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Debt: Focus on illegitimate debt grows

NewsNotes, November-December 2008


After a year of work, Ecuador’s Comprehensive Public Credit Audit Commission recently presented its final report to President Rafael Correa. The report concludes that in the last three decades, the debt process in Ecuador benefited the financial sector and transnational corporations to the detriment of the citizens of Ecuador and holds creditors and state officials co-responsible.


The commission was created by Presidential Decree No. 472 on July 9, 2007 to audit the external and internal debt contracted by Ecuador with international banks, multilateral organizations and the bilateral creditors between 1976 and 2006. In fulfilling their mandate, members of the commission encountered archives in disarray and stored in inadequate, humid places, as well as incomplete documentation. With few exceptions, Ecuadorian Central Bank and Finance Ministry officials refused to make available to the commission the documentation necessary for the audit.

Nevertheless, the commission made important findings that confirm allegations of illegitimacy and illegality in relation to Ecuador’s public debt.

Creditors, in collaboration with the government, imposed conditions that had serious economic, social, and environmental impacts. Since the 1980s, a high percentage of the national budget – up to 70 percent – was used to service the public debt, seriously shortchanging budgets for education, nutrition, health care and social programs. Only 14 percent of all the loans were invested in social projects, such as potable water, electricity, telecommunications and roadways; 86 percent of the loans were used to pay debts.

For 30 years, state officials signed whatever agreements creditors offered, violating general principles of law, international covenants and fundamental norms of domestic law. (See http://www.ecuadorinmediato.com/noticias/88151 and www.jubileosuramericas.org)

As preparations proceed for the Financing for Development Review Conference, which will take place in Doha, Qatar in late November, debt campaigners around the world have been trying to persuade governments to include reference to illegitimate debt in the outcome document.

Norway took a giant step forward in October by proposing the following language:

External debt

42. We recognize that important challenges remain. Debt service in a considerable number of low and middle-income countries is still too high. The existing international debt resolution mechanisms, including the Paris Club, cannot guarantee equivalent treatment of all creditors and just treatment of creditors and debtors, hindering the establishment of predictable debt resolution procedures. There is concern about increasing vulture fund litigation. In addressing these situations, we need to enhance the international financial mechanisms for debt crisis prevention and resolution by finding internationally agreed solutions. These mechanisms need to be underpinned by principles that have served us well in dealing effectively with many debt problems. These include the need to ensure that debt resolution is a joint responsibility of all debtors and creditors; to recognize that furthering development is the ultimate objective of debt resolution and that debt relief should not detract from ODA [overseas development aid]; to strengthen transparency and accountability among all parties; to promote responsible lending practices, including learning from the past by looking at the legitimacy of existing claims based on how the loans where given and in which gender perspectives are taken into account; to improve debt management and national ownership of policies; and to facilitate equivalent treatment of all creditors.

46. We acknowledge the need to address all relevant issues regarding external debt problems, including through new ad-hoc forums with technical support from the BWIs [Bretton Woods Institutions] and the United Nations, to consider inter alia, a sovereign debt work-out mechanism, including assessing the legitimacy of debt, enhancing the transparency and accountability of procedures of existing mechanisms, and the possibility of crafting more permanent debt mediation or arbitration mechanisms

That such language could even be considered by nations of the world makes evident the amazing accomplishments of those working for the cancellation of unjust, overwhelming and illegitimate debt. See www.jubileeusa.org.

 

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