By I thought this article about Ecuador defaulting on its international debt was interesting:
Ecuador is to default officially on billions of dollars of foreign debt it considers “illegitimate”, says President Rafael Correa.
Mr Correa said he had given the order not to approve a debt interest payment due on Monday, describing the international lenders as “monsters”.
The president said that some of Ecuador’s $10bn debt was contracted illegally by a previous administration.
It is the first debt default by a country in Latin America since 2001.
At that time, Argentina failed to repay debt in the midst of its financial meltdown. [BBC]
What I found interesting about this is that their entire national debt of $10 billion is less then the auto industry bailout of $15 billion that actually only bails out the auto industry until roughly March until they come back for even more money. It is incredible to think that a nation in South America of nearly 10 million people could be bailed out of their entire national debt for less money then it would take to fund the US auto industry until March.
This also got me thinking on what South Korea’s foreign debt is which I found out is at about $268 billion:
The Ministry of Strategy and Finance on Oct. 5 said that Korea’s foreign debt to be repaid is approximately US$268 billion, which the country can handle without difficulty, considering that most of the debt is long-term and can be covered by the government’s current level of foreign reserves. [Korea News Wire]
Not only does Korea have a lot of foreign reserves but much of the debt increased because of the devaluation of the Korean won. Once the won increases in strength, the debt drops as well. Considering Korea’s own experience with economic difficulties during the Asian Financial Crisis in 1997, Koreans understand the difficulties of paying off debt but they completed all the necessary restructuring to make their economy sound again and recovered from the crisis.
8:02 pm on December 13th, 2008 1
Watch for Hugo Chaves to come to the rescue. The issue is more about leftist leadership and support of radical causes than it is about, foreign debt. Correa has been linked directly to the paramilitary groups in Columbia, and his policies have turned the Equadorian economy into a shambles.
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10:24 am on December 14th, 2008 2
Gerry this actually has more to do with dropping oil prices. Correa can’t pay his bills while at the same time advancing his socialist agenda when oil has dropped so far. Thus he is trying to play the nationalist card of using the nation’s income to improve the life of the nation’s citizens and not pay off the big bad foreigners.
When Korea was hit with the financial crisis in 1997 the nationalist card was played as well to point where Koreans still remember the crisis as the “IMF Crisis”. However, Koreans came together with a strategy and paid their debts, which is something Kim Dae-jung should be given much credit for.
As far as Hugo Chavez trying to help Correa, he can’t do much because Venezuela is in the same boat because of the dropping oil prices. In response these leftist countries are trying to ban together to create a block to jointly not pay foreign debt. Interestingly in the case of Ecuador much of their debt is to Brazil which is causing tensions between those two nations:
http://upsidedownworld.org/main/content/view/1627/49/
If this is a perfect example of why the US should do everything possible to reduce dependence on oil. Adversaries like Chavez are far less dangerous when they don’t have easy oil money to advance their agendas. Notice you haven’t heard much from Iran recently either.
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12:43 pm on December 14th, 2008 3
“…this is a perfect example of why the US should do everything possible to reduce dependence on oil. Adversaries like Chavez are far less dangerous when they don’t have easy oil money to advance their agendas. Notice you haven’t heard much from Iran recently either.”
First, this idea to “reduce dependence on oil” from the anti-American countries that produce and export them is a fantasy. Most people only think of the fact that Americans depend heavily on foreign oil because if you want to get anywhere in your daily life in America you have to drive. Fact is, we don’t depend on oil just for driving but to produce the sort of consumer products that are vital to our daily life. Consider the case of plastic. Can’t make plastic without oil. Life as we know it would be very different if not uncomfortable without it. Also consider the case of fertilizer, a commodity also vital to our agriculture and whether we get food on the table or not. Without oil a lot of the food growing in this country or the world for that matter wouldn’t happen.
Megan McArdle over at TheAtlantic.com had a good take on this:
http://meganmcardle.theatlantic.com/archives/2008/08/barack_obama_please_end_our_de.php
Second, your probably not hearing from Iran in recent days because the US has signed the recent SOFA agreement with Iraq in which it is stipulated that they have to leave by 2011. The one thing that was irritating them (US forces in Iraq) will, in a couple of years, recede into history.
On larger point, the drop in oil has to do with the stagnation of the global economy stemming from the financial meltdown in the United States. I think once a modicum of economic activity kicks in, whether in China, Europe, or even the US, oil prices will probably reach to some sort of level that is comfortable for these countries leaders. For instance, once the credit spigots begin to send out little more of a trickle, Americans will start busting out their credit cards to fill up their Chevy’s, Camry’s, F-150’s, and Honda Civics to take the 20 minute drive to Wal-Mart or the local mall to buy the very plastic products that require foreign oil.
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