The first default on an international sovereign bond since the 1930s took place on September 28. That date was the last chance for Ecuador to meet a $44.5 million coupon payment on one of its Brady bonds. This event, which passed without much comment from world leaders, has greater significance for the relationship between the rich world and emerging markets than Ecuador's small size would suggest. It marks the start of a new approach by the governments of the developed world and the IMF to countries that get into trouble with their balance of payments. And it teaches investors, bankers and other borrowers their first lessons in how sovereign Eurobond default will work in practice.
Few doubt that the IMF gave Ecuador a nod and a wink to default on its bond debt. The timing was the give-away. On August 25, Ecuador's president, Jamil Mahuad, announced that his country...
