Economics Working Paper WP11103
The First World War was once dubbed “the war to end all wars.” No one, to my knowledge, made a similar misjudgment about the global debt crisis that engulfed many emerging market countries in the early 1980s and lasted for the next dozen years or so. There had always been sovereign debt crises; no sensible person believed that the crisis of the 1980s would be the last of its kind.
And it wasn’t. Sovereign debt crises have erupted at irregular intervals over the intervening years. Mexico, Russia, Thailand, South Korea, Indonesia, Ecuador, Pakistan, Ukraine, Iraq, Uruguay, Jamaica and many other countries have endured debt problems since the last Brady bond issuance signaled the end of the global debt crisis of the 1980s and early 90s.
Sovereign debt again dominates newspaper headlines. The difference this time, however, is that the afflicted countries fall into the “developed” country category. In the minds of some, this distinction renders the current crisis an utterly unique phenomenon; one that cannot benefit from the lessons of previous sovereign debt crises and one that certainly should not seek in those precedents for clues as to how a sovereign debt crisis ought to be handled.