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Blame Everyone

Sep 1, 2001

Two years ago, Ecuador was at the forefront of an anguished debate over the appropriate role of the International Monetary Fund, bondholders and the local government in sorting out the country's debt problems.

In the end, with the surreptitious support of the Fund, Ecuador defaulted on $6.46 billion in Brady bond debt as a way of "bailing in" private sector creditors. Quito later hashed out an agreement with bondholders, handing them a 40% haircut. This, it was felt, was a market-based solution to the crisis that broke with traditional IMF-backed bailouts of governments and their lenders.

That precedent proved nothing because Ecuador, as an obscure Andean country is just too small and too marginal to mean much to...

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