Some countries benefit from defaulting on their debt



IN THEORY, fears about the economic damage wrought by a sovereign default should play a big role in disciplining countries considering repudiating their debts. But while countries that default do find themselves locked out of markets for some time, any growth penalty from a default tends to be short-lived. Argentina saw its GDP decline by 10.9% in the year after its December 2001 default. But its economy bounced back smartly in the years that followed. Uruguay, Russia and Indonesia also did quite well after their respective defaults. Still, economists caution against interpreting these figures to mean that defaulting boosts growth. They point out that defaults tend to occur at low points in the economic cycle, so that the years preceding a default tend to be ones of unusually poor growth by the defaulting country's standards. In addition, experiences vary widely. Grenada, Cameroon, Belize or the Dominican Republic, which fared poorly after defaulting, can take little comfort from Uruguay's post-default boom.