Ecuador : Report on External Debt reveals that its objective was to benefit financial sector and transnationals

Indications of illegitimacy and illegality confirmed to be present in Ecuadoran public debt

25 September 2008

The Comprehensive Public Credit Audit Commission, created in July,
2007, presented its Final Report to the president of the Republic,
Rafael Correa, in which it concludes that over the period 1976-2006,
the process of indebtedness in Ecuador took place to the benefit of
the financial sector and transnational corporations, affecting visibly
the interests of the State. The Report establishes responsibilities
and co-responsibilities of lenders and of Ecuadoran authorities and

According to the Report, "the uncalculable damage caused to the
country’s economy and to the Ecuadoran people, by the public
indebtedness, omnipresent as a system of pressure-submission, and the
consequent commitment to hand-over public resources to its servicing,
whether or not they were available",
motivated the National Government
to adopt the first and until now only decision of its kind in the
Latin American region, to create the Comprehensive Public Credit Audit
Commission (CAIC), with the participation of national and foreign
social organizations and research and development institutions.

The Comprehensive Public Credit Audit Commission, created by
Presidential Decree No. 472 on July 9, 2007, fulfilled its mandate to
audit the external and internal debt contracted by the country with
international banks, multilateral organisms and the big powers,
between 1976 and 2006.

Over these months, the members of the Commission confronted enormous
difficulties in making transparent the behind the scenes dealings that
have existed in the contracting of agreements with the multilateral
financial system and the national and foreign private sectors. In the
day to day workings of the Commission, they encountered archives
totally disordered, in inadequate, humid places, incomplete
documentation, and with few exceptions, the refusal of Ecuadoran
Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

and Finance Ministry officials to hand over documentation
necessary for the audit.

Evidence of illegitimacy and illegality

In the Audit process, the Commission made important findings that
confirm the allegations of illegitimacy and illegality present in
relation to the Ecuadoran public debt; findings that demonstrate that
the debt was converted into an instrument used by the international
creditors to extract our economic and environmental resources, to
damage our sovereignty and contribute to the deinstitutionalization of
the State.

By means of the debt, the creditors imposed conditions and conspired
with the governments of the day to provoke serious economic, social,
and environmental impacts. From the ’80s onward, important
percentages of the national budget, nearly 70%, were destined to the
servicing of the public debt to the detriment of the budget for
education, nutrition, health and social programs. Of all the loans
taken out, only 14% were invested in social projects: potable water,
electricity, telecommunications, roadways. 86% of the loans were used
to pay debts.

Violation of national and international laws

The Audit establishes that, over the last decades, the system of
indebtedness has been used in accordance not precisely with the
sovereign interests of the country, but rather under the presssures
and conditionalities of the lenders. It has been characterized by a
less-than-transparent management, deriving in the predominance of the
payment of amortizations, interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. , and commissions in the national
budget; in the growing need for new credits; and, as a consequence, in
the recurring dependence of the State and the national economy on
funds coming from public and private debt.

The Audit process reveals the mechanisms of loan contraction, the
pressures, the obsequence of officials with external creditors, the
resignation - in the contracts themselves - of any defense of the
country, the submission to illegal and illicit clauses. Over these 30
years, the State Attorney did not defend the State, but rather limited
himself to signing whatever the creditors wrote.

In the process of indebtedness, general principles of law (such as
good faith, the free determination of peoples, the prohibition of
usury, contractural balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. , rebus sic stantibus, human rights,
environmental rights, among others), international covenants, and
fundamental norms of domestic law were violated.

The practical result is to show, on the basis of documentation that
until now has been reserved or secret, what were the mechanisms used
by the creditors in order to place Ecuador into debt, and to prove how
the processes were similar in other countries. That will show to the
world what until now has been ignored. With respect to the decision
to stop payment on the debt, that is a determination that is the
exclusive responsibility of President Correa, who will decide what
will be the best course of action, in accordance with Ecuador’s
possibilities, political opportunity, and the support that it is able
to garner for the actions that it decides to undertake", concludes
the document that was presented to the head of State this Wednesday.



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