A state bankruptcy means that the government fails to repay the debt and interest when due.
Non-payment of debts owed to creditors may be accompanied by an official announcement by the government that it will not pay outstanding debts, or it may sometimes occur without any official announcement.
Almost half of the countries of the European continent, 40% of the countries of Africa and 30% of the countries of Asia declared bankruptcy during the previous two centuries.
Ecuador has declared itself mostly bankrupt among sovereign nations.
She declared bankruptcy 10 times.
Brazil, Mexico, Uruguay, Chile, Costa Rica, Spain and Russia declared bankruptcy nine times during the same period.
Germany has gone bankrupt 8 times in two and a half years, ranking first among the major economic countries in bankruptcy, followed by the United States 5 times, China and the United Kingdom 4 times, and Japan 2 time.
In the modern era, Russia declared bankruptcy in the late 90s, and in 2001 Argentina also declared bankruptcy.
Iceland went bankrupt in 2008 with $85 billion in debt when the global credit market dried up following the collapse of the US financial sector. The banking bubble had grown so large that by 2008 the banking system had debt equal to 10 times Iceland’s GDP.
As the three largest banks collapsed in what was the largest systematic banking meltdown in history, the country fell into a depression and its economy shrank by 10% over the next two years.
Interestingly, Iceland has enjoyed a strong recovery from the crisis, with unemployment stable at 4%, and in 2014 its economy was 1% larger than before 2008.
Argentina declared bankruptcy in 2001 with a debt of 145 billion dollars, because its policy of pegging the peso to the American dollar, an uncontrollable public debt and endemic corruption prevented the country from facing a number of shocks economic.
In 2001 unemployment was over 20% and Argentina declared the biggest default in history by missing more than $100 billion in payments due.
Throughout history, Russia has declared itself bankrupt 9 times. The last in 1998 with a debt of 17 billion dollars. The effects of the Asian financial crisis and falling demand for oil began to put pressure on the Russian economy which had incurred huge international debt and was suffering from declining domestic productivity.
The resulting ruble crisis in 1998 saw the Russian stock market lose 75% of its value and inflation soar to 80% as investors fled the market.
Russia would only be able to repay less than $10 billion of its $17 billion debt to the International Monetary Fund, and the Russian economy shrank 5.3% in 1998 as unemployment hit 13%.
Mexico defaulted on an $80 billion state loan in 1982. Public debt rose at a rapid rate due to the Luis Echeverria administration’s massive fiscal expansion programs.
Following the oil shock of the late 1970s and deteriorating economic conditions, the Mexican peso depreciated by 50%, but the government was still unable to repay its debts, which forced Mexico to default on its loans to the United States and the IMF.
Over the next five years, Mexico’s GDP fell by 11% and triggered the Latin American debt crisis, which saw countries in the region unable to service their external debt, forcing the IMF to grant loans in exchange for extremely unpopular reforms.
The Lebanese crisis began in late 2019 after the government announced proposed new taxes, including a $6 monthly fee for using Whatsapp voice calls. The measures sparked a long, simmering anger against the ruling class and months of mass protests. Irregular capital controls were put in place, cutting people off from their savings as the currency began to soar.
In March 2020, Lebanon failed to repay its huge debt, worth at the time around $90 billion or 170% of GDP – one of the highest in the world. In June 2021, with the currency having lost almost 90% of its value, the World Bank declared the crisis to be one of the worst the world has seen in over 150 years.
In April 2020, Deputy Prime Minister of the Lebanese government Saadeh al-Shami announced the bankruptcy of the state and the Central Bank of Lebanon.
The losses were distributed between the State, the Banque du Liban, the banks and the depositors.
Sri Lanka became the most recent example of state failure as it failed to repay foreign loans becoming a defaulter.
New Lankan Prime Minister Ranil Wickremesinghe has admitted bankruptcy and told parliament its unprecedented economic crisis will persist at least until the end of next year.
Unable to repay its $51 billion foreign debt, the government declared it in default in April and is negotiating with the International Monetary Fund for a possible bailout.