Defaults That Make Sense

For most of the last decade, Kazakhstan gorged on profligate lending, courtesy of global banks – just like much of southern Europe. The party came to a crashing halt in 2009. The Kazakh government, which had been scrambling to support its overextended private banks with capital injections and nationalizations, gave up and decided to pull the plug. The banks defaulted on their loans, and creditors took large “haircuts” (reductions in principal value). But – and here’s the point – with its debts written off, the banking system is now recapitalized and able to support economic growth. Despite a messy default, this fresh start has generated a remarkable turnaround.