WHEN BAD THINGS HAPPEN TO GOOD SOVEREIGN DEBT CONTRACTS : THE CASE OF ECUADOR

Likewise, private-sector commercial-bank creditors, bondholders, and suppliers—even official bilateral and multilateral lenders—have come to learn by repeat experience that financial contracts entered into by sovereign borrowers, no matter how airtight and well-intentioned at the time they were crafted and signed, can be perverted or ignored by governments lacking in ability or willingness to pay. This article illustrates this point by focusing on the case of Ecuador, a country whose governments have defaulted nine times on foreign-currency bonds and numerous times to foreign commercial-bank creditors and others, such that the sovereign has been in default for at least 109 out of the last 184 years—sixty percent of the time from 1826 through 2010.