Economics Stack Exchange Archive

Countries going bankrupt

• posted by: ThePiachu on 2011-10-13
• tagged: history, bankruptcy
• score: 0

How can a country go bankrupt? Has it ever happened in the past, and if so, what was the impact of such an event on the regional or global economy?

Answer 173

• posted by: EnergyNumbers on 2011-10-15
• score: 4

A country cannot go bankrupt - not in the same way that a person or business does. It cannot cease trading due to too much debt. And its creditors can’t asset-strip it, (at least, not without the compliance of the government), due to too much debt. (Note that either ceasing trading, or asset-stripping, could happen by other means, such as war.)

Nevertheless, a country might default on its debts - as a person or business might, without going bankrupt:

• it might do that in agreement with its creditors, whereby they renegotiate the terms of the debt, accepting only a proportion of the face-value of the debt. Such a default would not necessarily trigger credit default swaps.
• or it might do it without agreement, by some combination of: cancelling debt unilaterally, suspending interest payments, by forcing its creditors to accept new inferior bonds for the ones they hold, or by nationalising some of its creditors. Such a default would normally trigger credit default swaps

Answer 141

• posted by: CarrKnight on 2011-10-13
• score: 3

A country goes bankrupt when it defaults on some of its obligations. In other words: when a country stop paying bondholders.

A recent IMF working paper studied some of its consequences:

This paper reviews nine recent sovereign debt restructurings: Argentina (2001-2005), Belize (2006-2007), the Dominican Republic (2004-2005), Ecuador (1999-2000), Pakistan (1998-2001), the Russian Federation (1998-2001), Serbia (2000-2004), Ukraine (1998-2000) and Uruguay (2004).

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