Debt statistics 2015
|Overall international debt burden (% of GDP)||16|
|Government payments on foreign debt (% of revenue)||4.9|
|Government foreign debt (% of GDP)||12|
|Private foreign debt (% of GDP)||6|
|IMF and World Bank debt cancellation ($ billions)||0|
|Country case studies||Yes|
Country case study
Ecuador has suffered greatly as a result of illegitimate debt. Ecuadorian people successfully campaigned for a debt audit which publicly investigated past debts. Following the audit, Ecuador managed to cancel much of its debt. Ecuador has cleared a path that other indebted countries might choose to follow.
Ecuador joined the Republic of Gran Columbia, and became a separate republic in 1830. Like many of Latin American countries went through political turmoil with consecutive juntas and dictatorships. The country had a military dictatorship under Guillermo Lara (1972-1976) and then that of Alfredo Poveda (1976-1979). During the oil boom, the administration borrowed extensively from western banks, which at that point provided large amounts of money at low rates. When the US interest rates rose from 6% in 1979 to 21% by 1981, Ecuador’s debt payments grew.
Over the years, Ecuador has made debt payments that far exceed the money it originally borrowed. Only 14% of all money loaned between 1989 and 2006 was used for social development projects. The remaining 86% was used to pay for previously accumulated debt. Between 1982 and 2006, the country paid foreign creditors $119 billion, while receiving $106 billion in new loans. Yet the total debt increased from $8 billion to $17 billion. In 2007 Ecuador’s government spent more on debt payments than on health care, social services, the environment, housing and urban development combined, all areas where money was badly needed.
In 1980, the Ecuadorean government spent 30 per cent of its revenue on education, as well as ten per cent on healthcare and 15 per cent on servicing its debts. By 2005, this situation had been reversed, spending 47 per cent of its government income on servicing debt and only 12 and seven per cent respectively on education and healthcare. Meanwhile, poverty increased – especially in rural areas – from 55 per cent of the population in 1995 to 60 per cent in 2003.
Years of mismanagement by former regimes and irresponsible lending by international creditors left Ecuador with a foreign debt stock of $17 billion, 40% of the countries GDP in 2007.
In 2008 Ecuador became the first country to officially examine the sources and legitimacy of its foreign debt. Social movements had pushed strongly for an audit, and had it adopted as part of the platform of Presidential candidate Rafael Correa. The independent audit commission was launched with a presidential decree by president Correa and the former Economy and Finance Minister, Ricardo Patiño in July 2007. Its main goal was the scrutiny of all lending deals from 1976 to 2007, including lending from Western governments and private creditors. The commission was composed of a broad array of government officials, domestic and international academic experts in economic, law, social and environmental issues. Creditors were identified and the terms of loans were assessed. Debt restructuring and the conditions attached to this were also assessed. The audit concluded that overall the borrowing, debt restructuring and resulting conditions had caused “incalculable damage” to society. Many examples of predatory lending were found including loans which violated international law and domestic laws, in both the borrowing and the lending country.
The conclusion was that the biggest part of the debt was a result of corruption, lack of transparency and ‘shady’ deals that did not benefit the people of Ecuador. A series of contracts were pointed as illegitimate happened with the Brady bonds. The IMF and World Bank involvement was deemed inappropriate, mainly the SAP, poverty reduction programmes and strategy proposals that liberalised and deregulated the economy during the previous decades. The report also raised concerns about the percentage of public funds allocated to debt repayment, especially in relation with public spending for health and education. Results showed that only a small percentage was used for useful development projects from the money loaned.
On the basis of the findings of the debt audit commission, claims were supported and documented that a considerable amount of debt is illegal, and thus should be unilaterally revised with the country’s initiative. Under presidential decree, payments for global bonds that matured in 2012 and 2030 were suspended. By using the assumption of the auditing commission this debt was branded illegitimate and thus ineligible for repayment.
In late 2008 Ecuador announced to IMF that it will pay US$33 million owed to it and will seek no further funding from it.