Ecuador to introduce bill to scrap key oil funds

QUITO, Dec 12 (Reuters) - Ecuador will soon introduce laws to eliminate funds holding around $1.3 billion in excess oil revenues and use the money to finance infrastructure and social projects, the economy minister told Reuters on Wednesday.

The government plans to eliminate three oil funds that are earmarked for specific spending and restricted from government control, said Ortiz. Some Wall Street analysts worry such move could erode the country's savings capacity and make it more vulnerable to external shocks such as a drop in oil prices.

"Oil resources should have never been taken out of the budget and what we are doing is backtracking those reforms and leaving it just as it was before 2002," Fausto Ortiz said in a telephone interview. "With those funds, we will also have less financing requirements."

Ortiz did not say if those funds could be used to swap foreign debt, buying back more expensive debt for cheaper paper to reduce the debt service burden.

He said the bill is being analyzed by President Rafael Correa and could be introduced later this month or in January. The funds will be part of the national budget and used to finance key energy and infrastructure projects, health and education, he added.

The legislation is expected to be easily passed by a powerful assembly rewriting the constitution and controlled by Correa's party. The assembly temporarily shut down Congress and took over its powers in November.

Correa, a U.S-trained former economy minister, has worried Wall Street with plans to introduce bills that will increase state control over the economy and hurt the country's finances.

Correa has pledged to prioritize social spending over foreign debt payments and boost state control over the economy of South America's No. 5 oil producer.

The leftist president, who is drafting bills to reform the tax and banking laws, has said he also wants billions of dollars in reserves held by the central bank to be invested in the local economy instead of being kept in banks abroad.

The three oil funds are the FAC, or savings and contingency fund, CEREPS, or special account to reactivate social development and production, and FEISEH, or energy and hydrocarbons investment fund.

A fourth fund named FEP, or oil stabilization fund, is unlikely to be eliminated, said Ortiz.