Ecuador Credit Talks Silent on Debts to History

Ecuador won approval to restructure about a third of its international bonds this week, alleviating part of the fiscal hangover from the Correa administration’s ruinous decade in power. But while Finance Minister Richard Martínez negotiates with the country’s creditors abroad, a deeper debate about the nation’s historical debts is still needed at home.

Behind Ecuador’s ten sovereign defaults lies a basic disconnect between the Andean nation’s political elites, who control spending, and the people who are forced to pay for it. While this is an over-simplification, it can be seen perhaps clearest in the betrayed promises of Bolívar’s independence movement in the nineteenth century, after which regional governments reinstated indigenous tributes to pay off their war bonds while simultaneously restricting indigenous rights as full citizens.

It happened again at the turn of the twentieth century when the government sold bonds to build the Quito-Guayaquil railroad, a project underwritten by forced labor and designed to support a plantation economy premised on paying workers the lowest wages possible. This was the Ecuadorian dream peddled by the country’s liberal and conservative parties a century ago and it remains the essential ideology today.

But an economic model that relies on keeping so many at poverty wages can’t be fixed by lowering interest rates. This should matter to bondholders, too. The tensions inherent in an economy based fundamentally on labor exploitation are relevant when it comes time to repay creditors. That’s what the October protests were about. That’s why Ecuador defaulted. You get conflict in a crisis instead of cooperation.

In recent decades, governments have increasingly used petro-dollars to buy off important social sectors, but as the recent oil collapse shows, banking on volatile commodities to stabilize a political system is a recipe for disaster. And instead of using oil revenues as a bridge to resolve these social conflicts, it’s just allowed multiple generations to avoid making tough decisions. Yet as Correa’s squandering of hundreds of billions of the nation’s oil profits made clear, money can’t solve Ecuador’s problems. And neither can its creditors in Washington, New York, or Beijing.

N. H. Gill
Quito, Aug. 4, 2020

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