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Repudiation now

We have not acquired any debt. The so-called public debt really belongs to the oligarchy. We the peoples have not acquired anything or been benefited, and thus we owe nothing.

–Confederation of Ecuadorian Kichwas (ECUARUNARI), quoted in Daniel Denvir, AlterNet (2008-12-15): Ecuador Calls foreign Debt Illegal, Defaults on Payments

Last month, the government of Ecuador defaulted on a US$ 30,600,000 interest payment on US$ 510,000,000 in bond debt. They will be defaulting on payments on two other series of bonds, amounting to US$ 9,937,000,000, or 19% of the entire country’s GDP.

Kevin Carson, in his first (hooray; congratulations) regular weekly commentary at the Center for a Stateless Society, says It’s about time, and Good on them. He points out that this massive government debt has nothing to do with freed trade or voluntary production. It has everything to do with building political alliances between governments and providing government funding for massive forced-modernization boondoggles and corporate privateering — with the costs, as always, taken out of the hides of Ecuadorian workers and farmers. As Carson writes:

That’s entirely correct. In the specific case of Ecuador, according to John Perkins (Confessions of an Economic Hit Man), the loans were designed to foment conditions that make [Ecuador] subservient to the corporatocracy running our biggest corporations, our government, and our banks. Infratructure loans were granted on the condition that engineering and construction companies from our own country must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston, or San Francisco.

. . .

[The main function of the government agencies set up to receive and manage foreign debt] is to work in collusion with the World Bank to run up debt building the infrastructure foreign capital needs for profitable investment. A majority of World Bank loans since that agency’s inception have gone to building the roads and utilities necessary to support foreign-owned industry. The effect is to crowd out decentralized, small-scale, locally-owned industry serving local markets, and to integrate the domestic economy into a neoliberal framework of providing raw materials and labor for foreign industry.

The resulting debt (which the people of the country never approved) can then be used to further cement neoliberal policies, by blackmailing the local government into adopting a structural adjustment program. And the policies adopted under such programs generally include the privatization of the same infrastructure the loans were taken out to build, and selling it to the very people it was built to serve. Not only that, but the privatization is generally arranged on terms virtually dictated by the purchasers, with native governments sometimes spending more taxpayer money to make the assets salable than the sale actually fetches.

— Kevin Carson, Center for a Stateless Society (2009-01-05): Ecuador Repudiates Foreign Debt: It’s About Time

Kevin has an excellent discussion of the structural and economic effects of massive government debts in formerly colonized countries like Ecuador. I think he’s entirely right. Of course, I couldn’t care less about the fact that the government of Ecuador has trouble raising funds for its own domestic parasitism and government-funded, government-regimented programs. Like all government programs, these range from useless to foolish and destructive. Would that the government of Ecuador couldn’t raise any money for any purpose. But what is a problem is the fact that the money for the payments on those debts — like all government payments — is always taken out of the pockets of the Ecuadorian people, through taxation, which is to say, by force.

And it’s that that I want to say something about today — not only the structural effects of government debt and government-lubricated neoliberalism (which is to say, government-financed state capitalism), but also the moral case for unilateral and unconditional repudiation. That case is a simple case, and it’s exactly what ECUARUNARI said: people should never be forced to pay debts that they never agreed to take on.

So-called public debt is, of course, never contracted by the public (if that means all the people of a particular country) it is contracted by a tiny, parasitic minority that lives at the expense of the rest of the public, and which has arbitrarily declared itself the rightful rulers and the designated collective-bargaining agents of everybody else in the country — whether or not anybody else ever agreed to that arrangement. When banks or foreign governments loan money to a government, they loan it to that tiny, parasitic minority, and they do so with the expectation that their investment will be repaid by means of taxation, which is to say, by means of the money that the government extracts from the public by force. None of the rest of us are ever asked to take on these debts; none of us are ever given any meaningful choice over whether to take on these debts, or how to disburse the money that has been loaned to us; we are just made to pay them against our will. (And it will not help to say that we somehow consented to let the government act as our financial agent, and so consented to cover the costs of the decisions they make on our behalf; nobody ever consents to the State.)

Now, those individual people — members of the tiny, parasitic minority — who did contract the debt may try to pay it — out of their own pockets — if they like. That’s their business. If they think it’s worthwhile to do so, they can even pass the plate and ask people to voluntarily help pay it back. That’s between them and their donors. But neither they, nor any governments which may show up later to assume the old regime’s usurping claims, have the least duty, or the least right, to inflict their debts on any other living person, or to send the bill to the government tax apparatus (which just means forcing taxpayers to pay for it). But then there are no legitimate government debts at all; at the very most, there are private debts that the tiny, parasitic minority have taken on themselves and then ransomed from the rest of us by force.

Whatever the would-be governmors of Ecuador may owe, the people of Ecuador owe not one damned dime to the World Bank, the IMF, CitiBank, or any other lender. And so the real issue is justice, not charity — except insofar as the most charitable thing that rich governments can do for poor people is to get their boots off, and their fangs out, of those people’s necks. All of which means that the political focus needs to be on inciting indignation and resistance from the people being forced to pay these criminal debts — not on appealing to the better natures of the people collecting them. And that the only just policy with regard to government debt is to burn the bills and stop taking the collectors’ calls — to repudiate all government debts unilaterally, immediately, completely, everywhere, and forever. Whether or not you have taken the time to get permission from the IMF, the United States government, or the humanitarian rock stars of the world.

It may be claimed that, even if repaying the loans by means of taxation is an injustice against Ecuadorian taxpayers, policy-makers (the dignified term that some people use for ranting, violent power-trippers in government offices) must balance that against the injustice of defaulting on the loans — which would be an injustice against investors who made those loans in good faith, expecting to be repaid. But no, it wouldn’t. They made the loans expecting that their return would be stolen from out of the pockets of the Ecuadorian people. (This is why government bonds are traditionally rated as safe investments; the safety consists in the fact that the interest payments are extracted by force rather than depending on market success.) There is no such thing as a good-faith loan to a piratical enterprise; if those who made the loans get nothing for their trouble, then they’ve earned, and deserve, exactly what they get.

It may also be objected that, whatever the justice of the case, insisting on the right to repudiate government-contracted debts will be harmful for the Ecuadorian people — more harmful than the alternative of paying off those illegitimate debts — and so that it would be a good idea to pay them off anyway, as a sort of a ransom. But these objections always depend on one of two lines of argument, both of which are fallacious. First, there are those who argue that repudiating government debts will make Ecuador a pariah, and cut them off from trade, credit, and other resources for economic growth. Thus, for example, Enrique Alvarez, head of research for Latin America Financial Markets for IDEAglobal in New York: They were already sort of headed into isolation. Essentially now they’ve drawn shut the gate. But this line of argument only makes sense if you talk about Ecuador and completely forget the difference between the Ecuadorian government and the Ecuadorian people. Repudiation of government debts will surely make it more difficult for the government to find credit or make financial deals in the future. But so what? If we’re interested in the well-being of the people in Ecuador, and if development means prosperity for ordinary people, rather than a government-driven fetish for great big centrally planned projects, then the important issue has nothing to do with whether or not the government can find credit. It has to do with whether or not people can find trading partners, investors, and money for their own projects. There’s no reason why repudiating government debts would make people in other countries less interested in trading with or extending credit to individual people or private outfits in Ecuador, and so no reason why anyone other than the Ecuadorian government would end up in isolation. And if the Ecuadorian government ends up in isolation, well, who cares, as long as the Ecuadorian people remain free to do their own work and make their own deals?

Others, having recognized that repudiation only immediately harms the financial prospects of the government, not ordinary Ecuadorians, will go on to object that it will still harm the Ecuadorian people, anyway, because that will make it harder for the Ecuadorian government to raise money for its own projects in the future. But while that’s true enough, it’s a plain non sequitur to infer from it that the Ecuadorian people will be harmed by that fact — unless you help yourself to the auxiliary premise that the Ecuadorian people somehow benefit when the Ecuadorian government has easy access to money for its projects. That in turn makes sense only if you suppose that the Ecuadorian government’s projects tend to benefit the Ecuadorian people. But while lots of people make that claim, either tacitly or explicitly, hardly anyone makes any real effort to defend it. And in fact, given both what we know about governments in general, and in particular about the kind of governments that tend to rule countries like Ecuador, it’s a claim that happens to be ridiculously implausible. As a matter of fact, permanently crippling governments’ ability to raise funds for costly government projects is one of the best developments I could hope for on the world scene.

When Progressive outfits like Make Poverty History have noticed the problems that government debts create, their response has been, mainly, to beg rich governments to cancel the existing debts of poor governments, as a sort of charitable hand-out to the poor dears, preferably through a process mediated by some international bureaucracy, probably under the control of the U.N. The whole proposal is absurd; the main consolation is that, like most other grand Progressive proposals, it is more or less completely ineffectual. (Who do you think has more influence over the U.S. government’s trade and international finance bureaucracies? Bono or the IMF and CitiGroup?)

In fact, discussions of government debt should not focus on mediated settlements or relief from creditor governments, but rather on unilateral repudiation of so-called public debt by debtor governments. Not because enforcing the collection of these debts is scroogish or because it ought to be tempered by considerations of charity, but rather because the debts themselves are completely illegitimate and enforcing the collection of these debts is absolutely unjust. Whether that’s the debts of the governments in Ecuador, or in Tanzania, or, for that matter, in the United States of America — where we are all being extorted to pay off US$ 10,000,000,000,000 of debts that we never once agreed to. Debts that were taken out without our permission, then inflicted on us against our will, so that this government could pay for its murderous wars, its tyrannical surveillance and intelligence apparatus, its brain-dead federal programs, its byzantine busybodying regulation, and its multitrillion dollar preservation programs for endangered capitalists and their habitats in the economic status quo.

So here’s to repudiation; and here’s hoping for two, three, many Ecuadors….

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