Finally, among our regressors, we included two variables which were not ex-
amined in the related literature. They are both interest and principal arrears
on long-term debt. We decided to incorporate them because we thought that
developing countries’ debt repayment d^culties could have been an important
component to consider, beside their other, more traditional, economic character-
istics.
4.2.2. Determinants of debt rescheduling
In Section 3 we have described the factors which aαect the probability of a debt
rescheduling, according to the theoretical model. They retect both domestic
and external components. R is represented here by the total amount of the debt
rescheduling (DRES) while D is now captures by both the total amount of external
debt (EDT) and total debt service (TDS). The choice to invest is represented by
the variable corresponding to the investments (GDI). Then, we assumed that qH
(the probability to have a high income for the good type) depends somehow on
the degree of openness of the economy that would be captured by the ratio ofthe
exports over the imports (EXP). Q(2) was the country’s income in period two (in
the low income case) and in the empirical model it corresponds to the per capita
GDP (GDPPC). bS represented the bene...cial eαect on period-two outcomes of
the adoption of the programme but we can not take it into account since we do not
consider what happens to the control variables after the programme is adopted.
As in the “Fund equation” above, we included two variables corresponding to
arrears in both interests and principal repayments (IAR), (PAR) (which explicitly
stand for a country’s ...nancial d^culty) and a variable for the rate of in≠ation
(INFL).18 The behaviour of the BOP, the CA and the level od reserves (RES)
could be other indicators of the severity of a country’s problems. Dummy BB
18For example, in o¢cial reschedulings, for a debtor country to be allowed into the rescheduling
process with the Paris Club, it hastoprovethat it will default on its external payment obligations
in the absence of any relief.
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