--- title: What Happens to a Country that Defaults on its Loans? | TIME description: This is what happened when Argentina and Iceland defaulted on their loans. canonical: https://time.com/video/tzHxV6xM/ og:title: What Happens to a Country that Defaults on its Loans? og:description: This is what happened when Argentina and Iceland defaulted on their loans. og:url: https://time.com/video/tzHxV6xM/ og:image: https://cdn.jwplayer.com/v2/media/tzHxV6xM/poster.jpg?width=720 og:type: video.other twitter:card: summary_large_image twitter:title: What Happens to a Country that Defaults on its Loans? twitter:description: This is what happened when Argentina and Iceland defaulted on their loans. twitter:image: https://cdn.jwplayer.com/v2/media/tzHxV6xM/poster.jpg?width=720 --- # What Happens to a Country that Defaults on its Loans? > Sponsored content. Supplied in partnership with TIME. 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They are at time.com/newsletters and are separate from a paid subscription. ## Video: What Happens to a Country that Defaults on its Loans? [Watch (HLS stream): What Happens to a Country that Defaults on its Loans?](https://cdn.jwplayer.com/manifests/tzHxV6xM.m3u8) (2:16)  _Published 2015-07-08. This is what happened when Argentina and Iceland defaulted on their loans._ --- Jul 27, 2023 6:31 PM UTC --- ## More From This Series [All Videos](https://time.com/video/) [Should You Pay Off Your Car Loan?](/video/WqvrrnEn/) ### Should You Pay Off Your Car Loan? [Argentina Defaults On Debt For The Second Time In 13 Years](/video/Ylli4Nfb/) ### Argentina Defaults On Debt For The Second Time In 13 Years [What if the U.S. Defaults? TIME Explains](/video/sJld8p7d/) ### What if the U.S. Defaults? TIME Explains --- ## Transcript [ MUSIC ] In 1945, Britain borrowed $ 4. 3 billion dollars from the US. That money prevented them from going bankrupt after World War II and in 2006, Britain finally paid off the last of that loan But when a country can't pay off its debts, what happens? [ MUSIC ] This is Argentina in 1999. The protests engulfed the country after President Carlos Menem's deregulation policies gave businesses free reign to move their money in and out of the country. And with neighboring Brazil experience a recession. Well the Argentines began pulling their money out of banks as a preventative measure. And then so to did the middle class and the poor. And that eventually lead to the collapse of the national currency. The government froze all bank accounts for one year, an allowed each person to with draw just $ 250 a week. Argentina borrowed money from the International Monetary Fund to pay off its debts, but still suffers the effects of its great depression. Fast forward to a decade later in Iceland During the 2008 global financial crisis, the countries banks defaulted on $ 85 billion, mostly international debt. The default resulted in protests. The Central Bank tried to bail out the nations three biggest lenders, and ended up bankrupting itself. The value of the Icelandic currency plummeted. It took extreme restrictions on the movement of money outside the country plus loan packages from the IMF to dig Iceland out of one of the worse economic defaults in history. So what ultimately happens when a country defaults on its loans? Well, their land can't be taken away by its debtors. Nor can they be forced to pay with money they don't have. But there's one key thing a country that's defaulted does lose. It's something that makes neighbors and allies much less likely to lend in the future. And that's trust. 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