Sovereign Default

A default on the repayment of a county’s government debts. Countries are often hesitant to default on their debts, since it will be difficult and expensive to borrow funds after a default event. However, sovereign countries are not subject to normal bankruptcy laws and have the potential to escape responsibility for debts without legal consequences. 



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Sovereign defaults are relatively rare and are often precipitated by an economic crisis affecting the defaulting nation. Recent sovereign defaults include Argentina’s 2002 default on its World Bank debt and Russia's default on its internal debts in 1998. Investors in sovereign debt closely study the financial status and political temperament of sovereign borrowers in order to determine the risk of sovereign default.