Debt moratorium

Debt moratorium

A debt moratorium is a delay in the payment of debts or obligations. The term is generally used to refer to acts by national governments. A moratory law is usually passed in some special period of political or commercial stress; for instance, on several occasions during the Franco-Prussian War, the French government passed moratory laws. Their international validity was discussed at length, and upheld in the English law case Rouquette v Overman (1875) LR 10 QB. Debt moratoriums are generally opposed by creditors.

Proponents of debt moratoriums argue that it is a sovereign decision by the government of a nation to suspend payment of debt to its creditors, in the event that to do otherwise would do irreparable harm to the welfare of its citizenry. A debt moratorium may take the form of a complete cessation of debt payments, or a partial cessation; for example, the government of President Alan García of Peru implemented the so-called "Ten Per Cent Solution", where it was announced that only 10% of export earnings would go to debt payment.

Nations which have, at one time or another, declared a debt moratorium, are Peru, Pakistan[1], Brazil, Mexico, Russia, Argentina and the United States in the Great Depression with its World War I debts (1931). The most recent addition to this group is Ecuador, which entered a technical moratorium on its foreign debt on 14 November 2008. Ecuador stopped all payments on its 2012 bond, but has continued on the 2015 bond. The investment company Dubai World, owned by the Dubai government also declared a debt moratorium in November, 2009.

References

  1. ^ Siddiqui, R. & Siddiqui, R. (2001). Determinants of Debt Rescheduling in Pakistan. The Pakistan Development Review, 40(4).

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