Last month a special debt audit commission in Ecuador released a report charging that much of that nation's foreign debt was illegitimate or illegal. "The commission evaluated all commercial, multilateral, government-to-government and domestic debt from 1976-2006".
Perhaps the most critical element of this commission's ruling is the charge that Paul Volker's decision to hike US interest rates to extraordinary and unprecedented levels in the late 1970s [1] constituted a "unilateral" increase in global rates that compounded Ecuador's indebtedness.
The loans to Ecuador, according to John Perkins in his 2004 book 'Confessions of an Economic Hit Man' were denominated in US dollars and designed from the outset to "to foment conditions that make [Ecuador] subservient to the corporatocracy running our biggest corporations, our government, and our banks." The conditions of the infrastructure loans were that "engineering and construction companies from our own country must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston, or San Francisco." [2]
How legitimate can it be for, on the one hand, political leaders to be accepting loans on terms that leave their nations economically vulnerable, and on the other for the US to have the power to 'unilaterally' and unjustly increase loan liabilities for the world's poorest (and other) nations?
The long-term outcomes of such an international lending regimes have been disastrous. Since 1970 – in the period known as the ‘oil boom’ in Ecuador the official poverty level grew from 50 to 70 percent and under or unemployment increased from 15 to 70 percent. Public debt increased from $240 million to $16 billion. At the same time "Vast areas of rain forest have fallen, macaws and jaguars have all but vanished, three Ecuadorian indigenous cultures have been driven to the verge of collapse, and pristine rivers have been transformed into flaming cesspools."[3]
Ecuador's use of legitimacy as a legal argument for defaulting on their loans sets a major precedent in international finance and the global economy. "Indeed, the mere formation of a debt auditing commission does so." [4] There is no doubting, however, that the rapidly increasing poverty and hunger along with the dire state of the world's living environment means attention to the impacts of unreasonable and unjust debt regimes is long overdue.
[1] Paul Volker was then chairman of the US Federal Reserve.
[2] Confessions of an Economic Hit Man by John Perkins
Plume, 2005, paperback, 280 pp.,
http://www.ecobooks.com/books/ecohitman.htm
[3]Confessions of an Economic Hit Man by John Perkins
Plume, 2005, paperback, 280 pp.,
http://www.ecobooks.com/books/ecohitman.htm
As Crisis Mounts, Ecuador Declares Foreign Debt Illegitimate and Illegal
By Daniel Denvir, AlterNet. Posted November 26, 2008.
http://www.alternet.org/audits/108769/as_crisis_mounts,_ecuador_declares_foreign_debt_illegitimate_and_illegal/
Where are you getting the poverty levels from? Standard numbers are around 38% for Ecuador, which is bad, but it's not 70%. It's also down from something like 45% in the 90's (don't have access to longer time series cuz out travelling) but I seriously doubt that it's higher now than it was then - 50% in 70's, 38% now sounds about right. And this despite the fiscal mismanagement on the part of the government.
ReplyDeleteThere's also pretty much no way that unemployment/underemployment went from 15 to 70% unless you really really fudge what you mean by underemployment. And you'd have to fudge it one way for the 70's and in the opposite way for the 00's.
Which isn't to say that sometimes debt default doesn't make perfect sense.
And the John Perkins book is one of the stupidest books ever written.
notsneaky
YNS, you're referring to the sentence: "Since 1970 – in the period known as the ‘oil boom’ the official poverty level grew from 50 to 70 percent..."
ReplyDeleteThat information came from John Perkin's book "Confessions of an Economic Hit Man"
What do you mean by ‘poverty’? I mean, which definition did you have in mind?
"The proportion of Ecuador's population in poverty reached almost 45 percent in 1999, up by a third since 1995..."
Ecuador and the IMF 1
Stanley Fischer. First Deputy Managing Director International Monetary Fund
Hoover Institution Conference on Currency Unions, Palo Alto, California. May 19, 2000
http://www.imf.org/external/np/speeches/2000/051900.htm
"This nation of only 13 million souls at the world's belly button is rich, sitting on 4.4 billion barrels of known oil reserves, and probably much more. Yet 60 percent of its citizens live in brutal poverty; a lucky minority earn the "minimum" wage of $153 a month....
Ecuadors' Debt
May 16, 2005 By Greg Palast
Greg Palast's ZSpace Page
http://www.zmag.org/znet/viewArticle/6259
"Correa, elected in 2006 on a promise to spend more on social need, has pledged to use money from mining on improving the well-being of the 50% of the country’s population living in poverty...."
Ecuador: Mining, debt and indigenous struggles
Duroyan Fertl, 22 November 2008
http://www.greenleft.org.au/2008/776/40019
"From 1990 to 2001, national consumption-based poverty rose from 40 to 45 percent, and the number of poor people increased from 3.5 to 5.2 million. Poverty increased by over 80 percent in urban areas in the Costa and Sierra, was stable in the rural Costa and rose 15 percent in the rural Sierra...."
POVERTY IN ECUADOR
Carolina Sanchez-Paramo
En breve, May 2005 No. 71
siteresources.worldbank.org/INTENBREVE/Newsletters/20608425/May05_71_EC_Poverty_Ass.pdf
"That information came from John Perkin's book "Confessions of an Economic Hit Man""
ReplyDeleteWhich means it's basically made up.
"What do you mean by ‘poverty’? I mean, which definition did you have in mind?"
Pretty much any absolute poverty measure as long as it is used consistently. But I was talking about poverty headcount ratio.
""The proportion of Ecuador's population in poverty reached almost 45 percent in 1999, up by a third since 1995...""
Given the war with Peru, the associated large deficits and high inflation which led to an overall economic crisis this is certainly plausible. But it's 95 and 99 (right before a crisis and right at the worst of it), not 70's and 00's. In fact it seems like foreign lending postponed the crisis by a few years.
The difference between the 38% I gave above and the 50-60% some of these other source are talking about probably boils down to
1) the fact that they're looking at poverty rates at the peak of the economic crisis or right after it
2) maybe using a different poverty threshold, say of 2$ a day.
But it's hard to see why foreign lenders should be blamed for the crisis rather than just straight up fiscal mismanagement and a stupid pointless war. Of course the lenders were probably dumb to lend money to the Ecuadorian government (I mean, usually lending money to a guy called El Loco is not a good idea) and I can totally understand if the present Ecuadorian government says "sorry, we're not paying that stuff back" but making a morality play out of it is a bit weak.
"Of course the lenders were probably dumb to lend money to the Ecuadorian government (I mean, usually lending money to a guy called El Loco is not a good idea) and I can totally understand if the present Ecuadorian government says "sorry, we're not paying that stuff back" but making a morality play out of it is a bit weak."
ReplyDeleteRadek, You can't be that naive so I'll assume that your take on the issue is ideological. Lending to South America, as it was carried out during the past several decades, is virtually the definition of predatory financial activity. The money was lent to authoritarian regimes, most of which gained power through the auspices of the CIA, for little other than the purpose of supporting financial colonialization of those countries.
Maybe the lenders should seek payment of the debts from the former regimes that did the borrowing and looting.
Who's being naive Jack? Ecuador has been democratic since 1979. A lot of this borrowing has been done by leftist and populist governments which I very much doubt gained power through the auspices of the CIA. The purpose of the borrowing was spending on military adventures (the war with Peru) and social programs. Seeing as how anyone who lend money to the past Ecuadorian government will be lucky to see pennies on the dollar even without outright default and repudiation of debts, it's hard to see how this constitutes "financial colonization".
ReplyDeleteWho's being ideological Jack? Not everything needs to be explained by conspiracy theories a la John Perkins. Straight up incompetence and boring old corruption are more than sufficient.
YNS, setting aside the large topic encompassed by describing the many definitions of 'poverty' it would be reasonable to define increasing poverty in terms of the following:
ReplyDelete* increasing malnutrition and/or loss in the quality of food eaten;
* a reduction in the quality of health, education, housing and other critical services;
* increased morbidity and/or mortality;
* destruction of the natural environment (eg deforestation, pollution, resource depletion, over-mining etc);
* a loss in the ability of people to have a say in the way their region/nation operates.
Under this definition i have no doubt that the Ecuadorian people are much poorer now than they were before. Along with citizens in nations both developed and under-developed around the globe.
YNS said: "A lot of this borrowing has been done by leftist and populist governments which I very much doubt gained power through the auspices of the CIA.
Which governments??
The US was involved in coups in the Democratic Republic of the Congo, in Iran (Operation Ajax in 1953) , in Ecuador (Jaime Roldos), Brazil (1964) in Vietnam, in Indonesia (1967), Panama, Guatemala (Operation PBSUCCESS in 1954), Chile (1973) Australia (1975), Somalia. It attempted coups in Cuba in the early 1960s. there were covert CIA operations in Laos. The JFK assassination has all the qualities of a coup.
There's a longer (but incomplete) list at:
http://en.wikipedia.org/wiki/Covert_U.S._regime_change_actions
Which national governments has the US/CIA not interfered with??
What a coincidence, that we find increasing poverty in the Congo associated, again, with illegitimate debt. IMF funds to a dictator - who got into power with the aid of the US/CIA - with no record of prudence or care in the management of those funds.
" "...Although the [Democratic Republic of the Congo] DRC Government is servicing the country’s official foreign debt, it is doing so at great opportunity cost to the nation in terms of foregone national income, as a result of which the level of poverty is rising. The country is also foregoing expenditure on education, health and agriculture, which has resulted in a reduction in the quality of education services and outcomes, an increase in mortality rates and in food insecurity.
To the extent that DRC cannot service its debt without causing harm to its peoples, the debt is illegitimate and it should be cancelled...
The Illegitimacy of External Debt: The Case Of the Democratic Republic of Congo
Final Report. ISBN 0-7974-2916-6. © 2005
All rights reserved to AFRODAD
I don't know where or how Brenda finds the time to dig up all that good stuff, but I for one am sure grateful. I knew the generalities well enough the know that YNS is being, shall we say, insincere. Thanks Brenda for filling in the details.
ReplyDeleteYNS,
There's a difference between ideology and reality which is based on the facts of a situation.
You seem to have left out some details.
We were talking specifically about Ecuador. Again, it's been democratic since 1979. It's had leftist and populist presidents since then. That's almost thirty years. I really really don't think you can blame the current situation in Ecuador (or in 1999) on the CIA (if they ever had anything to do with the pre-1979 period). Unless you're ready, for the sake of consistency, to say, give the credit for Chile's present success to Pinochet.
ReplyDeleteBrenda I mostly agree with your definition of poverty, except for the environmental stuff (mostly on grounds that when you make a definition to broad it looses usefulness). But I'm pretty sure that the trend from the early 80's up until 1994 is a positive one, interrupted by the 1999 crisis which probably undid many of the gains in all of the areas you mention (except maybe the environmental one - I don't know about that). But, again, that crisis had to do with straight up incompetence, fiscal mismanagment and corruption. No need for shadowy conspiracies or the CIA or "financial colonialism" (it still hasn't been explained how foreign investors loosing bunch of money by lending to the Ecuadorian gov constitutes financial colonialism).
As to your examples of CIA intervention, that's an entirely different discussion. Suffice to say that some of them really were what you say and some weren't.
Jack, I'm perfectly sincere. And I'm the one using facts here rather than some conspiracy theories pulled out of thin air or numbers from horribly written completely unreliable books.
Brenda,
ReplyDeleteScroll down to:
ECUADOR
The Social and Economic Impacts of Structural Adjustment Policies in Ecuador 1982-1999: Executive Summary
The Social Impact of Basic Social Subsidies in Ecuador 1982-1999: Executive Summary
@ The Róbinson Rojas Archive
YNS, what is it about the word 'empire' which isn't understood, the implementation and consequences?
Thanks for the link, Juan.
ReplyDeleteYNS said: "But, again, that crisis had to do with straight up incompetence, fiscal mismanagment and corruption. No need for shadowy conspiracies or the CIA or "financial colonialism" ...
Like Jack and Juan, I find it hard to believe that you are serious in your arguments YNS.
I didn't mean to imply that the whole disaster in Ecuador and similar 'third world' countries could be put entirely at the feet of the CIA. After all who are the US Central Intelligence Service servicing by their support of coups in these nations? The evidence points to this agency acting out the desires of US transnational corporations who, in turn, have very close links with the US government.
In the 1990s Chiquita Brands International Incorporated controlled 33% of the world’s market share of bananas. Followed by Dole with 22%. (Is that US Senator Robert Dole?)
There are 3 Banana plantations companies in South America - Chiquita, Dole and Del Monte. Ecuador has emerged as the world’s largest exporter of bananas – Their production, I have read, involves extreme impacts on the environment.
1990 the US oil company Chevron [Is that Condoleesa Rice's former company??] left Ecuador. The company is accused of spilling 18 billion gallons of toxic waste into the nation’s environment.
2005 – "The World Bank and IMF wanted Ecuador to pay of the principal of their loan early. the Structural Adjustment Program suggests that the World Bank may not be putting Ecuador's interests first. Paragraph III-2 requires electricity rates to rise to double the average price charged in the United States, far above production costs. This is quite a boon to the Ecuadorean electricity suppliers such as Noble Energy of Houston and Duke Power of the Carolinas...."
It is clear from the text of the related documents that the motive for lending to these impoverished countries was to open the door to western transnational corporations and allow a resource grab.
Related information on 'illegitimate debt' is also at:
Skeletons in the Cupboard:
Illegitimate Debt Claims of the G7
http://www.globalpolicy.org/socecon/develop/debt/2007/0209skeletons.htm
Ugh, I give up.
ReplyDeleteyns