[Marxism] Ecuador Calls Foreign Debt Illegal, Defaults on Payments

Greg McDonald sabocat59 at mac.com
Tue Dec 16 06:29:54 MST 2008


Ecuador Calls foreign Debt 'Illegal,' Defaults on Payments

The default totals $9.937 billion, 19 percent of the country's GDP.

By Daniel Denvir, AlterNet. Posted December 15, 2008.

President Rafael Correa declared on Friday that Ecuador would not  
make a $30.6 million interest payment on $510 million in bonds due in  
2012, calling the debt illegal.

The default on the Global Bonus 2012 bonds means that Ecuador is also  
defaulting on Global 2015 and 2030 bonds. The default totals $9.937  
billion, 19 percent of the country’s GDP. Ecuador has assembled a  
legal team to fight expected lawsuits and hopes to use the default as  
leverage to renegotiate the debts.

Civil society organizations have long criticized foreign debt as a  
means of exploiting impoverished countries in Latin America, Africa  
and Asia. The anti-debt organization Jubilee USA says “countries are  
paying debt service to wealthy nations and institutions at the  
expense of providing these basic services to their citizens.” In  
addition, lending institutions often use indebtedness to force cuts  
in social spending and impose business friendly economic policies.

The Confederation of Ecuadorian Kichwas (ECUARUNARI), the powerful  
Andean branch of the country’s indigenous peoples movement, has long  
called the foreign debt illegal and illegitimate. “We have not  
acquired any debt. The so-called public debt really belongs to the  
oligarchy. We the peoples have not acquired anything or been  
benefited, and thus we owe nothing.”

Mainstream analysts immediately predicted the move would hurt Ecuador  
economically, cutting off access to international credit from banks  
and multilateral institutions like the World Bank. Enrique Alvarez,  
head of research for Latin America Financial Markets at IDEAglobal in  
New York, told the Associated Press, "They were already sort of  
headed into isolation. Essentially now they've drawn shut the gate."  
Critics also say that financial institutions will see Ecuador as  
risky and may be reluctant to loan to the country’s private sector.

But Mark Weisbrot of the Center for Economic and Policy Research  
argues that those claims are exaggerated. He says that the government  
does not currently require foreign funds and that any decision to not  
lend to Ecuador’s private sector would be purely ideological.  
"Ecuador doesn't need to borrow right now, especially if they're not  
paying the debt. They haven't been borrowing on international markets  
recently."

Osvaldo León of the Latin American Information Agency (ALAI) in Quito  
says that international banks and businesspeople are defending a  
corrupt and unjust system. “Of course the establishment is going to  
come out and protest this. This is going to affect the interests of  
capital. There’s going to be an offensive from both inside and out.”  
He charges that business friendly economists and financiers unfairly  
frame their arguments as scientific and opponents’ views as  
ideologically driven. “Ecuador has decided on a political response to  
a political problem. They always want things like this to be seen as  
a technical issue, a problem that only economists can deal with.”

Although Ecuador currently has the capacity to pay, dropping oil  
prices and squeezed credit markets are putting President Rafael  
Correa's plans to boost spending on education and health care in  
jeopardy. Correa has pledged to prioritize the "social debt" over  
debt to foreign creditors.

Ecuador is undertaking a diplomatic offensive in an effort to win  
political support. Correa will be attending a summit in Brazil next  
week with presidents from throughout Latin American and Caribbean.  
Ecuador has called on Latin America to forge a united response to  
foreign debt. Venezuela, Bolivia and Paraguay have recently created  
debt audit commissions. Ecuador has also asked the United Nations to  
help develop international norms to regulate the foreign debt market.

But relations between Brazil and Ecuador have been tense since the  
September expulsion of the Brazilian firm Odebrecht over accused  
accusations of shoddy work on a hydroelectric plant and contract  
violations. Most recently, Ecuador filed suit in the International  
Chamber of Commerce to stop payment on a $286 million debt to The  
Brazilian National Bank for Economic and Social Development (BNDES),  
credit that was allotted for Odebrecht’s hydroelectric project. Many  
activists in Ecuador see Brazil as a regional bully.

Last month, a special debt audit commission released a report  
charging that much of Ecuador's foreign debt was illegitimate or  
illegal. The commission found that usurious interest rates were  
applied for many bonds and that past Ecuadorian governments illegally  
took other loans on. The report also accused Salomon Smith Barney,  
now part of Citigroup Inc., of handling the 2000 restructuring  
without Ecuador's authorization, leading to the application of 10 and  
12 percent interest rates. Ecuador's military dictatorship  
(1974-1979) was the first government to lead the country into  
indebtedness.

Commercial debt, or debt to private banks, made up 44% of Ecuador's  
interest payments in 2007, considerably more than the 27% paid to  
multilateral institutions such as the International Monetary Fund (IMF).

Daniel Denvir (daniel.denvir [at]gmail.com) is an independent  
journalist from the United States in Quito, Ecuador and a 2008  
recipient of NACLA's Samuel Chavkin Investigative Journalism Grant.  
He is the Editor-in-Chief at www.caterwaulquarterly.com and  
reluctantly blogs at www.glocalcircus.blogspot.com.





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