What does defaulting of a country means and what follows next?
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Assuming you’re discussing loan defaults, although it may sound nitpicky, it is the government of the country that defaults. There are going to be many companies that continue to operate in the country even though the government defaults on their loans.
A country defaults when their foreign reserves (foreign currency owned by the government) is depleted and is the country no longer has the ability or willingness to pay back loans that it has taken. For smaller and less developed countries, it might be forced to take loans where repayment has to be in foreign currencies (like USD, Euro, etc)
What follows next is very case by case since every situation is different. Very broadly, most countries are members of the IMF (international monetary fund). Because many countries rely on imported goods like medicine and energy, it is important to have these imports continue to avoid humanitarian crisis. The IMF steps in and provides emergency funding so that essential materials continue to be sent to the country.
This is usually followed by negotiations. Often with the IMF, the government and the people who have lent the government money negotiate new terms for existing loans, loan forgiveness, more aid, new loans etc. In return, very often, the government has to agree to change some policies – usually to avoid running out of foreign currency.
What follows next is probably unpleasant. The country probably has their currency value fall which raises inflation for their citizens. The government may have to curtail welfare spending and social benefits or privatize parts of their economy (ie sell some assets to raise money) Even in the best circumstances, the disruption and uncertainty usually means a recession and higher unemployment.
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