It is perfectly possible for a country to refuse to pay its debt

Thursday 10 February 2011, by Eric Toussaint, Mamadou Sarr

All the versions of this article: [English] [français]

The Committee for the Abolition of Third World Debt (CADTM) calls on African governments to follow the examples of the developing South American countries that have refused to repay the illegitimate debts that are demanded from them. According to Eric Toussaint, President of the CADTM “it is perfectly possible for a country to refuse to pay its debt.” This is demonstrated by several experiences.

Ecuador, Argentina, Paraguay are all countries that have refused to repay debts to the World Bank, the IMF, the Paris Club and bankers. Eric Toussaint mentioned these examples yesterday at the UCAD press conference at the World Social Forum . ’If I give you these examples it is to show you that it is perfectly possible for a country to refuse to pay its debt. In contradiction to all the cries of catastrophe, it does not produce chaos. Argentina experienced a growth rate of over 8% in 2003. Ecuador is experiencing a growth rate of 3 to 4%. These countries have not experienced chaos. Instead, they recorded an improvement in wages, pensions and the living conditions of the people ’, says Eric Toussaint, who participated in auditing these countries debts.

He further says that these South American experiences could inspire African countries from whom illegitimate and illegal debt is claimed. Among these experiences, the most interesting is Ecuador, where CADTM was directly involved in the audit of the debt. ’When President Raphael Correa was elected in late 2006, he inaugurated a process that he called ’the Citizens’ Revolution’. He immediately pledged to audit the Ecuadorian debts taken on between 1976 to 2006 and created a commission of eighteen experts in debt, in which Eric Toussaint took part. After fourteen months of work in which tens of thousands of files and hundreds of contracts were examined, the commission submitted its recommendations to the government. Eighty percent of the public debt of Ecuador was identified to be illegitimate debt, and on the basis of the commission’s recommendations, the government unilaterally decided to suspend the payment of certain government bonds’.

These bonds, with maturity dates between 2012 to 2030, for a value of $3.23 billion, had been offered on the financial markets, especially on Wall Street, ’When the unilateral sovereign act of suspension of payments was announced the holders of these securities, mostly North American bankers, began to sell them off at 20% of their nominal value. The Ecuadorian government managed to buy 91% of them for a total cost of no more than $900 million. The total savings, including capital stock and the interests that will not have to be paid, up to 2030, amount to $7 billion. This allowed the government to reduce the proportion of the state budget devoted to servicing the debt from 32% to 15% and to increase social spending from 12% to 25% of the budget. So there was a definite inversion of priorities ".

Éric Toussaint reveals that ’Ecuador, and you do not hear much about this, expelled the World Bank’s permanent representative. This act is never mentioned because the World Bank does not want it known that its representatives can be expelled. Ecuador evicted the IMF from its offices on the premises of Ecuador’s Central Bank and resigned from the ’International Centre for the Settlement of Investment Disputes’, the tribunal of the World Bank, as Bolivia had done two years earlier. So we think this example from Ecuador, may well be reproducible in the majority of African countries. This should certainly be reproducible in Greece, for example, which is faced with a terrible debt crisis’.

Another example that was explained at the conference comes from Argentina. According to Professor Toussaint, the country suspended debt repayment in 2001, in the wake of a social movement somewhat comparable to that of Tunisia in January 2011. ’Argentina suspended the repayment of $1,000 billion of securities from December 2001 to March 2005. Argentina also suspended debt repayments to the Paris Club which along with the IMF and the WB is a major creditor to the sub-Saharan countries. As from 2001 Argentina suspended the payment of debts for $6 billion to the Paris Club countries and has not, as yet, resumed them. No journalists were informed of this situation because the Paris Club does not want it to be known around the world that refusal to pay is a possibility, they say nothing and cover-up. After ten years of non-payment, Argentina has proposed to reopen dialogue with the Paris Club on condition that the IMF is not present. Contrary to its usual practices the Paris Club has agreed.

The last example that Eric Toussaint gave, is from Paraguay that repudiated its debt to Swiss banks in 2005. “Switzerland was not happy and took proceedings against Paraguay, who replied”We do not care about these convictions. Better that that, we will take Switzerland before the International Court of the Hague over the way it protects its bankers.“”Switzerland has kept silent," he added. Before underlining that he gives this example, to point out that there are other sources of inspiration for other governments. ’Governments under the pressure of social movements must initiate debt audits and take unilateral action to stop paying their debts’, says Eric Toussaint. He thinks that Tunisia could follow this example ’if we have a government, that excluded RCD [1], actually listening to the social movements it could set up a debt audit committee and, if the results indicate it to be justified, decide on the suspension of payments.’
It’s time to audit the debts!

Translation : Mike Krolikowski


[1Democratic Constitutional Assembly: the party in power in Tunisia during the Ben Ali regime, it was dissolved in March 2011 (this article was revised in May 2016).