Can Ecuador pay?
In some of the world’s major mainstream newspapers such as the Financial Times (Ecuador threatens to become the first debtor with the ability to pay: 16 February 2007), journalists and commentators have suggested that Ecuador in fact “has the ability to repay” its external debt. They argue that the country’s debt ratios are “low by emerging market standards” with an external debt-to-GDP ratio of approximately 38%. Should the Correa Government choose to default it could “set a dangerous precedent”. What these articles have in common – and neglect to mention – is that external debt service as a percentage of government revenues is extremely high in the country. This coupled with high and worsening social indicators and serious questions in relation to the legitimacy of many of creditor’s claims throw serious doubt as to the robustness of these newspapers’ conclusions. In 2006, payments on Ecuador’s external debt reached a massive 38% of government revenues (the UN recommends that develop
