The January 2001 proposal for a New Basel Capital Accord has renewed the interest in obtaining default probabilities for various types of borrowers. This paper uses a panel logit model to estimate default probabilities of 78 emerging market countries (1984-97) as a function of a set of economic and political variables. These sovereign default probabilities are then compared with the default rates associated with the sovereign credit ratings of the two major rating agencies, Moody's Investors Service and Standard & Poor's. Unlike the existing literature, we define the dependent variable (“sovereign default”) differently, using the changes in the levels of debt arrears and amounts rescheduled as criteria instead of the levels themselves. The paper finds, first, that the most important determinants of sovereign default appear to be the past repayment performance of a country, the cost of international credit, the volatility of per capita income, political risk, and exchange rate misalignments. Second, the comparison of estimated default probabilities with rating agencies' default rates shows that the latter seem to considerably underestimate sovereign default risk. In other words, sovereign credit ratings appear to be too high on average.