DEBT RESCHEDULING: POSTPONING THE
CRISIS? AN EMPIRICAL EVALUATION OF
CURRENT RESCHEDULING POLICIES
ROBIN KINGAND MICHAEL D. ROBINSON
In the midst of the debt crisis facing developing nations in recent years, research has been pursued on the nature of debt, sources of debt problems, and possible solutions. Within this literature two distinct lines of research have emerged: one represented by those economists attempting to model the need for rescheduling in order to forecast future debt problems, 1 and a second by economists more interested in the analysis and critique of current approaches toward solving the problem. 2 This study uses the techniques that have been developed to forecast debt problems to evaluate current approaches toward solving the debt crisis. As a first step in this research area we adapt and employ the Feder-Ross-Just model of debt-servicing problems to examine the impact of current debt-rescheduling practices. 3 The simultaneous Paris Club-IMF-commercial bank approach (hereafter, the "standard" approach) toward solving debt service problems is currently the dominant debt-rescheduling methodology. However, this approach, in spite of its many critics, has not been subjected to an empirical test of any kind. In this chapter we report results that suggest that the standard approach has not been successful as a policy in solving debt crisis problems.
Rieffel aptly characterizes the debt-restructuring process as a three-ring circus. In one ring, most likely in Washington, the debtor government negotiates with the IMF. 4 In another, at the Paris Club, the debtor government negotiates with the official creditor governments. In the third ring, the debtor government negotiates with its commercial banks, usually in New