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When it comes to sovereign debt, the term "default" is often misunderstood.Rather, nonpayment – a "default," according to credit-rating agencies, when it involves private creditors – typically spurs a conversation about debt restructuring, which can involve maturity extensions, coupon-payment cuts, grace periods, or face-value reductions (so-called "haircuts").Like so many other features of the global economy, debt accumulation and default tends to occur in cycles. Since 1800, the global economy has endured several such cycles, with the share of independent countries undergoing restructuring during any given year oscillating between zero and 50 percent. Whereas one- and two-decade lulls in defaults are not uncommon, each quiet spell has invariably been followed by a new wave of defaults.The most recent default cycle includes the emerging-market debt crises of the 1980s and 1990s. Indeed, global economic conditions – such as commodity-price fluctuations and changes in interest rates by major economic powers such as the United States or China – play a major role in precipitating sovereign-debt crises.Another economy in serious danger is that of Puerto Rico, which urgently needs a comprehensive restructuring of its $73 billion in sovereign debt.In the 1840s, nine U.S. states stopped servicing their debts.
The curious case of the missing defaults, a cautious interpretation
The persistence of global
Economic recovery does not equate resolving the fundamental problems
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