June 2000
Markets forgive sovereign sins
Default isn’t what it used to be. Sovereigns failing to honour their international obligations used to suffer. They couldn’t raise new money and the restructuring negotiations lasted for a decade. But times have changed. More than ever, sovereigns are tapping the bond markets which are proving a lot more flexible and forgiving than the old banking syndicates. A country can default, restructure and raise new money in a short space of time. With the help of rating agency Standard & Poor’s, Euromoney looks at the prospects for emerging-market sovereigns – in default or otherwise – as future bond issuers.
During the 1990s as emerging market sovereigns shifted increasingly
from bank debt to bonds for their capital needs, the pessimists
painted a desolate picture in the case of a future default. They
foresaw sovereigns locked out of the market for years as
bondholders argued about restructuring and fought for compensation
through the courts. The bad publicity would ensure that a
defaulting sovereign was unable to sell its bonds to private
investors for decades. How both investors and issuers would long to
return to the bank debt era, reasoned these analysts, when only a
few parties were involved in the negotiations and, with patience,
all the problems could be solved.
But after all the gloom-mongering things have not turned out so
badly for emerging-market sovereigns raising money via bonds. Over
the past two years there have been a number of spectacular
defaults, the most high proWle of which was Russia's in August
1998. Although Russia...
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