The impact of the moratorium

The impact of the moratorium

Introduction

Debt moratorium is essentially a postponement regarding the payment of certain obligations or debts. The national government usually uses this term to refer. Over the past periods there have been many examples of moratorium laws implied by different countries which the economy is facing some kind of financial or political distress. A perfect example from the history is that of the Franco Prussian War, in which moratorium laws were implemented throughout France by their government. Debt moratorium is also called bankruptcy, insolvency or cessation of payments the bankruptcy situation in which a person, family, company or company's entity is when you cannot pay all the debts you have with your creditors by lack of liquidity or cash . It is a procedure that aims to reach an agreement between the debtor and creditors under court supervision, on how they will pay (Scharrer, 1976). The difference with the bankruptcy is that is in suspension, the debtor has sufficient assets to meet its debts, but its assets are not liquid enough. For example, you can have properties or fixed assets worth more than its debt value, but cannot pay those debts when due. So also said that the suspension of payments is a form of temporary insolvency, while the bankruptcy is final.

As we go around and take a look at the history, we can see that generally the creditors oppose the moratorium laws whereas on the contrary the owners of the companies prefer these kinds of laws as they give some kind of leverage regarding the payments and other obligations. The people who are in favour of such moratorium laws argue that by the use of these regulations it is made sure the government is the sovereign power on the matter of suspension of payment of debt to its creditors. If the laws are implemented against such laws it would be a huge catastrophe as it would be against the citizens and it would harm their welfare. A whole cessation can be formed on a debt moratorium. In the past, President of Peru, Alan Garcia enforced the “Ten Percent Solution”. According to this, only 10% of the total earnings from export related activities can be given away as debt payment. This meant that the creditors had to suffer and it was clear that this provided many companies some breathing space.

The list of nations which in the past have enforced moratorium laws include, Pakistan, Mexico, Brazil, Peru, Argentina, The United States, Russia. USA had implemented these laws during the period of Great Depression, with the debts owed as a result of the World War 1. Ecuador is a country which has recently seen the implementation of moratorium laws, on 14th November, year 2008. As a result the governing body of Ecuador clogged every payment of its 2012 bonds, but on the contrary payments were given to the owner of 2015 bondholders. Dubai World, which is an investment company, announced the implementation of ...