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