ECUADOR: Commission Declares Part of Debt “Illegitimate”

By IPS Correspondents Reprint | | Print |

Kintto Lucas

QUITO, Nov 20 2008 (IPS) - The final report of a presidential commission set up in Ecuador to audit the country’s public debt recommended that the government suspend interest payments on “certain portions” of the country’s foreign debt.

The investigation by the CAIC commission also blames “irregularities and illegalities” on former presidents, finance ministers, Central Bank presidents and inspectors general.

Ecuador’s centre-left President Rafel Correa turned the report over to Attorney General Washington Pesantez, in order for him to undertake civil and criminal legal action, where relevant, as urged by the audit commission against “those responsible for illegal acts” in the process in which Ecuador became deeply indebted between 1976 and 2006.

Correa said he was confident that the attorney general “would do his part, in the face of history and of the country.”

Alberto Acosta, the former president of the constituent assembly that rewrote Ecuador’s constitution, told IPS that it is now up to the government to act, and that legal action will have to be taken at the international level.

Acosta, the country’s second most popular political leader, after Correa, was the main voice protesting over the last 15 years that part of Ecuador’s foreign debt was illegitimate.

In its final report, the CAIC commission concluded that part of the debt incurred over the last three decades was “illegal” and “illegitimate,” and that in some cases, former government officials were found to be involved in corruption.

Indigenous leader Ricardo Ulcuango, one of the members of the commission, told IPS that there was documentary evidence showing that “a significant part of the debt benefited the financial sector and transnational corporations, often to the detriment of the country’s interests.”

“There are documents demonstrating that various debt restructuring processes were carried out in favour of the creditors, with clear signs of corruption,” he said.

Ulcuango added that in the 30-year period in question, Ecuador received just over 80 billion dollars in loans and has already paid more than 130 billion. “Nevertheless, the country still owes nearly 14 billion dollars,” he said.

The 30,000-page CAIC report, which IPS saw, and part of which had been recently handed over to the government in advance, was publicly presented Thursday in the capital of Ecuador.

The Correa administration had announced on Nov. 14 that it would delay 30.6 million dollars in interest payments on Global 2012 bonds, using the 30-day grace period after the bonds fell due (on Nov. 15) that was established in the negotiations.

“The CAIC determined that in the negotiations of the Global 2012, 2015 and 2030 bonds (issued as part of a debt restructuring in 2000), enormous damages were done to the country and there were signs of corruption on the part of those involved in the restructuring,” said Ulcuango.

He also said Ecuadorean officials at the time shared the responsibility with creditors who fomented the corruption.

In 2000, Quito refinanced part of Ecuador’s public debt and replaced the Brady Bonds with the Global Bonds, worth nearly four billion dollars, which pay interest rates considered extremely harmful to the country.

According to the report, the evidence of irregularities and illegalities would justify a default on at least 10.3 billion dollars in foreign debt.

However, the decision is up to Correa, who will possibly use the results of the audit to restructure the country’s public debt, which currently stands at 13.5 billion dollars.

The CAIC commission blamed the illegitimate debt on bankers and ex-government officials who negotiated the debt restructuring plans with international banks, multilateral lenders and industrialised countries.

Ulcuango said that creditors, in alliance with several previous administrations, imposed conditions that had serious economic, social and environmental impacts. Since 1980, more than 70 percent of the state budget has gone into servicing the debt, he said.

Only 14 percent of the money from the loans went into social projects and services like expanding the piped water supply, the power grid and telecommunications, or building roads, while 86 percent merely went towards paying off previous debts.

According to Ulcuango, the process was not transparent, and the loans generated dependence because in order to service the foreign debt, the country was forced to go deeper and deeper into debt.

The one-year investigation revealed the “mechanisms used to contract foreign loans, the pressure brought to bear by the creditors, the obsequiousness of government officials and the reluctance to establish clauses in the contracts designed to protect the country’s interests,” said Ulcuango.

According to the commission, basic principles of international law were violated, such as contractual equilibrium, good faith, the ban on usury, and environmental law, as well as international conventions and domestic legislation.

The aim of the investigation was to show, by means of classified documents, the mechanisms used by creditors, and demonstrate that the process of indebtedness was similar to that of other countries.

The decision not to pay off certain debts is exclusively up to President Correa, who will decide what is best, in accordance with Ecuador’s ability to pay, political considerations, and the support that he could obtain in whatever action he settles on, says the report.

The commission was set up to determine the legitimacy, legality, transparency, quality, efficacy and efficiency of the debt process, taking into consideration legal and financial aspects and the impacts in economic, social and environmental terms and with regard to gender issues and the country’s indigenous people and different regions.

The audit of the country’s foreign debt focused on the process of contracting and renegotiating the public debt, the origin and use of the funds, and the implementation of the programmes and projects financed with the domestic and international credit.

The commission examined the loan contracts between the public sector and foreign governments, multilateral lenders or foreign and domestic private banks.

In each one of the cases, it determined the technical, economic and social viability of the loan, and studied the financial and commercial conditions that were agreed, the conditionalities, the uses to which the funds were put, and the individuals who arranged the loan.

In the investigation, which got underway in July 2007, the CAIC had authorisation to study all of the public documents that its members deemed necessary.

The committee members complained, however, that on many occasions, functionaries in the Economy Ministry and other government bodies threw hurdles in the way of their investigation.

Correa said the report would be studied, in order to decide on what measures to take. He added that he reserved the right to renegotiate whatever portions of the debt he saw as necessary and suitable, or to refuse to pay loans considered “illegitimate” and take legal action at the international level.