The quadrupling of oil prices since the end of 1973 was accompanied by a rapid increase in the borrowings of developing countries. A global view of their external debt situation reveals some alarming realities.

"In this paper, we use data from developing countries to argue that sovereign defaults are often caused by fiscal pressures generated by large-scale domestic defaults. We argue that these systemic domestic defaults are caused by shocks best interpreted as being non-fundamental. We construct a...