Bloomberg warned on July 7 of the danger that several emerging economies, such as Egypt, El Salvador, Ghana, Pakistan and Tunisia, could default on their debts. The report is in the wake of defaults already declared by Sri Lanka.
“At stake, then, is $237 billion due to foreign bondholders in notes that are trading in distress. That adds up to almost a fifth—or about 17%—of the $1.4 trillion emerging-market sovereigns that have outstanding external debt denominated in dollars, euros or yen, according to data compiled by Bloomberg.”
The article goes on to warn of the dangers of civil unrest due to the food and energy crises, and the threat of a “domino effect” of defaults — known as contagion in market parlance—as skittish traders yank money out of countries with similar economic problems and, in so doing, accelerate their crash. The worst of those crises was the Latin American debt debacle of the 1980s. (Bloomberg, of course, makes no mention of the efforts of Lyndon LaRouche and Mexican President José López Portillo to protect Ibero-American sovereignties, via a “debt bomb,” and LaRouche’s proposed Operation Juárez.) The current moment, emerging-market watchers say, bears a certain resemblance. Like then, the Federal Reserve is suddenly ratcheting up interest rates at a rapid-fire clip in a bid to curb inflation, sparking a surge in the value of the dollar that is making it difficult for developing nations to service their foreign bonds.
“A quarter of the nations tracked in the Bloomberg EM USD Aggregate Sovereign Index are trading in distress. Of course, market trading doesn’t determine which countries will actually be able to pay in the end, and not all of them are likely to default.
