Why have sovereign debts rarely defaulted unilaterally in recent years? -Part 11

Si Gyeongmin

Nov 15, 2021

In addition, insisting on repaying debts may have political consequences. Take Greece as an example. With the deepening of the debt crisis, in order to repay debts and implement austerity reforms, the Greek government often resorts to emergency decrees and administrative orders to bypass the parliament to eliminate widespread social and political opposition to further austerity and neoliberal reform. Ironically, the recognized birthplace of democracy has become less democratic because of debt repayment.

On the contrary, creditors have made a lot of money because of continued debt repayment. As far as international debt crisis management is concerned, moral considerations and economic rationality are ultimately far less important than financial power and the narrow egoism of the dominant creditor countries and international financial institutions. Historical experience shows that the negative impact of unilateral defaults generally lasts from 6 months to two years. Since investors’ memory is short-lived, long-term exclusion from the international capital market is not a worrying issue.

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