Ecuador to Make Next Payment on Bonds, Patino Says

By Alex Kennedy and Matthew Walter

March 8 (Bloomberg) -- Ecuadorean Finance Minister Ricardo Patino, retreating from a threatened default for a second time, said the country will probably make its next debt payment on schedule as the government faces no imminent financial crisis.

``I expect we'll make the payment,'' Patino, 52, told reporters today in Quito. ``Our creditors should know that we're very responsible. We're not going to ignore foreign debt obligations.''

Ecuador's bonds jumped as investors raised bets the threat of a default is receding. The government is still seeking to renegotiate the terms and conditions of loans from the World Bank and Inter-American Development Bank, Patino said. The dollar, adopted by the country in 2000, will remain the official currency in the ``short term,'' he said.

Patino's comments mark the second time the government has backed off from threats to default on $10 billion of foreign debt after President Rafael Correa said he might halt payments to free up funds for social programs. Correa, who took office on Jan. 15, said last month he could only fight one battle at a time, and his priority is to redraft the nation's constitution, a plan opposition lawmakers are resisting.

Correa's clash with congress intensified today as baton- wielding riot police blocked 57 of the 100 lawmakers from entering the legislature in Quito to enforce an order by the country's top electoral court suspending their ``political rights.''

The congress voted March 6 to replace Supreme Electoral Tribunal President Jorge Acosta after the court backed Correa's plan to hold a vote on the constitution. The court ruled the lawmakers' vote unconstitutional and ordered them suspended.

'Left to Right'

Correa's push for a national referendum on a constitutional overhaul makes it less likely he'll default, said Vicente Albornoz, president of Quito-based economic research firm Cordes.

The president, who last year ran without the backing of any established political party, said in February he finds it difficult to fight on ``various fronts'' and that his focus is on changing the constitution.

Lawmakers, including Correa's allies, criticized the government for harming the economy by with threats to default.

``The whole country, from the left to the right, demanded this clarity,'' Albornoz said.

Ecuador paid $135 million in interest payments on Feb. 15, reversing earlier plans to invoke a 30-day grace period because of a cash shortage. The next payment of $30.6 million is due May 15.

Bond Yields

``Until we have a clear indicator that the government intends to default, I think the bonds should be doing fine,'' said Carola Sandy, an economist at Credit Suisse in New York. The bonds have gained since January on expectations the government will pay, Sandy said.

Patino reiterated the government's forecast for economic growth of between 3.3 percent and 3.5 percent this year.

The yield on Ecuador's benchmark 10 percent bond due in 2030 closed down 31 basis points, or 0.31 percentage point, to 11.75 percent, its lowest since Feb. 26. The price, which moves inversely to the yield, rose 2.1 cents, or 2.5 percent, to 86.1 cents on the dollar, according to JPMorgan Chase & Co.