Political Strength, Economic Structure, and the Debt Servicing Potential of Developing Countries

Abstract

The developing countries' need to reschedule their external debts is as much a consequence of the political weakness of their governments vis-á-vis their own societies and the international environment as it is a consequence of unfavorable structural changes in the international financial system. This study's original contribution is to treat the differentials in the political strengths of debtor governments as explicit variables in analyzing the probability of LDCs having to reschedule their external debt, rather than to treat political factors as residuals to an economic explanation. A measure of a government's political strength, relative political capacity (RPC), is used to evaluate the impact of a government's political strength on the probability of debt rescheduling, controlling for the size of a country's debt service burden, the impact of external shocks from the global system, the structure of its domestic economy, and whether its principal exports are agricultural raw materials, minerals, or manufactured goods. Three probit models are used to analyze 48 developing countries for the years 1968 to 1983 (N = 768). The results suggest that political capacity does have a significant impact on the probability of a government rescheduling its external debt.