Default as a Negotiating Tactic in Debt Rescheduling Strategies of Developing Countries: A Preliminary Note

Abstract

The last decade has witnessed the exponential escalation of the external debt of developing countries to alarming levels, which constitute a serious problem for the international financial system. During the 1980s there has been a sharp increase in the number of defaults by developing countries and rescheduling exercises, involving both private and official creditors. Rescheduling debts has been by negotiations, which in many instances have been acrimonious affairs in which the debtors have had limited bargaining power, indeed, the only leverage has been that derived from default. This raises the crucially important issue of the use of default by an individual country as a tactic in debt rescheduling negotiations.