Political Risk Latin America Blog @PolRiskLatam

Sovereign debt—Harder to judge than you’d think

Posted in News and Articles by politicalrisklatam on August 4, 2010

by Anthony Harrington for QFinance, August 4th, 2010.

One of the most comprehensive and best articles to appear so far on sovereign debt is undoubtedly Edward Chancellor’s “Reflections on the Sovereign Debt Crisis,” posted on Zero Hedge. The title is absolutely apt. This is not a “must read” paper because Chancellor has nailed the solution to sovereign debt crises. He’d need to be a judicious amalgam of Houdini and Merlin to achieve that. What makes it exceptional is the wonderful wealth of facts that he has gathered together, charting just how merrily the sovereign debt ball has bounced since, oh, say 1800. For example:

“Foreign loans were the sub-prime securities of the 1920s. A heap of foreign bonds were sold by Wall Street on behalf of several Latin American and Central European states, cities, and provinces. The poor financial condition of many of these borrowers was deliberately glossed over by the issuing banks. Nearly 90% of the foreign bonds sold in United States in 1929 subsequently defaulted…”

One of Chancellor’s most important sources for his piece is Professors Carmen Reinhart and Ken Rogoff ’s fascinating book “This Time is Different”, which looks at booms and busts down the ages. The nub of all his research, however, seems to be that judging whether or not a country is going to default on its sovereign debt is an extremely difficult thing to do with any degree of accuracy. (continue reading…)


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