The Government of Sri Lanka announced that it will temporarily stop paying its foreign debt, in the midst of a deep economic crisis and awaiting a bailout from the International Monetary Fund. Here is a review of the countries that have also defaulted.
At its most basic level, a debt default by a country consists of the cessation of payments established in a certain contract with a creditor, which can be another government, a multilateral entity or private investors.
The case of Sri Lanka, which this Tuesday, April 12, announced the suspension of its debt service to overcome its worst economic crisis in decades, is a decision that mainly affects its largest shareholders: the World Bank and the Asian Development Bank. , in addition to countries such as Japan, China or India.
Sri Lanka tells foreign investors it plans to default on its debt from 5pm local time today (April 12) as it tries to conserve what’s left in FX reserves to buy oil and agricultural commodities | #OOTT https://t.co/BxbKo8CwHm
– Javier Blas (@JavierBlas) April 12, 2022
According to data from the Ministry of Finance, Sri Lanka’s debt until the end of 2021 amounted to up to 102.8% of its Gross Domestic Product (GDP), with some 54,000 million dollars of debt, of which some 25,000 million dollars are of foreign debt.
What other countries have gone through the same situation? Here are the most emblematic cases in chronological order:
– Mexico (1982): In August of that year, the world’s financial markets and nearly 1,000 creditors were told that Mexico was in default, with a debt of 86,000 million dollars and interest of 21,000 million dollars.
Elected in 1976, President José López Portillo had accumulated debts and spent without taking into account oil revenues, which in 1981 plummeted.
– Russia (1998): The country had been affected by the financial crisis that affected Asia at the time, the ruble fell due to the pressure of speculators and the prices of raw materials, which are its main source of income, sank.
On August 17, the government devalued the currency, declared a unilateral moratorium on foreign debt and renounced honoring its payments to national creditors. With a public debt that reached 141,000 million dollars and an internal debt of 50,600 million dollars, Russia had to wait 12 years to be able to return to international markets.
Today, after the invasion of Ukraine and the cascade of Western sanctions, Russia has had to find ways to honor its payments in dollars, since it has the resources, but cannot use them.
The rating agency Standard & Poor’s believes that the payment in rubles, as proposed by the Kremlin, constitutes a “selective default”, but the Government denies this.
– Argentina (2001): In economic recession for three years, Argentina was subject to a strict austerity plan and had lost control of its external debt.
At the beginning of December, the Government limited the amount of withdrawals from banks, which became known as “El corralito”. On December 23, interim president Adolfo Rodríguez Saá declared the largest debt moratorium in history: 100 billion dollars. Some creditors agreed to a debt restructuring in 2005 and 2010, and others rejected it.
At the beginning of 2016, Argentina was able to return to international markets after a 15-year absence.
– Ecuador (2008): On December 12, 2008, Ecuador suspended the payment of almost 40% of its international debt, which then totaled 9.9 billion dollars.
The then president, Rafael Correa, declared a selective moratorium since he considered that part of the debt was “illegitimate” due to irregularities during the negotiation at the beginning of the 2000s. It was the third time that Ecuador entered into a payment moratorium in 14 years.
– Greece (2015): In late June and mid-July, Greece, mired in recession and undergoing strict austerity since the start of the debt crisis in 2010, defaulted on two repayments to the IMF totaling €2 billion. , but an emergency loan from the European Union allowed him to honor it.
-Venezuela (2017 and 2018): On November 14 and 15, 2017, Venezuela was declared in partial default on its debt payments by the rating agencies S&P Global Ratings and Fitch.
This announcement reignited concerns about Caracas’s ability to continue paying its foreign debt of some 150 billion dollars, while the country was in deep crisis due to falling oil prices and US sanctions.
On January 2, 2018, Venezuela was declared in default again for not paying its sovereign debt bonds.
– Lebanon, Argentina and others (2020): In 2020, the first year of the Covid-19 pandemic, several countries went into default: Belize, Ecuador, Zambia and Suriname.
On March 7, Lebanon announced for the first time in its history that it would default on its foreign debt payments amounting to $1.2 billion, out of a total of $92 billion. Beirut asked the IMF for help, but negotiations failed.
In May, Argentina registered the ninth default in its history, failing to meet a maturity of 500 million dollars. In March 2022, Buenos Aires reached an agreement with the IMF for the refinancing of the debt that the country has with the organization, of some 45,000 million dollars.
with AFP
#Economy #Sri #Lanka #declares #default #countries #defaulted