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Monday, November 24, 2008

Ecuador cautiously studies refusal to pay debt

QUITO (AFP) — Ecuador is studying legal options available to refuse payment on "illegitimate foreign debt," leftist President Rafael Correa said Saturday.

Ecuador announced that it would contest 3.8 billion dollars, or about one-third of its foreign debt, saying corruption and illegal activity contributed to the bill, on Thursday.

"I will not have the country jump into the void," Correa said in his weekly Saturday radio and television address.

"We should be sensible in this but obviously we will search for all mechanisms that allow us to repudiate a debt that is absolutely illegitimate and corrupt," Correa said.

Correa based his reasoning on a 14-month government ordered audit that looked at Ecuador's finances from 1976 to 2006.

Ecuador's external debt amounts to 10.6 billion dollars, or about 20 percent of Gross Domestic Product (GDP), and international bonds made up 3.86 billion dollars of the international debt, the audit found.

Some of the bonds, with expiration dates in 2012, 2015 and 2030, originated as part of debt restructuring after Ecuador's economic crisis of 1999-2000, when the banking system collapsed and the South American country defaulted on its foreign debt.

Correa did not say exactly how the government would contest the portion of the debt.

"We have to see the pro and cons, and the consequences that this would have, we are looking at different scenarios but we will look into not paying this illegitimate debt," Corrrea said, adding that officials "are already consulting with attorneys abroad."

Ecuador earlier said it would use a 30-day grace period to decide whether or not to pay 31 million dollars on 2012 bonds due Monday.

Separately, Correa on Saturday said he was "very hurt" by Brazil's decision to recall their ambassador to Quito after Ecuador sought arbitration in the International Chamber of Commerce in Paris over a 243 million dollar debt to Brazilian credit bank BNDES.

Ecuador alleges it should not pay the debt because BNDES gave the money to the Brazilian firm Odebrecht to build a hydroelectric dam that stopped working one year after it was delivered.

In Sao Paulo, Brazil's Foreign Minister Celso Amorin told reporters on Friday that Brazil was "very concerned" over the decision, and that eventually they "will take other actions and we'll review trade cooperation with Ecuador."

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