Ecuador defaulted on its foreign debt, as President Correa is refusing to make an interest payment due on Monday on its global bonds
President Rafael Correa said he had given the order not to approve a debt interest payment due on Monday, describing the international lenders as "monsters". The president said that some of Ecuador's $10bn debt was contracted illegally by a previous administration.
Ecuador receives a large part of their income from oil exports and they have enough funds to make the payment. But, with the global financial crisis and dropping oil prices over the past month, they are refusing to make payment.
Ecuador is not the only country under tremendous financial stress. Many nations that depend on oil as a major source of income are running out of money fast. If oil prices do not return to above $60-$80/ per barrel soon, many more nations will be defaulting on their foreign debt.
OPEC is considering a major production cut as many of its members are running into financial trouble that may soon lead to riots.
These nations do not have the luxury of having a demand for their currency outside of their country and therefore they cannot simply print more of their currency to pay their debt payments. It is primarily because of the demand for dollars, driven by the increase in demand for oil, that has allows the US to increase the supply of dollars resulting in a world flooded with dollars.
Two-thirds of the dollars in circulation are outside the US. Some day - when the world turns from the dollar, the foreign exchange markets will be flooded with dollars that nobody wants, which will nose dive the value of the dollar. That day will be devastating for the nations that get stuck holding a lot of dollars, primarily the US.
This week I participated in several blog carnivals
They did an excellent job and as usual, there are tons of great articles. If you have the time, I highly suggest you skim through this week’s carnivals.
Carnival of Money Stories Edition No. 88
42nd money hacks carnival: laid-off and freelancing edition