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We construct a financial vulnerability indicator that is consistent with the theoretical literature on determinants of defaults. It is based on the amount of new foreign financing that is needed to avoid a default or an import adjustment, expressed as a proportion of the country's sources of foreign currency. As the need for new foreign financing increases, so does a country's financial vulnerability. The indicator has a higher correlation with default episodes than other indicators used in previous studies. In addition, the level at which it leads to a high probability of default is comparable across countries.

Debts, External. --- State bankruptcy. --- Financial crises. --- Bankruptcy, National --- National bankruptcy --- Bankruptcy --- Debts, Public --- Finance, Public --- International law --- Repudiation --- Debts, Foreign --- Debts, International --- External debts --- Foreign debts --- International debts --- Debt --- International finance --- Investments, Foreign --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Exports and Imports --- Finance: General --- Public Finance --- International Lending and Debt Problems --- Debt Management --- Sovereign Debt --- Trade: General --- General Financial Markets: Government Policy and Regulation --- International economics --- Public finance & taxation --- Finance --- Debt service --- Public debt --- Debt default --- Exports --- Financial sector risk --- External debt --- International trade --- Financial sector policy and analysis --- Debts, External --- Financial risk management --- United States