As Crisis Mounts,
By Daniel Denvir, AlterNet
Posted on November 26, 2008,
Amidst the spreading global financial crisis, a special
debt audit commission released a report charging that
illegal. The commission recommended that
default on $3.9 billion in foreign commercial debts--
Global Bonds 2012, 2015 and 2030--the result of debts
restructured in 2000 after the country's 1999 default.
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.
The commission accused Salomon Smith Barney, now part
of Citigroup Inc., of handling the 2000 restructuring
application of 10 and 12 percent interest rates. The
commission evaluated all commercial, multilateral,
government-to-government and domestic debt from 1976-2006.
Commercial debt, or debt to private banks, made up 44%
more than the 27% paid to multilateral institutions
such as the International Monetary Fund (IMF). But the
report also lambasted multilateral debt, saying that
many IMF and World Bank loans were used to advance the
interests of transnational corporations.
military dictatorship (1974-1979) was the first
government to lead the country into indebtedness.
The commission found that usurious interest rates were
applied for many bonds and that past Ecuadorian
governments illegally took other loans on. Debt
restructurings consistently forced
more foreign debt to pay outstanding debt, and often at
much higher interest rates. The commission also charged
rate hikes constituted a "unilateral" increase in
global rates, compounding
If President Rafael Correa follows the commission's
recommendations--which is far from a certainty--
could default on some portion of its foreign debt,
becoming the first Latin American country to do so
But despite all the hints at a default, it seems likely
leverage for restructuring the country's debt.
Commission president Ricardo PatiÃ±o indicated as much
to Bloomberg News, but said that
settle for a 60% reduction, a number that had earlier been mentioned.
million in interest on the Global Bonus 2012, taking
advantage of a month-long grace period. The
announcement sent the global financial universe into a
panic, with Standard and Poor's cutting
Social movements have long alleged that corrupt former
governments illegally negotiated loans for their own
personal financial gain.
Significantly, the commission singled out foreign debt
for being "illegitimate" rather than simply illegal.
Social movements have long declared most foreign debt
to be illegitimate, but
a legal argument for defaulting would set a major
precedent; indeed, the mere formation of a debt
auditing commission does so. Osvaldo
American Information Agency (ALAI), says that it
remains to be seen if other countries in
will follow suit.
the poorest of indebted countries, whose debt burden
has long been criticized as inhumane.
Pablo Davalos, an economist and fierce social movement
critic of Correa, has said that the report will in the
end only amount to political posturing. Correa has
criticized the foreign debt since his brief 2005 stint
as Finance Minister--but has faithfully made each and
every payment since his 2006 election. Correa has also
made peace with oil and mining companies after
acrimonious, high profile negotiations. In response,
social movements have accused Correa of being overly
friendly to business. The foreign press, and the
business press in particular, regularly exaggerates
It is also important to emphasize that
default did not hamper the country's economic
recovery--in fact, it gave it a strong boost.
Former Constituent Assembly President Alberto Acosta
echoed Correa, saying that the proposal could provide
the legal basis for the prosecution of Ecuadorian
officials involved in the negotiation of illegal or
illegitimate debt. He also said that it was perfectly
reasonable to take a debt's legitimacy into account.
illegitimate debt in encouraging countries to forgive
the debt accrued in
after the Spanish-American war. The
Cuba's outstanding debt to Spain, arguing that it was
created by agents of
matter in which Cubans had no say.