Sovereign Risk Law and Legal Definition

Sovereign Risk is the probability that the government of a country or an agency having government support will refuse to meet the terms of a loan agreement during unstable economic or political situations. Although, there is no possibility of sovereign nations going bankrupt they can assert their independence in any manner they choose. It may not be probable to sue them without their assent. Sovereign risk was a significant factor during early periods when Argentina and Mexico almost defaulted on their loans and had to be rescheduled.