The yield on the country's 9.5 percent bond that matures in 2012 has climbed to 17.15 percent from as low as 11 percent in February, according to JPMorgan Chase & Co. The bonds traded on Wednesday at a price of 72 cents on the dollar, down from 92 cents on Feb. 9. Yields on the 9.75 percent bond due in 2015 have climbed to 15.71 percent from 11.15 percent.

Belize, which spends 27 percent of government revenue on servicing its debt, had its credit rating lowered to CC on August 4 by Standard & Poor's, leaving it two levels shy of a D rating, the lowest possible. The government on August 2 said it would seek to restructure its international bonds.

"I am happy to say we do not own any of their bonds," said Daniel Hewitt, an economist with New York-based Alliance Capital Management LP, which manages about $163 billion in fixed income securities and has about $9 billion in emerging market debt. "We sold out because we realized they were going to default."

Alliance Capital owned an "awful lot" of Belize's international bonds and sold them all earlier this year before the bond price dropped, Hewitt said.

Belize's debt represents more than 90 percent of gross domestic product. Negotiations with creditors may be difficult, according to New York-based S&P.

"Obviously, for the government the larger the haircut the better they will be in terms of being able to make payments, though that's obviously not what you want if you are an investor," Richard Francis, an analyst at S&P in New York, said in a telephone interview.

Francis said the government ran out of money after trying to spark economic growth by investing in infrastructure projects. At the same time, the government stepped up spending to help repair damages sustained during the hurricane season.

Belize has trimmed its budget deficit to 3.1 percent of gross domestic product in the fiscal year ending in 2006, from A deficit of 8 percent in the previous period. "Even with these belt-tightening measures, however, Belize is projecting significant fiscal deficits over the medium term," the ministry said in a statement.

Sugar, citrus fruit and juice, and bananas account for about 60 percent of Belize's annual exports, half of which are sent to the U.S. The country, which lies on the eastern coast of Central America and borders Mexico and Guatemala, relies on tourism for about a fifth of the country's annual GDP. The country's $2.2 billion economy expanded as much as 4.5 percent last year.

"I don't feel they have made enough of a fiscal adjustment to deal with the magnitude of problems they have," Hewitt said in a telephone interview. "They didn't realize their problem soon enough and deal with it."

Belize hired Houlihan, Lokey, Howard & Zukin to advise the government. Telephone messages left with the firm's media relations office in Los Angeles weren't returned.