External sovereign defaults since the 19 century

[senheiser]

@LeveragedBuyout

 

[LeveragedBuyout]

@LeveragedBuyout

A better strategy is to push all the debt down to the banks, and then have them default instead of the sovereign. Iceland used this strategy masterfully. Ireland, not so much.

 

[MarkovChain]

A better strategy is to push all the debt down to the banks, and then have them default instead of the sovereign. Iceland used this strategy masterfully. Ireland, not so much.

How would you do that?

 

[LeveragedBuyout]

How would you do that?

Like this:

Emerging and Frontier Markets: Economic and Geopolitical Analysis | Page 8

 

[MarkovChain]

Like this:

Emerging and Frontier Markets: Economic and Geopolitical Analysis | Page 8

Thanks. Curious though - if the banks become defunct, the debt of the banks is then carried forward to the bank's creditors. During liquidation, won't the government still be responsible for the bank's loans?

 

[LeveragedBuyout]

Thanks. Curious though - if the banks become defunct, the debt of the banks is then carried forward to the bank's creditors. During liquidation, won't the government still be responsible for the bank's loans?

It depends on the loan covenants, but in practice, since the debt is local, there's little recourse (see http://www.un.org/esa/ffd/msc/2012Egm_debt/EGM_report_18may12.pdf item 12, about "standstills" and force majeure). Argentina's mistake was in raising foreign debt, but if it defaults on its local debt, good luck to any creditors. Likewise for Dubai, since it is essentially forcing its local banking system to lend money to the government. Any claims against the Dubai government for local debt would be unenforceable outside of Dubai. Do you think Dubai would enforce an unfavorable ruling against itself, if it came to that?