estimates. To mitigate this problem we use information on debt restructuring agreements from the Institute of International Finance, in addition to Bank/Fund sources.

We define "default" to Paris Club creditors or to Commercial Banks as a situation whereby a country is unable to meet the current terms of its debt servicing, and hence requires a rescheduling agreement. The general principle for determining the emergence of "default" was to use the contract cutoff date for multilateral debt agreements with official creditors, and the start date of the consolidation period for rescheduling agreements with commercial banks, adjusting these dates as necessary. A country is then said to remain in "default" status until it is able to meet payments on the rescheduled terms without requiring a subsequent rescheduling at the end of the period covered by the current agreement. The exit date for "default" is thus taken as the end date of the period covered by an agreement, provided that it is followed by a immediate period of no rescheduling. For example, Argentina had rescheduling agreements with the Paris Club in 1985, 1987, 1991 and 1992, covering the period from 10 Dec. 1983 through Mar. 1995. We thus treat Argentina as "defaulting" to the Paris Club in 1983, and remaining in "default" status until 1995, rather than treating each separate agreement as an isolated case to be used as the dependent variable. This treatment reflects our belief that the crucial information of interest is when a country first required its debt service to be rescheduled, and the duration of the subsequent period. A country is not deemed to be creditworthy if it is in "default" status.

# **4. Exploratory Analysis**

## 4.1. Comparison of Means

Table 2 compares the group of countries which defaulted on their IBRD loans, at some time during the sample period 1981-98, with the group of IBRD borrowers which never entered into nonaccrual status. A Welch test for equality of means"<sup>1</sup> is reported for the explanatory variables used in this study, which allows for the two groups to have different variances. Means are taken over the period 1980-97, as we aim to associate lagged variables with current default. The financial ratios, all the political variables except religion in politics, and rescheduling histories with the Paris Club or with commercial banks all differ greatly across the two groups. Amongst the other categories, we see that reserves to imports, gross national savings to GNP, the current account balance, GNP per capita, inflation, and government revenue and expenditure also have highly significant differences in mean, whereas the two groups of countries do not differ significantly in terms of export ratios, nor in changes in the terms of trade, exchange rate or M2/GDP. GNP per capita growth is significantly different, whereas GDP growth is not, indicating that population growth was higher in the defaulting countries. Wilcoxon rank-sum tests that the two groups are from the same distribution<sup>12</sup> yielded similar results to the tests for equality of means for the majority of the variables considered here

> " There is a case _to_ be made for one-sided tests for many of the variables, given that theory tells us _a_ **_priori_** the signs of many of the differences. The large magnitude of the t-values for most of the differences in means signifies that this distinction is not important empirically.

> **12** Comparison of means may be misleading in the presence of large outliers, hence a comparison of distributions, which includes, _inter alia,_ comparison of medians, is a useful complement to the analysis.

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