When Athens missed a $1.7-billion payment to the International Monetary Fund on June 30, much was made about how Greece had become the first developed nation to default on an IMF loan.
Although that is true, the story of country defaults is an old one. Economic history is fraught with other cases of sovereign defaults occurring in different periods, as Harvard professors Carmen M. Reinhart and Kenneth S. Rogoff have documented.
Their research shows that through 2006, Greece has had five defaults and that it has spent more years of its history in default than not (50.6% to be exact) since its independence in 1829.
What’s also unusual about Greece is that most government defaults historically have involved private creditors, whereas the Greek debts today are concentrated in the hands of European and international agencies. The last major sovereign defaults on debt owed to official creditors were back in the 1930s after the Great Depression.
More recently, there were big defaults by Argentina and Russia, somewhat parallel to Greece’s case in that, like Athens, those governments were cash-strapped and financed themselves by not paying their bills, says Reinhart. One lesson for Greece from those two cases, as well as the default by Panama in 1987, is that even if Athens and the Eurozone can reach agreement on a new bailout, things aren’t likely to settle down for Athens anytime soon.
“The idea that this episode is going to come to a very quick close here – it’s possible, but certainly these other episodes do not suggest that,” she said.
Here’s a look at some sovereign defaults in recent decades:
Year of default: 1998
Causes: Fall in oil prices, sagging productivity
Results: International loans; devaluation of ruble
Year of default: 2001
Causes: Large debts, collapsing economy
Results: International loans; converted dollars to pesos; restrictions on bank accounts for a year
Year of default: 1987
Causes: Political and economic pressures
Results: Freeze on deposits for nine weeks; restructuring of debts
Year of default: 2002
Causes: Weak banks, corporate leverage
Results: Restructuring of corporate and official debt
Year of default: 2004
Causes: Heavy borrowing, rising interest rates, inefficient trade
Results: International debt relief
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