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Ecuador to miss payment on foreign bonds

But investors, who fear a default is likely, are surprised by a promise to pay within a month.

February 13, 2007|Chris Kraul | Times Staff Writer

CARACAS, VENEZUELA — Ecuador announced Monday that it would miss a payment due this week on $2.6 billion in bonds but surprised international investors with a promise to pay sometime over the next month.

President Rafael Correa took office last month after a campaign in which he threatened to default on some or all of the country's $10.2 billion in foreign debt. Correa said he considered the debt illegal. Ecuador has defaulted on foreign bonds three times since the early 1980s.

Since his inauguration, however, the U.S.-educated economist and leftist ally of Venezuelan President Hugo Chavez has sent conflicting signals on how much of the debt Ecuador would ignore or seek to renegotiate. At one point last month, Finance Minister Ricardo Patino said the government would pay 40% of what it owed to foreign creditors.

So Deputy Finance Minister Fausto Ortiz's announcement that the government would by mid-March pay the full $130 million in interest due Thursday caught some analysts off guard.

Although investors expect Correa to partially default on the bonds, they now think he will delay for several months the presentation of a comprehensive debt restructuring plan, said Gianfranco Bertozzi of Lehman Bros. investment bank in New York.

The delay is being blamed on myriad political problems, including Correa's dispute with the National Congress over his request that it authorize a plebiscite to approve a constitutional assembly.

"Right now, Correa has other fish to fry and is focusing his energies somewhere else," Bertozzi said in a telephone interview.

After gaining political capital by promising voters that he would stiff foreign bondholders, Correa may have learned since his election that doing so would create problems for Ecuador in international financial markets. This seems especially true because Ecuador appears able to make the payments. Prices are stable for Ecuador's oil exports, and the economy is growing.

A recent visit to Ecuador by Argentine financial specialists who helped engineer their country's default and restructuring of foreign debt may have opened Correa's eyes to the consequences, analysts said.

"At a minimum, the legal and economic implications [of defaulting] may not yet have been fully understood, and the potential headache may not be appropriate at this time," Bertozzi said.

Meanwhile, tension escalated over Correa's proposal to call a special assembly to rewrite Ecuador's Constitution, a campaign promise.

The National Congress is reluctant to approve the measure because it could eliminate lawmakers' jobs. But Correa has threatened to send his supporters into the streets to agitate for the special assembly or to form his own electoral tribunal to authorize the vote.


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