View: The financial "haircuts" worldwide from 1970 to present - Interactive...

The financial "haircuts" worldwide from 1970 to present - Interactive...

Looking back at the past of human history, debt crises, defaults, financial "haircuts" and debt restructuring are cases proved as old as public borrowing. The first recorded debt default can be traced back to ancient Greece in 454 BC, when ten of the thirteen city-states of the Delian Alliance, borrowed large amounts of money from the common treasury at the temple of Delos, only to later announce failure to repay their debt and proclaimed the first official default in world history, while eight of them initiated negotiations for debt restructuring.

However, historically the main method chosen for resolving the majority of financial crises was through currency devaluations, rather than debt restructuring, a practice that mainly emerged during the 19th and 20th century in cases following a default or under the threat of default, mainly due to increasing cross-border debt flows, newly independent countries and the development of modern international financial markets. The communist revolutions, civil wars and widespread warfare exacerbated the situation, as the countries concerned were unable or unwilling to repay their debts, as for example was the case of Russia in 1917, China in 1949 and Cuba in 1960 after their revolutions, the cases of Turkey, Bulgaria and Austria-Hungary at the beginning of WWI in relation to debt payments towards enemy country creditors and the cases of Italy, Turkey and Japan during WWII, for the same reasons.

In other cases, the prospect of defaults and repudiations always followed periods of rampant borrowing, occurring mainly because of new political circumstances arising or investment opportunities, that in turn created a demand for capital, as for example in the 60s and 70s, when many African countries were decolonized or gained their independence.

Hence, in most cases the finacial crises have been triggered by at least one of the following factors: (1) deterioration of the trade terms on indebted countries, (2) economic recession in the countries that were the main providers of capital (3) a rise in international borrowing costs driven by events in creditor countries, e.g. by tighter monetary policy and (4) financial crisis in a pricipal debtor country spread internationally through financial and trade linkages.

Furthermore, as shown in the infographic, the multitude of overlapping circles during the late 1980s, not only reflects the fact that it was a decade of intense worldwide economic crises, but that the adoption of economic measures aimed at short term results and solutions. It is worth noting that according to data from the database of investor losses (haircuts), the average haircut is 37%, while at least 50% of them are either below 23% or above 53%, whilst average haircuts have been steadily increasing over the past two decades.

You can see the details of all the sovereign debt restructuring cases on a worldwide scale from 1970 to 2010 and the current state of their economy, based on data from the first complete database of financial haircuts released in July 2011 by Juan Cruces and Cristoph Trebesch, covering 180 cases in 68 countries.


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