OT More on defaults..prelude to Y2Kgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Thursday August 26, 12:31 pm Eastern Time
Mdy's comments on emrg mkt sovereign bond defaults
(Press release provided by Moody's Investors Service)
NEW YORK, Aug 26 - -A constellation of diverse events is coming together that could lead to a number of sovereign defaults on foreign currency debt by emerging market countries, says Moody's Investors Service in a report released today.
The rating agency says five factors must come into play simultaneously in order to make a bond default probable, and both Ukraine and Ecuador appear to be reaching that critical mass, making them likely candidates for default on payments on approximately $2 billion and $6.5 billion of outstanding foreign currency bond debt, respectively.
Moody's cites five factors that would make a sovereign default politically acceptable at home--and thus more likely to occur-- despite the long-term international financial implications.
They are an eroding base of political support for the regime or administration, collapsing export revenues and rising debt burden, coupled with limited or no access to international capital markets, a rapidly deteriorating domestic economy, and a belief by international financial agencies that debt rescheduling is essential.
``A country's decision to default on its bonds would not occur lightly and would be the result of strategic political moves where the domestic benefits of default far outweigh the penalties associated with it,'' says Moody's.
In Ecuador (B3-foreign currency country ceiling; Caa2-bank deposits), Moody's believes spiraling problems are manifested in political in-fighting and limited public policy effectiveness, sharply declining oil exports, and an increasingly heavy burden of debt service payments, as demonstrated by continued arrears in payments to bilateral creditors, primarily members of the Paris Club.
Ecuadorian officials are attempting to reschedule debt payments.
The country's economy is in steep decline, with foreign reserves of some $1.3 billion in June, and the government is in arrears for salaries of nurses, school teachers, police officers and other civil servants.
Ukraine (B2-foreign currency country ceiling, B3-bank deposits) faces a similar situation, with ``popular discontent with economic conditions, rising arrears in government accounts, a moribund economy, and a parliament that is antipathetic to efforts to internationalize the economy,'' Moody's says.
Creditors recognize Ukraine government's ability to repay is limited.
Payments due to service foreign bonds between the third quarter of 1999 and year-end 2000 are about $1.4 billion, while foreign currency reserves stand at approximately $1.1 billion, according to Moody's.
Foreign debt payments will probably be rescheduled. Domestic currency bonds were restructured in 1998, extending maturities, and debt on bonds owed to non-residents was restructured again in mid- August.
Other potential defaulters include Moldova. http://biz.yahoo.com/rf/990826/tr.html ** This stuff IMHO is more dangerous than Y2K...Y2K will have come at the wrong time.When the world will be in a financial panic depression.**See earlier post...Defaults soar in 99.
-- Drken (Drken@bubble.gone), August 26, 1999
A new expression from Y2K might be, "He was left holding the bond".
Actually, that might be a fun thread. Y2K generated sayings.
-- Mike Lang (firstname.lastname@example.org), August 26, 1999.
Perhaps if a few sneaker factories fold up there might be jobs for some of OUR under employed!
-- Simon (email@example.com), August 26, 1999.