Countries start defaulting

[andviv]

Ecuador won't pay foreign debt interest

Ecuador won't pay foreign debt interest - CNN.com

• Story Highlights
• President Rafael Correa calls foreign debt "immoral and a betrayal of the country"
• Correa: $7 billion has been spent on debt interest, but principal remains same
• President "assumes responsibility" if nation faces international lawsuits

...
"If we have to confront international lawsuits, we will confront them and, I repeat, I assume all responsibility," he said. "I could not permit the continued payment of a debt that, in any light, is immoral and illegitimate."

Correa said he was preparing a restructuring plan to be presented to creditors within a few days, and he chafed at criticism of how the money has been spent.
...

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Two things came to my head with this...

1. A few bonds will probably be in trouble with this default, as many countries have a very high rating for their debt, and this default will affect them.

2. When a country defaults, does its FICO score drops 200 points too?

 

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[Russ H]

It's an attitude thing.

If one does it, and there are no big repercussions, others will follow.

Hard to blame them-- but they DID take the money, and make promises.

Time for a global Vinny to show up and straighten them out.

Will be interesting to see how this plays out.

-Russ H.

 

[Bilgefisher]

I wonder how much it will affect them? In what ways could you punish them in the current economic climate?

 

[andviv]

Well, I remember Argentina did the same around 1999 or 2000, I'm not sure.

The strategy they used was something like:

No more payments. If you want your money, let's renegotiate.
Meanwhile, the government used that money for internal projects.
IMF and the government worked on a deal to restart payments.

These days the Argentinian economy is doing way better than most in the continent.

I thought at the time that, in the end, it looks like it worked out for them, and I was expecting more countries doing the same, but that was not the effect. The world economy was in a better shape than today, so it will be interest to track the consequences.

 

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[andviv]

I found more info about the Argentinian crisis (Wiki, what a site)

Argentine economic crisis (1999-2002 - Wikipedia, the free encyclopedia)

Argentine economic crisis (1999–2002) - Wikipedia, the free encyclopedia

Argentine debt restructuring - Wikipedia, the free encyclopedia

The Argentine government kept a firm stance, and finally got a deal in 2005 by which 76% of the defaulted bonds were exchanged by others, of a much lower nominal value (25–35% of the original) and at longer terms. In 2008, President Cristina Fernandez de Kirchner announced she was studying a reopening of the 2005 swap in order to gain adhesion from the remaining 24% of the so-called "holdouts," and thereby fully exit the default with private investors.