Adopting the slogan “life before debt,” Ecuadorian President Rafael Correa announced that his government will default on $3.9 billion in foreign commercial debts
For much of the 20th century, Latin America was the backyard of the stronger, more powerful United States.
Any Latin American government unfriendly to the neoliberal ideology of free trade and privatization could be bullied into toeing the party line with the help of CIA-sponsored coups. But once the Cold War ended and international organizations started frowning on blatant intervention, a new control mechanism was needed in the region. Rather than strong-arming resistant governments through military might, the United States sought control through a Faustian series of trade agreements and financial aid. Access to the desirable US market was permitted as long as Latin American countries allowed American corporations to operate in their territories with complete disregard for labor rights or environmental protection. Those countries unable to finance their own infrastructure were offered financial aid, a euphemism for loans.
No loan is ever offered free of conditions. In the case of international financial aid, countries on the receiving end are obligated to align their economic and monetary policy to strict neoliberal theory. Historically, this so-called aid and its totalitarian influence over policy has been devastating to Latin American countries. Argentina went broke after years of artificially tying its peso to the US dollar. Bolivia, taking transplanted neoliberal economics to the extreme, privatized water in the city of Cochabamba, threatening the very subsistence of its own people. Venezuela, despite having one of the world’s most profitable oil industries, saw poverty rates skyrocket as the wealth concentrated by oil privatization grew. Finally, after decades of savage capitalism nearly levelled their economies, Latin American governments began to act. Argentina kicked out the IMF and began an unprecedented economic recovery; the water crisis in Cochabamba spurred a regime change in Bolivia that culminated in the election of the socially-minded Evo Morales; Venezuelan President Hugo Chavez shocked the world by reclaiming many of his country’s economic assets, nationalizing key industries like oil and cement.
In December 2008 Ecuador made a stand and joined the growing list of countries rejecting capitalist policies. Adopting the slogan “life before debt,” President Rafael Correa announced that he would follow the recommendation of a special audit commission and default on $3.9 billion in foreign commercial debts. Declaring the debt not only illegitimate but also “immoral,” the president sought to assure the world that his decision in no way indicated an inability to pay. Ecuador, he maintains, is simply unwilling to pay.
The justification for Ecuador’s massive default: disproportionate collateral that the country was forced to deposit in the US Treasury, interest rates more than twice as high as market rates and an obligation to use 70 percent of its oil profits toward debt repayment. Correa also cited a presidential commission report that found that previous governments had illegally sold Ecuadorian debt to pension funds, hedge funds and overseas investors. Pledging to divert revenues to the county’s faltering education system and social services, Correa promised to reconcile “social debt” before debt to foreign creditors. And though the move will undoubtedly invite a backlash from trade partners and international organizations, Correa is steadfast in his decision. “We are prepared to accept the consequences,” he has said, arguing that any loss of international capital will be more than compensated for by increased spending in social programs and expanded trade within Latin America.
In choosing to step beyond the paradigm and to examine the underlying fundamentals of commercial debt, Correa has taken a monumental first step in the fight against international usury. Ecuador’s default has struck a definitive blow against savage capitalism and pushed far beyond what other countries in the region have accomplished to date. Argentina, Bolivia and Venezuela may have taken steps to disentangle themselves from neoliberal policies, but they have done so from within the system. They have all continued to make payments on foreign debt and have compensated the multinational corporations that were so ceremoniously expelled from the region. Only Ecuador is acting preemptively, on a matter of principle, and breaking the rules of conduct.
Ecuador’s act could be the beginning of a revolution in which leaders of developing countries realize that their obligation is to defend the well-being of citizens and not to submit to Western-imposed neoliberalist policy. Ecuador may not be wealthy, powerful or even politically relevant to most of the developed world, but it is now a beacon of strength for the dozens of countries spending more on loan interest than on health care and education. By choosing people before money and life before debt, Ecuador is beginning to make cracks in the capitalist system.
What would happen if this kind of thinking were to spread throughout the continent and beyond? Brazil, India, Indonesia, Mexico, Nigeria, South Africa, Sri Lanka and Turkey are among the world’s most indebted nations. Imagine if each of them were to follow Ecuador, by stepping beyond the paradigm and examining the validity and morality of their own debts. Imagine the cracks that capitalism would suffer if each of the world’s bonded nations shook free from the shackles of debt and worked together to design a more equitable, just and humane system – one in which profits were measured by social rather than corporate gains.
Monica Lopez is the Editor-in-Chief of Mexico Design magazine.