Bilateral creditors and IFIs created the HIPC Initiative in 1996 to address concerns that certain poor countries had accumulated unsustainable debt burdens, despite receiving debt relief from bilateral creditors. In response to concerns over the continuing vulnerability of poor countries, the World Bank and IMF enhanced the initiative in 1999 by reducing the qualifying thresholds and increasing the number of potentially eligible countries. Countries must meet numerous criteria in order to qualify for HIPC Initiative debt relief, such as establishing a track record of reform and sound policies. To fully benefit from HIPC debt relief, countries must progress through different phases of the initiative (see fig. 1). At a country’s “decision point,” IDA and IMF use certain criteria to determine whether a country qualifies to receive HIPC Initiative debt relief. If a country is determined to qualify, it can begin to receive interim HIPC debt relief. Subsequently, at the “completion point,” IDA and IMF determine whether the country meets additional criteria and can receive full and irrevocable HIPC debt relief. As of November 2008, of the 41 countries that may benefit from debt relief efforts, 23 had reached the completion point and 11 more had reached the decision point. An additional seven countries are considered “pre-decision point” countries and have not yet qualified for debt relief. MDRI expands upon the HIPC Initiative and represents the most recent effort to provide debt relief to heavily indebted poor countries. To receive MDRI debt relief, countries must first complete the HIPC Initiative. In addition, IMF has determined that it will provide MDRI debt relief to member countries with debt outstanding to IMF and a per capita income at or below $380 at end-2004 that do not otherwise qualify for debt relief. While the HIPC Initiative provides for a reduction in the debt levels of eligible countries, the process associated with MDRI debt relief requires IDA and ADF to take additional actions that provide resources to poor countries beyond those countries benefiting from debt relief. We estimate that IDA, IMF, ADF, and IaDB will provide, in present value dollars, about $58 billion in debt relief (in end-2008 present value dollars) under the HIPC and MDRI Initiatives to 41 countries over the next several decades. The amount of total debt relief provided under each initiative will be about equal, with over $28 billion provided under the HIPC Initiative and about $30 billion provided under MDRI. IDA is to provide the greatest level of debt relief at $34 billion (almost 60 percent of the total). IMF is to provide $10.6 billion, while ADF and IaDB are to provide $9.1 billion and $4.1 billion, respectively. Table 1 provides data on the amount of funding each institution will provide for each program. For the 33 countries currently receiving debt relief under both programs, IDA has secured about $8.6 billion for the HIPC Initiative and $4.4 billion for MDRI (for more detailed information, see app. III). This total of $13.1 billion represents 47 percent of the total required IDA financing of almost $27.8 billion for these countries under both debt relief initiatives. ADF will provide about $7.5 billion in HIPC Initiative and MDRI debt relief and has secured about $5.7 billion, about 76 percent of this amount. IMF and IaDB have fully financed their $8 billion and $3.8 billion of HIPC Initiative and MDRI debt relief for the countries currently receiving such relief, respectively, using internal resources and donor-provided funds. Because these two institutions have fully funded their HIPC Initiative and MDRI debt relief, almost 65 percent of total debt relief costs for all four IFIs has been secured. Based on our projections, the United States has committed to provide a total of about $8.4 billion to the four IFIs to finance the total costs of their HIPC Initiative and MDRI debt relief (see table 2). We estimate that the U.S. government is to provide $6.2 billion, or 74 percent, of its debt relief financing to IDA and $1.3 billion, or 16 percent, to ADF. The U.S. government has already provided $0.5 billion to IDA and $0.9 billion to ADF, leaving the majority of these costs ($5.7 billion for IDA and $0.4 billion for ADF) to be paid in the future. The U.S. government has provided $0.8 billion to IMF and $0.1 billion to IaDB. Of the $2.3 billion that the United States has already provided, $2.0 billion was for the HIPC Initiative and $0.3 billion was for MDRI. (App. IV provides information on bilateral debt relief that the United States has provided to countries under the HIPC Initiative.) Treasury, IDA, and ADF have agreed to a financing approach for MDRI called early encashment, under which the U.S. government earns income for early replenishment payments to IDA and ADF. Since the U.S. government is currently in arrears on its replenishment payments to IDA14, early encashment does not fully fund the current U.S. MDRI commitment. We also estimate that U.S. early encashment income will be insufficient to fully finance future MDRI debt relief. Furthermore, the U.S. financing approach is more costly than other options. The U.S. government currently uses an early encashment approach to fund U.S. MDRI obligations at both IDA and ADF. Early encashment income is earned by IDA and ADF when the United States allows the IFI to draw funds on, or encash, its replenishment commitment early, rather than according to a standard encashment schedule that spans 9 years for IDA and 10 years for ADF. The standard encashment schedule represents the IFI’s expected disbursement pattern of the funds committed during the 3- year replenishment period. Treasury has agreed to allow IDA and ADF to encash the U.S. replenishment commitment over an accelerated 4-year period. Since the early encashments exceed amounts required during the first 4 years under the regular 9-year or 10-year encashment schedule, IDA and ADF can invest these funds and earn income (see app. V). IDA and ADF guarantee fixed discount rates that determine the amount of income countries using the early encashment approach will receive for full and timely encashments according to the accelerated schedule, regardless of IDA’s and ADF’s actual earnings on early encashments over the period. These amounts are then credited to the U.S. government and can be used toward paying the U.S. MDRI commitment. Treasury has separate agreements with IDA and ADF regarding the methodology used to estimate the amount of early encashment income that the United States will earn. The World Bank requires that the U.S. IDA14 replenishment be paid in full before early encashment income can be earned and used to fund MDRI; however, the United States is currently in arrears on its replenishment commitment. In recent years, Congress has withheld a portion of the U.S. replenishment contribution to encourage the World Bank to undertake specified reforms such as strengthened efforts to enhance transparency and combat corruption. In fiscal year 2006, Congress required that 20 percent of the funds appropriated to IDA be withheld from disbursement until the Secretary of the Treasury reported to Congress that the World Bank had undertaken certain anticorruption reforms. In fiscal year 2006, most of these funds were eventually disbursed pursuant to the requirements in the law; however, there was a shortfall in fiscal year 2006 of approximately $41 million due to both the anti-corruption withholding provision and an across-the-board rescission. In fiscal year 2007 there was an additional rescission of about $9.5 million. In fiscal year 2008, Congress rescinded $7.7 million and required that 10 percent, or $94 million, of IDA funds be withheld until Treasury reported that the World Bank had undertaken anticorruption reforms, and that another 10 percent be withheld until Treasury reported that the World Bank had enacted certain transparency reforms. As of July 2008, Treasury had reported to Congress that the World Bank had enacted anti-corruption reforms called for in the fiscal year 2008 appropriations law and had disbursed the corresponding funds. However, Treasury still had not reported to Congress that the World Bank had accomplished all of the 2008 transparency reforms and continued to withhold funds. Treasury has complied with its legal obligation to withhold these funds that have created arrears. When funds are rescinded or withheld from IDA, the shortfall amounts become arrears of the United States that remain until the appropriated funds are released from Treasury. We estimate that the U.S. government has arrears to the IDA14 replenishment of about $152 million, since the U.S. nominal contribution of $2,698 million is less than the U.S. commitment of $2,850 million. Because the United States is currently in arrears on its IDA14 replenishment commitment, the early encashment income the United States earns does not fully finance the current U.S. MDRI commitment. Under the early encashment process, the World Bank first uses early encashment income to fund the present value of the shortfall in the U.S. IDA replenishment before applying early encashment income to the U.S. MDRI commitment.