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Friday, 18 September 09:11 (GMT -05:00)

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Overcoming Default, Worldwide Cases

Ukrainian lenders and professional advisors dealing debt restructuring are going to meet in New York this week. The meeting is designed to discuss some technical issues related to the structure of the Ukrainian debt and clarifying those ambiguous points that seem unclear to the holders of Ukrainian bonds, Market Leader reports.




The key objective is to reach some preliminary agreements and get ready to discuss the ways and means of restructuring the Ukrainian debt in the near future. The agreements may touch upon writing off a certain share of the debt and suspending the service of the remaining debt for 5 years.
Still, the lenders feel reluctant to feel with Ukraine and keep on insisting that Ukraine should settle accounts with them on time. If there is no compromise reached, the government will have to announce a default.
While such debt talks my last for months – as in the case with Greece, for example – the lenders are not interested in any kind of default. Moreover, nobody is interested in it. As a result, the parties do usually compromise at the last minute.
Worldwide Cases of Default
Over the last couple of decades, there have been several cases when countries had to default on their debt. One of the most crying examples is the economic crisis in Argentina in 2001, when the Argentinian government and the lenders filed to speak a common language and Argentina had to default on its debt. It all started in 1998 when the Argentinian economy started slowing down and declining while ignoring all the recommendation given by the IMF. As the result, the international lenders suspended the financial aid to this country, which led to the situation when Argentina couldn’t service its debt anymore and had to default on its debt in 2001. At that point, the country’s debt was equal to $132 billion. Some private investment funds still hold their bonds to the amount of $95 billion. After 5 years of talks, the new Argentinian government managed to persuade the lenders to restructure 93% of the debt.
Another fresh example is Greece. Technically, this Eurozone nation has already defaulted on tis debt. Still, the lenders and the government are trying to save the day even though the deadline is reached. The thing is that on July 5th, the nationwide referendum is going to decided the fate of Greece as a Eurozone member. The overall debt is over 300 billion EUR. The biggest holders of Greek bonds are the IMF, the ECB and EU nations.
As you know, Greece has already made multiple attempts to restructure its debt. However, the lenders demand austerity and reforms in exchange for further financial support and debt restructuring. However, the government does not want to compromise. While the disaster is near, the parties may still compromise since nobody wants a Eurozone nation to default on tis debt with unpredictable consequences, dragging the Euro currency down against other majors.
The vas another default in Europe. It was Iceland that defaulted on its debt in 2008 after the local banking system crashed as the result of the global crisis. The reason for the banking crash was the imbalance - the overall deposits in Icelandic banks was 7 times as big as the national GDP of Iceland. In this case there were no talks with the lenders. After the biggest private banks in Iceland - Landbanki, Kapthing and Glitnir – went bankrupt, they were nationalized. However, the local government refused to settle accounts with the clients – depositors, shareholders and bondholders – thus announcing a default. Despite the fact that the national parliament urged the central bank to settle accounts with the international lenders and clients, the referendum showed that people do not want to pay others’ debts. This resulted in a change of powers while Iceland decided to choose its own way outside of the EU.


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