The world has witnessed a long history of countries falling into the trap of being unable to pay foreign liabilities, but the past few months have seen two cases of failure at once, amid expectations of an acceleration of the crisis in light of the Corona pandemic.
Two months after the Lebanese government announced that it had defaulted on $ 1.2 billion in debt, Argentina joined it last Friday in defaulting on a payment of $ 500 million in debts.
Argentina announced that it would not pay any interest, proposing to creditors a restructuring plan that includes much lower interest payments on its debt and deferral of payments until 2024, with the exchange of bonds for new ones with a three-year amnesty period without payments, and a 5.4% reduction in capital And 62% on benefits.
Argentine creditors rejected these proposals, prompting Buenos Aires to extend the deadline for negotiations with them until June 2, which means that a technical bankruptcy scenario is likely in this case.
In any case, this will not be the last case of default, according to the expectations of many institutions and specialized agencies, as the Corona pandemic and the accompanying recession and deflation may spark a new wave of defaults, especially in the poorest countries.
As for the most prominent cases of defaults in the last 50 years, they can be monitored as follows:
Lebanon
Hassan Diab, Prime Minister of the Lebanese government, announced in the first week of March 2020 Saturday that Lebanon will not be able to pay the bonds due on the 9th of March last with a value of 1.2 billion countries in light of the political and economic turmoil in the country.
This was the first time that Lebanon had defaulted on its debts, which amounted to more than 170% of GDP.
To address the crisis, the Lebanese government approved an economic plan that includes requesting an assistance program from the International Monetary Fund so that it can obtain more than $ 20 billion in financial support from the international community.
Venezuela
Venezuela faced a severe financial crisis in 2017 in light of the oil price collapse that led to Fitch Ratings and SB Global Credit Rating announced in mid-November of the same year that the country could not repay part of its external debt totaling $ 150 billion at that time.
On January 2, 2018, Venezuela was again declared a country defaulting on sovereign debt.
Greece
Greece sparked a crisis in the euro area in mid-2015, when it twice failed to pay the International Monetary Fund debt installments with a total value of two billion dollars, as a step indicating the country’s inability to pay debts of up to 180% of GDP.
But European countries soon intervened to support and protect Athens from the risk of bankruptcy, and in fact they concluded a European agreement in August 2015 that included a plan to obtain 86 billion euros over 3 years.
Puerto Rico
Puerto Rico, which is located in the Caribbean Sea and who joined by a popular referendum in 2017 to the United States of America, stumbled in 2015 on the payment of bonds worth $ 800 million, and applied to creditors to restructure its debt.
According to the British newspaper “The Guardian”, Puerto Rico reached in 2019 an agreement with the bondholders that includes structuring debts estimated at $ 35 billion through obtaining $ 10.7 billion in the form of new debts, and paying $ 3.8 billion in cash.
Iceland
The crisis erupted in the North Atlantic country in 2008 during the global financial crisis when banks were unable to pay their external liabilities, in light of the external debt of the three largest banks, Cobahting, Landsbanki and Glitnir, to 62 billion dollars.
As a result, the local authorities imposed their control on these banks and stopped the buying and selling of shares, which left the country in conflict with the governments of Britain and the Netherlands after they paid compensation to about 400 thousand citizens in the two countries, worth 4 billion euros, equivalent to 5.8 billion dollars at the time.
During the crisis, the International Monetary Fund approved a $ 2.1 billion program that Iceland directed to rescue local banks, and attempts by Britain and the Netherlands to obtain compensation failed pursuant to a decision by the European Court of Justice for Free Trade that Iceland was not obligated to pay deposit guarantees for Dutch and British depositors.
Ecuador
Ecuador suspended payment of about 40% of its external debt, which totaled about $ 9.9 billion, on December 12, 2008.
President Rafael Correa considered that part of this debt is illegal because it was exacerbated by the last negotiations in 2000, marking the third time in 14 years that Ecuador has announced a unilateral moratorium on repayment.
Russia
In August 1998, Russia entered into a crisis of default of $ 141 billion in foreign debt.
Moscow took a decision to unilaterally stop the payment of international debt, as well as default on its obligations to domestic creditors, which amounted to $ 50.6 billion.
Mexico
Mexico fell into the trap of defaulting on its debts in 1982, when it announced in August of the same year that it was unable to pay its foreign obligations, which amounted to 86 billion dollars, without interest amounting to 21 billion dollars.
The United States and the International Monetary Fund were quick to provide a package of financial aid to save Mexico in exchange for an economic reform program.
The risks are renewed
Credit rating agency Fitch warned of a new stumbling block due to the Corona virus pandemic, after which 29 countries were downgraded in the first four months of 2020.
According to the agency, the countries of Gabon, Mozambique, the Congo and Suriname were rated at CCC, which indicates a strong possibility of tripping, with Zambia ranking at the CC level, that is, there is a potential default.
Fitch pointed to the countries of Iraq, El Salvador and Sri Lanka facing the risk of reducing their classification from the level of B- to CCC, which puts them in the framework of the countries most vulnerable to faltering.
–
