Rather, he framed it as a moral stand: "As president, I couldn't allow us to keep paying a debt that was obviously immoral and illegitimate," Correa told an international news agency. The news was mainly reported in financial publications, and the stories tended to quote harsh critics who characterized Correa as an extreme leftist with ties to Venezuelan President Hugo Chavez.
But there's much more to the story. The announcement came in the wake of an exhaustive audit of Ecuador's debt, conducted under Correa's direction by a newly created debt audit commission. The unprecedented audit documented hundreds of allegations of irregularity and illegality in the decades of debt collection from international lenders. Although Ecuador had made payments exceeding the value of the principal since the time it initially took out loans in the 1970s, its foreign debt had nonetheless swelled to levels three times as high due to extraordinarily high interest rates. With a huge percentage of the country's financial resources devoted to paying the debt, little was left over to combat poverty in Ecuador.
Correa's move to stand up against foreign lenders did not go unnoticed by other impoverished, debt-ridden nations, and the decision could set a precedent for developing countries struggling to get out from under massive debt obligation to first-world lenders.
Ecuador eventually agreed to a restructuring of its debt at about 35 cents on the dollar. Nonetheless, the move served to expose deficiencies in the World Bank system, which provides little recourse for countries to resolve disputes over potentially illegitimate debt.
Sources: "As Crisis Mounts, Ecuador Declares Foreign Debt Illegitimate and Illegal," Daniel Denvir, Alternet, November 26, 2008; "Invalid Loans to Ecuador: Who Owes Who," Committee for the Integral Audit of Public Credit, Utube, Fall 2008; "Ecuador's Debt Default," Neil Watkins and Sarah Anders, Foreign Policy in Focus, Dec. 15, 2008
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