Source:
Instituto Fronesis
Mon Feb 12 2007
The Commision created to investigate the Ecuadorean external indebtedness presented its final report. According to Hugo Arias, member of CEIDEX, "the contribution of the investigation lies in casting light on new evidence, not so much on specific facts but above all on the historic process of indebtedness, understood as the capture of the State and its institutions by domestic and foreign financial groups and by the governments of developed nations, in order to loot its resources and change the legal framework of the State of law so as to reduce it to a minimal State".
Interview with Hugo Arias, Jubileo 2000 Red Guayaquil, member of CEIDEX
By Rosa María Torres, Instituto Fronesis
What prompted the creation of the Commission?
The creation of the Special External Debt Audit Commission (CEIDEX) by President Palacios came, in the first place, as a response to the outcry from organised citizens who became sensitive to an oversized, illegitimate, unjust and immoral debt. Jubileo 2000 Red Guayaquil, the National Working Group on Debt and social organisations that have put the issue of debt on their agendas, have been long demanding Congress and acting governments to set up an External Debt Audit Commission. Moreover, significant audit and research work has been carried out at citizenship level. Let us think, for instance, in Alberto Acosta’s analysis on “sucretization”, the investigation carried out by the Centre for Economic and Social Rights (CDES) and the Commission for the Civic Control of Corruption (CCCC) on the illegitimacy of the Ecuadorean external debt with Norway, the Public External Debt Monitoring Groups on banking bail out, the construction of the Cuenca-Naranjal road, the good and the bad debts, promoted by Jubileo 2000 and the CCCC, the audit carried out by Jubileo 2000 to assess the swap of Brady bonds for global bonds, the research by Acción Ecológica on the ecologic impact of debt, the civil society Proposal promoted by Jubileo 2000 in October 2003, which was aimed at the implementation of evaluation and audit processes on the Ecuadorean public external debt, the bill submitted to Congress by deputy Ricardo Ulcuango in 2005.
Within this framework, it is important to acknowledge the initiative and incidence of Dr. Alfredo Castillo, then government minister, for the implementation of the Executive Decree that set up CEIDEX. Following the Minister’s resignation, the political support of President Palacio was extremely weak, if not non-existent.
How did the Commission operate?
CEIDEX’s members, Monsignor Alberto Luna Tobar, Eduardo Valencia, Alfredo Castillo, Juana Ramos, Leonardo Vicuña, Carlos Cortez and Hugo Arias, were appointed by the President from a list presented by the author of the decree, Alfredo Castillo.
The Commission, following the approval of its ordinance and rules of operation, appointed Monsignor Luna as Chairman, Eduardo Valencia as Deputy Chairman and Alfredo Castillo as Technical Coordinator.
Once the investigation plan was drawn up, a technical team was hired to work under the Technical Coordinator. On the other hand, each member of the Commission dealt with an specific issue included in the Plan.
The Commission met twice a week, devoting the first day to evaluate progress in the investigation and the second day to listen to presentations by people who are experts in debt issues from the legal, financial, economic, social and institutional fields, and social groups that have carried out studies yielding negative impacts of foreign loans on education, agriculture, hydroelectric, mining and oil projects, water works, water privatisation, etc.
These presentations represented a major contribution to the investigation of the Commission. Financial and time constraints prevented us from expanding or going deeper into some of these issues.
What are some of the main difficulties faced by the Commission?
Since its creation, the Commission was faced with many constraints to the fulfillment of ambitious goals such as those that are included in the decree: it only had a six-month deadline; it had no power to bring legal actions in case of discovering evidence of liability; there was lack of logistic support (the Central Bank of Ecuador provided us with very narrow, decrepit, half-furnished and half-equipped premises; most researchers had to carry out their work at home); it was not offered technical co-operation by those institutions dealing with debt information: Central Bank, Ministry of Economy and Finance (MEF), Comptrollership, Ministry of Foreign Affairs, etc.; there were difficulties in having access to information; and constant financial problems. The finance head office of the Presidency still owes wages corresponding to October and November 2006 (now is February 2007) to part of the staff. A printer requested in June 2006 was delivered on December 10, the day we closed the investigation. The
Commission had not even access to a petty cash.
What are some of the main “findings” of the Commission?
We all know that the debt is a three-headed monster:
1. The Ecuadorean public debt is unjust and immoral for having violated the economic, social and cultural rights of Ecuadorean people: it absorbs a large part of domestic savings and budget resources; it strenghens poverty and the underdevelopment of our people; and plunders natural resources, biodiversity.
2. A major part of debt is considered to be illegitimate because it was negotiated in a fraudulent way, on the wrong side of the law and the Constitution, and because it failed to benefit Ecuadorean people.
3. Debt became the most favourable means to impose conditionalities giving priority and ensuring debt payment, extending and ensuring free trade and foreign investment; and above all, reducing the size of the State, by cracking its institutions and sovereign power.
The contribution of the investigation carried out by the Commission lies in casting light on new evidence, not so much on specific facts but above all on the historic process of indebtedness, understood as the capture of the State and its institutions by domestic and foreign financial groups and by the governments of developed nations, in order to loot its resources and change the legal framework of the State of law so as to reduce it to a minimal State.
There follows some evidence found in such respect:
Disastrous management of debt-related information
With regards to the management of information on the debt process, we have verified:
* An inefficient, irresponsible and perverse management of files (information is scattered, badly preserved and partly missing).
* The lack of a systematic, ongoing and audited accounting of the debt process.
* No audits were performed regarding debt processes (credit negotiation and renegotiation, use of loans, inspection of construction works, payment justification, etc.).
* Discrepancies between the statistics presented in different publications by the Central Bank, MEF and IMF are outrageous.
Was there an interest in preserving chaos? For whom did control bodies work?
Management of foreign credits was left under MEF
Until 1977, the sovereign debt was approved by Congress. In 1977, the Organic Law of Financial Administration and Control transferred the power to negotiate and renegotiate foreign credits to the Executive. Such change was later endorsed by the 1979 Constitution. In 1995, the Foreign Credit Committee was eliminated and replaced by a Technical Unit of Indebtedness, made up by lower ranked representatives, which was then eliminated by decree of December 1999, thus concentrating the power to draw up and implement public internal and external debt policies on the Ministry of Economy and Finance.
Perverse and fraudulent origin of overindebtedness
The aggressive indebtedness that started to take place in the mid-1970s, arises from the interests of financial institutions and groups and Northern governments. During that decade, GDP and exports were increased ten times. Never before in its history had Ecuador accumulated so much wealth. Paradoxically, also in the 1970s, debt rose 20-fold, increasing from 260 million dollars in 1971 to 5.86 billion in 1981. Oil became the new El Dorado for speculative banking and financial vultures.
In 1982, the debt became unpayable for Ecuador, owing to the huge increase in interest rates from 6% to 18% and the fall in commodity prices, among them, oil. From then on, the public external debt continued to grow at an accelerated pace due to the so-called “sucretization” of the private debt, the accumulation of arrears, interest capitalisation and new credits to be repaid. The State fell into the clutches of the Management Committee and IMF, which represents the interests of creditor banks, thus imposing their conditions on each renegotiation.
Acting governments actively participated in the feast. In 1992, the face value of debt papers owed to private banks stood at 7.65 billion dollars. The real value of those papers in the financial markets barely amounted to 10%. On the other hand, the delinquency in payment over a five-year period, gave Ecuador the right to plead the expiration of the statute of limitations on debt before the New York and London courts. And here comes the outrageous and criminal act!
* In December 1992, executive decree No. 333 was issued, waiving the statute of limitations and validating this debt before the international banking system. Mario Rivadeneira was Finance Minister at the time, having received a favourable report from Augusto de la Torre, Technical Division Manager at the Central Bank as well as the favourable opinion of the Monetary Board and the Office of the Attorney General.
* Afterwards, in 1994, under the government of Sixto Durán Ballén, this acknowledged bank debt amounting to 7.5 billion dollars was swapped for Brady bonds, thus granting international enforceability to a practically non-existing debt.
In 1999 a new crisis broke out. The Central Bank, already in the hands of bankers for quite a long while, issued loads of sucres under the pretext of giving liquidity to technically broke banks; with that money, bankers bought dollars, thus causing both an inflation and devaluation that ended up melting down the income of all Ecuadoreans. As if that was not bad enough, banks were authorised to freeze (and make use of) the savings accounts belonging to hundreds of thousands of middle and low-income Ecuadoreans. Another criminal act! To silence this hold-up, the banking system managed to have the Agency for the Guarantee of Deposits approved by Congress, so that people who had been looted and dispossessed would have to pay themselves for their languid and devaluated credit balance trusted to corrupt bankers.
The unpaid and devaluated Brady bonds, which had fell to about 20% of their face value in financial markets, were swapped again for global bonds, at 60% and 100% of their face value, including usury rates, drastic sanctions and penalties in the event of delay and the creation of an oil fund to ensure debt payment.
The illegitimate debt was once again laundered and made enforceable. Bankers and multilateral institutions had control over the Central Bank Board, the Ministry of Economy and Finance, the Superintendency of Banks, the State Comptrollership, the Office of the Attorney General, Congress, judges... But, were the acting presidents – who have the utmost responsibility in debt processes – aware of the background surrounding these fraudulent processes?
Debt and State deinstitutionalisation
Since the 1982 crisis, the IMF started to play a major role in the economic policy, by means of letters of intent aimed at (i) controlling budget management to ensure debt payment to creditors, and (ii) imposing the necessary measures to reduce the size of State, privatise state-owned companies, open up markets and favour foreign investment in all sectors of the economy. While awaiting privatisation, state-owned companies – having been declared autonomous – turned into the spoils of war for the mobs that had control over State power. And social sectors, above all the health and education sectors, were relegated to a second level.
This situation offered an opportunity for the World Bank and other multilateral institutions to undertake the design, finance and implementation of public policies, thus completely disarticulating State functions. Acting governments only had to sign a series of programmes aimed at reducing poverty, improving education, health care, governance, fiscal responsibility, labour flexibility, social inclusion as regards to gender, indigenous communities, etc... The projects MOSTA, FASBASE, MODERSA, ORI, EB-PRODEC, PROJUSTICIA, RESCATE INFANTIL, among others, have contributed to the State’s deinstitutionalisation.
Debt and social and environmental impacts
Debt payment has brutally restricted social and productive investment in the last thirty years. Until 2000, the per capita GDP growth rate has been negative, partly due to the lack of investment, but above all owing to the decline in labour productivity levels, resulting from an untrained and unskilled labour force.
Poverty indicators and low health and education levels are alarming and we are lagging behind among countries in the region.
Projects aimed at the modernisation and development of the mining and agricultural sectors, the PRAGUAS project, multiple-purpose megaprojects, all of them financed by means of external credits, have caused serious social and environmental damage.
What are the main conclusions to be found in the report?
1. The debt was prompted by creditors with the abetment of acting governments, for the purpose of seizing the country’s resources.
2. The outrageous growth of indebtedness was feasible through illegal and fraudulent processes: usury, speculation and fraud.
3. The 1979 and 1998 Constitutions as well as specific laws granted discretionary powers to the Executive and the Ministry of Economy and Finance, thus creating the proper environment for committing abuses and irregularities.
4. These cases should be audited in order to establish responsibilities and repudiate the payment of debts that are proven to be illegitimate.
5. Debts were used by the IMF and World Bank to impose a neo-liberal economy on the country through the application of rules included in the Washington Consensus. State responsibilities were reduced, several institutions were eliminated and laws were changed so as to free the actions of the banking and financial system from all kind of control or regulation.
What was the reaction of President Palacio and his government to the report drawn up by the Commission?
We never felt neither the interest nor the support of President Palacio for debt auditing. Once the investigation was concluded, the Commission failed to obtain the appointment requested 15 days in advance to furnish him with the final report. Finally, the report was delivered to the General Secretary to the President, just as an ordinary document among so many others.
What comes next? What are the steps to be followed?
To set a new sovereign policy of indebtedness into motion:
1. To recover State sovereignty and institutionality from local and international speculative banks.
2. To allocate domestic resources to social and productive investment
3. To put an end to IMF and World Bank meddling in Ecuador’s economic and social policies.
4. To launch de-indebtedness strategies.
5. To officially create a standing Commission or Body for debt auditing and investigation purposes, including the participation of citizens.
6. To ensure an honest, necessary and productive indebtedness.
7. To suspend payment of global bonds and other debts showing clear signs of illegitimacy.
8. To take the lead in the region with regards to the following issues: the illegitimate debt, the new international financial architecture, the international financial code and a regional monetary system, a Southern Bank to replace the IMF and World Bank.
9. To fail to acknowledge the existence of the Paris Club.
Guayaquil, February 4 2006.
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