Comments on: Rhetoric and reality in Ecuador’s default A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Felix Salmon Mon, 04 Jan 2010 21:20:56 +0000 Dollared, you’re talking here about the doctrine of “odious debt”. There’s quite a lot of literature on the subject, and in the vast majority of it Ecuador’s bonds would not count.

By: Dollared Mon, 04 Jan 2010 18:14:17 +0000 Felix, I think you are reading the case too narrowly.
Ecuador’s argument is not based primarily on usurious or immoral terms, as you suggest – it is based on invalid authorization of the debt transaction, and so therefor the debt cannot be enforced against a legitimate government.

The key question is whether the citizens of a nation under a dictator can be bound by that dictator to pay debts incurred by the dictator. Can some fancy pants from Citi get together with Boeing and the Generalissimo’s money men, and make a big loan so the Generals can buy 20 F-16s and send the bill to the general population for payment later? It did happen….

There is a strong argument for disavowing the debt if the government or process that incurred the debt is improper. There is plenty of precedent for this in the US, where municipal debt can be invalidated if the proper political procedure for authorization is not followed, and there are cases in corporation law as well, when (for example) the board does not authorize borrowing by corporate officers. The lender always bears the risk of failure to properly authorize the transaction, which is why lenders are usually so careful about this.

Of course, it helps the argument in favor of default that much of the money disbursed went to line the pockets of a corrupt elite that was abusing its coup-derived monopoly on political power.

Ecuador appears to be focused on this argument (although I don’t know Ecuador’s political history, so I can’t comment on the specific case). The money quote comes early: “An independent debt audit commissioned by the government of Ecuador documented hundreds of allegations of irregularity, illegality, and illegitimacy in contracts of debt to predatory international lenders.” “Irregularity” and “Illegitimacy” appear to be the key terms.

The Jubilee org seems to see this issue as well. _upload/Resources/Policy_Archive/408brie fnoteodiousilldebt.pdf. I’m sure Otto@ can find you better Spanish language sources.