Moratorium - Definition and Overview

In law, a moratorium (from Latin morari, to delay) is a legal authorization postponing for a specified time the payment of debts or obligations. The term is also sometimes used to mean the period over which the indulgence or period of grace stretches, the authorization itself being called a moratory law. A moratory law is usually passed in some special period of political or commercial stress; for instance, on several occasions during the Franco-German War the French government passed moratory laws. Their international validity was discussed at length, and upheld in the English law case Rouquette v Overman (1875) LR 10 QB.

Proponents of a debt moratorium argue that it is a sovereign decision by the government of a nation to suspend payment of debt to its creditors, in the event that to do otherwise would do irreparable harm to the welfare of its citizenry. A debt moratorium may take the form of a complete cessation of debt payments, or a partial cessation; for example, the government of President Alan Garcia of Peru implemented the so-called "Ten Per Cent Solution", where it was announced that only 10 per cent of export earnings would go to debt payment. Any form of debt moratorium is generally opposed by the International Monetary Fund. In 1976, Foreign Minister of Guyana Frederick Wills made a speech before the United Nations General Assembly, calling for a general moratorium on Third World debt.

Other nations which have, at one time or another, declared a debt moratorium, are Brazil, Mexico and Argentina.