The people of Ecuador are rising up to refound their country as a pluri-national homeland for all. This inspiring movement, with Ecuador's indigenous peoples at its heart, is part of the revolution spreading across the Americas, laying the groundwork for a new, fairer, world. Ecuador Rising aims to bring news and analysis of events unfolding in Ecuador to english speakers.

Friday, October 03, 2008

Ecuador threatens lawsuits over "illegitimate" debt

By Alonso Soto

QUITO, Sept 26 (Reuters) - Ecuadorean President Rafael Correa on Friday threatened to file international lawsuits over "illegitimate" foreign debt or loans he determines to be riddled with irregularities.
"We hired a (legal) firm to analyze the possibility of legal action in the international level," said Correa during a television interview, referring to "illegitimate" debt.
The leftist leader's comments may mark a repositioning of his stance, two days ahead of a constitutional referendum vote on Sunday. A victory would bolster the government's sway over the economy and key political institutions.
"This is part of Correa's verbal war but its very distant from becoming an outright challenge to bondholders," said Enrique Alvarez, head of Latin America debt strategy with IDEAglobal in New York. "His comments were directed to the population as a defender of popular interest before Sunday's vote."
The oil-producing nation has a foreign debt of about $10 billion, of which $3.8 billion is dollar-denominated bonds, which are actively traded -- and, at times, volatile.
Its oil wealth notwithstanding, Ecuador's debt is rated by Wall Street credit rating agencies as among the least credit-worthy in Latin America. In 1999, the country defaulted on about $5.8 billion in bonds amid the last major downturn in world oil prices.

Earlier this week Correa reviewed a final audit report judging what debt could be considered as "illegitimate."
Correa took office in January 2007 after campaigning on a hard-line stance on debt repayment. He terms as "illegitimate" debt that which prior governments contracted on what he considers unfair terms that can be also tainted by corruption.
Previously, Correa has threatened to not repay debt determined to be illegitimate. The debt committee has said it found indications of illegitimate in the global bonds due in 2012 and 2030
The price of bond due in 2012 rose 0.500 to a bid of 93.500, with a yield of 14.861 percent. The bond due in 2030 fell 1.000 point to bid 73.500 and offering a yield of 14.373 percent.
By another measure, investors' risk perception of Ecuadoran debt appeared to lessen.
Yield spreads on Ecuadoran dollar-denominated bonds over U.S. Treasuries narrowed by 31 basis points to 915 basis points, according to J.P. Morgan's Emerging Market Bond Index Plus <11emj>. Lower yield spreads reflect lessened investor risk perception.
On Wednesday, Correa threatened not to repay a Brazilian loan of nearly $200 million, which he said, the debt committee had found were riddled with irregularities.
In the television interview Correa said lawsuits could lead to non-repayment of "illegitimate" credits, but he did not elaborate what that kind of action would imply.
Goldman Sachs analyst Alberto Ramos on Thursday said that such a legal path could be expected to "mostly inconsequential," nothing that credit-related suits of this nature could take years if ever accepted by international courts.

In the television interview, Correa reiterated his pledge to limit debt payments if his government faces a difficult fiscal position and lacks resources to finance programs for the poor.
"In our campaign speech we always said we will pay (debt) in accordance to our country's possibilities," Correa said in the interview. "But if those possibilities don't exist we will prioritize our social debt."
A referendum victory for Correa would help him accelerate his leftist reforms to boost state control over key sectors of the economy.
The proposed new constitution's 444 articles include provisions to tighten Correa's grip on the legislature and the military and give him stronger control over the sputtering economy.
While Ecuadorean voters have been fickle in the past, all major polls show Correa has been gaining momentum for weeks and is set to win the referendum against a fragmented opposition that says he is an autocrat.
A "yes" vote would also loosen presidential term limits, opening the way for the 45-year-old leftist to stay in power until 2017 should he keep winning elections.

1 comment:

  1. I dont know whether u ppl are aware of it or not that The Norwegian government has proposed to cancel US$80 million in debt owed to the country by five developing countries in acknowledgement that the debt was extended irresponsibly and without due regard for the developmental needs of the recipient countries.
    Moreover, the Norwegian Parliament approve the renunciation of claims against Ecuador, Egypt, Jamaica, Peru and Sierra Leone in its national budget for 2007. If approved, this unilateral and unconditional debt cancellation will mark the first time that a creditor country has accepted responsibility for its negligence and contribution to the debt accumulation of developing countries. due to this there will definitely be questions of curing the debt in these major countries of the world.