Grupo Nacional Deuda

Financial debt and sovereignty in the Constitution of 2008

24 September 2008


THE DEBT IN THE CONSTITUTION


PROPOSAL TO THE NATIONAL CONSTITUENT ASSEMBLY REGARDING THE DEBT AND FINANCIAL SOVEREIGNTY

(February 2008)

GENERAL THOUGHTS

During the long neoliberal period, the foreign debt and the indebtedness system in general were used as tools to impose an economic model riddled with injustice. The debt was a perverse mechanism to plunder our resources – between 1982 and 2007 the foreign public debt grew from 3.9 to 10.4 billion dollars; in that same period, payments added up to 30.364 billion dollars.

The indebtedness system was used to condition and control the course of economic policy, of economy itself, and of public institutions by subjecting them to the private interests and goals of international entities and corporations bent on privatizing and expanding the market’s rationality in their favor. To this end, they waived legal means and transparency and, on the contrary, stamped corruption as the sign of a process in which certain national groups were copartners to promote indebtedness to make their own fortunes.

Another consequence we now see in distress and feeling impotent was nature’s devastation. Overexploitation of resources to cover the rationality of increasing payments, and the destructive nature of some of the projects financed with foreign loans accentuated a destructive and extractive trend whose effects can be hardly reverted or compensated.

Among this indebtedness system’s ‘hidden costs’ is the one assumed by women, whose non-paid or under-paid work – income gaps persist –was the basis for the accumulation that allowed to endure the impacts of adjustments, the crisis, privatizations, and the State’s weakening. This systematically non-compensated work means economic contributions of at least around 20% of the GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
.

During this long period, significant social mobilizations united the voices of the people, social organizations, academic institutions, churches, and citizens to condemn and submit their proposals. Through multiple initiatives we illustrated the magnitude, implications, and negative impacts of such indebtedness rationality in the country, the people, the communities, and nature. We verified that the debt not only failed to generate welfare or progress, but also produced or accentuated other debts – the ecological, historic, social, and gender debts. We revealed the role of international banks and multilateral entities, such as the Monetary Fund and the World Bank World Bank
WB
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.

, and expressed our disagreement with their presence and policies.

We also made proposals for both national and international rules and policies to limit, control, and condemn the actions of an indebtedness system marked by illegality and illegitimacy and whose innumerable expressions started by creating a false need for credit. In the midst of an adverse geopolitical context, it induced countries stigmatized as “poor” to perpetual indebtedness. Paradoxically, those same countries exported their domestic savings. To this date, the country has foreign assets for around 13 billion dollars, a sum that is higher than the total public debt of 10.4 billion dollars.

Now, in the midst of a process of regional and national changes, a new scenario has arisen where Financial Sovereignty appears as the road to overcome such disastrous period. We are undergoing a transition in which the new Constitution offers the opportunity to summarize the lessons of our recent past and the challenges of protecting the country from the risk of perverse indebtedness to recover national sovereignty and promote an autonomous project.

Undoubtedly, we have started a change in our route. However, the country still has a pending debt accrued until now in relation to clarifications, analysis, restructuring, and recovery of resources, as well as sanctions. In this sense, the work which is now being performed by the Public Credit Comprehensive Audit Commission, CAIC, is essential.

This proposal, enriched with our discussions with the CAIC, seeks to answer fundamental innovations which in our opinion must be contained in the new Constitution:

- To define clear principles and mechanisms to avoid an indebtedness system that goes together with impositions and pillage; and give the debt its original sense of being a means of complementary and circumstantial financing.

- To make visible, compensate, and avoid the expansion of the ecological, historic, gender, and social debts.

- To strengthen public intitutionalism and guarantee social participation in decision- making processes, and to control the public debt.

- To assist in the construction of Economic and Financial Sovereignty within an alternative Regional Integration.

To this end, we identified relevant aspects that lead us to principles of the State and economics linked to planning, the comprehensive qualification of the debt and definition of limits, decision and control instances, citizens’ participation, regional integration.

These are statements that contribute to the construction of a sovereign and fair country.

PROPUESTAS

1. Principles and guidelines

1.1 As a sovereign State, Ecuador is self-determining in political, economical, and financial matters; and is responsible for watching that the levels and nature of the debt do not affect national sovereignty, human rights, the people’s welfare, and nature’s conservation.

1.2 Financial sovereignty implies giving priority to the use of our own resources to achieve the country’s planned goals, autonomous decision-making without impositions regarding the access, use, and control of financial resources; the existence and performance of national and regional institutions and rules that lead to a financial system that serves the goals of collective production and welfare in the midst of transparent and solidary international relations. Financial sovereignty excludes all ways or actions that may generate negative impacts for the people, the individuals or nature.

1.3 In order to promote its comprehensive development, the State will base its performance on domestic savings and mobilize its resources by means of various ways of international cooperation and reciprocity in order to minimize resorting to public indebtedness.

2. Types of debt, limits, compensations, and exclusions

2.1 Illegitimate debts are those contracted by dictatorships, by pressure, or coercion; those containing negative conditions or impositions; those that imply destroying biodiversity, pollution, or lead to destroying sustainable activities and communities in given territories; those that lessen or eliminate public collective goods and services; those that directly put at risk human rights.

2.2 The debts that do not observe the provisions set forth in the Constitution, the laws, and other national regulations are illegal.

2.3 No debt that, due to its contracting or implementing conditions are or may become illegal will be incurred in.

2.4 Illegal or illegitimate debts, duly proved through a comprehensive audit, will not be paid.

2.5 A limit will be established for public indebtedness, as determined according to a public expense and income projection in order to avoid committing future annual payments that exceed those regulated herein.

2. 6 Annual debt payments will not exceed the amount of the central government’s budget for education and health; and will be made after adequately covering all social expense and investment budgetary commitments as well as those related to the economy.

2.7 Private debt nationalization is prohibited.

2.8 No current expense will be financed through public debt.

2.9 Compensation mechanisms will be established on account of the ecological, historical, and gender debts according to the debt’s comprehensive audits. The resources that the State may recover on account of non payment of illegal and illegitimate debts, or from debt reprogramming, will be devoted to the above mentioned compensations and to social investment.
The ecological debt is that generated by the destruction of biodiversity due to pollution, damage to productive and dynamic self-sustaining zones, and includes an appraisal of such impacts and costs of remedial.
The historic debt is that which affects the Indian and Afro-descendant people resulting from a long-standing process of expropriation of their wealth and possessions. It started from the Colonial pillage to the Indian people, increased in time through different ways of expropriation, eviction, exploitation, and pillaging.
The gender debt is equivalent to the cost of women’s non-paid or unpaid work which has been used to sustain the economy’s production and reproduction conditions, and to facilitate paying the debt, and softening the effects of adjustment, privatizations, and crisis.

3. The link with the debt’s planning and viability

3.1 National and local development plans, with duly harmonized goals, will be the main reference for the debt’s priorities and needs. The debts that do not include this relation will not be contracted or paid.

3.2 The qualification of public credit’s viability will be comprehensive, and the economic, financial, social, gender, and environmental aspects will be explicitly considered.

4. Decision, follow-up, and control instances

4.1 A Public Credit Committee will be established as the body in charge
of decisions, follow up, and control; and will be composed by SENPLADES, the Ministry of Finances, the Economic Policy Coordinating Ministry, senior public instances in charge of social and environmental matters, and citizens’ participation instances included among the State’s institutions.

4.2 The State’s General Comptrollership will participate in the public credit’s follow up and financial audit.

4.3 There will be a single public credit registry in charge of the corresponding entity. All the information will be transparent.

4.4 The public debt will be submitted to comprehensive audits by teams composed by State and social organization delegates. Their results will be mandatory in relation to the sanctions, compensations, and the respective corrections.

5. Citizen participation

5.1 Citizens’ participation must be guaranteed throughout the public debt process, i.e., the decision to contract it, its follow up and control. In particular, consultation to the citizens in the sites related to each specific debt’s investment will be included.

6. Regional Integration

6.1 Integration processes must aim to promote solidary financing and exchange modalities by generating alternative mechanisms to minimize indebtedness.

6.2 Positive contingency clauses for foreign trade and international finances aimed to a non-traumatic suspension of payments will be included whenever the conditions require it.

Grupo Nacional sobre la Deuda
Acción Ecológica
Centro de Derechos Económicos y Sociales (CDES)
Comité por la Anulación de la Deuda del Tercer Mundo (CADTM)
Consejo Latinoamericano de Iglesias (CLAI)
Contrato Social por la Educación
ECUARUNARI - CONAIE
Jubileo 2000 Red Guayaquil
Observatorio de la Cooperación al Desarrollo (OCD)
Red de Mujeres Transformando la Economía (REMTE)

Contact Quito:

remte at fedaeps.org, (593-2) 2904242

Contact Guayaquil:

info at jubileo2000.ec, (593-4) 2295865




Translation(s)

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80
info@cadtm.org

cadtm.org