Ecuador advances the fight against illegitimate debt

3 December 2008 by Jubilee South

“We will seek to punish the guilty and not to pay the illegitimate debt,” declared President Rafael Correa upon receiving the Report of the Ecuadoran Debt Audit Commission on November 20, before a packed Quito auditorium of ministers, parliamentarians, local authorities, diplomats, international guests and representatives of the country’s numerous social, political, cultural, and religious movements and organizations. Jubilee South was a privileged witness to this historic moment.

No less striking, the audience erupted over and again to the cry of “We don´t owe, the debt is already paid!” and “Jail to the traitors!”, as the president announced the first follow-up measures. Among them, the decision now in the hands of the country’s Attorney General to initiate the pertinent legal actions before Ecuadoran courts, and the filing in the International Chamber of Commerce in Paris, of a claim against the Brazilian National Development Bank, BNDES, in relation to its financing for the Brazilian firm Odebrecht’s construction of a hydroelectric dam whose operation had to be suspended in June after less than a year of operations, due to serious structural weaknesses. The Ecuadoran Audit also uncovered serious problems in the contracting and loan processes themselves.

The expectation surrounding potential follow-up to this first official comprehensive audit of public debt had increased since the government announced its decision not to pay US$ 30 million in 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. on Global 2012 bonds when they came due on November 15, pending the report of the investigations initiated in July 2007, in order to determine the legitimacy and legality of external and domestic debt claims accumulated between 1976 and 2006. When suspending the payment, the Ecuadoran government clarified that it was not entering into a moratorium but rather making use of a 30-day grace period contemplated in the bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. issue itself.

The public presentation of the Integral Audit Commission (CAIC)’s report, characterized by its own exponents as “a summary of the summary of the summary of the documents studied and the findings developed”, focused on the various tranches of commercial debt, such as the Global bonds, which in 2007 accounted for 30% of Ecuadoran public debt and 44% of interest payments.”The analysis is conclusive - President Correa said on the matter - The issuing of the Global 2003 and 2012 bonds presents serious presumptions of illegality in the exchange offer, in the hiring of financial agents. Contracts were signed without presidential authorization and bid was signed altering the dates of the document.“The charts and graphs of the presentation showed clearly how each swap or renegotiation,”cynically called disindebtedness programs“, resulted in an increase in the total size of the debt claimed. Therefore, the president announced that copies of the audit report were already in the hands of the country´s Attorney General and the public prosecutor in order to advance in the prosecution and appropriate punishment of these and many other allegations of illegality.”The cost should be transferred in equal parts to those responsible for acquiring (illegitimate debt) - said the president – as well as to those who lent it.“The president further emphasized the consequences that the cycle of illegitimate indebtedness has had for the country and the need to end the looting it has meant.”Between 1976 and 2006 - the process of borrowing in Ecuador benefitted the financial sector and transnational corporations and visibly affected the interests of the nation. The conditionalities imposed and the payments incurred limited fundamental rights of individuals and peoples, deepening poverty, increasing migration, and deteriorating environmental conditions... ".

The Commission’s report, backed-up by thousands of pages of documents discovered and reviewed in the course of the CAIC’s investigations, covers not only the commercial debt claims but also those of multilateral, bilateral and domestic debt. For reasons of time the main conclusions of these other types of debt were not presented on this occasion, but President Correa underscored the fact that their respective conclusions were as overwhelming and negative as those which had been presented. He affirmed, for instance, that contrary to their own constituent statutes, “the multilateral lending agencies had promoted a pernicious system of indebtedness, operating in partnership with private creditors and powerful transnational corporations to support illegitimate debts, such as those exchanges as part of the Brady Plan.“He emphasized that the actions of the international financial institutions (IFIs) such as the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
and the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, had weakened the sovereignty of debtor countries and voided their capacity for development planning.”

Until the final victory

The road ahead will not be easy for the country. Lenders reacted sharply while their allied country-risk raters moved all their chips. The Brazilian government, which since June has adopted a policy of closed defense of the Brazilian firm Odebrecht, called its ambassador in Quito home for consultation. The Ecuadoran right together with former presidents, finance ministers, 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.

leaders and the biggest and most concentrated economic-financial interests in the country, many identified by name in the report, sought to discredit the findings of the CAIC by questioning the aptness of its investigators and launching xenophobic criticisms against the participation of non-Ecuadorans. The CAIC included representatives from the government, Ecuadoran social organizations and movements, and major regional and global debt networks including Jubilee South and the Lutheran World Federation’s Program on Illegitimate Debt.

Especially in the current context of global economic crisis, when the arbitrariness and failures of the financial system and its main players have become more than evident, the audit opens a new arena in which to build integrated and coordinated responses from the region’s governments. The Ecuadoran government will seek to mobilize the support of its peers in defense of its historic and sovereign actions, and networks such as the Hemispheric Social Alliance, in addition to the movements against debt and the IFIs, have already announced their support in this regard.

The National Debt Group, which brings together a broad range of social networks and organizations, indigenous peoples, labor unions and academic and religious groups in the country and whose struggle has been instrumental in shaping and developing the official audit, immediately stated that they shared President Correa’s thesis of prioritizing the payment of the social debt over the payment of any financial debt. They also pointed to strategies that they will continue to pursue in order to advance on the basis of the audit. Among them, they stressed the importance of the struggle against impunity: the need to demand sanctions and remedies against the set of crimes, irregularities and losses made manifest and documented through the investigations. They further pointed to the urgency of putting an end to the predatory model of debt, recognizing that in fact, Ecuador is a creditor country that should claim what is rightfully its.

The National Debt Group also coincided with President Correa in noting that there will be no solution to the debt problem until the international financial architecture is transformed. “The audit shows that the neoliberal model of indebtedness destroyed our sovereignty, devastating the country’s institutions and even a sense of what is public – denounced the Group in a statement coinciding with the release of the Audit Report - In this regard, national and regional policies already underway are strategic to recovering sovereignty, extending it, and founding on it a new financial architecture at the service of good-living for all...”.

Not only new international mechanisms will be required to address the problem of illegitimate debt - as demanded by the Ecuadoran president - but also new regional and global relations for which he also called on all governments of the indebted countries of the South, and especially the smallest, to join forces and not let themselves be trapped by the responses provided by the current system. As he further indicated, "with the US$ 700 billion that the U.S. government has offered to rescue the banks responsible for the current crisis, at least 50% of the investment needed between now and 2014 to ensure compliance with the Millennium Development Goals could be covered. The undertaking of debt audits in other countries, as is now being considered in Paraguay and Bolivia, in addition to citizen campaigning for public audits in various countries of the region such as Brazil, Haiti, and Argentina, should be part of that agenda for change, along with the setting up of a Solidarity Bank of the South and other strategic initiatives that movements across the continent demanded from their rulers in an open letter sent on last October 17.

In Ecuador, popular movements, indigenous peoples, networks and organizations are calling for a mass mobilization on December 10, International Human Rights Day, to support the governments steps to stop payment on a debt that they contend “has already been paid”. Jubilee South calls on all organizations of the region and beyond to join, supporting and demanding decisive action on the part of the Ecuadoran government, to defend the rights not only of its peoples but of all peoples and nature affected by the domination exercised through an illegitimate debt already paid. The seriousness of the present convergence of global food, climate, energy, economic and financial crises, makes for a propitious moment for finding solutions that get to the bottom of the problems. As president Correa concluded during the presentation of the Ecuadoran Audit, it is time to take on the challenges of a real development: “Enough of so much looting! Enough of such larceny! Enough of so much inequity! We will demonstrate that we are a sovereign country. Until the final victory!”

Beverly Keene



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