How can a country go bankrupt

In Argentina, many think that default was the best thing to happen. After the peso plummeted, Argentina product becomes more competitive in the international market. The inflow of money lead Argentina to its recovery. In addition, evidence suggests that the adverse effects of default are rather short-lived. The effect of default will be less substantial if it relies less on foreign loans as it is able to soothe out these effects through implementation of monetary and fiscal policy.

Defaulting on loan may be a boon than a bane for a heavily indebted country despite its consequential effects.

Abascal, E. What does it mean for a country to default?. Amaro, S. Blitzer, J. A Good Week for Vulture Funds. Bojesen, L. Sovereign Debt. The Economist. The Economist explains : What happens when a country goes bust. Sign me up for your mailing list. The Halal Industry. The Impact of Child Marriages on the Economy. Explaining the Chinese Stock Market Crash, and exploring potential opportunities.

The Logic and Effect behind Cash Handouts. Publications Economics. How Can a Country Go Bankrupt? Secondly, the statement made by Walter Wriston will be examined by making reference to practical and historical examples to determine if sovereigns can go bankrupt. Thirdly, the lack of any legal mechanism for dealing with sovereign bankruptcy and the practical difficulty of applying existing principles of bankruptcy to sovereigns will be discussed.

Finally, this paper will conclude by establishing that legally sovereigns do not go bankrupt but practically it is possible for them to do so. Underpinning issues in sovereign bankruptcy In order to effectively determine if sovereigns can go bankrupt, it important to understand how public government debts work. Sovereign debt can be defined as 'any debt obligation of or guaranteed by an autonomous government' and such debt obligations can be domestic or external.

Reinhart and Rogoff distinguish domestic and external debt by categorising them into: 1. And would our national anthem change? The chances of this happening are rather small. Nevertheless, countries can go bankrupt — even multiple times.

Countries such as Ecuador, Venezuela, Brazil, Costa Rica, Uruguay and Argentina have each gone bankrupt at least nine times in the last years. But even closer to home, several countries have found themselves out of their depth once or more: Greece, Denmark, Germany, France, Spain more than 15 times and Portugal, to name but a few. Belgium has never gone bankrupt since it was founded in The major difference compared to businesses and private individuals is that the bankruptcy of a country is a technical bankruptcy, also known as a default.

In the past, it has been known for a bankrupt country to be forced by another country to hand over territory, but the rules of the game nowadays have changed. When a country is in default, public property cannot be seized by the creditor, nor can the country be forced to pay with funds it doesn't have.

The situation is rather different for national assets located abroad. By way of example, in , an Argentinian navy ship was confiscated in Ghana when Argentina defaulted. It may, for example, write off part of the government debt or provide emergency loans. Of course, all this is subject to terms. The country is often obliged to carry out a major restructuring of its public finances. What's more, a write-off by the IMF doesn't necessarily mean that all the creditors will agree — if the IMF writes off debt for one country, it obviously means a financial loss which may be severe for another.

After a lot of legal and diplomatic back and forth, however, a 'solution' always emerges, as was the case with the Greek bailout, for example. In , countries are therefore no longer allowed to 'truly' go bankrupt. There's too much at stake for this to happen. Movement of capital, investments, financial and geopolitical interests and more no longer end at national borders. The global economy is so tightly interwoven that a real bankruptcy would trigger a chain reaction. And so a creative solution is always found.

Does this mean that a country can actually continue to accumulate debts and pile up its defaults? In principle, yes, but the country, and in particular its residents and entrepreneurs, will be footing the bill, as emergency loans and debt restructuring each have their price. It often means that a country comes under some kind of supervision and will only get more money if it puts its house in order. Of course, this has a major impact on those who live, work and do business there.

After all, restructuring is usually synonymous with tax increases, rising poverty and unemployment, chaos and a loss of purchasing power. This is how citizens pay the bill for their government's bad management. It's true that our government is also heavily in debt.

However, a country having a lot of debt doesn't automatically mean that it has a higher risk of going bankrupt. Look at Japan. But because Japan finances its debts mainly at home, through its own banks, pension funds and the central bank, we're unlikely to see Japan go bankrupt any time soon.