A/HRC/4/10 page 7 10. The Heavily Indebted Poor Country (HIPC) initiative was launched in 1996 with the objective to re-establish debt sustainability. The initiative was comprehensive, calling for voluntary debt relief by all creditors, whether multilateral, bilateral, or commercial. Under HIPC initiative, eligible countries receive interim debt relief as soon as they match certain policy performance criteria defined by the Bretton Woods institutions (BWI), namely; a three-year track record of sustained policy of structural reforms and macroeconomic stability (“Decision point”). Later on, irrevocable debt relief is granted, provided that the country has a Poverty Reduction Strategy Paper (PRSP) in place and policy performance has further stayed on track (“Completion point”). Currently 40 countries are eligible for HIPC initiative, of which 19 have reached the “Completion point”. Ten more countries have reached the Decision point and 11 countries can still qualify for HIPC initiative, as an initial deadline for entry (“sunset clause”) has been cancelled.3 11. In the context of the debates on MDGs, the Group of Eight (G-8) countries, as main shareholders of the multilateral development banks, proposed in summer 2005 that IMF, the International Development Association (IDA) of the World Bank and the African Development Fund (AfDF) of the African Development Bank fully cancel their debt claims on the world’s most indebted poor countries. MDRI was explicitly created to provide HIPCs with additional support to achieve MDGs. Under MDRI, HIPC are eligible for complete and irrevocable debt relief as soon as they have reached - or will reach - HIPC completion point. Debt cancellation under MDRI will be in addition to debt relief already committed under HIPC initiative, but unlike HIPC initiative, MDRI does not envisage any parallel relief on bilateral or private debt, or on debt to multilateral institutions beyond IMF, IDA, and AfDF. 12. Although MDRI is an initiative common to three international financial institutions, implementation provisions differ in several points. For instance, Tajikistan and Cambodia as non-HIPC will benefit from IMF debt relief, as their per capita income is below US$ 380, but not from cancellation of IDA debts. Furthermore, only debt accumulated before an institutions-specific “cut-off-date” is cancelled. 13. While IMF is supposed to use its own resources to cover the debt relief, IDA and AfDF will be compensated. In March 2006, donors agreed to a financing package that calls for additional donor contributions over time to compensate IDA and AfDF “dollar-for-dollar” for the debt relief provided. The objective of this operation is to preserve the long-term financial capacity of IDA and AfDF.4 5 C. Debt sustainability concepts 14. Past debt relief operations have been widely criticized for the use of inappropriate and undifferentiated analytical criteria - the debt to export ratio of 150 per cent - to judge the sustainability of a country’s debt. In 2005 the Bretton Woods institutions improved their static debt sustainability concept by adding more country specific and “forward looking” elements, with the objective to early detecting and avoiding future situations of debt unsustainability. The new analysis involves (a) a forecast on how a country’s outstanding debt is likely to evolve over time relative to its ability to pay, taking into account the quality of the country’s policies and institutions related to debt; (b) an examination of how the outlook would change under plausible shocks, such as a rise in oil prices; and (c) an assessment whether the results may lead to an unsustainable situation.