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 defaulted on domestic bonds and Soviet-era debt, not Eurobonds, investors still charged that the sovereign would never again be trusted with their money. There was much wringing of hands, cussing and
heated argument. As one investment banker puts it: "Suddenly the world as we knew it came to an end."Yet