In late 2008, the Republic of Ecuador defaulted on its
international bonds. This was not a novel occurrence. In a
study published in 1993 (The Risks of Sovereign Lending:
Lessons from History), Salomon Brothers concluded that Ecuador
had the worst debt performance record of any of the 70
payment-challenged countries they surveyed. There have been two
additional defaults since 1993. But this latest default was
different. Two highly concessional debt restructurings (one in
1995 and the second in 2000), together with record oil prices,
had left Ecuador in 2008 with an enviably manageable external
debt profile.
The motivation for this default was domestic politics, not
financial necessity. It was the first time in modern history
that a sovereign debtor had demanded that its external
commercial creditors write off most of their claims (65%, as it
turned out), without advancing a plausible argument that
financial distress warranted such extraordinary debt
relief.