http://www.economist.com/business-finance/economics-focus/displayStory.cfm?story_id=15814868&source=hptextfeature
This article focuses on counties that default from their sovereign loans. Argentina recently defaulted on its loans, and as a consequence, was shunned from international markets for an extended period of time. Now Greece is looking to be in a very similar position where, defaulting on the loans could actually have more positives than negatives involved in it.Often times defaulting and getting your debt restructured is favorable to not being able to reach an agreement with your creditors.
We are studying the economic impacts of global economies on local micro-economies and how they can put them in a situation of serious and inescapable debt. The countries that are choosing to default are usually quasi peripheral countries like Greece and Argentina. You have to wonder how much of this economic problem is due to the effects of the core nations such as America and Britain taking great advantage of them in the recent rough economic times and the previous times of seemingly shady business practices. This sort of debt defaulting can be devastating on countries but is often better for them than living with the debt. The other question that i would ask is how do countries wind up with such a humongous debt that this sort of action is necessary?
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I agree with Andy’s point that countries which are easily end up in default are always some quasi peripheral countries to some degree. But I want to point out that some core countries or some core areas sometimes will end up in default as well. For instance, during the Asia Financial Crisis in 1998, Hongkong might have ended up in default if it were not for the PRC’s financial support. Although Hongkong is a developed area, it is still a small economy in its scale. I think it is almost impossible for the mainland China to end up in default. It is not because mainland China is a core region but because its economic scale is huge. It is extremely hard for such a huge economic entity to end up in default. Iceland, which ran into financial crisis during 2008, is not a developing county. There is no exploitation by some developed countries in Ice land but it faces serious financial crisis. Through this paragraph, I want to argue that it is based on the economic scale and other factors (such as the main industries in the countries and the population) that we can calculate the possibility for a country to default.
ReplyDeleteI agree with Yuhui on that point. During the financial collapse of 2008, Iceland also was forced to go to the IMF for short-term loans to reinvest in capital. Given the fact that a first world country almost never files a claim with the IMF, this would suggest that the ARM/sub-prime mortgage problem is one that wasn't really "exploiting" poorer countries as much as it was short-sighted-ness on the part of the many speculators who believed the growing housing market would keep expanding indefinitely.
ReplyDeleteI agree that defaulting on debt is becoming a growing concern for the international community. It may stem from the increasingly more mainstream belief that it is acceptable to simply default rather than continuing to try to repay a debt. This reflects the theory that when an action becomes acceptable to a leading country, people in other countries will also believe it is acceptable. However, now that even nation's governments are condoning this practice to fix their problems quickly, I am not sure if defaulting can be stopped since there are so many organizations there to help if a country or individual decides to do so.
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