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After reaching an agreement with her Paris Club creditors earlier this month, Ecuador will spend $29 out of every $100 of her budget on repaying her foreign creditors. In contrast, she will spend only $13 on social welfare and education combined. This cannot be considered a fair deal for the people of Ecuador.

The Paris Club announced that it would be rescheduling only half of Ecuador's bilateral debt, stating that this "will make an important, positive contribution to Ecuador's economic outlook". We dare to disagree. Selectively defining only a part of the debt as eligible for re-scheduling; postponing (though re-scheduling) instead of writing off the payment of that debt, will not, it is patently clear, make an important or positive contribution to Ecuador's economic outlook. In our view, the only thing that would contribute to the outlook for Ecuador (and many other countries) would be to end the hypocrisy of rich and powerful creditors, and introduce a framework of justice for the resolution of debt crises.

Ecuador has an unsustainable debt burden, most of it multilateral, and controlled by G7 creditors. To improve her economic outlook Ecuador needs comprehensive, fair treatment. Jubilee Research believes that Ecuador's recent experience with the cartel that is the Paris Club provides further vindication of the need for the Jubilee Framework - a fair and transparent process for resolving debt crises, in which the interests of the powerful would not be the only interests to be safeguarded. 

At this year's annual meeting of the leaders of the most powerful nations, in Evian, the G8 finance ministers agreed some radical changes to the Paris Club, made up of the richest government creditors. Jubilee Research welcomed these changes, as recognition by the G8 of the injustice of their procedures, and of the failure of these procedures to address the issue of debt sustainability on a case-by-case basis. One of the changes proposed was to alter the rule that identifies the debt that is eligible for re-scheduling. 

The current, grossly unfair, rule establishes that the year in which a country first approaches the Paris Club for assistance, should define a "cut-off date" - beyond which no new debt will be included for re-scheduling. This would be a fair and reasonable approach for creditors to take, as it means that the debtor cannot, after receiving debt relief, quickly apply for new loans, and then refuse to pay these new loans. However, if the initial treatment of the unpayable debts by creditors is inadequate; if the country is not granted sufficient debt cancellation to make it economically viable; if the country has to take on even more loans to pay off old unpayable loans - then invariably the debtor keeps returning to the creditor in search of more (minimal) re-scheduling. This is what has happened to Ecuador (and many other poor countries) whose debt was first treated in 1983 and which has returned time and time again because the old unpayable debts were never written off. She then built up 20 years or more of new, unpayable debts, some of which were borrowed to pay off the old, unpayable debts, and these accumulate. 

Still the creditors do not face reality. 

G8 finance ministers have called for a more active policy in defining the "eligible debt" by bringing forward the cut-off date, thus removing, in theory, the artificial ceiling on the debt that can be re-scheduled or cancelled. For most countries cut-off dates hark back to the early eighties. 

Ecuador is the first country to receive treatment from the Paris Club since the finance ministers expressed their intentions. However it appears that the intentions have not been put into practice. So the Paris Club did not consider the specific needs of Ecuador. Indeed little relevance was attached to the sustainability of Ecuador's total debt as the Club only considered about half of her bilateral debt, as Ecuador had come too soon to benefit from an adjustment to the cut-off date. 
It is possible that Ecuador may have achieved better results if she had waited until the Paris Club had time to adjust to changes arising from Evian, but it appears that the financial desperation of her government for some, even if inadequate, relief, obliged Ecuador to move quickly and accept the old cut-off date.

The Paris Club gave little consideration to the specific economic situation of Ecuador where over the last decade poverty rose from 34% in 1995 to 46% in 1998 and then reached the shocking level of 60% in 2003. Moreover the number of people living in extreme poverty increased from 15% in 1995 to more than 34% in 1999, and has worsened since then. 

After the Paris Club treatment, Ecuador will still be spending more than 30% of this year's budget servicing her total debt. Furthermore the debt service that Ecuador will still have to pay to the Paris Club of rich creditors over the annual rescheduling period is $272m or almost twice the annual budget for social welfare. 

Ecuador's 1983 cut-off date was not adjusted. Therefore the debt that was considered eligible for rescheduling was only about half - $1300m of a total of $2730m - owed to Club members. The additional millions in relief that would have resulted from doubling the amount eligible (by adjusting the cut-off date) could have meant a great deal to a country that plans to spend only $144m on social welfare and $782m on education. 

For further information on the latest changes of the Paris club see http://www.jubileeresearch.org/worldnews/europe/parisclub170503.htm