Thank you. However I think you missed the point I was making. In terms of default it may well be a default. But not a real default. If the term of contract fails it is a default. What I am talking about is the failure of cash flows from the lender to borrower. This is the issue. If that fails it is a (absolute) real default, as in the lender loses money and other people will lose confidence in the market and people will not lend again preventing start ups etc. The whole function of the system could fail. If the cash flow is not continued that becomes possible. Even if the payments reduce as long as they continue the relationship functions. If there is a loss in the short term the shortfall can be compensated for in the long term through additional duration. What I am working on is a new system that changes the arrangement to prevent what you would call absolute default. The collapse of the lending and repayment function. If you are interested I have a paper that will likely be of interest. However I would like to work on it further and perhaps publish, so I will hold off sending it to you till later.
Sovereign defaults haven't been proper defaults since Argentina in 2001. A sovereign these days doesn't default, it engages in what's referred to as a "pre-default restructuring". This normally means an exchange offer (i.e. exchange old bonds for new bonds), either voluntary or not. The process is nearly always a mess, since no standards/established procedures exist for sovereign defaults (IMF tried to push their version, called SDRM, but the mkt didn't want it). Regardless of what happens, any exchange offer (even voluntary) would involve investors taking significant haircuts. Otherwise, what's the point of doing it?
I think there have always been de facto defaults - or one sided "restructurings" if you will. It just depends on how powerful/influential the sovereign is. How would you characterize Nixon closing the gold window on August 15th 1971? No longer was the dollar redeemable for gold at the fixed $35. Looked like a "default" to me.
Misthos, I am referring to recent history, rather than the 70s... Also, after reading some more, it appears I am not entirely correct either. In 2008 Ecuador seems to have gone through a proper "hard" default. And yes, if an involuntary restructuring isn't a default, I don't know what is.
In equador they introduced The Brady Plan. This link might help. http://americas.irc-online.org/am/5695