MercoPress. South Atlantic News Agency

Creditors group condemns Ecuadorian decision to default

ATFA Co-Chair Nancy Soderberg

The American Task Force Argentina (ATFA) condemned on Thursday Ecuadorian President Rafael Correa's decision to default on 3.8 billion US dollars in government debt owed to foreign lenders, the country's second such default in the last decade.

AFTA argues that Ecuador currently holds 5.65 billion in reserves -- sufficient to pay off the entire debt, and much more than enough to pay the 31 million USD interest payment that prompted the default -- but President Correa has called these bonds "illegal" and "illegitimate". "Ecuador is making a grave mistake in following Argentina in defaulting on its financial obligations to international bondholders," ATFA Co-Chair Nancy Soderberg said. "Ecuador's actions could drive foreign capital out of Latinamerica and create more economic instability in the region." Argentina defaulted on 81 billion USD in sovereign bonds obligations to investors in 2001 -- the largest sovereign debt default in history -- and then offered "the worst restructuring terms on record". When half of its foreign lenders declined those terms, Argentina "illegally repudiated those debts". AFTA said the Argentine government's refusal to honour its debt obligations has cost US lenders, investors and taxpayers more than 10 billion USD. Like Ecuador, Argentina can afford to repay its foreign debts, but instead followed a course which has effectively barred it from foreign credit markets. ATFA is working with US Representatives Sheila Jackson-Lee (D-TX) and Ed Towns (D-NY) to enact the Judgment Evading Foreign States Accountability Act(JEFSA) to encourage economic accountability for nations to deal fairly with creditors. "Most citizens incur some sort of financial penalty when they default on their creditors and defy court judgments, but sovereign nations aren't being held to a similar standard," said ATFA Executive Director Robert Raben. "JEFSA seeks to correct this problem by protecting U.S. investors and taxpayers, and promoting respect for U.S. courts and the rule of law." "We hope both Ecuador and Argentina will enter into good faith negotiations with their creditors, who in their own good faith lent those countries many billions of dollars," said ATFA Co-Chair Robert Shapiro. "If they fail to do so, they will pay a very large price in reduced foreign direct investment and access to the capital their economies need".