Ecuador Won't Default on Debt Illegally, Foreign Minister Says

By Stephan Kueffner

Nov. 26 (Bloomberg) -- Ecuador won't illegally default on its close to $4 billion in sovereign debt, Foreign Minister Maria Isabel Salvador said.

While a debt audit called by President Rafael Correa has revealed evidence that crimes were committed when the debt was contracted, any decision to repudiate the debt will go ahead in accordance with the law, she said in a radio interview with Quito-based Ecuador Inmediato yesterday.

``Ecuador will never act outside the law,'' she said. ``We are subject to the established rules of the game.'' She didn't say whether Ecuador's position includes staying current on coupon payments that the South American country has met since Correa took office in January of last year.

Ecuador on Nov. 15 didn't carry out a scheduled bond payment, invoking a 30-day grace period. The global financial crisis and the government's most recent threats to default last week led its bonds to plummet to as low as 14 cents per dollar, recovering since to more than 27 cents on the dollar.

Correa, a 45-year-old economist with a U.S. doctorate, has questioned the legitimacy of Ecuador's foreign debt and vowed not to repay ``illegal'' and ``illegitimate'' bonds. He has framed the criticism around the chances of winning lawsuits against foreign banks that were counterparties in debt renegotiations from the 1980s.

A debt audit, published on Nov. 20, says that much of the debt is illegal because usurious rates were charged; bonds were issued without proper government authority and without registration with the U.S. Securities and Exchange Commission; and that numerous conflicts of interest existed among lawyers, lenders, and government officials.