Which Country Goes Bankrupt Next? (Hint: It's Not Who You Think)

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Belize

When Greece defaulted on its government bonds in March, it was the first country of any size to take such a step since the great Argentine default of 2002. It won't be the last.

Now, quibblers contend that Greece didn't really default on its debt. Instead, the country presented its creditors with a take-it-or-leave-it offer: Write off all but 46.5% of the debt, or watch Greece declare bankruptcy and lose it all. (They took the 46.5%).

But that's still a technical default -- and that's now what Belize is proposing to do, too.

Default by Facebook

According to The Wall Street Journal, Belize is telling its creditors that unless they write off 45% of its debt, or give it a 15-year holiday from debt payments, the country will default on the whole shebang.

That's $543.8 million in bonds -- poof! -- gone.

As an added insult, the government didn't even do its creditors the courtesy of notifying them of its plans directly. Instead, it posted a note on the webpage for the Central Bank of Belize. (You check its updates daily, right?)

But lest you think this is a little amateur hour, Belize demonstrated its seriousness on Monday by skipping a $23.1 million bond payment that was due. If it doesn't make a catch-up payment within 30 days, the government will technically already be in default -- and will have nothing to lose by taking the next logical step and defaulting on all the rest of its debt.

26% Interest? Sign Me Up!

Investors who think Belize is bluffing may be enticed by the 26.3% interest its bonds are yielding today. Standard & Poor's, however, is taking the country at its word. When the default notice first appeared on the website, the debt monitor cut its rating on Belize's bonds to "CC," just a couple notches short of total default.

Even if 26% interest rates don't entice you into investing in developing world bonds, don't make the mistake of thinking that Belize's threatened default doesn't affect you at all. The fact is, while Belize has a $75 million budget deficit today, and owes moneylenders a sum totaling roughly 80% of its annual gross domestic product, a lot of countries are in similar financial straits -- or worse.

Yes, You Should Be Concerned

According to the IMF, 25 countries "boast" debt levels (as a percentage of GDP) higher than that of Belize. What's more, many of these countries are of sufficiently low profile that you might have trouble placing them on a map. (Saint Kitts and Nevis? What is that? A country or a cognac?)

But several debtors on this list are major players on the global stage. They're big enough, and important enough, that there's a good chance your 401(k), your pension plan, and many of the stocks you own have invested in their debt, or do business there -- business that's likely to suffer in the event of a sovereign default.

Take a look. See if anyone on this list concerns you:


Not Every Bug Goes "Splat!"

Now sure, topping this list is Japan. And yes, this proverbial economic "bug" in search of a windshield has consistently managed to dodge bankruptcy concerns for decades. But just one notch down from Japan is Greece, with debt of 161% of GDP -- post-default.
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When Greece defaulted on its debt this year, it was basically able to dictate its terms of payment to the bankers who had bailed it out. Already, analysts are speculating that Greece's success in debt reduction by government fiat may spawn imitators in other severely indebted countries. As one investment banker in London put it recently: "Greece set a precedent for, 'Here's what you're going to get, take it or leave it."'

Now, thanks to Belize -- half a world away from Greece, and just weeks away from bankruptcy itself -- we're on notice. The risk of sovereign debt defaults spans the globe, and includes countries in far looser financial straits than Greece.

Our own United States, included.

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Which Country Goes Bankrupt Next? (Hint: It's Not Who You Think)

With a national debt still hovering around 120% of its GDP, Greece is still far from being out of the fiscal woods. As austerity measures bite, Greece's GDP will shrink further and its debt-to-GDP ratio will rise, putting it on course for further defaults -- er, "restructurings." Nor is Greece alone. According to official figures, debt-to-GDP ratios elsewhere are similarly high.

Photo: Gerasimos, an 83-year-old Greek man, picks through a heap of rubbish to salvage useful items as the marble gate of the Roman Agora is reflected in a mirror, in the Plaka district of Athens on Monday, March 12, 2012. Greece implemented the biggest debt writedown in history on Monday, swapping the bulk of its privately-held bonds with new ones worth less than half their original value. (AP Photo/Petros Giannakouris)

Debt-to-GDP ratio: 130%

Photo: President of Iceland Ólafur Ragnar Grímsson prior to voting in a referendum in Reykjavik, Iceland, Saturday, March 6, 2010.   Icelanders voted "no" in a nationwide referendum on approving the use of $5.3 billion of taxpayers' money to repay international debts.  The "no" vote may complicate Iceland's effort to recover from a deep recession and a banking collapse. (AP Photo/Brynjar Gauti)

Debt-to-GDP ratio: 120%

Photo: A man reads a newspaper in Milan, Italy, Monday, Jan. 30, 2012. European leaders are trying to come up with ways to boost economic growth and jobs, which are being squeezed by their own governments' steep budget cuts across the continent. The 27 EU leaders meeting in Brussels are also looking for common ground on a new treaty to toughen spending rules to dig the continent out of a crippling debt crisis. (AP Photo/Luca Bruno)

Debt-to-GDP ratio: 110%

Photo: Workers seen at the Luis Onofreâ luxury shoe factory in Oliveira de Azemeis, Portugal, Friday, Feb. 24, 2012. Debt burdens are rising fastest in European countries that have enacted the most draconian austerity programs. Portugal's unemployment rate hit a record 14 percent at the end of last year and the government imposed austerity measures to slash costs: Portugal cut pensions, reduced public servants' wages and raised taxes starting in 2010. (AP Photo/Paulo Duarte)

Debt-to-GDP ratio: 105%

Photo: People walk past a beggar on a bridge in Dublin Monday Feb. 20, 2012. Bank of Ireland, the only one of Ireland's six banks to avoid nationalization, reported it returned to net profit in 2011 thanks to heavy debt restructuring in the face of continued losses from dud loans. (AP Photo/Shawn Pogatchnik)

Debt-to-GDP ratio: 102%

Photo: The shadow of Republican presidential candidate, former Massachusetts Gov. Mitt Romney, is seen on a representation of the National Debt Clock as he spoke at a town hall meeting in Kalamazoo, Mich., Friday, Feb. 24, 2012. (AP Photo/Gerald Herbert)

Debt-to-GDP ratio: 85% each

Photo: Reflected in a window, people walk in London's City financial district, Tuesday, Feb. 14, 2012. Britain's AAA credit rating was put on a "negative outlook" by ratings agency Moody's, amid fears over weaker growth prospects and potential shocks from the eurozone crisis. Britain's Chancellor George Osborne said the assessment was a vindication of the Government's tough austerity measures and "a reality check for anyone who thinks Britain can duck confronting its debts". Moody's downgraded the ratings of six countries and also put France and Austria on the same caution as the UK amid violent protests in Greece. (AP Photo/Lefteris Pitarakis)

Debt-to-GDP ratio: 82%

It makes you wonder: Who will be next in line to default? And when they do, will we call that "good news," too?

Photo: A pedestrian looks at a sign in a shop reading: ''One euro, price haircut'' in Athens on Thursday, March 8, 2012. (AP Photo/Thanassis Stavrakis)

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Motley Fool contributor Rich Smith has no financial interest, short or long, in the bonds of any country named above. United States included.
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