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.