Ecuador Repudiates Foreign Debt: It’s About Time

According to Daniel Denvir (AlterNet, December 15), Ecuador’s president announced in early December that his country would not be paying the interest on its foreign debt in 2009, repudiating it as “illegal.” The value of the bonds defaulted on amounts to 19% of GDP.

As the Australians would say, good on them. Denvir quotes a statement by the Confederation of Ecuadorian Kichwas (ECUARUNARI), part of the country’s indigenous peoples movement: “We have not acquired any debt. The so-called public debt really belongs to the oligarchy. We the peoples have not acquired anything or been benefited, and thus we owe nothing.”

That’s entirely correct. In the specific case of Ecuador, according to John Perkins (Confessions of an Economic Hit Man), the loans were designed to foment conditions that make [Ecuador] subservient to the corporatocracy running our biggest corporations, our government, and our banks.” Infratructure loans were granted on the condition 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.”

More generally, as described by Bruce Rich in “The Cuckoo in the Nest” (The Ecologist, Jan./Feb. 1994), the World Bank over the past sixty years has nurtured the growth of technocratic complexes within Third World governments, insulated from outside political control, which parrot the assumptions and goals of the World Bank.

From the 1950s onwards, a primary focus of [World] Bank policy was “institution-building”, most often taking the form of promoting the creation of autonomous agencies within governments that would be continual World Bank borrowers. Such agencies were intentionally established to be independent financially from their host governments, as well as minimally accountable politically–except, of course, to the Bank.

The World Bank created the Economic Development Institute in 1956 specifically to enculture Third World elites into the values of the Bretton Woods system. It offered a six-month course in “the theory and practice of development,” whose 1300 alumni by 1971 included prime ministers, ministers of planning, and ministers of finance.

The creation of such patronage networks has been one of the World Bank’s most important strategies for inserting itself in the political economies of Third World countries. Operating according to their own charters and rules (frequently drafted in response to Bank suggestions), and staffed with rising technocrats sympathetic, even beholden, to the Bank, the agencies it has funded have served to create a steady, reliable source of what the Bank needs most–bankable loan proposals. They have also provided the Bank with critical power bases through which it has been able to transform national economies, indeed whole societies, without the bothersome procedures of democratic review and discussion of the alternatives.

These complexes of World Bank and native government technocrats operate this way even when the government is nominally democratic; but for decades the World Bank enthusiastically pursued such policies even (or especially) within military dictatorships (often installed by the U.S., back in the days before the neocons discovered the virtues of “democracy”).

Their main function is to work in collusion with the World Bank to run up debt building the infrastructure foreign capital needs for profitable investment. A majority of World Bank loans since that agency’s inception have gone to building the roads and utilities necessary to support foreign-owned industry. The effect is to crowd out decentralized, small-scale, locally-owned industry serving local markets, and to integrate the domestic economy into a neoliberal framework of providing raw materials and labor for foreign industry.

The resulting debt (which the people of the country never approved) can then be used to further cement neoliberal policies, by blackmailing the local government into adopting a structural adjustment program. And the policies adopted under such programs generally include the “privatization” of the same infrastructure the loans were taken out to build, and selling it to the very people it was built to serve. Not only that, but the “privatization” is generally arranged on terms virtually dictated by the purchasers, with native governments sometimes spending more taxpayer money to make the assets salable than the sale actually fetches. And, naturally, the purchasing companies’ first order of business after such transactions is generally asset-stripping, with revenues from the sale of assets often exceeding the total purchase price.

In other words, Third World countries are borrowing money to buy the rope to hang themselves with.

Here’s hoping that Ecuador’s debt repudiation is the first of many more to come, and that the Third World declares its own jubilee in 2009 without waiting for permission from Bono.