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Looming Default of a Dozen Developing Sector Nations—Just the Tip of the Iceberg

July 17, 2022 (EIRNS)—Under the headline “The Big Default? The Dozen Countries in the Danger Zone,” Reuters published on July 15 a useful compendium of developing sector nations whose debt is in the “danger zone” of default, “as rising borrowing costs, inflation and debt all stoke fears of economic collapse.” The lengthy report states that “$400 billion of debt is in play. Argentina has by far the most at over $150 billion, while the next in line are Ecuador and Egypt with $40 billion-$45 billion.”

What the Reuters article fails to report is that this $400 billion is just the proverbial tip of the iceberg of a much larger financial bubble of derivatives and other speculative instruments which is piled on top of the debt bubble. The $400 billion is just the fuse on a much, much larger financial bomb that is set to blow apart. EIR has estimated that there are about $2 quadrillion in total financial aggregates globally. Reuters’ summary includes:

Argentina: “The peso now trades at a near 50% discount in the black market, reserves are critically low and bonds trade at just 20 cents in the dollar—less than half of what they were after the country’s 2020 debt restructuring.... Concerns have crept in that powerful Vice President Cristina Fernández de Kirchner may push to renege on the International Monetary Fund.”

Ukraine: “Ukraine will almost certainly have to restructure its $20 billion plus of debt, heavyweight investors such as Morgan Stanley and Amundi warn. The crunch comes in September when $1.2 billion of bond payments are due.”

Tunisia: “Tunisian bond spreads—the premium investors demand to buy the debt rather than U.S. bonds—have risen to over 2,800 basis points and along with Ukraine and El Salvador, Tunisia is on Morgan Stanley’s top three list of likely defaulters.”

Egypt: “Cairo devalued the pound 15% and asked the IMF for help in March but bond spreads are now over 1,200 basis points and credit default swaps (CDS)—an investor tool to hedge risk—price in a 55% chance it fails on a payment.” (Actually, CDS are a form of derivative speculation which only makes the debt bubble that much greater and more volatile.)

Kenya: “Spends roughly 30% of revenues on interest payments. Its bonds have lost almost half their value and it currently has no access to capital markets—a problem with a $2 billion dollar bond coming due in 2024.”

Pakistan: “Pakistan struck a crucial IMF deal this week. The breakthrough could not be more timely.... Foreign currency reserves have fallen to as low as $9.8 billion, hardly enough for five weeks of imports. The Pakistani rupee has weakened to record lows. The new government needs to cut spending rapidly now as it spends 40% of its revenues on interest payments.”

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