July 30, 2020
Lenin Moreno Garces
President of the Republic of Ecuador
Minister of Economy and Finance
General Legal Counsel, Minister of Economy and Finance
By means of this letter, as former members of the Public Debt Audit Commission, and in response to a call from Ecuadorian civil society, organizations and social movements, we denounce and warn the world about violations and a breach of constitutional mandates with regards to the external debt renegotiation currently in progress. The Public Debt Audit Commission, as an entity appointed by the Ministry of Economy and Finance, was created on July 9, 2007 pursuant to Executive Decree No. 472. The Summary of the Final Report, published on September 2008 is an official document of the Ecuadorian government. It is 225 pages long and was a result of extensive economic, financial and legal research and analysis. The members of the Commission were Ecuadorian and foreign experts on debt.
The decision made by the government between February and June 2020, as part of the debt renegotiation (“consent solicitation”) and during the COVID-19 pandemic, to pay 2020 bonds and to also pay in advance (through margin calls and penalties) repo operations with Goldman Sachs and Credit Suisse in order to recoup around $3 billion in global bonds was a huge liquidity drain. The above operations were officially admitted by the Ministry of Economy and Finance (see press releases on May 28 and July 7, 2020) and were made in contrary to a unanimous resolution by the National Assembly (RL-2019-2021-063, March 24, 2020) and also against the unanimous rejection by all parliamentary caucus leaders. In addition to this, the advance payments allowed creditors to receive the totality of their loans, which raised expectations to the rest of the commercial debt creditors in the June-August 2020 negotiations.
The proposed renegotiation, although it was framed as “good news” for Ecuador on July 7, 2020, omitted the fact that debt renegotiation started out from the par value of the bonds, as if the coronavirus crisis had not existed, and in violation of Ecuador’s Constitution’s article 290. The financial conditions proposed by the Ministry of Economy and Finance on behalf of the Republic of Ecuador do not take into account the market value of the foreign debt bonds, that were priced between 20 and 25 cents on the dollar on March 31, 2020 and were priced at 35 cents on the dollar at the Credit Default Swaps auction on May 19. Creditors’ ledgers had already updated those losses.
The Final Report by the Public Debt Audit Commission highlights the fact that the Brady Plan and the Global Bond exchange did not take into account the market value of Ecuadorean bonds was deemed hurtful and illegitimate. Ecuadorian foreign debt is thoroughly regulated by article 290 of Ecuador’s Constitution. The Constitution prohibits anatocism in debt renegotiations. The “Invitation Memorandum” issued by the Ministry of Economy and Finance on behalf of the Republic of Ecuador includes the interests becoming principal as a PDI bond, with the potential of payment of compound interests in case arrears occurs. The country’s commitment to such an arrangement is anatocism and the express violation of article 290.4 of Ecuador’s Constitution. The above referenced acts will inevitably carry legal action that must filed before respective jurisdictional bodies.
Ecuadorean citizens have not been told that within the “Invitation Memorandum” to creditors, Ecuador committed to an announcement of a staff-level agreement with the IMF by July 31, 2020. This will translate into further economic, social and cultural rights violations against Ecuadorian people. The principle of progressiveness of the International Covenant of Economic, Social and Cultural Rights and the San Salvador Protocol of the Interamerican Convention of Human Rights establishes that public services that guarantee human rights cannot be diminished on its quality or coverage. To that end, both international human rights instruments mandate that states must make use of the maximum available resources.
This renegotiation proposal does not contribute to the principle of use of maximum available resources to the State, it is tied to a new program with the IMF and the macroeconomic assumptions contained in the “Invitation Memorandum” are not in line with the required financing for the United Nations’ Sustainable Development Goals. What the government intends to approve would contradict article 290.2 of Ecuador’s Constitution, which states that “public indebtedness will be overseen so as to not affect sovereignty, the rights of good living and the preservation of nature”.
The current international context, in which dozens of countries are facing debt crises, must be an opportunity for an public international legal framework related to sovereign foreign debt restructuring. If Ecuador accepts these draconian legal conditions before everyone else, it will become a negative precedent that will adversely affect nations South of the Rio Grande. It should not surprise us that the same creditors that have resisted an agreement with Argentina have been swift to agree with Ecuador. In the midst of a pandemic – and the health, economic and social crisis it carries – it is the moment to invoke the fundamental change in circumstances and the state of necessity to declare the non-payment of these external debt bonds, until a mutually beneficial solution is reached at the global scale.
We call upon the Ombudsman in Ecuador to oversee the compliance of human rights in the context of foreign debt by the General Legal Counsel of the Ministry of Economy and Finance, particularly, the application of guiding principles in matters of the United Nations External Debt and Human Rights, the UNCTAD Principles for Sovereign Lending and Borrowing and the Reports by the Special Rapporteurs and Independent Experts on foreign debt and human rights of the Human Rights Council at the United Nations. These are all binding instruments in the case of Ecuador, according to article 93 of the Constitution.
We remind the President of Ecuador that, as Chief of the Executive and as President of the Debt and Financing Committee; we also remind, his delegate Veronica Artola, the Secretary of Planning Sandra Argotty, the Minister of Economy and Finance Richard Martinez and the General Legal Counsel of the MEF Guillermo Lascano; that article 290.6 of Ecuador’s Constitution states that “Administrative and civil liabilities caused by the acquisition and management of public debt will not prescribe”.
As Article 289 of our Constitution says: “The State will promote the instances for citizen power to watch and audit public debt”. In order to convey to citizens, the power to oversight and audit public debt, we demand that the “Invitation Memorandum”, already published by the U.S. District Court of New York, be made publicly available in Spanish for the benefit of Ecuadorian people, as established by article 2 of the Constitution.
Finally, but not less important, we call upon academics and social, political, indigenous and rural movements, and the Ecuadorian people, to make true the power of citizens for urgent oversight and audit of public indebtedness.
Former members of the Debt Audit Commission:
Maria Lucia Fattorelli