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Centro de Derechos Económicos y Sociales (CDES)

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Upheaval in the Back Yard

Illegitimate Debts and Human Rights: The case of Ecuador-Norway


by Centro de Derechos Económicos y Sociales (CDES)

21 December 2006

When we hear that countries should honor the payment of their public foreign debts, we need
to ask: Who contracted these debts and how were they used? And, why should we pay them
if we derived no benefit from them?

The existing foreign public debt was contracted under financial conditions that are very
favorable for the creditors and extremely onerous for the State of Ecuador, creating a vicious
cycle within which, although we pay, we end up more and more indebted.

Many creditors, private and governmental, eager to obtain profits or benefits for their
countries, easily extend credit to countries which are not very developed without taking into
consideration their capacity to pay or their long term limitations; thus, delays in debt
payments are renegotiated at high interest rates that significantly increase the original debt.
These conditions turn the debt into a perverse instrument which favors the enrichment of a
few at the cost of the impoverishment of many. This instrument privileges the voracious
international financial system and corrupt political processes which have weakened the fragile
structures of our democratic system.

During the Ethical Tribunal on the Foreign Debt, organized by CDES and the Inter-American
Platform for Human Rights, Democracy and Development, which took place in November
2001 in Peru, Bolivia and Ecuador, we presented a case of Ecuadorian debt contracted with
Norway for the purchase of four ships by a private company. CDES brought this case before
the Commission for the Civil Control of Corruption (CCCC) whose mandate, according to
Article 220 of the Political Constitution of the Republic of Ecuador, is to “promote the
elimination of corruption and receive complaints regarding allegedly unlawful acts committed
within the institutions of the State, in order to investigate them and request judgement and
sanction.”

The joint investigation between the Commission and CDES, revealed that this debt, initially
private then transferred to the government of Ecuador, was extended in open violation of
Norway’s internal procedures, contravening the spirit and the law of international cooperation.
Moreover, thanks to the conditionality imposed by the creditors and the international financial
system, this debt has not only increased exorbitantly, but it is impossible to identify any direct
benefits conferred to the population of the indebted country.

This debt contains all of the necessary elements to be declared an “illegitimate debt.” This
debt also constitutes a clear example of how foreign debt spurs massive violation of the
economic, social, cultural and environmental rights of people, infringing the International
Conventions and Agreements of the international system of Human Rights.

The government of Ecuador assumed responsibility for part of this debt within the framework
of agreements with the Club of Paris. Over 15 years and after seven agreements, the debt
rose from its initial amount of US$ 13.6 million to total US$ 50 million, even though Ecuador
paid US$ 14 million. These agreements, far from reducing the debt, increased it instead.
If we add the fact that the whereabouts of the object of the loan (four ships) is unknown, as
well as the use to which the ships have been put to date and who derived benefits from this
use, we prove that the loan for the purchase of these ships has in no way benefited the
people of Ecuador. Instead, it has caused remarkable damage, and thus fits clearly into the
category of an illegitimate debt, given that today we owe US$ 50 million for an initial loan of
US$13.5 million. How many similar illegitimate debts are strapped to the crutch of “honoring
commitments” of sovereign foreign debt?

On these grounds, the Commission for the Civil Control of Corruption decided to “require the
national authorities, through diplomatic channels, to demand that the Government of Norway
cancel all of the obligations contracted with Ecuador under this component of the debt with
the Club of Paris, considering it illegitimate.”

This publication contains an overview of the socio-economic situation in Ecuador, an article
analyzing perspectives regarding doctrine of illegitimate debt, and the Report from the
Commission for the Civil Control of Corruption.
CDES believes it is necessary to take measures to achieve the complete cancellation or
termination of this debt, beginning with a national and international advocacy campaign
leading to the establishment of an international body for arbitration. We think that this case
of illegitimate debt could establish a clear international precedent in the search for
alternatives leading to the cancellation of the foreign debt and the extreme weight it puts on
the budgets of states, using arguments from international law and human rights, and
demonstrating that it is possible for citizens to audit the public debt and work toward its
cancellation. In this way, we hope to promote upheaval in the back yard of the world of
international finance.

Dr. Patricio Pazmiño Freire
General Coordinator
Centro de Derechos Económicos y Sociales (CDES)

Download the report (PDF) 177.7 kb


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