President says Ecuador will default on debt

Por Venezuela Real - 12 de Diciembre, 2008, 21:54, Categoría: Política Internacional

GONZALO SOLANO
Washington Post
December 12, 2008

QUITO, Ecuador -- President Rafael Correa announced Ecuador will not meet a debt payment next week, making good on threats to default on debts his government considers illegitimate.

Correa told a news conference Friday in the city of Guayaquil that Ecuador will not make a $30.6 million interest payment due Monday on $510 million in bonds due in 2012.

"This foreign debt will not continue to be paid," Correa said. Ecuador will offer a restructuring plan to creditors in hopes of avoiding a drawn-out legal battle, he said.

Correa threatened to default on Ecuador's foreign debt before his landslide victory in 2006, and his government has spent heavily on social programs like monthly payments for single mothers, seeds for farmers and building materials for new homeowners.

The still-popular president recently warned that falling oil prices may force his hand on a default. Oil is Ecuador's top source of foreign income, accounting for 40 percent of the national budget.

A default effectively cuts Ecuador off from outside financing as it confronts a major budget shortfall from falling oil prices, said Enrique Alvarez, head of research for Latin America Financial Markets at IDEAglobal in New York.

"They were already sort of headed into isolation. Essentially now they've drawn shut the gate," he said.

Some financing still couVer opciones avanzadasld be available through Correa's close political ally Venezuelan President Hugo Chavez, though Venezuela also is heavily dependent on oil income.

"If oil prices continue to descend or even if they stabilize, this means Mr. Correa domestically is going to have a very tough time in upkeeping the current level of expenditures," Alvarez said.

Ecuador's Global 2012 bonds traded at 26 cents on the dollar on Friday afternoon, down from 30 cents on Thursday and 98 cents three months ago.

A presidential commission last month recommended that Ecuador default on almost 40 percent of its $10 billion foreign debt, accusing former officials and bankers of profiting irresponsibly from bond deals.

Correa, a leftist U.S.-trained economist, said then that he would seek to halt payment on the loans and hold foreign investment banks and ex-government officials responsible.

The audit advised Correa's government to default on $3.9 billion in three types of bonds issued as part of debt restructuring in 2000 and 2005. It says the negotiations were secretive and damaged the economy.

The report accuses former Ecuadorean officials and investment banks including U.S.-based J.P. Morgan and Salomon Smith Barney, now part of Citigroup Inc., of mishandling the restructuring. Officials involved in the deals have denied any wrongdoing.

Correa said two sets of bonds, due in 2012 and 2030, were issued without presidential authorization and dates on the documents were altered.

Ecuador is one of Latin America's largest crude oil exporters, with net oil exports estimated at 350,000 barrels per day, and it joined the Organization of Petroleum Exporting Countries in 2007.
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