Does Ecuador’s Default Foreshadow the Next Latin American Debt Crisis?
It should come as no surprise that Ecuador has become the first Latin American country—and the second country after the Seychelles—to default on its debt since the start of the current financial crisis. In market terms the default, which occurred on December 12, is not a big deal. Ecuador’s debt totals no more than $3.9 billion—compare this to Argentina’s 2002 default of $100 billion. Also, Ecuador’s was not a case of insolvency or illiquidity. Instead, Ecuador declared itself unwilling to pay, citing the “illegitimacy” of the debt, which had been issued by previous administrations. When Latin American countries default on their debt, however, people take notice. Latin America has had an illustrious association with great debt crises. The beginning of the 1930s debt crisis was marked in 1931 with defaults by every Latin American country (barring Argentina). This phenomenon quickly spread to Southern and Eastern Europe. Half a century later, in the summer of 1982, Mexico announced that