Optimal International Borrowing with Default

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Abstract
One of the most conspicuous developments in international finncial markets in the 1970's has been the rapid expansion of private lending to developing countries. Although private capital inflows to LDCs have undoubtedly been of great assistance in financing large current-account deficits, growing concern has been expressed over the ability of LDC borrowers to repay. In light of marked increases in the debt burden of many borrowing countries, observers in the international financial community have urged that banks exercise greater caution in their lending of this type. The prospect of more frequent default has also brought to public attention the urgent neeed for more complete information on private lending to LDC's and for improved analysis of the factors that may includes country default.

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