21 November 2008

Our illegitimate debt

The government of Ecuador is considering defaulting on 40% of its debt because it's "illegitimate, corrupt and illegal" (as per the words of president Rafael Correa). An ad hoc international committee studied 32 years of indebtedness, with a focus on the dictatorial period of 1976–1980, and produced a 30,000-page document detailing how and why a large part of the buildup of Ecuador's US$13-billion debt involved questionable or outright criminal maneuvers by governments, creditors, negotiators and other middlemen.

The committee included President Correa's advisor, Argentine historian Alejandro Olmos Gaona. You might remember I mentioned the possibility of Argentine collaboration with Ecuador in a post of February 2007.

Crítica de la Argentina titles this, quite appropriately, Ecuador hizo el Nunca Más de la deuda — a reference to Argentina's Nunca Más ("Never Again") document about forced disappearances. To my knowledge, this is the first time a Latin American country revises its history of debt in this manner. Most of if not all Latin American countries have had long periods of right-wing dictatorship in the late 1970s and early 1980s and neoliberal governments during the 1990s, and a common tendency for these has been to get the country indebted with the IMF, the World Bank and other financial vultures, then divert funds for corrupt purposes and finally trash the economy, leaving the next administration with no seeming choice but to ask for more money and repeat the cycle... each time squeezing the economy a bit more.

Not only did the Argentine military abduct, torture and murder thousands, but they also increased our debt and stole whatever they could. A creditor that lends money to a corrupt, illegal government shouldn't expect to be paid, least of all if the negotiators and overseers of the loans were well aware of that corruption. Moreover, anything done under the pretense of legality during a dictatorship shouldn't be, in principle, considered legally binding. (Laws and other regulations passed by a dictatorial government should be voided ipso facto, though this hasn't been done for practical reasons.)

In 2000, Judge Jorge Ballesteros ruled that the part of Argentina's external debt contracted during the 1976–1982 dictatorship was fraudulent, due to more than 470 irregular operations detected in the loans' proceedings. The debt went from 7 to 45 billion dollars, including formerly private debt that was nationalized by then-minister Domingo Cavallo (a specialist in this matter, judging by his career). Ballesteros left it in the hands of Congress to take action. Nothing happened.

Argentina has much to learn, even from Ecuador — most people don't even question the legality of the debt, but only complain about the politicians who took the money. Would it be impossible to repeal the illegal debt and take the responsible people to court? Even in those cases where 30 years have passed, an argument could be made that Argentina's indebtedness has caused more misery and death than all our dictators. Of course, the reason is political: most of those who benefited from bankrupting the state repeatedly are still Senators, Deputies, ministers, government secretaries, prominent lawyers, presidents of corporations, respected bankers, or family or relatives thereof. In politics and big money, these dynasties and mafia-like networks, essentially the country's owners and managers, haven't changed in decades.

PS: More reading material: Committee for the Abolition of Third World Debt.


  1. Anonymous01:55

    I am reading the Shock Doctine at the moment that describes much of this. It is a scary thing to realize the few people world wide who have benefited from the neo-conservative markets. What started with Pinochet in Chile has blossomed into the dictatorships in Argentina, the poor economic decisions in Bolivia, the sellout of South Africa, the poor deregulation of Poland and many more situations.

    What you say is true. Illegal debt is brought on by horrible political conditions and that leaves the next government's hands tied. The true criminal is the IMF who refuses to cancel debts without major privatization that ultimately just starts the whole cycle over again.

    Not sure if you have access to the Shock Doctrine, but I can send you a copy when my girlfriend returns to Argentina. Its written by a Canadian,Naomi Klein, but her husband made the documentary "The Take" about an Argentine factory a few years ago.

  2. I've added the website of the Committee for the Abolition of Third World Debt as reading material.

    Jeff - I don't remember seeing "Shock Doctrine" around here, but let me check just in case. "No Logo" did reach Argentina, and I did hear about "The Take" back then.

    Do you think globalized neoconservatism/neoliberalism is dead or dying right now, or will it make a comeback?

    When the Kirchners decided to pay off the debt with the IMF I was in agreement, mostly, though I had people tell me it shouldn't be paid (because it was illegitimate debt). In retrospect I still think it wasn't a bad idea. A couple of other countries (Brazil and Turkey? or was it Russia?) also let go of the IMF and, since the IMF basically feeds on usurary interest rates more than just nominal debt repayment, this had the effect of depriving them of money and influence. What do you think?

  3. Anonymous13:29

    Hey Pablo,

    Im not sure about countries being affected by not repaying their debt. What happened in Russia and Poland and Bolivia is they made an agreement with the IMF to default on their previous loans. That agreement came at the expense of privatization of their services. So the IMF lent them more money, ignored the previous debts and tied the governments hands in doing as they wished.

    Brazil did default on a wide amount of their debt without an agreement. It likely did affect them in the short term, but as a country that exports both raw materials and products, they were ultimately forgiven.

    Today, Brazil likely has the best economy in South America, although they have widespread poverty as well.

    Sadly, neo-con strategies are far from dead. The fact they don't really work long term is irrelevant, as people like earning money when they can.

    The most recent examples are, of course, Iraq and Afghanistan. In both countries, the US used shock tactics by attacking and making everyone fear for their lives. During that time, there was radical changes to the economic make-up of their companies and foreign companies end up owning the power services, oil, gas, anything that makes money.

    When Hurricane Katrina devastated New Orleans, the neo-cons moved in. Where there used to be dozens of public schools, there are only a few now and most people must attend a private institute that costs way more.

    When fishing villages were destroyed in Sri Lanka after the tsunami, they were replaced by ocean side resorts and the homeless fisherman were sent inland...


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