By Alonso Soto
QUITO, Sept 8 (Reuters) - Ecuador's audit of its foreign debt to determine "illegitimate" loans aims to improve terms on current debt and punish past irregularities, a senior government official told Reuters on Monday.
Economic Policy Minister Pedro Paez, who supervises several ministries, including the finance ministry, said his country will not forget irregularities in the contracting or renegotiation of past debts.
President Rafael Correa, a leftist former economy minister, has spooked investors with pledges to halt payments of "illegitimate" debt, or loans he says are riddled with irregularities. The results of the year-long audit are expected in the week of Sept. 15, government officials have said.
Correa rekindled bondholders' fears over the weekend by again vowing to halt servicing debt if it jeopardizes education and health spending in case of an economic crisis.
Paez said the oil-producing country's finances are in good health, but even if the debt burden continues to fall in comparison to previous years, "corruption has to be pursued and sanctioned."
Paez, a former finance minister and academic, did not say what kind of sanctions will be applied to holders of "illegitimate" debt.
When asked if the goal of the audit was to re-profile current debt terms, Paez said, "Of course. ... We think it's a fundamental condition in every process to re-profile debt."
He did not disclose the results of the audit but said, "Ecuador will keep religiously honoring all debt that was properly acquired."
Preliminary reports of auditors have found indications of irregularities in the global bonds, which they say resulted from unfair negotiations of former government officials in cahoots with Wall Street bondholders.
However, analysts say it's very unlikely that the cash-flushed government will stop repaying its debt this year and jeopardize future financing for widely publicized infrastructure projects.
Finance Minister Wilma Salgado, a member of a group that advocates debt cancellation for poor nations, has said she would prefer "friendly" deals with creditors in any restructuring.
Paez also said negotiations with creditors should be friendly, but the government is not afraid of negative fallout stemming from any restructuring.
"This government will not be blackmailed. ... We will not allow the debt's blackmail via the international financial community," Paez said.
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