What Happens if a Country Goes Bankrupt?

In modern world we often experience much use of word ‘Bankrupt’. Simply it means a declaration of inability of an individual or institution to pay its creditors. So it is the final position of an individual or institution for inability of payment. But you should remember that it is legal status of inability to pay its creditors.

Bankrupt may happen to you, me or even the companies that we are working in but can bankrupt happen in a country? 

Answer : Sure! So it is not only influenced in individual or single organization but also affect the whole of a country. Especially for developing and undeveloped countries this term may harm very much. A bankruptcy will liable to pay all of his current assets to his creditors. Creditors may case a bankruptcy petition against an individual or organizational debtor in an effort to get back a portion of their owned money.

                                                                                                                              
A Bankrupt Country

If a country goes bankrupt, he can face lot of unpredictable problems. A country may go in bankrupt if he takes much loans and credits from the other countries as well as any other capitalist person. Actually bankrupt is a technical word of capitalism. Bankrupt is present in the whole world but it brings much curse for developing and undeveloped countries in the world.

 

In the early 2008, the latest economic recession has been started in U.S.A and it opened up my mind. But this recession spreads around the world mostly in the developing countries which are dependent on the loan and financial help from other countries. This recession has been created by a bulk of reasons. But bankrupt is the main problem of them. Many largest and multinational companies of the United States face to stop their existence for the bankrupt such as Lehman Brothers Holdings Inc. etc. As well as most of the financial organization of United States become creditor to its client.

This recession is not only affect the economy of United States but also affect the economy of developing countries like Malaysia which are very dependent on the other helps and loans. The exports have been extremely reduced and are going to stop the industry for the lack of cash. Thousands of people become unemployment. Even it exists in the present world more or less.

Besides these there are some more critical problems have to face if a country faces bankrupt such as: 

                                                                                                                              
1) The stock market will crash and credit will seize:

Stock Market will falls heavily

I hope that you are not an investor who place all your money into equities or equities related unit trust Why? 

Because the stock market is the key of capital money of a country. If a country faces bankrupt then the supply of money to the stock market will be reduced badly. So stock market can be crashed and credit will seize. Market value of the listed companies will go down. You, the investor, will face huge loses and some can face the experience of insolvency. 

                                                                                                                              
2) All financial institutions will fail:

eg. The End of Lehman Brothers (2008)

For the lack of liquid money as well as for big budgeted investments the government collects the money from financial institutions. But when a country is going to bankrupt these institutions can not collect their money. So they face the capital losing problem. Finally they will fail. 

                                                                                                                             
3) All government funded programs will end:

Government Institution Collapse

The government is the main institution for development public services such as Medical Care, Police, Education, Infrastructure support like roads and utilities, etc. When country goes in bankrupt they can not effort for the development of these programs. As a result all government funded programs will end. 

                                                                                                                              
4) Mass rioting:

Rioting Happen

Financial ability is one of the talented judgments of efficient and modern life. So when the people of the bankrupt country don’t fulfill their daily demand they begin to start mass rioting. No police can stop the rioters or fire fighters to fight the fire which we have seen in the war affected countries such as Iraq, Somalia and Afghanistan. 

                                                                                                                              
5) The rich will buy the country and turn a democracy into a dictatorship:

What do you think?

Since bankrupt is a technical term of capitalism. Here capitalist or rich get chance to buy the country. They buy most of the industries as well as other infrastructural instruments. As a result they lead the dictatorship instead of democracy. 

                                                                                                                               
6) Hyperinflation:

The country currency become less valuable relative to other currencies

For being bankruptcy a country faces hyperinflation mostly. It means the money value will go down. So the economic strengths will break down. Investors will not get enough feedback from his investment. People have to spend more for his living. The currency value will go down with comparing U.S. dollar. You will easily look it in the economy of Bangladesh or Indonesia where the inflation is very high. So comparing with other countries its currency value is going down continuously. 

                                                                                                                              

Reference : http://www.jonathan-quek.com/