Recent financial crises in emerging markets have been followed by temporary but substantial losses in output. This paper explores the possibility that threats of such losses are the dominant incentive for repayment of international debt. In this environment private debtors and creditors have...

This paper examines the role of the third party (the IMF) in resolving sovereign default on external debt. We first show that the effects of third party intervention in debt negotiations are quite sensitive to the assumed enforcement mechanism for sovereign debt. The model is then adapted to an...