Ecuador Declares Foreign Debt Illegitimate

by Project Censored

Student Researcher: Rosemary Scott

Faculty Evaluator: Tim Ogburn

In November 2008, Ecuador became the first country to undertake an examination of the legitimacy and structure of its foreign debt. An independent debt audit commissioned by the government of Ecuador documented hundreds of allegations of irregularity, illegality, and illegitimacy in contracts of debt to predatory international lenders. The commission revealed that a Citigroup subsidiary’s unauthorized restructuring of Ecuador’s debt in 2000 lead to exorbitant interest rates, which combined with illegal borrowing by former dictators, has turned the country, along with many of its Southern neighbors, into major capitol exporters to its Northern “benefactors.” Over the years, the country has made debt payments that far exceed the principal it borrowed, plus devastatingly usurious interest and penalties. The human costs are staggering. Every dollar spent on illegitimate international credit means less is available for fighting poverty. In 2007 the Ecuadorian government paid $1.75 billion in debt service alone, more than it spent on health care, social services, the environment, and housing and urban development combined. Under the World Bank system, which oversees investment treaties, there is no public accountability, no standard judicial ethics rules, and no appeals process. Ecuador has thus exposed a gaping hole in the international financial system: the lack of an international, independent mechanism for countries to resolve disputes over potentially illegitimate and/or illegal debt.

“As Crisis Mounts, Ecuador Declares Foreign Debt Illegitimate and Illegal”

Daniel Denvir, AlterNet, November 26, 2008  http://www.alternet.org/story/108769/

“Invalid Loans to Ecuador: Who Owes Who”

Committee for the Integral Audit of Public Credit, Jubilee USA

Part 1:  http://www.youtube.com/watch?v=UxG7YBbM5Eg&feature=related

“Ecuador’s Debt Default: Exposing a Gap in the Global Financial Architecture”Neil Watkins and Sarah Anderson, Foreign Policy in Focus, December 15, 2008   http://www.fpif.org/fpiftxt/5744