descuento y a la Par y que los bonos a ser intercambiados hayan sido depositados en la cuenta que el Adquirente lleva con Cedel.

SEGUNDA. Condiciones Precedentes a la Fecha de Intercambio. Con el fin de llevar a cabo el o los intercambios previstos para la realización del Proyecto Específico, las partes del presente estarán sujetas al cumplimiento de las siguientes condiciones:

(a) Este Convenio habrá sido debidamente aprobado y suscrito por cada una de las partes firmantes, quienes han acreditado debidamente su capacidad legal.

(b) Todas las Autorizaciones del Gobierno Mexicano para la ejecución de este Convenio habrán sido obtenidas y estarán en vigor y con plena efectividad. Las obligaciones establecidas en cada una de las Autorizaciones mencionadas, que deban ser cumplidas con anterioridad a cada Fecha de Intercambio, serán llevadas a cabo con estricto apego a lo señalado en los oficios respectivos, debiendo los interesados comprobar fehacientemente el cumplimiento de las mismas.

(c) El Inversionista conviene en que la Conversión Calificada a realizarse en cada Fecha de Intercambio, deberá tener la calidad que le confiere el Paquete Financiero, así como cumplir con los lineamientos del Proyecto Específico.

(d) El Inversionista habrá entregado al Agente Pagador para su aprobación.

(e) El Inversionista habrá manifestado su acuerdo a los términos y condiciones del Aviso de Intercambio correspondiente.

(f) El Agente Pagador habrá recibido por lo menos 10 días naturales anteriores a la Fecha de Intercambio, el Aviso de Intercambio enviado por el Adquirente y el Banco/Tenedor a Cedel, Euroclear o el Agente Fiscal, según corresponda.Tratándose de bonos definitivos, el Adquirente deberá haber recibido el original de los bonos y la documentación correspondiente.

(g) El Banco/Tenedor habrá manifestado que es el poseedor único y legítimo de los bonos que serán intercambiados al amparo del presente, mediante el Anexo "D", que lo acreditada como tal, de acuerdo al Paquete financiero.

(h) En caso de existir alguna obligación por parte del Banco/Tenedor y el Inversionista, relativo a las comisiones, derechos y tratamiento fiscal derivados de la utilización del Programa de Intercambio de Deuda Pública para apoyar Proyectos Educativos, Ecológicos, Agropecuarios y de Asistencia Social, las partes citadas manifiestan, por el acto de suscribir este Convenio, haber cumplido con dichas obligaciones, adjuntando al presente la evidencia de los pagos correspondientes mediante el Anexo "E". Si debido a que el ordenamiento legal que determina la obligación de pago pudiera rebasar al de la fecha de firma del presente Convenio, la parte obligada a dicho pago o el responsable solidario, en su caso, asumen toda la responsabilidad de enterarlo en la cantidad y el plazo previstos por la ley de la materia, así como de entregar al Agente Pagador copia del comprobante de pago respectivo, inmediatamente después de que se haga exigible la obligación.

Para los efectos del presente inciso y de acuerdo al Punto 14 de las Reglas para la Subasta de Derechos bajo el programa de Intercambio de Deuda Pública para apoyar Proyectos Educativos, Ecológicos, Agropecuarios y de Asistencia Social, se consideran obligaciones de Pago: (1)El 2.5 al millar de la deuda convertible, en los términos de los artículos 53 D y/o 72 Fracción IX de la Ley Federal de Derechos; el inversionista manifiesta haber realizado el pago del 2.5 al millar a que se refiere este párrafo con anterioridad a la firma de este instrumento y (2) En su caso, el pago del impuesto con fundamento en el Articulo 151-A de la Ley del Impuesto sobre la Renta, por concepto de ganancia de capital derivada del Intercambio (o Intercambios) objeto del presente Convenio. La enumeración anterior se hace sin perjuicio de la aplicación de cualquier otro pago que por disposición legal o administrativa deba hacerse con cargo a las partes citadas en este inciso.

TERCERA. Causas de Rescisión del presente Convenio. Los derechos y obligaciones de las partes se darán por terminados cuando se presente alguno de los siguientes casos: (1) por acuerdo de las partes establecido por escrito; (2) por vencimiento del Periodo de intercambio; (3) por notificación unilateral y por escrito de cualquiera de las partes en donde se asiente la decisión fundamentada y justificada a juicio del Agente Pagador, de no continuar con la transacción objeto del presente, haciéndose responsable la parte interesada de todas las consecuencias legales y costos derivados de su decisión; (4) por encubrimiento, mala fe o falsedad de alguna de las partes en los actos o documentos relacionados con el presente, y que constituyan, a criterio del Agente Pagador, una causa relevante para dejar sin efectos todas o parte de las disposiciones de este Convenio. El gobierno Federal se reserva la facultad de cancelar el programa cuando lo considere pertinente o bien cuando se hayan cumplido los objetivos de su instrumentación.

CUARTA. Proyecto Específico; Objeto de la Inversión. El Monto de Pago en Pesos recibido por el inversionista en los términos y condiciones fijados por el presente, serán utilizados de manera estricta y obligatoria para los programas aprobados de Conservation International Mexico,A.C., tal y como se especifica en forma detallada en el Anexo "C". El programa de desembolsos que se efectuará constituye una obligación y un compromiso irrevocables por parte del Inversionista, quien tendrá que solicitar por escrito al Agente pagador cualquier propuesta para variar las cifras y las fechas contempladas en el Anexo "C-1" del presente Convenio. En este caso, el escrito deberá contener los cambios solicitados así como los motivos de carácter financiero y/o legal que los han propiciado. El anexo "C-1" del presente seguirá teniendo total vigencia y efectividad mientras el Agente Pagador no emita un oficio aprobatorio sobre un nuevo programa de desembolsos, el cual, contando ya con la autorización correspondiente, será presentado formalmente por el Inversionista para substituir el vigente hasta ese momento. Los desembolsos que se hagan contra el Depósito para el desarollo del Proyecto Específico serán previamente autorizados por el Agente Pagador, para lo cual éste y la Tesorería de la Federación establecerán el mecanismo de desembolso que estimen adecuado para garantizar la correcta y oportuna utilización de los recursos.

QUINTA. Aviso de Intercambio. El Banco/Tenedor y el Adquirente notificarán por escrito a Cedel, Euroclear, o el Agente Fiscal, según corresponda, por lo menos 10 (diez) días naturales anteriores a la Fecha de Intercambio, sobre el detalle de los Bonos a ser intercambiados por Conversión Calificada, así como todas las especificaciones requeridas en el citado Aviso de intercambio, cuyo formato se incluye en el presente Anexo "B".

SEXTA. Devolución de Pagos en Exceso. El Banco/Tenedor estará obligado a devolver los montos pagados en exceso por cualquier motivo, incluyendo los intereses que por error pudiera recibir en el futuro por parte del Agente Fiscal cuando éste actúe por cuenta del Agente Pagador, una vez recomprado el monto de principal de los Bonos de conformidad con el presente convenio. La obligación anterior consistirá, en todos los casos, en la devolución inmediata de los montos recibidos en exceso y estableciéndose un costo financiero a cargo del BancoTenedor por cada día transcurrido, que será determinado por el Agente Pagador tomando en cuenta las tasas de mercado vigentes en el momento de surgir la obligación. El reembolso en favor del Agente Pagador se efectuará con el monto, lugar y forma que éste fija para tal efecto.

SÉPTIMA. Riesgo Cambiario. Cada una de las partes declara que ha tomado su propia decisión para celebrar el presente Convenio, con los consecuentes derechos y obligaciones que de ello se derivan. El agente Pagador y el Inversionista, correrán con el riesgo cambiario derivado del Depósito (o los Depósitos) a constituirse en la Tesorería de la Federación, y de manera especial con el Valor Equivalente en Dólares E.U.A.

OCTAVA. Gastos y Costos. A menos que se establezca de otra manera en el presente Convenio o en un documento por separado suscrito por todas las partes, los gastos y costos incurridos en relación con este Convenio serán sufragados por la parte que incurra en dichos gastos y costos. En el entendido de que dichos gastos y costos deberán ser razonables y documentados.

NOVENA. Enmiendas. Cualquier disposición del presente Convenio podrá ser modificada o derogada si en cualquiera de los casos la correspondiente enmienda se efectúa por escrito y es firmada por todas las partes.

DECIMA. Cesiones. Las partes no podrán ceder o transferir total o parcialmente, sus derechos y obligaciones bajo este Convenio, a menos que la cesión o transferencia se documente por escrito mediante la celebración de un convenio firmado por todas las partes del presente.

DECIMA PRIMERA. Notificaciones. Todos los avisos y comunicaciones a ser enviados e conformidad con este Convenio, y salvo especificación en contrario, se efectuarán por escrito mediante télex, telegrama, telefax, cable, correo o en propia mano, entregados a cada una de las partes en los domicilios que aparecen a continuación:

Dirección del Adquirente: Dirección del Agente Pagador:

NACIONAL FINANCIERA, S.N.C. SECRETARIA DE HACIENDA Y CREDITO PUBLI CO

Insurgentes Sur Núm. 1971 Insurgentes Sur 826 1er. Piso

Torre Norte – Piso 6 Col. del Valle

01020 México,D.F. México,D.F. 03100

Dirección del Inversionista: Dirrección del Banco/Tenedor

Conservation International Mexico,A. C.

Camino Al Ajusco No 124-1er. Piso

Fraccionamiento Jardines en la Montana

C.P. 14210, México,D.F.

DECIMA SEGUNDA. Ley Aplicable. Este Convenio se regirá y será interpretado de conformidad con las leyes de los Estados Unidos Mexicanos. No obstante lo anterior, las disposiciones del Paquete Financiero que sean aplicables al presente tendrán toda la fuerza legal que el derecho mexicano les confiere.

DECIMA TERCERA. Jurisdicción. Las partes del presente se someten a la jurisdicción de los tribunales del Distrito Federal en México, para promover cualquier proceso legal o juicio relacionados con controversias surgidas de la firma e instrumentación del presente. En consecuencia, cada una de las partes renuncia de manera irrevocable, hasta el límite legalmente permitido, a la invocación de los tribunales que por razón de su domicilio o residencia pudieran corresponderles.

DECIMA CUARTA. Ejemplares. Este convenio se suscribe de manera autógrafa en cinco tantos, cada uno teniendo la calidad de original. El convenio podrá ser traducido al idioma inglés por persona autorizada cuando así se requiera, en la inteligencia de que en caso de interpretación prevalecerá la versión en español. Los Anexos al mismo constituyen parte integral del documento, por lo que obligan a las partes con la misma fuerza legal que se le confiere al presente convenio.

De conformidad con lo establecido al tenor de las Cláusulas que anteceden, a continuación, las partes suscriben este Convenio mediante los apoderados que conforme a derecho han sido autorizados para tal efecto.

NACIONAL FINANCIERA, S.N.C. LA SECRETARIA DE HACIENDA Y CREDITO PUBLICO

El adquirente El Agente Pagador

CONSERVATION INTERNATIONAL BANCO/TENEDOR

El Inversionista Signet Bank

Union Calendar No. 251

105th CONGRESS

2d Session

To amend the Foreign Assistance Act of 1961 to facilitate protection of tropical forests through debt reduction with developing countries with tropical forests.

HR 2870 RH

105th CONGRESS

2d Session

[Report No. 105-443]

To amend the Foreign Assistance Act of 1961 to facilitate protection of tropical forests through debt reduction with developing countries with tropical forests.

Mr. PORTMAN (for himself, Mr. KASICH, and Mr. HAMILTON) introduced the following bill; which was referred to the Committee on International Relations

Additional sponsors: Ms. FURSE, Mr. EWING, Mr. HASTERT, Mrs. MALONEY of New York, Mr. KLUG, Ms. PRYCE of Ohio, Mr. LATOURETTE, Mr. CHABOT, Mr. BROWN of Ohio, Mr. STOKES, Mr. SAWYER, Mr. PASTOR, Mr. CAMP, Mr. LATHAM, Mr. FALEOMAVAEGA, Mr. LIPINSKI, Mr. WEXLER, Mr. KOLBE, Mr. DOOLEY of California, Mr. SHERMAN, Mr. GALLEGLY, Mr. ACKERMAN, Mr. LUTHER, Mr. BILBRAY, Mrs. KELLY, Mr. HOBSON, Mr. LEACH, Mr. SHAYS, Mr. MCHUGH, Ms. WOOLSEY, Mr. GUTIERREZ, Mr. LANTOS, Mr. BALLENGER, Mr. CAMPBELL, Mr. SMITH of New Jersey, Mr. SKAGGS, Mr. FRANK of Massachusetts, Mr. ENGLISH of Pennsylvania, Mr. BEREUTER, Mr. MANZULLO, Ms. KAPTUR, and Mr. Porter

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed

To amend the Foreign Assistance Act of 1961 to facilitate protection of tropical forests through debt reduction with developing countries with tropical forests.

48–783 CC
1998
H.R. 2870, THE TROPICAL FOREST PROTECTION ACT
HEARING
BEFORE THE
COMMITTEE ON INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
MARCH 4, 1998
Printed for the use of the Committee on International Relations
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
HENRY J. HYDE, Illinois

DOUG BEREUTER, Nebraska
CHRISTOPHER SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
MATT SALMON, Arizona
AMO HOUGHTON, New York
TOM CAMPBELL, California
JON FOX, Pennsylvania
JOHN McHUGH, New York
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
KEVIN BRADY, Texas
LEE HAMILTON, Indiana
SAM GEJDENSON, Connecticut
TOM LANTOS, California
HOWARD BERMAN, California

GARY ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
PAT DANNER, Missouri
EARL HILLIARD, Alabama
BRAD SHERMAN, California
ROBERT WEXLER, Florida
STEVE ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
MARK KIRK, Counsel
KIMBERLY ROBERTS, Staff Associate
C O N T E N T S

WITNESSES

    The Honorable Rob Portman, a Representative in Congress from Ohio
    Mr. Thomas Fox, Assistant Administrator, Policy and Planning Bureau, Agency for International Development
    Ms. Mary Chaves, Director, International Debt Policy, U.S. Department of the Treasury
    Mr. Ian Bowles, Vice-President of Conservation Policy, Conservation International
    Ms. Tia Nelson, Senior Policy Advisor for Latin America and Caribbean Division, The Nature Conservancy
    Mr. James Resor, Director of Conservation Finance, World Wildlife Fund
APPENDIX
Prepared statements:
The Honorable Benjamin A. Gilman, a Representative in Congress from New York and Chairman, Committee on International Relations
The Honorable Lee Hamilton, a Representative in Congress from Indiana
The Honorable Rob Portman, a Representative in Congress from Ohio
Mr. Thomas Fox
Ms. Mary Chaves
Mr. Ian Bowles
Ms. Tia Nelson
Mr. James Resor
Additional material submitted for the record:
FY 1998 Supplemental and FY 1999 Budget Request for Treasury International Programs, submitted by Representative Hamilton
H.R. 2870, THE TROPICAL FOREST PROTECTION ACT

WEDNESDAY, MARCH 4, 1998
House of Representatives,
Committee on International Relations,
Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., in room 2172, Rayburn Office Building, Hon. Benjamin Gilman (chairman of the Committee) presiding.
    Chairman GILMAN. [presiding] The hearing will come to order.
    Our hearing today begins with the formal consideration of bipartisan legislation to help protect the world's precious tropical forests. These habitats are home to half of the world's known species of plants and animals. They hold some of the keys to the future of science, climate change, and environmental values that all of us hold so dear. Legislation before us is H.R. 2870, the Tropical Forest Protection Act. It is part of a proud tradition that stretches back to President Theodore Roosevelt, a New Yorker, I might add, who founded the world's first public park system right here in our own nation.
    This bill stems directly from President Bush's Enterprise for the America's Initiative (EAI), to accomplish the twin goals of relieving Latin America's debt burden to the United States while making investments in conservation and tropical forest protection. It has come to be known as swapping debt-for-nature.
    President Clinton continued that work, both through the EAI and USAID's Parks in Peril Program. Building on this body of work, we now will hear testimony on this legislation that has been drafted by Mr. Portman, Mr. Kasich, and our own Ranking Member, Mr. Hamilton. And while some of the financial transactions that will take place under the bill are complicated, the overall operation of the bill is quite simple: The 11 countries identified in the bill for early action owe our government approximately $15 billion.

    These debts were incurred to three agencies, USAID, the Department of Agriculture, and the Eximbank. The bill authorizes the President to forgive a portion of that debt, some $400 million over a 3-year period. In return, the recipient governments are going to be able to establish endowments that will support conservation projects supervised by international boards representing the United States, the host governments, and local organizations.
    This bill has been done before, beginning with EAI. So we now have a substantial body of information of what works and how to accomplish our goals to protect the world's environment. There is a general agreement that the first rounds of EAI debt relief and projects were solid successes for Latin America.
    Now it's time to apply the lessons learned in these debt-for-nature swaps to other regions in the world where critical habitats are under siege.
    I want to thank the chairman of our Subcommittee on International and Economic Policy and Trade, Ms. Ros-Lehtenin, for her gracious cooperation in permitting expeditious consideration of this bill by our full Committee.
    It is our intention to schedule a markup for the bill for March 11 and to seek the Speaker's support in scheduling the bill for early consideration by the full House.
    I now recognize one of the drafters of this legislation, our Ranking Democrat Member, Mr. Hamilton, for any remarks that he may have. Mr. Hamilton.
    Mr. HAMILTON. Mr. Chairman, first I want to thank you for not only having the hearing but moving expeditiously toward a markup. Mr. Portman and I and Mr. Kasich very much appreciate your willingness to do that. I want especially to commend Representative Portman today who is the principal author of the legislation for the outstanding work that he has done. It has been a privilege for me to have the opportunity to work with him and to be supportive of his efforts.
    Mr. Chairman, if it is OK, I think what I will do is yield to Mr. Portman to testify, then perhaps when he is through, you would permit me to make a few additional observations. But since he is the principal sponsor of the bill, I think he should set it out. I've seen his statement. It's an excellent statement and after that I request that I have the opportunity to say a few words in support of the legislation.

    Chairman GILMAN. Thank you, Mr. Hamilton. We are fortunate to be joined by the prime mover of this legislation, the Congressman from Ohio's Second District, Rob Portman. I understand that we also will be joined by your partner, Mr. Kasich, but he's holding a hearing at the moment with Mr. Greenspan.
    Before recognizing Mr. Portman, does anyone else have any opening comments?
    [No response.]
    If not, Mr. Portman, you may proceed.
STATEMENT OF THE HONORABLE ROB PORTMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO
    Mr. PORTMAN. Thank you very much, Mr. Chairman and other Members of the Committee, for giving me the opportunity to talk about the legislation today, H.R. 2870. I did introduce it with John Kasich and your Ranking Member, Mr. Hamilton.
    And, Chairman Gilman, you've been a pioneer in this area. Back in the 1980's, you led efforts on debt-for-nature and I want to thank you for your early assistance in drafting this legislation; your good ideas to improve it, some of which we'll talk about in a moment; and as Mr. Hamilton just said, your willingness to move it expeditiously through the Committee process.
    The purpose of the legislation is to preserve and protect tropical forests worldwide on a sustained basis. This morning I will briefly discuss the problem, its underlying causes, and how we think this bill addresses them. The Committee has also asked for recommendations that Mr. Hamilton, Mr. Kasich, and I might have as how to improve the bill and I'll offer a few this morning.
    As the Committee knows, tropical forests provide a wide range of benefits, literally affecting the air we breathe, the food we eat, and the medicines which cure disease. Forests which include the rain forest, so-called moist forests, and dry forests in tropical areas, harbor between 50 and 90 percent of the Earth's terrestrial biodiversity. They also act as carbon sinks, absorbing massive quantities of carbon dioxide from the atmosphere, thereby reducing greenhouse gases. They regulate rainfall on which agriculture and coastal resources depend, which is of great importance to regional and global climate. And they, of course, are the breeding grounds for new drugs that can cure disease.

    Tragically, just since 1950, it is estimated that we've lost half of our tropical forests. The most comprehensive survey of global deforestation shows that both the area deforested and the annual rate has increased considerably between 1980 and 1990. During that decade, we lost forests equal to about 30 million acres every year. Unfortunately it continues at a rapid pace in the 1990's. We believe we are now losing tropical forests annually in an area larger than the State of Pennsylvania.
    Tropical deforestation and degradation, of course, are driven by poverty and economic pressures. Such pressures on the populations of developing countries have resulted in the clearing of vast areas of forest, for conversion to agriculture which is often unsustainable in the poor soils, of course, that underlie these tropical forests.
    Less-developed countries with urgent needs for investment and capital for development have allocated a significant amount of their forests also to logging concessions. Many of these less-developed countries that contain some of the most globally important tropical forests also have significant amounts of U.S. debt outstanding, some of which is unlikely to be repaid fully or on a timely basis. In fact, approximately half of the world's tropical forests are located in four countries—Indonesia, Peru, Brazil, and the Congo—and these countries alone in the aggregate have over $5 billion of U.S. debt outstanding.
    Building on the successes, Mr. Chairman, you talked a moment ago of President Bush's Enterprise of the America Initiative in the 1990's, this bill links these two very important facts of life. First, the important tropical forests are disappearing at a very rapid rate, and second, they are located in less-developed countries that have a very hard time repaying their debts to the United States.
    The legislation gives the President authority to reduce or cancel USAID, P.L. 480, the ag debt you talked about, and Eximbank debt owed by an eligible country to the United States in exchange for the creation of a fund in the local currency that preserves, maintains, and restores tropical forests.

    It is different than the EAI in a few ways. First, of course, it enables every country in the world to participate, not just Latin America and the Caribbean. Second, it targets the resources in the initial years to specific countries, I think it is 11 countries we have identified initially, to ensure that we are maximizing conservation efforts, so it is a more targeted effort. And, third, it narrows the criteria of EAI so that the protection of tropical forests is a primary focus.
    These debt-for-nature exchanges achieve two important goals. First, of course, they relieve some of the economic pressure that is fueling deforestation we talked about earlier, and, second, they provide the funds for conservation efforts in those eligible countries. There is also the power of leveraging—and this is what is really exciting to the proposal to me, its $1 of debt reduction, in many cases, could buy $2 or many more dollars in environmental conservation.
    Let me just give you one very simple example. In 1990, U.S loans Brazil $100, let's say. In 1998, because of worsening economic conditions and an inability to repay that debt fully and on a timely basis, that debt is scored on our books by CBO as having an asset value of $50. The United States enters into a debt-for-nature exchange under this bill to reduce the debt from $50 to $40 in exchange for Brazil's agreement to put $25 worth of local currency into a fund to preserve tropical forests.
    The cost to the U.S. taxpayer then is $10, the difference between the old instrument of $50 and the new one of $40, and yet we get $25 worth of environmental conservation. That's more than 2-for-1 leveraging. Some of the models I've seen, the Treasury Department has some very sophisticated modeling, I must admit I don't understand it all, but some of the modeling I've seen has shown leverage rates of as high as 10 to 1.
    So again, that's what I think is so exciting about this proposal and the possibilities here for real environmental protection using the dollar very efficiently.

    Thanks to our colleague, John Kasich, this legislation takes a more targeted approach, as I said earlier. Trying to be fiscally conservative here in the first 2 years, the bill gives the President authority to enter into those transactions with these 11 specific countries I spoke about a moment ago who have the most globally important and biologically diverse forests and ones we think are under the most severe threat. In the third year, the President has the authority to designate any eligible country. So we broaden it after the third year.
    In all 3 years, the President must give Congress advance notification of his intention to designate a country as being eligible.
    My first suggestion I might have this morning for possible improvement would be giving the President some emergency authority in the first couple of years to designate a country that is not on that targeted list, if circumstances so merit. I think this strikes a pretty good balance between the need to target our resources, which we all acknowledge, but also we need to provide the Administration some flexibility.
    For any country to qualify, of course, it must meet the same criteria established by Congress under the EAI, including that the government has to be democratically elected, it has to be cooperating on international narcotics control matters, not supporting terrorism, or as Chris Smith who was here a moment ago, feels so strongly about, and other Members of this Committee of course, that the country not be violating internationally recognized human rights.
    Furthermore, to ensure the eligible country meets minimum financial criteria to meet its new obligations under the restructured terms, the bill includes the EAI criteria requiring some progress on economic reforms.
    In preparing this legislation, we looked carefully at the issue of accountability—how these funds would actually be used. And, as the chairman indicated, we have a track record under EAI. It has facilitated debt-for-nature exchanges in seven Latin American and Caribbean countries, providing up to $154 million, at this point, in local conservation funds.

    They have been used for reforestation, soil and water conservation, biodiversity, and other conservation projects. A specific example would be reforestation of over 3,000 acres and soil and water conservation efforts on another 2,780 acres in El Salvador, reforestation and protection of highland forests in Colombia, sustainable tree harvesting and forest management in Chile, training indigenous populations on alternative uses of tropical forest resources, and developing eco-tourism programs on the Pacific Coast of Colombia.
    Some of the local administering bodies set up under EAI to monitor the use of the funds hired outside consultants such as Price Waterhouse and Peat Marwick to evaluate and audit the operations of the funds, which provides an additional level of comfort.
    Although the EAI legislation did not provide a cap for administrative expenses, the individual framework agreements establishing the local boards typically do limit them to a certain percentage. Usually it's around 10 percent of the total annual interest payment made into the account by the eligible country.
    As another suggestion, this morning I might suggest Mr. Chairman, at least in the Committee language, congressional intent be made clear that administrative expenses should generally be capped at 10 percent, or perhaps that it is the intent of Congress it will be 10 percent, just so that a vast majority of the funds do go toward conservation.
    Other than problems that have been identified, I've been told with the operation of programs in Bolivia due to oversight and implementation difficulties, but I understand are being addressed, we believe that those involved on the EAI board and others who have been active in these operations believe that the program is going quite well.
    We do think we have a good model in place, Mr. Chairman, as mentioned earlier.
    To ensure that funds are used for the purposes that relate directly to the preservation and protection of tropical forests, however, we did, as I said earlier, narrow the EAI criteria. Eligible activities include establishment, restoration, protection, and maintenance of parks and reserves; development and implementation of sound systems of natural resource management and restoration; and protection and sustainable use of diverse animal and plant species.

    In the event a country participating in EAI also wants to participate in this program, I think the Committee might want to consider providing some flexibility, Mr. Chairman, to coordinate the implementation and oversight of the two efforts to avoid unnecessary administrative costs and duplication of effort.
    I think flexibility there would make sense.
    The legislation authorizes $400 million over 3 years to cover the budget-scored so-called cost of this debt reduction, which we have to do, as you know, under our rules. At the suggestion of the Budget Committee, we have provided a smaller amount of funding in the initial years to get the program up and running properly so it will start small so that we will have the program up and running before we enter into these debt-for-nature swaps.
    Because USAID and P.L. 480 loans have been the subject of EAI transactions and probably hold the most promise for exchanges in the future, we have provided most of the funding to offset these specific costs.
    Since the time we introduced the bill, the United States has actually entered into an exchange transaction with Peru. We understand that exchange took place just last week. As part of the Department of Defense Appropriations Bill for Fiscal Year 1997, the President was given authority to engage in so-called debt buy-back transactions, where an eligible country pays the U.S. Government the full asset value, we talked about earlier, of the debt outstanding, and then contributes an additional amount, equivalent to 40 percent of the total purchase price over several years to a local fund for environmental and child survival programs.
    If countries can afford to pay back that debt fully, I think this is a nice option and it really has no cost to the U.S. taxpayer and I think ought to be encouraged. We have drafted an additional amendment to this legislation, H.R. 2870, to give the President this additional authority for conservation purposes only. And, again, I would recommend, Mr. Chairman, that the Committee consider adding such a provision to this bill to ensure that we are not discouraging these debt buy-back arrangements. The benefit, again, of course, is that it doesn't cost the U.S. taxpayer a dime.

    This legislation this morning is really a product of a lot of different people's thinking. Lee Hamilton has been key to this. We came to Mr. Hamilton early, knowing of his interest. John Kasich, as I said earlier. Also a lot of outside groups. Conservation International (CI) has given a lot of expertise on this as well as The Nature Conservancy (TNC), World Wildlife Fund (WWF), and many others. Many of these organizations have worked on this issue for years and believe that this is the right way to go. I believe they will be addressing that themselves later.
    We have strong bipartisan support in the House and companion legislature is ready to go in the Senate. It is my understanding that Senators Lugar, Biden, Chaffee, and Leahy are introducing it shortly in the U.S. Senate and Senator Lugar is quite interested in it, wants to move it, Mr. Chairman, as soon as possible following the House.
    Again, I want to commend you, Mr. Chairman, and Mr. Hamilton, and other Members of the Committee for all of their support and for their efforts to improve this bill. I think it can be improved in certain respects as I mentioned today. And I want to thank, particularly, all of the Members of the Committee who cosponsored it and a number of Members have. I look forward to working with you to improve the legislation that preserves and protects these important tropical forests worldwide in a fiscally responsible manner.
    [The prepared statement of the Mr. Portman appears in the appendix.]
    Chairman GILMAN. Thank you, Mr. Portman, for your extensive testimony and for your good work in bringing this before the Committee at an early date and I hope we can move it to the floor at an early date.
    And while the bill has widespread support, it certainly is not cheap. I believe the CBO will score the measure at $400 million over a 3-year period. And of course you and Mr. Kasich are famous budget cutters. How does the program fit into our overall plan of spending restraint?

    Mr. PORTMAN. Well, I think it fits in fine so as long as we find the offsets. We have been strongly advised by the appropriators not to include offsets in the legislation. However, Mr. Hamilton, Mr. Kasich, and I have all been concerned about that, as you have, I know. We are doing, one thing I mentioned this morning, which is again we are attempting to amend the bill to insert these debt buy backs which would be cost free.
    But also, first, we have to make a point that Mr. Kasich is committed himself to look into the international operations area of the budget and determine where we can find some appropriate offsets.
    Second, I'll say, you know the taxpayer really isn't going to get repaid on this debt and just as commercial banks do all the time, we ought to get something for it. The commercial banks tend to discount it. We tend to have the debt hanging out there and get nothing for it. We are talking about discounting it, but then, as I said earlier, getting this very exciting leveraging you get in these countries to be able to get something for it, which is a significant environmental benefit, conservation benefit. So, I think it is a fiscally responsible way to go. We looked at a lot of other options, and, in the end we believed this was the best way to go and in the end the taxpayer is going to get a deal here because we are going to get some debt repaid and we are going to get some benefit for it.
    Chairman GILMAN. Mr. Portman, how would you monitor the funds that are supposed to be set up in trust in each country?
    Mr. PORTMAN. Well, that's a good question. As I said earlier, we want to be sure that this is accountable. The way we set it up is that there will be an NGO, nongovernmental organization, in these foreign countries that will be heading up these individual funds, they will be using local currency. Also there will be a U.S. representative on all of these committees. We think that's important to have the direct accountability. We think there is more accountability in this program, for example, than in the existing EAI, as good as it is. And, again, as I said earlier, I think there have been very few examples of any problems with EAI. But we take that into account and again I think our accountability measures here are sound, to be sure that we have the money going to the right places and that there is some monitoring by U.S. Government officials.

    Chairman GILMAN. Pleased to hear that. Some groups would like for us to weaken the condition requiring an open investment regime by recipient country. What do you think of that proposal?
    Mr. PORTMAN. I will be honest with you. I don't have the expertise to be able to comment as to whether we can loosen that up a bit. Your committee would be better equipped to do that. I think it is important that we keep to the criteria that we have in existing facilitation through EAI so I would hesitate to do it, considering we have a good track record, without careful consideration.
    Chairman GILMAN. What's the prognosis for the Senate?
    Mr. PORTMAN. I think it is pretty good. We have a lot of interest over there. I think to be honest they are waiting for you. I think they want to be sure that this committee takes the lead, that they know it is a House project, that it is something that we've been working on for 6 to 9 months now but Senator Lugar is eager to move forward with it.
    I've talked personally to a couple of other Republican Senators who would like to assist him on that and I know that he has the support of a couple of Democrats on the Foreign Relations Committee in the Senate, so I think prospects are very good, particularly if we can expedite the process as you have suggested in your statement earlier and get it to the floor this spring.
    Chairman GILMAN. Thank you, Mr. Portman.
    Mr. PORTMAN. Thank you, Mr. Chairman.
    Chairman GILMAN. Mr. Hamilton.
    Mr. HAMILTON. Mr. Chairman, I just ask unanimous consent, first of all, to include my full statement in the record.
    Chairman GILMAN. Without objection, Mr. Hamilton.     Mr. HAMILTON. And, Mr. Chairman, I also would like unanimous consent to include a document from the U.S. Treasury titled ''Fiscal Year 1999 Budget Justification for the Global Environment Facility.'' I think probably the appropriate place for that to appear will be after the Treasury's witness, Ms. Chaves, and I ask that that be included in the record at that point, after her testimony.

    Chairman GILMAN. Without objection.
    [The information referred to appears in the appendix.]
    Mr. HAMILTON. Mr. Chairman, I will not try to go through my full statement because I think Mr. Portman has done an excellent job in setting out the environmental concerns that led to this bill and describing the bill.
    What I think I will try to do is just to summarize very quickly what I think the advantages of the bill are, and there are many of them.
    First of all, economic development. It's going to bolster economic development in the beneficiary countries, it is going to help reduce those countries' debt burden, it's going to create sustainable agricultural development, and it will reduce the economic pressure to destroy the tropical forests for short-term economic gain.
    Second, it will help preserve the tropical forests, reducing the buildup of greenhouse gases, and protect crucial rainfall patterns. The bill would preserve global biodiversity and the potential for medical and ecological innovations to improve people's lives. That's becoming increasingly important as these tropical forests are seen as reservoirs of great promise for many new agricultural and medical initiatives.
    Third, the cooperative agreements would create a very strong incentive for eligible nations to cooperate with the United States on environmental protection efforts and that will improve their management of local natural resources.
    Fourth, the targeted approach of the bill is on the countries that have tropical forests at risk. It is limited to those countries whose debt to the United States can be renegotiated at a minimal cost to the U.S. budget.
    Fifth, as Mr. Portman has said, there are good management practices built in here. The bill focuses on the establishment, restoration, protection, and management of tropical forests to ensure a well-planned and well-managed program.

    Sixth, there is accountability. The bill ensures accountability and results by establishing strict oversight controls with full participation of the U.S. Government, the foreign government involved, and U.S. and local environmental experts.
    Seventh, I think the bill promotes U.S. foreign policy objectives by requiring that beneficiary countries have good human rights records, counter narcotics programs, and counterterrorist policies, among others. The bill protects U.S. economic interests by establishing rigorous, though fair, economic criteria for eligibility.
    And finally, I think the bill helps build partnerships between the United States and the beneficiary countries, demonstrating in action, not just words, that the U.S. commitment to improving economic and environmental conditions in the beneficiary countries is real.
    I want to join Mr. Portman in thanking a number of groups for their support. I don't know that I know all of them but there are a good many. Several are testifying today, we have, of course, the Administration witnesses, but we also have representatives of the TNC, CI and WWF testifying in support of the bill.
    I join with Mr. Portman in saying that we are open to improvements to the bill; he's mentioned several of them. I am supportive of those. On the one question you raised, Mr. Chairman, I know that the eligibility criteria includes a requirement that the beneficiary have an open investment regime. That provision is meant to ensure that benefits do not go to countries that cannot pay back the new loans or which would discriminate against U.S. businesses.
    Some groups have raised some concerns about the requirement and think that it might possibly be used to limit local environmental protections. That, of course, is not our intent and I think the sponsors of the bill would be quite prepared to work to clarify the position as the bill moves through the process.
    So, I think we have a good bill here. I am enthusiastic about it. Mr. Portman has done marvelous work on it to date. We have really had support across the board in both the Senate and the House and both political parties, and I am quite encouraged that we can move this bill forward quickly and make a significant contribution this year.

    Thank you very much, Mr. Chairman. I don't have any further questions.
    Chairman GILMAN. Thank you. Mr. Chabot has asked to make a 1-minute statement since he has another meeting.
    Mr. CHABOT. Thank you, I'll be very brief. I have a markup in Judiciary. I want to compliment Mr. Portman for his excellent work on this very important issue. And I think that the Tropical Forest Conservation Act is a sound free-market approach to a very serious global and environmental program, and again, I commend you for your excellent work on this. I am pleased to be a cosponsor, and one of 11 cosponsors on this committee.
    The tropical forests provide a wide range of benefits to the world. These forests help to reduce greenhouse gases, and house many of the species used as a basis for developing pharmaceutical products. As developing countries continue to allow the tropical forest to be exploited for agriculture, logging, and other interests, the need to save these forests becomes more urgent.
    And, in response to the Chairman's comments about the budget and the implications, I also share the concerns, but I know that both Mr. Portman and Mr. Kasich are serious budget cutters, as am I, and I look forward to working with Mr. Portman and Mr. Kasich to find the budget offsets so this is paid for. I think this is an excellent bill and I once again want to commend Mr. Portman on his good work on this.
    Mr. PORTMAN. Thank you for your support.
    Mr. CHABOT. I yield back the balance of my time.
    Chairman GILMAN. Thank you, Mr. Chabot. Mr. Ballenger.
    Mr. BALLENGER. Thank you, Mr. Chairman. Mr. Portman, I've got personal questions I may ask you about because my wife and I have been involved in trying to plant trees all through Central and South America. And when you say ''tropical,'' I read somewhere in there it says the Caribbean area. Along with CARE International, we've already done a million and a half trees in Haiti and we're trying to do two million more trees that I just shipped the equipment to do about a month ago. Is Haiti included in all of this? Especially when you say open investment regime, the ability to pay it back, I just wonder if it fits them or not.

    Mr. PORTMAN. First of all, you are kind of a one-man debt-for-nature swapper without any debt involved so that is the best deal of all. I know you and your wife have been very involved in this and I commend you for it. Haiti is already included of course in the Caribbean so under the existing EAI, Haiti could qualify geographically. I'm not sure why we haven't done that debt-for-nature swap yet in Haiti. Maybe there is a witness who will testify later who will give us more information on that.
    Maybe it is something to do with the criteria that we've set out. What we tried to do, Mr. Ballenger, with this legislation is for the first 2 years anyway, focus on the 11 countries where there is the greatest need, where they have the most tropical forests that are the most endangered. And then we open it up to other countries. The notion here is to try to get at these countries, like Brazil, Indonesia, the Congo, where you have the forest being devastated at such rapid rates.
    Mr. BALLENGER. Let me ask you a question, because I don't know who is included in the 11. I missed the beginning of your statement.
    Mr. PORTMAN. Yes.
    Mr. BALLENGER. But, in El Salvador and in Nicaragua, where the war was on and it turns out that anytime the troops settled down at night, they cut down all the trees around them so they wouldn't get overrun by rebels, or vice versa, and I've been working with USAID in Nicaragua and the Celesian Order in El Salvador. Are those included? I'm trying to look for a free ride if I can find a way to get back down there.
    [Laughter.]
    Are they included at all?
    Mr. PORTMAN. We'll help you. First of all, with regards to El Salvador, there is actually some great reforestation going on already, along the lines of debt-for-nature, in addition to what you've done. I mentioned that in my testimony but there have been 47 reforestation projects resulting already in thousands of acres being protected in El Salvador so they are already included in EAI because they are a Latin American country and meet the criteria there. Let me give you just quickly the list of the 11 for your purposes and others who are interested.

    I mentioned the Congo earlier. It's not in the original 11 although they do have a lot of tropical forests that have been cut down in recent years. It is Bolivia, Brazil, Ecuador, Guyana, Ivory Coast, Liberia, Madagascar, Indonesia, Papua New Guinea, Peru, and the Philippines and that assumes they meet the other criteria in the legislation.
    After 2 years, it goes on to that. Congo apparently does not meet some of the political criteria we have in this legislation so it starts with the 11 countries where there is the most need, but it should be expanded beyond that if it works. And we said earlier, although, as the Chairman said it is not inexpensive, $400 million, if we can find the offsets, which we are all committed to do, and if we can get this debt actually repaid with some money coming back to the U.S. Treasury, it is a good deal for the taxpayer. In addition, of course, we get this conservation benefit.
    Mr. BALLENGER. Let me just offer, if I may, what we've done with everybody else and I don't like to deal with the government but generally speaking, I don't try to sell anything to the government, but it turns out that the cheapest way to do this is to have a little plastic bag, punch a hole in it, put dirt in the bottom, put in a seed and let it grow, you fill all the area up and spray it once a day and it grows and grows, then you give the trees away to be planted.
    That's what we've done in all of these other places. It just so happens my company makes the plastic bags and we eat the cost of them and, like I said, the 2 million that I just sent to Haiti personally hurt financially and I would be glad to assist in any way, shape, or form that I can but I don't want to give the government money.
    It's my money that they are using anyhow, so I just thought I'd offer the opportunity if my past experience would help anything and I'd love to be a cosponsor of your bill. I don't know whether I am or not.
    Mr. PORTMAN. That would be great. We'd love to have you.

    Mr. BALLENGER. I am still going to help the ones that I've got, but if you need some help on those others, I would be glad to help out.
    Thank you very much.
    Mr. PORTMAN. Thank you, Cass.
    Chairman GILMAN. Thank you, Mr. Ballenger. Mr. Campbell.
    Mr. CAMPBELL. Mr. Chairman, I just wish to commend my colleague, Mr. Portman. I think it is a fine bill and I want to say that your leadership is very much appreciated and I would also like to cosponsor your legislation and I look forward to working with you on it. Thank you, Mr. Chairman.
    Mr. Portman. Thanks, Tom.
    Chairman GILMAN. Thank you, Mr. Campbell. Mr. Blunt.
    Mr. BLUNT. I have no comments at this time, Mr. Chairman. Thank you.
    Chairman GILMAN. Thank you, Mr. Blunt. Mr. Portman, again we thank you for taking the time to be with us, and for your support of this measure and for your leadership and we hope we can at an early date mark it up and report it to the floor. Thank you.
    Mr. PORTMAN. Thank you, Mr. Chairman, and thank you for the help of your staff as well.
    Chairman GILMAN. We now call on our next witness, Mr. Thomas Fox, Assistant Administrator, Policy and Planning Bureau, Agency for International Development.
    Mr. Fox, you may put your full statement in the record or summarize it. Also joining you is Ms. Mary Chaves, Director, International Debt Policy, U.S. Department of the Treasury. Ms. Chaves, would you be kind enough to join us?
    Mr. Fox, you may proceed.
STATEMENT OF THOMAS FOX, ASSISTANT ADMINISTRATOR, POLICY AND PROGRAM COORDINATION BUREAU, AGENCY FOR INTERNATIONAL DEVELOPMENT

    Mr. FOX. Thank you, Mr. Chairman. I, too, would like to commend Congressman Portman for his leadership in developing this idea. I would also like to thank the whole Committee for inviting me to testify on the Tropical Forest Conservation Act. My comments today will focus on USAID's perspective on the bill as currently drafted. We look forward to working with you and with the rest of the executive branch to finalize our position on the bill.
    A key element in USAID's Government Performance and Results Act strategy is a large, carefully designed environmental program in which forestry is an essential component. We welcome and support the objectives and intent of H.R. 2870 as an additional tool to achieve our objectives and as an indication of this committee's continuing support for international environmental issues.
    However, we are concerned with the possible implications of an authorization for appropriations. Perhaps the EAI model of no cost to the U.S. taxpayer would be an extremely useful approach for supporting the purposes of this bill as Congressman Portman has suggested. USAID would be pleased to work with this committee to further explore this approach as well as to develop other specific suggestions for improving legislation.
    USAID has extensive experience with the EAI, the model for this bill. We have learned that national environmental endowments provide long-term stable financing for sustainable development activities, lessen dependency of nongovernmental organizations on donor organizations, build the capacity of local groups, promote civil society and democracy, and leverage funds from other donors. Through the EAI program and other endowment and debt-swap programs, USAID has found that in certain circumstances, endowments are viable and creative options for development. They are worth the considerable time, often years, technical assistance, and funding required to develop the institutional capability of a newly endowed organization to plan and carry out effective grant-making programs aimed at supporting environmental conservation.

    The proposed Tropical Forest Conservation Act would provide valuable support to USAID key objectives and core values in three essential ways. First, for the past two decades, forestry programs have been a principal element in USAID's program for managing the environment for long-term sustainability. These forestry programs are now a major part of our overall environmental objective in our new GPRA strategy.
    Our overall environmental portfolio for Fiscal Year 1998 is estimated to be approximately $516 million and in 1999, is estimated to rise to approximately $578 million.
    Through our valued partnership with nongovernmental organizations (three of whom are here), the U.S. Forest Service, universities, and private companies, we have achieved impressive and tangible results toward all of the benefits forests provide including mitigating global climate change, preserving biodiversity, conserving soil, increasing economic productivity, and protecting watersheds and drinking water supplies.
    The findings on the importance of tropical forests outlined in section 802 of H.R. 2870 provide an eloquent summary that is completely congruent with USAID's own often-presented rationale for why forestry is such an essential element of our environmental programs and is a building block for both a sustainable economic development and protecting the world's environment.
    Second, USAID has extensive experience with the EAI, both as a member of the President's EAI Board here in Washington and as the principal implementation agency in the field. We have learned that in addition to reducing debt and improving the environment, child survival, and child development, strengthening civil society and governments is an equally important result of this program.
    Governmental and nongovernmental organizations working hand in hand on a board of directors is a novel and dynamic model for achieving practical democracy and civil society goals. Establishing a structure whereby governments and nongovernmental groups must work as mutually respected partners to manage a significant resource on behalf of their society, brings a government and their people closer together in the common cause of solving their country's problems.

    Third, from USAID's perspective, we have found that programs to address the debt burdens facing countries where USAID works have made important contributions to our sustainable development activities. This is an important element of our programs, toward which H.R. 2870 could make an important contribution. I understand that my colleague from the Treasury Department will be offering testimony on the debt aspects of this bill in greater detail today, so I will defer to her testimony.
    USAID does have some concerns about the potential implications of this bill for our carefully designed programs and our GPRA strategic goals, which could result in an authorization to appropriate up to $400 million over 3 years for tropical forestry purposes within the international affairs budget, that is the function 150 account. We've worked long and hard with our partner nongovernmental organizations and other Federal agencies, universities, companies, other donors, and host countries, to develop our current forestry portfolio. Within the tight funding constraints we work under, our program represents a jointly designed best effort and our highest priority to achieve our ambitious strategic targets.
    However, the timing for the consideration of this bill is awkward, as our bill is currently pending, and we need to review our environmental and debt programs in the context of this legislation. Our experience with the EAI is that it creates useful trust funds for the environment, child survival, and child development through debt reduction at no cost to the U.S. taxpayer, as Congressman Portman has said.
    Whether using the debt buy back, or debt swap provisions, no U.S. Government appropriation is involved, an obvious benefit in these cost-cutting and budget-balancing days.
    We would be very pleased to suggest a number of additional specific revisions to H.R. 2870 based on our extensive experience with forestry, biodiversity endowments, nongovernmental organizations, and civil society and governments.

    Thank you for allowing me to present our strong support for the purposes and objectives of H.R. 2870. We look forward to seeing how best to integrate these possible authorities with our environmental and debt forgiveness programs.
    I'd also like to take advantage of this opportunity, Mr. Chairman, to thank the Committee on behalf of USAID for your past and future bipartisan support for full funding for the Administration's function 150 account. Your championing of our work is greatly appreciated. We look forward to working with you further on this bill.
    [The prepared statement of Mr. Fox appears in the appendix.]
    Chairman GILMAN. Thank you, Mr. Fox. Ms. Chaves. Mary Chaves is the Director of the International Debt Policy, U.S. Department of the Treasury. We welcome Mary Chaves to our Committee and you may put your full statement in the record and summarize or give the full statement at this time, whichever you deem appropriate. Please proceed.
STATEMENT OF MARY CHAVES, DIRECTOR, INTERNATIONAL DEBT POLICY, U.S. DEPARTMENT OF THE TREASURY
    Ms. CHAVES. Thank you, Mr. Chairman, I appreciate the opportunity to be here to testify on the Tropical Forest Conservation Act of 1998. I will try to summarize my testimony somewhat and ask that the full testimony be included in the record.
    Chairman GILMAN. Without objection. Please proceed.
    Ms. CHAVES. This legislation would protect tropical forests in developing countries through a combination of U.S. debt reduction and debtor government creation of local funds to preserve, maintain, and restore tropical forests. The fundamental objectives of this legislation are highly laudable. The Treasury Department supports both efforts to preserve tropical forests and the concept of linking debt reduction to environmental objectives within a specific legislation.
    The original EAI and our current buy-back swap program encompass such linkage. H.R. 2870 closely follows that of the EAI, through which the United States has provided $875 million in debt reduction to 7 countries within Latin America and the Caribbean. This program generated $154 million in local currency funds for the environment and child survival, with over 700 grassroots projects funded to date, ranging from reforestation projects and the rehabilitation of critical watersheds to environmental projects for homeless children.

    One of the U.S. environmental nongovernmental organizations has called the EAI the best-kept secret in Washington. We're glad it is good work and this hemisphere is being recognized. The local funds created through the debt reduction that we did in the early 1990's will continue to generate funds for the environment and child survival for many more years.
    Recently, in an effort to continue the EAI program, the Administration proposed, and Congress approved, a debt buy-back and swap program for the region. Under this program, USAID debt is sold at its government asset value, based on its expected net present value.
    The sale can occur either to the debtor country through a buy back or to a third party through a swap. No U.S. budget cost is incurred through these transactions. The debtor country receives a debt-reduction benefit and in turn provides local currency resources to support environmental, child survival, development, or investment programs.
    We have received expressions of interest in this program from Jamaica, the Dominican Republic and Guatemala and have just completed a debt buy back for Peru. Peru's transaction permitted it to repurchase USAID debt for one-third of its face value while generating $23 million for local environmental and child survival programs. We believe authority for buy backs or swaps would be a useful addition to H.R. 2870 and that it could significantly reduce its budget costs.
    The Administration's Fiscal Year 1999 budget request focuses primarily in the debt restructuring area on programs for the poorest countries. This includes up to 67 percent debt reduction under Naples terms within the Paris Club of Creditor Governments.
    For those countries requiring additional relief, the Paris Club will provide up to 80 percent of debt reduction, in combination of that relief by other multilateral institutions, including the IMF and the World Bank. This initiative is known as the Heavily Indebted Poorest Country Initiative, or HIPC as we call it.

    In addition, the Administration is seeking appropriations to support full forgiveness of confessional debt for poorest African countries, which qualify with strong reform efforts under the President's Africa initiative. In considering this legislation, the Administration will want to review how this legislation might compliment existing debt-reduction programs. We are also concerned that support of the legislation not take resources from existing debt and environmental programs which we believe are a priority.
    In particular, the Administration is seeking $300 million in Fiscal Year 1999 appropriations for the Global Environment Facility, known as the GEF. This includes $192.52 million to clear GEF arrears, and $107.5 million for a first contribution to a new replenishment.
    The pilot phase of the GEF and the negotiations for the first independent GEF occurred during the Bush Administration. It has continued to receive strong bipartisan support during the Clinton Administration. The GEF is the foremost international organization helping developing and Eastern European countries conserve the world's remaining forests and their biological diversity.
    The GEF also assists in addressing degradation of international waters and fisheries, pollution from inefficient energy use and destruction of the ozone layer.
    The GEF is our top environmental priority internationally and our top arrears clearance priority among the multilateral banks for Fiscal Year 1999. Its arrears are the highest of any of the international financial institutions. We believe it is crucial to clear all of the GEF arrears and to authorize and contribute to the second GEF replenishment this year.
    We therefore encourage strong congressional support for our funding requests for the GEF as a key element of U.S. international environmental program.
    In closing, Mr. Chairman, I would like to mention that we believe that the current legislation you have proposed could attractively compliment our current programs in future years. We will want to work with this committee as the legislation moves forward to consider a number of issues, including whether to continue to focus attention on concessional debt, as we have in the past, or to also include action on other debt as suggested in this legislation.

    The Administration could conceivably use this legislation to top up action under existing programs for poorest countries and as a new benefit for lower middle-income countries with heavy debt burdens in all regions of the world. However, we believe the Administration should have the flexibility to adjust the degree of debt reduction and to utilize debt buy backs or swaps where appropriate for more credit worthy countries.
    Finally, some of the proposed eligible countries for Fiscal Years 1999 and 2000 are already receiving benefits under our existing debt-reduction programs, or have little remaining U.S. debt. A broader scope for action would permit the Administration to take into account both the relative need for debt reduction and the potential for tropical forest benefits in individual countries in designing a final program.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Chaves appears in the appendix.]
    Chairman GILMAN. Thank you, Ms. Chaves. And I thank you for your testimony. While this measure is pending, I understand that our nation recently concluded an innovative debt buy-back transaction with the government of Peru at no cost to the U.S. taxpayer.
    Mr. Fox could these types of transactions be used to support our environmental programs?
    Mr. FOX. Mr. Chairman, that particular transaction is one that I don't know very well, but it is the existing EAI model where our own appropriated funds were not called into question and the buy back came from sources in the developing country itself. So it is this kind of an example that we very much want to include in the bill as it goes forward and not have it be dependent entirely on appropriated funds.
    I do, however, have some question about how an individual developing country might view the bill if there appears to be a choice between using appropriated funds and funds that only come from their own treasuries. I would need to think through this interesting and important question.

    Chairman GILMAN. And we'd welcome any opinion you might have at a later date, in regard to it.
    In your statement, Mr. Fox, you expressed concerns about the funding for this bill. Could you elaborate a little more on that, what programs might be cut to accommodate this?
    Mr. FOX. It certainly has to do, sir, with a question about where would the offsetting funds come from. Our budget, as you are well aware, is already a combination of a number of special provisions and directives and so forth, in addition to the conclusions about programming and budget that come from our own strategic planning process; so that there is a question of tradeoffs that we would need to understand before we would know exactly what the cost would be to our existing plans.
    Chairman GILMAN. Can you suggest any areas of tradeoff?
    Mr. FOX. Not now, sir. Thank you.
    Chairman GILMAN. If you do have some thoughts, again we would welcome your submitting them to the Committee.
    And, Mr. Fox, you also noted you would be suggesting some changes to the bill. Given that our markup is scheduled for March 11, can you tell us what changes you have in mind and can you get those to us before our markup?
    Mr. FOX. I'll give you some sense of the things that we are considering. As I've said, we have not yet completed our review of the bill with the rest of the Administration but some of the questions have already been raised. First is adding very specifically the question about buy backs in the legislation.
    A second would be to consider adding a criterion for the eligible countries, a criterion that would in some way assess the policy framework by which forests are managed in the country. In other words is there a policy framework that itself gives some chance for forests to be protected, in addition to what our legislation might do?

    That would be an important provision, I think.
    A third would be, perhaps greater flexibility in the list of eligible countries. There certainly are some countries that are not now on the list of 11 that we would consider to be potentially important—ones where we are already working as in, for instance, the central part of Africa. Finally, it might be worth considering broadening the definition of the forests to be conserved. We know, for instance, that the benefits to be accrued from temperate forests rival those for tropical forests; and there is also a scientific question, when does something cease being tropical and when is it temperate? We'd like to explore that definition as well.
    Chairman GILMAN. So do you intend, then, to submit these suggestions in writing?
    Mr. FOX. We will get these suggestions to you.
    Chairman GILMAN. We need them before March 11.
    Mr. FOX. I understand.
    Chairman GILMAN. We'd appreciate that. Ms. Chaves, have you worried that you will fund Mr. Portman's bill at the expense of the GEF? I note the President wants to increase GEF funding from some $30 million to $300 million in 1 year.
    Ms. CHAVES. Mr. Chairman, the request for the GEF for Fiscal Year 1999 includes in the first instance substantial arrears which have arisen over the last several years in our funding obligations to the GEF. Those currently are $192.5 million and it is also a request for the second replenishment of the GEF which would basically be funding needed for the next several years of operation.
    So, what we are looking for is substantial funding for the GEF, we think this is a very high priority for the Administration and its international environmental programs and encourage you to fully fund our GEF request.

    Chairman GILMAN. Ms. Chaves, will you support an amendment to the bill which would give the Administration flexibility to offer debt relief to other countries outside the 11 specified in the bill if unique leveraging opportunities existed?
    Ms. CHAVES. Yes. We would support that flexibility within the current legislation. We have to look at the legislation in the context of our current debt programs, as well as the tropical forest objectives, and we think the flexibility of a broader list of countries would be useful.
    Chairman GILMAN. And one last question of you, would you be able to use a full $400 million authorized by the bill to support conservation projects?
    Ms. CHAVES. The $400 million that is suggested as authorization for appropriations is a number that we would have to work within, I think, in the debt-reduction context there is plenty of debt that we have to these countries. The exact cost of the debt reduction will depend upon whether or not we are using buy backs for the middle income countries, which could have no cost to it or swap similarly, would have no cost.
    The debt-reduction costs are something that we are assessing at this point and we don't have a final estimate of what a final debt-reduction legislation in this area would cost.
    Chairman GILMAN. Would you be able to provide that to our Committee before we mark up next week?
    Ms. CHAVES. We will work with OMB and OBM, CBO, and the Budget Committees are currently looking at the scoring of debt reduction and we will do our best to have information for you.
    Chairman GILMAN. Thank you. We'd welcome that. Mr. Hamilton.
    Mr. HAMILTON. Thank you, Mr. Chairman. I want to extend my congratulations to Mr. Fox. I understand you have just taken over your position in the last couple of months, I'm not sure of the date, as the Assistant Administrator for Policy and Program Coordination and we wish you well.

    Mr. FOX. Thank you.
    Mr. HAMILTON. Now, let's see. You are not endorsing this bill today, is that correct?
    Mr. FOX. We're not formally endorsing it, sir.
    Mr. HAMILTON. You're not opposing it?
    Mr. FOX. No, sir.
    Mr. HAMILTON. You are reviewing it?
    Mr. FOX. That is correct.
    Mr. HAMILTON. Where is the review in the Administration hierarchy? How far has it gone? Who has been consulted, who has not been consulted, and when are we going to have an answer as to the Administration position?
    Mr. FOX. To the best of my knowledge, sir, the review has so far involved Treasury, OMB, ourselves, and the State Department. Perhaps some others, but I believe those have been the principals. We have been in quite active communication. Knowing now that you have a markup, I'm sure we will accelerate that process rather substantially.
    Mr. HAMILTON. Are we going to have the Administration's position prior to markup?
    Mr. FOX. I personally can't guarantee that, sir, but I understand that that will make a big difference to you. I will certainly work for it.
    Mr. HAMILTON. Well, I urge you to push for that very, very hard. Who makes the decision, finally?
    Mr. FOX. As you say, I am brand new to USAID, so I am not sure I can answer that question. Right now it appears that the coordinator is OMB.
    Mr. HAMILTON. I've been dealing with USAID for 30 years and I don't know who makes the decisions.

    [Laughter.]
     Of course, it involves just more than USAID, I mean Treasury is involved, I imagine some other groups too that I don't even know about but in any event, let me urge you to convey to whoever does make the decision that if the Administration wants to get on board here, they'd better get on board. This bil