Ecuador Makes International Bond Payment, Patino Says

By Patrick Harrington and Lester Pimentel

Feb. 15 (Bloomberg) -- Ecuadorean President Rafael Correa, after roiling his country's bond market with threats to default on $10 billion in foreign debt, made the first interest payment due during his term, the government said.

Economy Minister Ricardo Patino said he ordered payment of $135 million due today on schedule, reversing earlier plans to invoke a 30-day grace period because of a cash shortage. The government made the payment after taking care of priorities such as salaries for public workers, Patino said in an interview on Ecuavisa television.

``Yesterday morning the deputy economy minister said to me, `Ricardo, we have the money to pay the interest on the bonds; do we pay?' he said in the interview. ``Let's pay.''

The decision to meet Ecuador's obligations on the bonds may signal that internal political struggles are at least postponing any move to restructure the country's debt. On Feb. 10, Correa said questions about debt had to take a back seat to convening an assembly to re-write the country's constitution and possibly dissolve congress. After his election in November, Correa said he might default on debt to free up funds for welfare and social development programs.

``The government is clearly playing a game with bondholders,'' said David Bessey, who manages more than $6 billion of emerging-market securities for Prudential Financial Inc. in Newark, New Jersey. ``The government has indicated it would rather not pay, but the downside of doing so has become clearer to Correa.''

Bond Rally

Ecuadorean bonds rallied from Jan. 26 after Patino signaled the likelihood of a default was receding, and the 2007 budget accounted for payment on all debt obligations.

The yield on the government's 10 percent bonds due 2030, Ecuador's most traded securities in international markets, rose 22 basis points, or 0.22 percentage point, to 12.06 percent at 12:40 p.m. in New York, according to JPMorgan Chase & Co. The bond's price, which moves inversely to the yield, fell 1.50 cents on the dollar to 84 cents.

Ecuador adopted the dollar as its official currency in 2000, a year after defaulting on $6.5 billion in debt.

On Nov. 27, the day after Correa won the presidential election with 67 percent of the vote, Ecuador surpassed Lebanon as the riskiest country for bondholders, according to traders in the credit-default swap market.

Ecuador is not a country with a debt problem, said Jeff Grills, Co-Head of Emerging Market Debt at JPMorgan Asset Management in New York.

`Robust Cash Flow'

``This is a country with a fairly robust cash flow,'' said Grills, who holds $4.8 billion in emerging market debt and sold his Ecuador position in September. ``This was never an Argentine situation where they were coming up against unsustainable debt payments.''

Patino said the government was not trying to mislead investors, only adjusting its priorities. Spending on anti- poverty programs, government salaries and other areas now takes precedence over meeting debt payments, he said. ``On Monday we didn't have the money on Wednesday we did,'' he said.

Ecuador's Deputy Finance Minister Fausto Ortiz on Feb. 12 told reporters in Quito the country would miss the payment because it had only $60 million on hand.

``Yesterday when it was determined that there were sufficient resources to make the interest payment on the bonds we proceeded to make the payment,'' Patino told the television station.