Ecuador is due to sell a $500 million tranche of debt to the country's Social Security Institute (IESS) on Dec. 29, bringing the government's total domestic borrowing to $1.2 billion in the past week. The move follows Ecuadorian President Rafael Correa's announcement that his government would default on $3.9 billion worth of debt owed on international credit markets. At the same time, Ecuador is poised to force foreign energy investors to absorb Ecuador's portion of the production cut agreed on by the Organization of the Petroleum Exporting Countries (OPEC). Combined, the moves bring Ecuador closer to the brink of economic crisis. Ecuador's decision to default on its debt made it the first developing country to use default as a way of managing its options in the wake of the international financial crisis. The move exacerbates Ecuador's isolation from an already risk-averse international capital market, and will make it very difficult for the country to cover its expenses. With no access to international capital, the government's only option for borrowing is the domestic capital market, which is limited to Ecuadorian banks and lending institutions such as the IESS. But the market is extremely small, particularly given that Ecuador uses the U.S. dollar as its national currency and has no recourse to monetary expansion as a method of broadening its spending options. Although Ecuador may be forced to drop the dollar, in the meantime it is limited to the pools of dollars that already exist. The capacity of the IESS is quite limited, as social security taxes only amount to about $1.9 billion per year. With the government already purchasing $1.2 billion, this option will be quickly exhausted. Furthermore, the government is also rapidly depleting foreign reserves, which fell 8.4 percent Dec. 19 from a week earlier, to $4.8 billion. The country's largest pool of capital (and likely the next stop for the government) is the banking industry, which is worth about $18.8 billion, or about 30 percent of the country's gross domestic product. But the banking industry has already expressed nervousness about the current economic situation, and the government's complete reliance on the small sector could quickly exhaust the banks' resources. Furthermore, the government's absorption of all domestic capital will make it impossible for private businesses to borrow, which will stifle the private sector as it attempts to adjust to a declining economy. The government's budgetary stress is exacerbated by the fact that the price of oil — a major export commodity for Ecuador — has fallen dramatically. As a member of OPEC, Ecuador is obligated to cut production alongside fellow OPEC members in an attempt to raise the international price of oil. This further reduces Ecuador's options for revenue. The Correa administration has decided to implement the cuts, but only through reductions in foreign firms' production quotas. Ecuador's decision to place the entire burden of OPEC cuts on foreign companies will hit Ecuador's only other source of foreign capital: foreign direct investment. It does make a certain kind of sense for Ecuador to force private companies to absorb the production cuts. Ecuador relied on oil revenues for about 39 percent of its 2008 budget, which totaled just under $16 billion, and most of that revenue came from the country's state-owned energy company Petroecuador. Thus, enforcing OPEC cuts on the state company could hurt the budget severely in the short term. But by targeting foreign investors, Correa is courting a long-term economic decline. Ecuador's options are severely limited in the wake of the financial crisis and the default. With oil prices plunging and access to international credit gone, the government will have to scrounge for funding sources. A complete reliance on domestic capital and the alienation of international investors appear increasingly likely to bring Ecuador close to yet another economic crisis.