Default (from the English default - non-fulfillment of obligations) is the refusal of the borrower to pay the loan amount and interest on it. The initiators of the default can be banks, companies, individuals or states.
In a broad sense, the term means any kind of abandonment of one's debts. In a narrower sense, the government refuses to accept its financial obligations. This type of default is called state or sovereign. There are also corporate (company) and borrower defaults.
Sovereign default issues are governed by international law. As a rule, as a result of negotiations, debt restructuring takes place - writing off part of it, deferring payments, etc.
The government will default to the government's desire to achieve economic recovery by attracting large amounts of investment. However, when it comes time to pay off debts, the state often cannot do it, and is forced to take on new loans.
As a result, debt increases and the number of investors decreases. When there are none left at all, the government defaults.
A classic example is the announcement by the Russian Federation on August 18, 1988 of the refusal to pay off federal loan bonds and government short-term obligations.
However, not only Russia announced a default - in 1994, Mexico found itself in a similar situation, in 2002 - Argentina, and in 2010, some EU member states experienced balance of payments problems.
Typically, a government default is preceded by an economic or political crisis. The process is accompanied by an increase in inflation, devaluation (depreciation of the national currency), and sometimes denomination of money. The country's banks refuse to fulfill their financial obligations.
In case of default, the state can be helped by some international organizations. For example, the IMF (International Monetary Fund), Paris and London Clubs of Creditors.
If a private company declares a default, they talk about its technical or actual bankruptcy. In the first case, the borrower cannot fulfill financial obligations at the time of their occurrence.
If the debtor company does not agree with the creditor on debt restructuring, or does not figure out how to pay its debts, it will most likely be declared bankrupt and liquidated.
The default of private borrowers in many countries is provided for by law. For example, the United States has bankruptcy law. He prescribes to perform certain procedures aimed at repaying the borrower's debt obligations.
In Russia, a similar document was being prepared back in 2009. In 2011, it can be adopted.
