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26-10-2011

Ecuador

Debt: Background and proposals for constitutional change

Magdalena León T.

Towards the end of 2007, when the National Constituent Assembly was installed in Ecuador, there were some exceptional conditions to transform the national legal and political framework towards the external debt. National and international processes, political and governmental, ideological and pragmatic, converged in this favorable period and shaped it.

Thus, the agenda of the government of the ‘citizens’ revolution’, who started that same year, set out the alternative of escaping neoliberalism, as the main element to bring about changes needed to transform the country; debt was already seen in its wider scope as an instrument of such a model. The time had come for analyses, denunciations, actions and proposals broadly supported by social organizations, institutions and intellectuals with a critical voice to include them in public policies. As protagonists of this project of change within the government, we could highlight the participation of the following actors in the fight against debt: Rafael Correa, Alberto Acosta, Ricardo Patiño, among others.

The establishment of priorities and commitment to modify policies to face debt was felt immediately: the government adopted the thesis of ‘illegitimacy’ of the debt, and this was mainly captured in the constitution of the Commission for the Comprehensive Auditing of Public Credit (Comisión de Auditoría Integral del Crédito Público), whose task is based on a broad and innovative concept of debt auditing: “determine its legitimacy, legality, transparency, quality, effectiveness and efficiency, considering the legal and financial aspects, and impacts on the economy, society, gender, the region, the environment and nationalities and peoples.”

The realization that the debt system operates internationally and that the construction of alternatives has a similar scope, was definitive factor for the Commission to have a mixed composition, with national and international members. With this, the process is enhanced with methodological and political developments that have followed regional and global dynamics, and which now find a particular and concrete case of application, adaptation and development.

Likewise, in a decision of great symbolic weight, in April 2007, the government paid the balance owed to the International Monetary Fund, ending a relationship that was decisive in imposing economic policy conditions in the country. Along with this, the country became a full member of regional initiatives seeking to build financial sovereignty, especially the Bank of the South (Banco del Sur).

Moreover, in recent years, the country had expanded the agenda and the range of sectors involved in the search for alternatives to the tyranny of debt. This is reflected in the number and diversity of members of the National Debt Group, which has its core in a ‘specialized’ militancy, mainly guided by Jubilee 2000, which started adding indigenous, environmental, feminist, human rights, and education organizations, among many others. All of them with the common perspective of changing the model and building economic and financial sovereignty.

From this set of backgrounds and conditions, and in that diverse environment of national and international agencies and individuals, a process was initiated to develop a proposal towards the Constituent Assembly; this was the result of workshops, debates and virtual exchanges.

The proposal involved a challenge of conceptualization and synthesis of views and proposals now being debated in the region. Succinct definitions of the terms financial sovereignty, illegitimate, ecological, historical, and gender debts were prepared. Also, it was possible to identify various fields correlated with the system of indebtedness; therefore proposed statements were not confined to a section or chapter on external debt, but allude to various aspects related to orientations, planning, with integration, participation and social control, in addition to those intrinsically linked to the nature, limits and management of debt.

It is a perspective that coincides with the broad outlines of change in progress: assertion of sovereignty, recovery of the public sphere as the central axis of the country’s life and condition of ‘good living’, recovery of institutions and planning.

The proposal was sent by the National Group on Debt to the Assembly, and became one of the basic documents for its work on the subject. The Group stayed in touch throughout the duration of all discussions and definitions.

The results -still preliminary as of the date of this publication- account for a historic and qualitative change: a new vision has been added, redefining debt as an additional means of financing, to be handled in terms of sovereignty, with limits and clear checks, which consider the entirety of issues involved in debt. It will surely be the first Constitution in the world that incorporates the figure of illegitimate debt and the obligation to challenge it.

The proposal, in its conceptual and political achievements, is like a benchmark for institutional and legal changes, both under the new Constitution, and for the results of the comprehensive audit. It will be a period of new challenges, as part of the transformative dynamic that our country and the region are living.

PROPOSAL SENT TO THE NATIONAL CONSTITUTENT ASSEMBLY ON DEBT AND FINANCIAL SOVEREIGNTY [1]

GENERAL CONSIDERATIONS

During the neoliberal period, foreign debt and the system of indebtedness generally functioned as tools for imposition of an economic model riddled with injustices. The debt involved a perverse mechanism for the plundering of our resources: between 1982 and 2007 the foreign debt went from USD$3,900 million to USD$10,400 million, in that same period payments totaled USD$30,364 million.

The system of indebtedness operated to condition and control the course of economic policy, the whole economy and all public institutions, making them subject to private interests and goals of international institutions and corporations, committed to privatizing and extending the market logic to the maximum, in their own benefit. In order to do this, they did not take the path of legality and transparency, on the contrary, corruption has marked a process in which certain sectors of the country also took part, promoting a debt that allowed them to enrich themselves.

Another consequence, which is now seen with alarm and impotence, was the devastation of nature. The overexploitation of resources to meet the logic of increasing payments, and the destructive nature of some of the projects financed by foreign loans, accentuated a destructive and extractive trend, with effects difficult to reverse or compensate.

One of the ‘hidden costs’ of this debt system is that assumed by women, whose unpaid or underpaid work (income gaps are persistent) has been the basis of accumulation and what has made it possible to cope with the impacts of adjustments, the crisis, privatization, the weakening of the state. This systematically unpaid work results in economic contributions which are equivalent to at least 20% of GDP.

During this long period, a vast citizen movement joined the voices of peoples, social organizations, academic institutions, churches and women and male citizens to make denunciations and proposals. Through many initiatives, we showed the magnitude, implications and negative impacts of this logic of debt on the life of the country, individuals, communities and nature. We saw that the debt did not generate welfare, or progress, but rather created or deepened other debts: ecological, historic, social, and gender. We revealed the role of international banks and multilateral institutions, like the International Monetary Fund and World Bank, expressing our discontent with their presence and their policies.

We also proposed rules and policies, both domestic and international in their scope, to limit, control and sanction the actions shaping a debt system marked by illegality and illegitimacy, whose multiple expressions start from the creation of a false demand for credit: in the midst of an adverse geopolitical context, countries branded as ‘poor’ were induced into a spiral of debt. Paradoxically, these same countries have exported their domestic savings; to date, the country has foreign assets worth about USD$13,000 million, a number exceeding the total public debt of USD$10,400 million.

Today, as part of a process of regional and national changes, there is a new scenario where the construction of Financial Sovereignty appears as a way to overcome this dismal stage. We are in a transition phase, where the new constitution offers the opportunity to synthesize the lessons of this recent past and the challenges of protecting the country from the risks of perverse debt, stating the conditions to regain national sovereignty and promote a self-governing project.

We have taken, without a doubt, a change of paths, but the country still has an outstanding task to fulfill regarding the accumulated debt, and that has to do with insight, analysis, reorganization and resource recovery, sanctions. In this sense, the work now carried out by the Commission for the Comprehensive Auditing of the Public Credit (Comisión de Auditoría Integral del Crédito Público-CAIC) is fundamental.

This proposal, which has been enriched by talks with the CAIC, seeks to answer essential innovations that we believe the new Constitution must incorporate:

¨ Define clear principles and mechanisms to avoid a debt system which involves imposition and plundering, restoring to debt its definition as a complementary and circumstantial financing instrument.

¨ Make visible, compensate and avoid the expansion of ecological, historical, gender, and social debt.

¨ Strengthen public institutions and ensure social participation for decision-making and control in public debt matters.

¨ Assist in the construction of Economic and Financial Sovereignties, within the framework of an alternative Regional Integration.

In order to do this, we identify areas that may refer to principles of the State and the economy, links with planning, comprehensive debt rating and limit setting, decision-making and control, citizen participation, and regional integration.

They are all approaches which intend to be contributions for the building of a sovereign and fair country.

PROPOSALS

1. On principles and orientations

1.1 As a sovereign state, Ecuador is self-determined in the political, economic and financial fields, and has the responsibility of ensuring that the levels and nature of the debt do not affect national sovereignty, human rights, welfare of the peoples and the preservation of nature.

1.2 Financial sovereignty implies priority use of the country’s own resources in achieving its planned goals, making decisions independently, without impositions, with regard to access, use and control of financial resources, the existence and operation of institutions and national and regional standards that lead to a useful financial system for production and collective welfare goals in the context of transparent and supportive international relations. Financial sovereignty excludes any form or action that could cause negative impacts for the peoples, individuals or nature.

1.3 For the promotion of its comprehensive development, the State must rely on domestic savings and the mobilization of resources through various forms of international cooperation and reciprocity, minimizing the use of public debt.

2. On types of debt, limits, compensations, and exclusions

2.1 Debts are considered illegitimate when they have been contracted by de facto governments, or under pressure or coercion; when they contain negative conditionalities or charges; when they involve the destruction of biodiversity, pollution or when they involve the destruction of self-sustaining activities and communities in specific territories; those that weaken or eliminate the availability of public collective goods and services, those that directly threaten human rights.

2.2 Debts are considered illegal when they do not observe the requirements of the Constitution, laws and other national regulations.

2.3 There will be no debt in cases in which its terms of contract or execution are or may become illegitimate.

2.4 No illegal and/or illegitimate debts will be paid, this character being demonstrated through comprehensive auditing.

2.5 A limit on public debt will be set. It should be determined based on a projection of public expenditure and revenue, so that future annual payments greater than those defined here are not committed to.

2. 6 Annual payments for debt servicing may not exceed the sum of the central government budget for education and health, and will take place once all budget spending commitments and social investment, as well as those related with the economy of care have been satisfactorily fulfilled.

2.7 Nationalization or expropriation of private debts is forbidden.

2.8 No current expenditure will be financed with debt.

2.9 Compensation mechanisms for ecological, historical, and gender debt will be contemplated, in accordance with what is established by the comprehensive audits of debt. The resources that the State recovers for the non-payment of illegal and illegitimate debts or debt rescheduling will be allocated to these compensations and social investment.

¨ Ecological debt is that generated by the destruction of biodiversity, pollution, the effects on productive and dynamic areas of self-consumption, including an assessment of these impacts and costs of repair.

¨ Historic debt is that affecting indigenous and Afro-descendant peoples as a result of a long process of expropriation of their wealth and possessions. It started with the colonial plundering of indigenous peoples and has increased over the centuries through different forms of expropriation, eviction, exploitation and plundering.

¨ Gender debt equals the unpaid or underpaid cost of women’s labor, which has served to sustain conditions of production and reproduction of the economy, facilitating the payment of debt and easing the impacts of adjustment, privatization and the crisis.

3. On the link of planning and debt sustainability

3.1 National and local development plans, properly harmonized in their targets, will be the main reference to establish the priorities and needs of indebtedness. The State shall not acquire or pay any debts that fail to observe this correspondence.

3.2 The viability rating of public credit will be comprehensive, explicitly considering the economic, financial, social, gender and environmental aspects.

4. On decision-making, monitoring and control

4.1 As for the decision-making, monitoring and control stage, a Commission for Public Credit shall be established, composed of SENPLADES, the Ministry of Finance, the Ministry of Coordination of Economic Policy, the top-level public agencies that address social and environmental aspects, and those concerning citizen participation provided for in state institutions.

4.2 The Comptroller General of the State will participate in the monitoring of public credit and will be in charge of its financial auditing.

4.3 There will be a single public credit register, which the corresponding entity will be in charge of managing. All information will be transparent.

4.4 Public debt will be subject to comprehensive auditing by teams made of State delegates and social organizations. Its findings will be binding on penalties, compensation and respective corrections.

5. On Citizen Participation

5.1 Citizen participation must be ensured all throughout the cycle of debt, that is, in the moment of deciding its acceptance, acquisition, monitoring and control. In particular, consultation of the population will be a measure taken into consideration in communities where investment related to specific debts takes place.

6. On Regional Integration

6.1 Within integration processes, financing modalities and solidarity exchanges shall be advanced, generating alternative mechanisms to minimize debt.

6.2 Positive contingency clauses on foreign trade and international finance will be incorporated, leading to the non-traumatic suspension of payments when conditions so require.

Notas

[1] Document systematized and drafted by Magdalena León, REMTE.


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