Sovereign default
Encyclopedia
A sovereign default
is the failure or refusal of the government
of a sovereign state
to pay back its debt
in full. It may be accompanied by a formal declaration of a government not to pay (repudiation) or only partially pay its debts (due receivables), or the de facto cessation of due payments. (Another name is national insolvency
, if not willful - as in, if total assets are less than total debts.)
If potential lenders or bond purchasers begin to suspect that a government may fail to pay back its debt, they may demand a high interest rate in compensation for the risk
of default. A dramatic rise in the interest rate faced by a government due to fear that it will fail to honor its debt is sometimes called a sovereign debt crisis. Governments may be especially vulnerable to a sovereign debt crisis when they rely on financing through short-term bonds, since this creates a situation of maturity mismatch between their short-term bond financing and the long-term asset value of their tax base.
They may also be vulnerable to a sovereign debt crisis due to currency mismatch if they are unable to issue bonds in their own currency, as a decrease in the value of their own currency may then make it prohibitively expensive to pay back their foreign-denominated bonds (see original sin
).
Since a sovereign
government, by definition, controls its own affairs, it cannot be obliged to pay back its debt. Nonetheless, governments may face severe pressure from lending countries. In the most extreme cases, a creditor nation may declare war on a debtor nation for failing to pay back debt, in order to enforce creditor's rights
. For example, Britain routinely invaded countries that failed to repay foreign debts, invading Egypt in 1882 and Istanbul in the wake of Turkey's 1876 default. Other examples include the United States' "gunboat diplomacy
" in Venezuela in the mid-1890s and the United States occupation of Haiti beginning in 1915. A government which defaults may also be excluded from further credit and some of its overseas assets may be seized (e.g., Chile's copper mines were seized by U.S. companies in 1977); and it may face political pressure from its own domestic bondholders to pay back its debt. Therefore governments rarely default on the entire value of their debt. Instead, they often enter into negotiations with their bondholders to agree on a delay or partial reduction of their debt payments, which is often called a debt restructuring
or 'haircut
'.
Some economists have argued that, in the case of acute insolvency crises, it can be advisable for regulators and multilateral lenders to preemptively engineer the orderly restructuring of a nation’s public debt- also called “orderly default” or “controlled default”. In the case of Greece, these experts generally believe that a delay in organising an orderly default would hurt the rest of Europe even more.
The International Monetary Fund
often assists in sovereign debt restructurings. To ensure that funds will be available to pay the remaining part of the sovereign debt, it often makes its loans conditional
on austerity measures
within the country, such as tax increases or reductions in public sector
jobs and services. A recent example is the Greek bailout agreement of May 2010.
past instances of sovereign default have tended to occur under some or all of the following circumstances:
A significant factor in sovereign default is the presence of significant debts owed to foreign investors who are unable to counter such actions in another nation's political processes or otherwise (e.g., via support from their own government(s) or supranational courts); the enforcement of creditor's rights
against sovereign states is frequently difficult. Such willful defaults (the equivalent of strategic bankruptcy
by a company or strategic default
by a mortgager, except without the possibility of the exercise of normal creditor's rights
such as asset seizure and sale) can be considered a variety of sovereign theft
; this is similar to expropriation
(including inadequate repayment for the exercise of eminent domain
).
Reasons for this include:
National bankruptcy caused by insolvency historically has always appeared at the end of long years or decades of budget
emergency (overspending
), in which the state has spent more money than it received. This budget balance/margin was covered through new indebtedness with national and foreign citizens, banks and states.
the new government questions the legitimacy of the earlier one and thus defaults on this treasury obligations considered odious debt
.
Important examples are:
of the state, its obligations are turned over to one or several successor state
s.
Lost wars significantly accelerate national bankruptcies. Nevertheless, especially after the Second World War the government debt
has increased significantly in many countries even during long lasting times of peace. While in the beginning debt was quite small, due to compound interest
and continued overspending
it has increased substantially.
In this case very often there are international negotiations which end in a partial debt cancellation (London Agreement on German External Debts 1953) or debt restructuring
(e.g. Brady Bonds
in the 1980s). This kind of agreement assures the partial repayment when a renunciation / surrender of a big part of the debt is accepted by the creditor. In the case of the Argentine economic crisis (1999–2002) the creditors had to accept the renunciation (loss) of up to 75% of the outstanding debts.
For the purpose of debts regulation debts can be distinguished by nationality of creditor (national or international), or by the currency of the debts (own currency or foreign currency) as well as whether the foreign creditors are private or state owned. States are frequently more willing to cancel debts owed to foreign private creditors, unless those creditors have means of retaliation against the state.
of the debtor state or even declare war (see above).
In addition, the following crises can result from a sovereign default:
The citizen might feel the impact indirectly through high unemployment and the decrease of state services and benefits. However, a monetarily sovereign
state can take steps to minimize negative consequences, rebalance the economy and foster social/economic progress (eg. Plano Real
).
defaulted on debt several times and had to declare four national bankruptcies - in 1557, 1560, 1575 and 1596 - becoming the first sovereign nation in history to declare bankruptcy, due to rising military costs, and the declining value of gold, as it had become increasingly dependent on the revenues flowing in from its mercantile empire
in the Americas. This state bankruptcy threw the German banking houses into chaos and ended the reign of the Fuggers as Spanish financiers. Genoese bankers provided the unwieldy Habsburg system with fluid credit and a dependably regular income. In return the less dependable shipments of American silver were rapidly transferred from Seville to Genoa, to provide capital for further ventures.
In the 1820s, several Latin American countries which had recently entered the bond market in London defaulted. These same countries frequently defaulted during the nineteenth century, but the situation was typically rapidly resolved with a renegotiation of loans, including the writing off of some debts.
A failure to meet payments became common again in the late 1920s and 1930s; as protectionism rose and international trade fell, countries possessing debts denominated in other currencies found it increasingly difficult to meet terms agreed under more favourable economic conditions. For example, in 1932, Chile's scheduled repayments exceeded the nation's total exports (or, at least, its exports under current pricing; whether reductions in prices - forced sales - would have enabled fulfilling creditor's rights
is unknown).
s and debt restructuring
of independent countries from 1300 till 2008:
Africa
Americas
Asia
Europe
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
is the failure or refusal of the government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
of a sovereign state
Sovereign state
A sovereign state, or simply, state, is a state with a defined territory on which it exercises internal and external sovereignty, a permanent population, a government, and the capacity to enter into relations with other sovereign states. It is also normally understood to be a state which is neither...
to pay back its debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
in full. It may be accompanied by a formal declaration of a government not to pay (repudiation) or only partially pay its debts (due receivables), or the de facto cessation of due payments. (Another name is national insolvency
Insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
, if not willful - as in, if total assets are less than total debts.)
If potential lenders or bond purchasers begin to suspect that a government may fail to pay back its debt, they may demand a high interest rate in compensation for the risk
Risk premium
A risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, in order to induce an individual to hold the risky asset rather than the risk-free asset...
of default. A dramatic rise in the interest rate faced by a government due to fear that it will fail to honor its debt is sometimes called a sovereign debt crisis. Governments may be especially vulnerable to a sovereign debt crisis when they rely on financing through short-term bonds, since this creates a situation of maturity mismatch between their short-term bond financing and the long-term asset value of their tax base.
They may also be vulnerable to a sovereign debt crisis due to currency mismatch if they are unable to issue bonds in their own currency, as a decrease in the value of their own currency may then make it prohibitively expensive to pay back their foreign-denominated bonds (see original sin
Original Sin (economics)
Original sin is a commonly used metaphor in economics literature. It was proposed by Barry Eichengreen, Ricardo Hausmann, and in a series of papers to refer a situation in which "most countries are not able to borrow abroad in their domestic currency."...
).
Since a sovereign
Sovereignty
Sovereignty is the quality of having supreme, independent authority over a geographic area, such as a territory. It can be found in a power to rule and make law that rests on a political fact for which no purely legal explanation can be provided...
government, by definition, controls its own affairs, it cannot be obliged to pay back its debt. Nonetheless, governments may face severe pressure from lending countries. In the most extreme cases, a creditor nation may declare war on a debtor nation for failing to pay back debt, in order to enforce creditor's rights
Creditor's rights
Creditor's rights is a legal term used to describe the set of procedural provisions designed to protect the ability of creditors - persons who are owed money - to collect the money that they are owed...
. For example, Britain routinely invaded countries that failed to repay foreign debts, invading Egypt in 1882 and Istanbul in the wake of Turkey's 1876 default. Other examples include the United States' "gunboat diplomacy
Gunboat diplomacy
In international politics, gunboat diplomacy refers to the pursuit of foreign policy objectives with the aid of conspicuous displays of military power — implying or constituting a direct threat of warfare, should terms not be agreeable to the superior force....
" in Venezuela in the mid-1890s and the United States occupation of Haiti beginning in 1915. A government which defaults may also be excluded from further credit and some of its overseas assets may be seized (e.g., Chile's copper mines were seized by U.S. companies in 1977); and it may face political pressure from its own domestic bondholders to pay back its debt. Therefore governments rarely default on the entire value of their debt. Instead, they often enter into negotiations with their bondholders to agree on a delay or partial reduction of their debt payments, which is often called a debt restructuring
Debt restructuring
Debt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its...
or 'haircut
Haircut (finance)
In finance, a haircut is a percentage that is subtracted from the market value of an asset that is being used as collateral. The size of the haircut reflects the perceived risk associated with holding the asset...
'.
Some economists have argued that, in the case of acute insolvency crises, it can be advisable for regulators and multilateral lenders to preemptively engineer the orderly restructuring of a nation’s public debt- also called “orderly default” or “controlled default”. In the case of Greece, these experts generally believe that a delay in organising an orderly default would hurt the rest of Europe even more.
The International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
often assists in sovereign debt restructurings. To ensure that funds will be available to pay the remaining part of the sovereign debt, it often makes its loans conditional
Conditionality
Conditionality is a concept in international development, political economy and international relations and describes the use of conditions attached to a loan, debt relief, bilateral aid or membership of international organizations, typically by the international financial institutions, regional...
on austerity measures
Austerity
In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to...
within the country, such as tax increases or reductions in public sector
Public sector
The public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
jobs and services. A recent example is the Greek bailout agreement of May 2010.
Causes
According to financial historian Edward ChancellorEdward Chancellor
Edward Chancellor is a financial historian, journalist and investment strategist. In 2008, he joined GMO’s asset allocation team.He graduated from Trinity College, Cambridge with first class honours in Modern History, and from St Antony's College, Oxford with a Masters of Philosophy in Modern...
past instances of sovereign default have tended to occur under some or all of the following circumstances:
- A reversal of global capital flows
- Unwise lending
- Fraudulent lending
- Excessive foreign debts
- A poor credit history
- Unproductive lending
- Rollover risk
- Weak revenues
- Rising interest rates
- Terminal DebtTerminal DebtTerminal debt is the point at which the payments on the interest of a debt surpass the revenues of the debtor ....
A significant factor in sovereign default is the presence of significant debts owed to foreign investors who are unable to counter such actions in another nation's political processes or otherwise (e.g., via support from their own government(s) or supranational courts); the enforcement of creditor's rights
Creditor's rights
Creditor's rights is a legal term used to describe the set of procedural provisions designed to protect the ability of creditors - persons who are owed money - to collect the money that they are owed...
against sovereign states is frequently difficult. Such willful defaults (the equivalent of strategic bankruptcy
Strategic bankruptcy
A strategic bankruptcy may occur when an otherwise solvent company makes use of the bankruptcy laws for some specific business purpose. For example, in 2002 Kmart filed chapter 11 for protection from creditors; however one of the main problems affecting Kmart's cash flow and therefore liquidity...
by a company or strategic default
Strategic default
A strategic default is the decision by a borrower to stop making payments on a debt despite having the financial ability to make the payments....
by a mortgager, except without the possibility of the exercise of normal creditor's rights
Creditor's rights
Creditor's rights is a legal term used to describe the set of procedural provisions designed to protect the ability of creditors - persons who are owed money - to collect the money that they are owed...
such as asset seizure and sale) can be considered a variety of sovereign theft
Theft
In common usage, theft is the illegal taking of another person's property without that person's permission or consent. The word is also used as an informal shorthand term for some crimes against property, such as burglary, embezzlement, larceny, looting, robbery, shoplifting and fraud...
; this is similar to expropriation
Expropriation
Expropriation is the politically motivated and forceful confiscation and redistribution of private property outside the common law. Unlike eminent domain or laws regulating the foreign investment, expropriation takes place outside the common law and may be used to denote an armed robbery by...
(including inadequate repayment for the exercise of eminent domain
Eminent domain
Eminent domain , compulsory purchase , resumption/compulsory acquisition , or expropriation is an action of the state to seize a citizen's private property, expropriate property, or seize a citizen's rights in property with due monetary compensation, but without the owner's consent...
).
Insolvency/over-indebtedness of the state
If a state for economic reasons defaults on its treasury obligations/is not any longer able or willing to handle its debt/liabilities or to pay the interest on this debt, it faces national bankruptcy. To declare insolvency, it is sufficient if the state is only able (or willing) to pay part of its due interest or to clear off only part of the debt.Reasons for this include:
- massive increases in public debt
- declines in employment and therefore tax receipts
- government regulation or perceived threats of regulation of financial markets
- popular unrest at austerityAusterityIn economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to...
measures to repay debt fully
National bankruptcy caused by insolvency historically has always appeared at the end of long years or decades of budget
Government budget
A government budget is a legal document that is often passed by the legislature, and approved by the chief executive-or president. For example, only certain types of revenue may be imposed and collected...
emergency (overspending
Overspending
Overspending is spending more money than one can afford. It is a common problem when easy credit is available. This can also be called 'investing' in the public sector when infrastructure payments exceed actual calculated cost.-Causes:...
), in which the state has spent more money than it received. This budget balance/margin was covered through new indebtedness with national and foreign citizens, banks and states.
Change of government
While normally the change of government does not change the responsibility of the state to handle treasury obligations created by earlier governments, nevertheless it can be observed that in revolutionary situations and after a regime changeRegime change
"Regime change" is the replacement of one regime with another. Use of the term dates to at least 1925.Regime change can occur through conquest by a foreign power, revolution, coup d'état or reconstruction following the failure of a state...
the new government questions the legitimacy of the earlier one and thus defaults on this treasury obligations considered odious debt
Odious debt
In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred...
.
Important examples are:
- default of debts of the BourbonHouse of BourbonThe House of Bourbon is a European royal house, a branch of the Capetian dynasty . Bourbon kings first ruled Navarre and France in the 16th century. By the 18th century, members of the Bourbon dynasty also held thrones in Spain, Naples, Sicily, and Parma...
France after the French RevolutionFrench RevolutionThe French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
. - default of bonds through DenmarkDenmarkDenmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
in 1850, which were issued by the government of HolsteinHolsteinHolstein is the region between the rivers Elbe and Eider. It is part of Schleswig-Holstein, the northernmost state of Germany....
instated by the German ConfederationGerman ConfederationThe German Confederation was the loose association of Central European states created by the Congress of Vienna in 1815 to coordinate the economies of separate German-speaking countries. It acted as a buffer between the powerful states of Austria and Prussia...
. - default of debts of the Russian EmpireRussian EmpireThe Russian Empire was a state that existed from 1721 until the Russian Revolution of 1917. It was the successor to the Tsardom of Russia and the predecessor of the Soviet Union...
after the SovietSoviet UnionThe Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
government came to power in 1917. - repudiation of debts of the Confederate States of AmericaConfederate States of AmericaThe Confederate States of America was a government set up from 1861 to 1865 by 11 Southern slave states of the United States of America that had declared their secession from the U.S...
by the United StatesUnited StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
after the Civil WarAmerican Civil WarThe American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
through the ratification of Section 4 of the Fourteenth AmendmentFourteenth Amendment to the United States ConstitutionThe Fourteenth Amendment to the United States Constitution was adopted on July 9, 1868, as one of the Reconstruction Amendments.Its Citizenship Clause provides a broad definition of citizenship that overruled the Dred Scott v...
.
Decline of the state
With the declineDecline
Decline is a change over time from previously efficient to inefficient organizational functioning, from previously rational to non-rational organizational and individual decision-making, from previously law-abiding to law violating organizational and individual behavior, from previously virtuous to...
of the state, its obligations are turned over to one or several successor state
Succession of states
Succession of states is a theory and practice in international relations regarding the recognition and acceptance of a newly created sovereign state by other states, based on a perceived historical relationship the new state has with a prior state...
s.
Lost wars significantly accelerate national bankruptcies. Nevertheless, especially after the Second World War the government debt
Government debt
Government debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...
has increased significantly in many countries even during long lasting times of peace. While in the beginning debt was quite small, due to compound interest
Compound interest
Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest. This addition of interest to the principal is called compounding...
and continued overspending
Overspending
Overspending is spending more money than one can afford. It is a common problem when easy credit is available. This can also be called 'investing' in the public sector when infrastructure payments exceed actual calculated cost.-Causes:...
it has increased substantially.
Consequences
Creditors of the state as well the economy and the citizens of the state are affected by the national bankruptcy.Consequences for creditors
The most visible effects of national bankruptcy are the complete or partial loss of lent money and/or interests upon.In this case very often there are international negotiations which end in a partial debt cancellation (London Agreement on German External Debts 1953) or debt restructuring
Debt restructuring
Debt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its...
(e.g. Brady Bonds
Brady Bonds
Brady bonds are dollar-denominated bonds, issued mostly by Latin American countries in the 1980s, named after U.S. Treasury Secretary Nicholas Brady.-History:...
in the 1980s). This kind of agreement assures the partial repayment when a renunciation / surrender of a big part of the debt is accepted by the creditor. In the case of the Argentine economic crisis (1999–2002) the creditors had to accept the renunciation (loss) of up to 75% of the outstanding debts.
For the purpose of debts regulation debts can be distinguished by nationality of creditor (national or international), or by the currency of the debts (own currency or foreign currency) as well as whether the foreign creditors are private or state owned. States are frequently more willing to cancel debts owed to foreign private creditors, unless those creditors have means of retaliation against the state.
Consequences for state
When a state defaults on a debt, the state disposes of (or ignores, depending on the viewpoint) its financial obligations/debts towards certain creditors. The immediate effect for the state is a reduction in its total debt and a reduction in payments on the interest of that debt. On the other hand, a default can damage the reputation of the state among creditors, which can restrict the ability of the state to obtain credit from the capital market. In some cases foreign lenders may attempt to undermine the monetary sovereigntyMonetary sovereignty
A state is generally considered monetarily sovereign to the extent that it retains the following legal rights:* The right of legal tender - to choose which currencies are acceptable as legal tender for payment of taxes and other legal debts....
of the debtor state or even declare war (see above).
Consequences for the citizen
If the individual citizen or corporate citizen is a creditor of the state (eg. government bonds), then a default by the state can mean a devaluation of their monetary wealth.In addition, the following crises can result from a sovereign default:
- a banking crisis, as banks have to make write downs on credits given to the state.
- an economic crisis, as the interior demand will fall and investors withdraw their money
- a currency crisisCurrency crisisA currency crisis, which is also called a balance-of-payments crisis, is a sudden devaluation of a currency caused by chronic balance-of-payments deficits which usually ends in a speculative attack in the foreign exchange market. It occurs when the value of a currency changes quickly, undermining...
as foreign investors avoid this national economy
The citizen might feel the impact indirectly through high unemployment and the decrease of state services and benefits. However, a monetarily sovereign
Monetary sovereignty
A state is generally considered monetarily sovereign to the extent that it retains the following legal rights:* The right of legal tender - to choose which currencies are acceptable as legal tender for payment of taxes and other legal debts....
state can take steps to minimize negative consequences, rebalance the economy and foster social/economic progress (eg. Plano Real
Plano Real
The Plano Real was a set of measures taken to stabilize the Brazilian economy in early 1994, under the direction of Fernando Henrique Cardoso as the Minister of Finance, during the presidency of Itamar Franco....
).
Examples of national bankruptcy
A failure of a nation to meet bond repayments has been seen on many occasions. In 1557 Philip II of SpainPhilip II of Spain
Philip II was King of Spain, Portugal, Naples, Sicily, and, while married to Mary I, King of England and Ireland. He was lord of the Seventeen Provinces from 1556 until 1581, holding various titles for the individual territories such as duke or count....
defaulted on debt several times and had to declare four national bankruptcies - in 1557, 1560, 1575 and 1596 - becoming the first sovereign nation in history to declare bankruptcy, due to rising military costs, and the declining value of gold, as it had become increasingly dependent on the revenues flowing in from its mercantile empire
Spanish Empire
The Spanish Empire comprised territories and colonies administered directly by Spain in Europe, in America, Africa, Asia and Oceania. It originated during the Age of Exploration and was therefore one of the first global empires. At the time of Habsburgs, Spain reached the peak of its world power....
in the Americas. This state bankruptcy threw the German banking houses into chaos and ended the reign of the Fuggers as Spanish financiers. Genoese bankers provided the unwieldy Habsburg system with fluid credit and a dependably regular income. In return the less dependable shipments of American silver were rapidly transferred from Seville to Genoa, to provide capital for further ventures.
In the 1820s, several Latin American countries which had recently entered the bond market in London defaulted. These same countries frequently defaulted during the nineteenth century, but the situation was typically rapidly resolved with a renegotiation of loans, including the writing off of some debts.
A failure to meet payments became common again in the late 1920s and 1930s; as protectionism rose and international trade fell, countries possessing debts denominated in other currencies found it increasingly difficult to meet terms agreed under more favourable economic conditions. For example, in 1932, Chile's scheduled repayments exceeded the nation's total exports (or, at least, its exports under current pricing; whether reductions in prices - forced sales - would have enabled fulfilling creditor's rights
Creditor's rights
Creditor's rights is a legal term used to describe the set of procedural provisions designed to protect the ability of creditors - persons who are owed money - to collect the money that they are owed...
is unknown).
List of sovereign debt defaults
The following list includes actual sovereign defaultDefault
Default may refer to:*Default , the failure to do something required by law**Default judgment*Default , failure to satisfy the terms of a loan obligation or to pay back a loan*Default , a preset setting or value...
s and debt restructuring
Debt restructuring
Debt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its...
of independent countries from 1300 till 2008:
Africa
- Algeria (1991)
- Angola (1976, 1985, 1992-2002)
- Cameroon (2004)
- Central African Republic (1981, 1983)
- Congo (Kinshasa) (1979)
- Cote d'Ivoire (1983, 2000)
- Gabon (1999–2005)
- Ghana (1979, 1982)
- Liberia (1989–2006)
- Madagascar (2002)
- Mozambique (1980)
- Rwanda (1995)
- Sierra Leone (1997–1998)
- Sudan (1991)
- Tunisia (1867)
- Egypt (1876, 1984)
- Kenya (1994, 2000)
- Morocco (1983, 1994, 2000)
- Nigeria (1982, 1986, 1992, 2001, 2004)
- South Africa (1985, 1989, 1993)
- Zambia (1983)
- Zimbabwe (1965, 2000, 2006 (see Hyperinflation in ZimbabweHyperinflation in ZimbabweHyperinflation in Zimbabwe began shortly after destruction of productive capacity in Zimbabwe's civil war and confiscation of white-owned farmland. Food output capacity fell 45%, manufacturing output 29% in 2005, 26% in 2006 and 28% in 2007, and unemployment rose to 80%...
)
Americas
- Antigua and Barbuda (1998–2005)
- Argentina (1827, 1890, 1951, 1956, 1982, 1989Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
, 2002-2005 (see Argentine debt restructuringArgentine debt restructuringArgentina went through an economic crisis beginning in the mid-1990s, with full recession between 1999 and 2002; though it is debatable whether this crisis has ended, the situation has been more stable, and improving, since 2003....
)) - Bolivia (1875, 1927, 1931, 1980, 1986, 1989Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
) - Brazil (1898, 1902, 1914, 1931, 1937, 1961, 1964, 1983Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
, 1986-1987, 1990) - Canada (Alberta) (1935)
- Chile (1826, 1880, 1931, 1961, 1963, 1966, 1972, 1974, 1983Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
) - Colombia (1826, 1850, 1873, 1880, 1900, 1932, 1935)
- Costa Rica (1828, 1874, 1895, 1901, 1932, 1962, 1901, 1932, 1962, 1981, 1983, 1984Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
) - Dominica (2003–2005)
- Dominican Republic (1872, 1892, 1897, 1899, 1931, 1975-2001 (see Latin American debt crisisLatin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
), 2005) - Ecuador (1826, 1868, 1894, 1906, 1909, 1914, 1929, 1982, 1984, 2000, 2008)
- El Salvador (1828, 1876, 1894, 1899, 1921, 1932, 1938, 1981-1996)
- Grenada (2004–2005)
- Guatemala (1933, 1986, 1989Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
) - Guyana (1982)
- Honduras (1828, 1873, 1981Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
) - Jamaica (1978)
- Mexico (1827, 1833, 1844, 1850, 1866, 1898, 1914, 1928-1930s, 1982Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
) - Nicaragua (1828, 1894, 1911, 1915, 1932, 1979)
- Panama (1932, 1983, 1983, 1987Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
, 1988-1989) - Paraguay (1874, 1892, 1920, 1932, 1986Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
, 2003) - Peru (1826, 1850, 1876, 1931, 1969, 1976, 1978, 1980, 1984Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
) - Surinam (2001–2002)
- Trinidad and Tobago (1989)
- United States (1779 (devaluation of Continental Dollar), 1790, 1862, 1933 (see Executive Order 6102Executive Order 6102Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States"...
), 1971 (Nixon ShockNixon ShockThe Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.-Background:By...
)- 9 states (1841–1842)
- 10 states and many local governments (1873-83 or 1884)
- Uruguay (1876, 1891, 1915, 1933, 1937, 1983, 1987Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
, 1990, 2003) - Venezuela (1826, 1848, 1860, 1865, 1892, 1898, 1982Latin American debt crisisThe Latin American debt crisis was a financial crisis that occurred in the early 1980s , often known as the "lost decade", when Latin American countries reached a point where their foreign debt exceeded their earning power and they were not able to repay it.-Origins:In the 1960s and 1970s many...
, 1990, 1995-1997, 1998, 2004)
Asia
- China (1921, 1932, 1939)
- Japan (1942, 1946-1952)
- India (1958, 1969, 1972)
- Indonesia (1966, 1998, 2000, 2002)
- Iran (1992)
- Iraq (1990)
- Jordan (1989)
- Kuwait (1990–1991)
- Myanmar (1984, 1987, 2002)
- Mongolia (1997–2000)
- The Philippines (1983)
- Solomon Islands (1995–2004)
- Sri Lanka (1980, 1982, 1996)
- Vietnam (1975)
Europe
- Albania (1990)
- Austria-Hungary (1796, 1802, 1805, 1811, 1816, 1868)
- Austria (1938, 1940, 1945)
- Bulgaria (1990)
- Croatia (1993–1996)
- Denmark (1813) (see Danish state bankruptcy of 1813Danish state bankruptcy of 1813A state bankruptcy occurred in Denmark on 5 January 1813. The country had been waging the Gunboat War since 1807, something which eventually caused a financial crisis. The Danish state, heavily indebted, went bankrupt....
) - England (1340, 1472, 1596)
- France (1558, 1624, 1648, 1661, 1701, 1715, 1770, 1788, 1812)
- Germany (1932, 1939, 1948)
- Hesse (1814)
- Prussia (1683, 1807, 1813)
- Schleswig-Holstein (1850)
- Westphalia (1812)
- Greece (1826, 1843, 1860, 1893, 1932)
- Hungary (1932, 1941)
- The Netherlands (1814)
- Poland (1936, 1940, 1981)
- Portugal (1560, 1828, 1837, 1841, 1845, 1852, 1890)
- Romania (1933, 1982, 1986)
- Russia (1839, 1885, 1918, 1947, 1957, 1991, 1998)
- Spain (1557, 1575, 1596, 1607, 1627, 1647, 1809, 1820, 1831, 1834, 1851, 1867, 1872, 1882, 1936-1939)
- Sweden (1812)
- Turkey (1876, 1915, 1931, 1940, 1978, 1982)
- Ukraine (1998–2000)
- United Kingdom (1749, 1822, 1834, 1888–89, 1932)
- Yugoslavia (1983)
See also
- Asset liability mismatchAsset liability mismatchIn finance, an asset–liability mismatch occurs when the financial terms of an institution's assets and liabilities do not correspond. Several types of mismatches are possible....
- DebtDebtA debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
- DefaultDefaultDefault may refer to:*Default , the failure to do something required by law**Default judgment*Default , failure to satisfy the terms of a loan obligation or to pay back a loan*Default , a preset setting or value...
- Sovereign bond
- Government debtGovernment debtGovernment debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...
- External debtExternal debtExternal debt is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such...
- Currency crisisCurrency crisisA currency crisis, which is also called a balance-of-payments crisis, is a sudden devaluation of a currency caused by chronic balance-of-payments deficits which usually ends in a speculative attack in the foreign exchange market. It occurs when the value of a currency changes quickly, undermining...
- Financial crisisFinancial crisisThe term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these...
- Balance of paymentsBalance of paymentsBalance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...