Ecuador Will Pay Debt While It Has Funds, Correa Says

By Andrew Barden and Lester Pimentel

Sept. 25 (Bloomberg) -- Ecuadorean President Rafael Correa said the South American country will pay its debts this year and next and will continue to do so as long as it has the funds.

``There is no financing problem this year and there won't be a financing problem next year,'' Correa, 44, said in a speech at the Council of the Americas in New York.

Correa has threatened to halt payments on the nation's $10 billion foreign debt as recently as December to free up funds for social spending. He reiterated today the government will prioritize social needs over debt and will not pay ``illegitimate debt.'' The president appointed a debt commission earlier this year to audit the country's debt.

Ecuador is also studying a debt restructuring to lower interest payments, Correa said without providing details. The country may buy back more expensive debt and sell bonds to regional lenders or Venezuela, Correa said. Ecuador's benchmark dollar bonds pay a 10 percent interest rate and mature in 2030.

``Surely we can find much cheaper financing,'' Correa said.

The yield on the securities today fell 5 basis points, or 0.05 percentage point, to 11.07 percent, according to JPMorgan Chase & Co. The bond's price, which moves inversely to the yield, rose 0.40 cent on the dollar to 91.15.

Correa, Ecuador's eighth president in 10 years, won a landslide victory on Nov. 26 after promising to rewrite the constitution and boost spending on the poor. The president's plan to call a constituent assembly won the support of 82 percent of voters in April in a national referendum.

`Grand Fallacy'

``We've managed to give our people their faith back,'' Correa said.

Correa questioned today the need for an independent central bank and for foreign currency reserves. In May, central bank General Manager Mauricio Pareja resigned after clashing with Correa over the bank's autonomy. Ecuador adopted the dollar as its currency in 2000. Correa said today that Ecuador won't abandon dollarization.

``Why does a central bank need to be independent? It is a grand fallacy of the 1990s,'' Correa said. ``Why do we need international reserves for a country without a currency?''

Correa said he wants to diversify Ecuador's economy to reduce its dependence on oil. In 2006, 77 percent of Ecuador's exports to the U.S. were oil-related, according to Credit Suisse.

``The plan to diversify the economy is fundamental,'' Correa said.