Ecuador delivers historic audit

Ecuador made history this month when its Debt Audit Commission completed the world's first government-led review of the true impacts of a country's debt.

The main findings of the Commission were that foreign loans had caused "incalculable damage" to Ecuador's economy, a fact illustrated by statistics showing that, in some years, nearly 70% of the national budget had to be diverted towards servicing debts. The report finds that from the 1980s onwards, only 14% of new loans were invested in social projects while 86% of loans were used to pay debts.  

The State Attorney comes under criticism for overseeing this by signing terms dictated by lenders rather than ‘defending the national interest'. Overall the Commission felt the results illustrated multiple principles of international and domestic law being broken by the loans and their impact. The overall impact of the debt was a government forced to act in the interests of the financial system and transnational corporations rather than the people of Ecuador.  

The process of researching the report was hard. The first challenge was deciphering arrangements between the state and international lenders and making backroom deals transparent.  Even though it had Presidential backing there was resistance from the Ecuadorian Central Bank and officials from the Ministry of Finance to hand over the necessary documentation. Although the report faced obstructions in writing, it is only the President who has the power to do anything with the recommendations. 

The international impact of this report cannot be underestimated. The last time any similar form of investigation occurred was from the viewpoint of the donor rather than the recipient. 2006 saw Norway cancel $80 million of debt owed to it by five countries after evaluating the impact of the loans upon the countries concerned and concluding that the impact only benefited the donor country rather than the recipient. 

The audit is a significant step forward for the global campaign against illegitimate debt, strengthening debt campaigners' argument that the present debt cancellation system is not up to the job of delivering justice and sustainability. At the moment, if President Correa agrees with the Commission that one or more of Ecuador's loans should not be repaid on the grounds that they are illegitimate, there is no international legal mechanism that allows him to have that claim verified. Instead, he must appeal to the political whims of the lenders. 

A UN conference in Doha in November will consider how the international financial system can be changed to work more in the interest of development. Jubilee Debt Campaign is calling for a new, fairer system for dealing with international debts to be proposed - a ‘Debt Tribunal'. Such a tribunal would recognise that lenders share responsibility for the loans that they give and would give poor countries the opportunity to challenge the legitimacy of their debts. If established, this tribunal would be another key step in ensuring that the principle of economic justice is followed when lending internationally and not just short term profit.