Carmen Reinhart says interest rate hikes around the world will lead to an increase in the list of defaulting countries

The historic default of Russia, announced Monday June 27, 2022 by the American authorities, could be the first of an era of default in emerging countries, estimates Carmen Reinhart, chief economist of the World Bank. In an interview with the television channel BloombergReinhart attributed the rise in interest rates to the collapse of emerging market economies.

“With low-income countries, debt risks and crises are not hypothetical”said the economist at the World Bank. “Debt crises must be resolved through significant debt reduction. Otherwise, it’s like putting on a bandage that needs to be changed very quickly.

The economist says the slowness of central banks to slow inflation is increasing pressure on economies. “The great hope is a soft landing that central banks and major economies are able to engineer”said.

Reinhart adds that he has “doubtson the institutions’ performance in controlling any crises.

This Monday (June 27, 2022), Russia defaulted on its foreign debt for the first time since 1917. The country missed the deadline to meet a 30-day grace period in interest of 100 million US dollars in 2 euro -bonds maturing on May 27.

The main reason is the blockade suffered by the country in the face of sanctions applied by the West in retaliation for the war in Ukraine.

Sri Lanka is another country facing economic instability. In April, the government declared a moratorium on the payment of the external debt, valued at $51 billion. The Sri Lankan state has an estimated US$7 billion in debt due this year, according to the IMF.

On May 18, the Governor of the Central Bank of Sri Lanka declared that a government must be formed quickly. Otherwise, the representative said, the economy would collapse further, “and no one can save her.”


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