variable. However, as of July 1 " 1991, changes were made in the arrears policies of the IBRD, and detailed data is only available for the period following this change. Furthermore, for the first few post-change years, poor payment performance was primarily due to information gaps and/or specific institutional bottlenecks, as countries struggled to adapt to the new threshold periods. Consequently the non-default arrears record of a country could not be incorporated into the panel analysis.

# **_3.5._ Official and Commercial Debt Restructuring**

Given the serious consequences to a country's creditworthiness standing which occurs when it defaults to the IBRD, one might think that countries would first default on loans to other official creditors first. Rescheduling of intergovernmental loans and officially guaranteed private export credits takes place under the aegis of the Paris Club. To make the debt relief effective, debtor countries must sign bilateral agreements with each creditor. One might expect, _a priori,_ that such agreements may be an indicator of possible default to the IBRD in the future, both because they represent a worsening debt-servicing ability, and also because the act of defaulting to Paris Club creditors may reduce the supply of credit available, and hence further exacerbate repayment problems. On the other hand, an IMF program must be in place for a Paris Club meeting to occur, a condition of which is no arrears to multilaterals. If the Fund program is successful in improving economic conditions, this may then reduce the likelihood of default. Hence prior rescheduling of official debt may have opposing effects on the probability of IBRD default. Analysis is further complicated by the fact that countries may repeatedly reschedule their debt, rescheduling agreements may treat either the flow or the stock of debt, and the terms and conditions of rescheduling arrangements may vary.'<sup>0</sup> These concerns prevent us considering the amount rescheduled as an explanatory variable, and instead we consider the incidence of rescheduling.

Both debt reschedulings and "significant arrears" have been used as the dependent variable in the literature. Cline (1984, p207) notes that "arrears in themselves, especially if minor or temporary, pose no special systemic problem", whereas debt reschedulings "mark a major qualitative break in the spectrum of erosion", and hence represent an appropriate threshold of severity for analysis. Rescheduling worsens a country's credit rating, potentially raising the cost of borrowing, and so countries will not seek rescheduling lightly; instead Cline argues they will be likely to enter into a sequence of arrears, temporary moratorium, and then reschedule only if the opportunity cost of continuing normal debt servicing is perceived to be prohibitively high. We use both reschedulings to Paris Club creditors, and to Commercial Banks in this paper. Concluding and signing bilateral agreements can take one year or more, so than when an agreement occurs, we attempt to resolve the lag between the request for a rescheduling and the eventual signing of such an agreement by appropriate adjustment of the starting date. Feder, Just and Ross (1981) note that there are instances where debt is rearranged or deferred for some length of time without publicity, and including them in the sample without properly considering them as _de facto_ reschedulings of debt may distort the

> **10** See Table A3.2 in the _Global Development Finance. Analysis and Summary Tables 1999,_ The World Bank for a summary of rescheduling agreements and conditions, 1980-98.

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