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Debt Defaults By States On the Rise
Business Day (Johannesburg) - http://www.bday.co.za/
September 25, 2002
Päivi Munter
Johannesburg
Debt defaults by sovereign governments rose in the first three quarters of this year, compared with the same period a year ago, and are expected to increase again next year, ratings agency Standard & Poor's (S&P) said yesterday.
In all, six new governments failed to honour their bonds in the period, putting the total value of sovereign defaults in the first nine months of this year to nearly $133bn.
This was almost double that in the corresponding period last year, although the figure shot up in the final quarter when Argentina defaulted on $95bn of debt the biggest failure to date.
The prospect of war in Iraq at a time when the world economy is struggling increases expectations of a continued rise in defaults by governments next year, the agency predicted.
"War with Iraq could upset the sluggish pace of global output growth and cause private cross border capital flows, which are already low, to contract further," S&P said.
Ecuador and Nigeria appear vulnerable, due to the social and economic pressures facing them, S&P noted.
Their chances of averting default will hinge greatly on political developments in Brazil, where left wing candidate Luiz Inácio Lula da Silva is the front runner in October's presidential elections. In the run-up to the poll, financial markets have shown a deep distrust of da Silva's policies, hitting the country's currency and bonds hard.
"With the risks of contagion still uppermost in many investors' and policymakers' minds, developments in Brazil will be pivotal not just for Latin America but for the emerging market asset class as a whole," Fitch Ratings said yesterday.
But Fitch noted that, hit by both Argentina's default and Brazil's political concerns, Latin American borrowers have suffered much more than governments in Eastern Europe or Asia.
"Emerging Asia and Europe are faring better: growth is picking up, especially in Asia, current accounts are in surplus," Fitch said.
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