I have no views on Ecuador's default one way or another -- I don't know why they did it and don't know where they are going with it. But Felix Salmon sure has views. Check it out:
In the annals of idiotic political decisions, today's default by Ecuador has to rank pretty high. The country failed to pay a $30.6 million interest payment on its 2012 global bonds, despite the fact that it has $5.65 billion in cash reserves and debt service accounts for less than 1% of Ecuador's GDP.
As a result, Ecuador's economy will suffer greatly. The country is a major exporter, not only of oil, but also of such things as shrimp, bananas, and cut flowers; trying to get trade finance for any of that will now be all but impossible.
...
[Ecuador] has no chance [of winning the resulting legal dispute] for one big reason: Ecuador has dollarized. The dollar is the legal currency of Ecuador; there is no other. As a result, all of Ecuador's assets, ultimately, are US assets.Ecuador's bondholders will vote to accelerate its debt very quickly. As a result, Ecuador won't have to just pay its $30 million coupon payment any more: it will have to pay the full $510 million principal amount. And the chances are that the 2015s and 2030s will be accelerated too. What's more, if it doesn't pay up in full, its creditors will surely find a way to take the money anyway.
...
If this default isn't cured in a matter of days, Ecuador is going to lose billions of dollars it can ill afford to see go. Surely Correa knows this -- and surely he knows, too, that whenever Latin American presidents announce a debt default, they rarely last long in office. Which makes this decision even more inexplicable. But there's Ecuador for you: always bet against the country taking the logical and sensible course of action, and you're likely to make a lot of money. [Emph added.]
Salmon seems bewildered as to why the country would do something like this. Here's a hint: Ecuadorians resent US power, resent the influence it has exercised over the country's internal affairs and resent the condescending manner in which it has been treated by American politicians, military officials and, I guess, financial columnists.
And it's not surprising, given the sheer arrogance exhibited right here. "The dollar is the legal currency of Ecuador; there is no other. As a result, all of Ecuador's assets, ultimately, are US assets." Huh? Really? I mean, wow. And: "if it doesn't pay up in full, its creditors will surely find a way to take the money anyway." By hook or crook, no doubt.
But the fact is, American interests haven't needed the pretext of a bond default to assume such an attitude all along. For example, the US built a military base on Ecuadorian soil some ten years ago, in a deal signed with a lackey president on his knees to the IMF, and saw fit to pay rent of $0/year. The base was allegedly used to coordinate a recent attack by Columbia on Ecuadorian soil. (Can Salmon imagine an Ecuadorian military base in, say, Oregon? Especially if it were to be used to help the Mexicans attack California?) Correa quipped in the last election campaign that the foreign oil companies were in fact charities, for the tax returns of their local subsidiaries have never shown a profit and therefore never paid any tax. There is an "oil bar" in Quito where the industry ex-pats hang out and where darts is a popular past time. Salmon should spend an evening there, hoist a couple, and shoot the shit with these guys. Ecuador and Ecuadorians exist to be fleeced, don't ya know?
Or how about this for a good deal:From a list of donations to be made by Agip Oil Ecuador to the Huaorani tribe in eastern Ecuador, in return for releasing Agip from any liabilities when carrying out oil exploration on Huaorani land. The contract dates from 2001 and was obtained last year from Bolivar Beltran, an Ecuadorian lawyer, by journalist Kelly Hearn. Translated from the Spanish by Dan Keane.
Two (2) buckets of lard
One (1) sack of salt
100 pounds rice
100 pounds sugar
One (1) chalkboard
One (1) Ecuadorian flag
Fifteen (15) plates
Fifteen (15) cups
Fifteen (15) spoons
Two (2) pots
Two (2) ladles
Two (2) soccer balls
One (1) stopwatch
One (1) referee whistle
The US stands as the world's biggest debtor by far. One day it might find itself in tough times and in need of refinancing. Or, in the least, in might find itself in need of oil, as it has burned through most of its own. Is it really in the long term interests of the country to continue to exercise a heavy hand in relations with its neighbours, as is seemingly being advocated here?
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