Often, the net result is that debt relief is insignificant. They are governed by member nations, virtually every nation in the world. Because the international financial institutions offer the best terms available and have been given a special role in the international financial system, they insist on preferred creditor status, which means that they must be paid back prior to other creditors. If the debtor country does not make payments on its loans on time, it is considered off track and will ordinarily not receive loans from other creditors. Until the HIPC Initiative was approved in 1996, the international financial institutions would not allow rescheduling or cancellation of their loansC although in practice they did so by enabling countries to pay off old loans by taking out new ones at lower interest rates and longer terms.
Eligibility is limited.
Under the initiative, after the eligible country has established a track record of economic reform over a period of three years, the Paris Club creditors provide a 67 percent reduction in eligible debt stock. This point is called the decision point. A large share of government resources of low income, highly indebted countries are devoted to debt repayment, hindering aid to their own people. If these actions do not result in a sustainable debt, the country moves to the second three-year stage, during which time it might get support from the international financial institutions for economic reform and poverty reduction. At the end of six years, provided the country has established an acceptable track record by implementing required economic reforms, it will receive up to 80 percent reduction in eligible Paris Club debt stock.