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Saturday, December 13, 2008

Ecuador denounces its foreign debt

President Correa gave the order not to pay the interest of some of its $10 billion international debt, that he considers "immoral and illegitimate". It is the first Latin American country to do so in many decades (others have defaulted or put limits to interest payements but none had bluntly denounced the illegitimacy of the international debt so far). He says his cabinet will soon propose a system to renegotiate the debt in "reasonable" terms and denounced the international lenders as "monsters".

This is, I understand, a major yet expected step (I have been reading forecasts for scenarios like this since the 1980s) that will no doubt put more strain in the already weak global financial system. The BBC article suggests that this would put strain on Ecuador's finances but actually I guess that the economist that is Rafael Correa is probably thinking rather in alleviaing them.

As has been denounced once and again, most of the transnational debt held by poor countries has neven been of any help to them but rather has fed the pockets of some corrup leaders, while it is the taxpayer who is expected to put up with them.

In a more detailed account, Rebelión (in Spanish) informs that this is the outcome of the Public Credit Integral Auditing Comitee (CAIC) research, an organism created in 2007 precisely to evaluate the legitimacy of the foreign debt, chapter by chapter. The decision affects some $3.8 billion (roughly 38% of Ecuador's foreign debt) owed by the Global Bonds 2012 scheme.

The CAIC found "serious indications of illegality" in the contracts of foreign debt in general, what has brought President Correa to say that "what has been done with the debt is immoral: a treason to the fatherland, totally illegitimate". They are pondering legal action against the debt owners.

In this context, Ecuador has asked the UN for help in their effort to estabilish what parts of the foreign debt of poor nations are legiimate and which are not and to create a legal frame that regulates the debt morally. They are gathering support among the G-77 (the group of most impoverished countries) and also with China for that goal. If Correa is succesful in his international endeavours, it may mean very bad news for the international lenders, so used to impose their criteria to poor nations. It should also make corrupt loans less likely to happen, specially as they could be challenged legally.

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