Ecuador's on-time bond payment confuses economists

IHT, Feb 15, 2007.

QUITO, Ecuador: Ecuador's announcement that it will meet a Thursday deadline for a US$135 million (€102.7 million) interest payment on its Global Bonds 2030 has left financial analysts struggling to understand the surprise decision.

Ecuador's new leftist government said Monday that it would pay the coupon during a 30-day grace period, claiming it lacked sufficient funds in its account. Two days later, the Economy Ministry announced it would make the payment by Thursday.

President Rafael Correa, a U.S.-trained economist who took office Jan. 15, has vowed to renegotiate the country's US$16.4 billion (€13 billion) foreign debt and direct resources to programs to help the poor.

Wall Street waited to see how Ecuador would handle Global Bonds 2030, the government's first scheduled interest payment, and Wednesday's decision has economists looking for answers.

Economy Minister Ricardo Patino told Channel 8 television on Wednesday that Ecuador has the sufficient tax revenue to make the payment on time, but offered no further details on the government's decision.

Ecuador's former Economy Minister Alfredo Arizaga says the country's ability to quickly come up with the cash is suspicious.

"Someone here is lying," Arizaga told The Associated Press.

He said Ecuadorean authorities could be trying to provoke sharp fluctuations in the prices of the bonds, driving down their value by announcing they would not pay the coupon on time, then allowing their value to shoot up when Ecuador changed its position two days later.

The decision might also be due to government's "total managerial incapacity and ignorance of how financial markets work," he said.

Ramiro Crespo of Analytica Securities, a Quito-based investment bank, told Dow Jones Newswires: "The only thing that the erratic, arbitrary, capricious and manipulative debt policy and the coupon payment have done is generate more doubts and uncertainty over what the government will actually do with the foreign debt."

The payment decision also comes amid suspicions that Venezuela has purchased a significant portion of the country's debt.

"There are many indications that Venezuela has an enormous influence," Crespo said.

In its budget proposal last month, the Ecuadorean government set aside US$2.7 billion (€2.1 billion) — 28 percent of the US$9.8 billion (€7.5 billion) budget — for foreign debt payments, more than US$1 billion (€800 million) less than in 2006.

When Correa took office last month, he said some of the debt arranged by previous governments was the result of corruption and that an international tribunal should be set up to decide what debt should be repaid.

Ecuador's next foreign debt payment of US$30.6 million (€23.2 million) is due May 15.