Correa Says Ecuador to Review Other Debt After Bonds

By Stephan Kueffner

June 12 (Bloomberg) -- Ecuador will review the legitimacy of loans from multilateral lenders and other governments in the coming months after completing a buyback plan on $3.2 billion in defaulted bonds, President Rafael Correa said.

The government must decide how to treat the debts, which accounted for two-thirds of the $10 billion the country owed as of December, when it defaulted, Correa said yesterday in Quito. The loans from institutions such as the World Bank involved criminal acts by previous governments, just like the bonds’ issuance, he said.

In questioning the legitimacy of the multilateral debt, Correa revisited an issue the government hadn’t discussed since November. In the end, it’s most likely that Correa will demand arbitration rather than quit paying on the multilateral loans, said Ramiro Crespo, head of Quito-based brokerage Analytica Investments.

“When Correa gets an issue into his head, it means he’s going to do something,” Crespo said.

Arbitration would avoid disgruntling important partners such as France or Brazil, Crespo said. Ecuador filed for arbitration last year in a dispute over a $250 million loan backed by a Brazilian state development bank. In the meantime, it has kept up interest payments.

The country’s bond due in 2015, which the government said didn’t involve illegal activity and pledged to honor, has rallied to 67.8 cents on the dollar today from 44.75 cents on April 20 when the government made its buyback offer.

Fitch Ratings

“Ecuador’s creditworthiness will continue to be constrained by the sovereign’s weak willingness to honor its debt commitments,” Erich Arispe, director of Fitch Ratings’s Latin America Sovereigns team, said in an e-mailed statement today.

Correa has given the Caracas-based Andean Development Corporation and the Washington, D.C.-based Inter-American Development Bank assurances he’ll continue to service their debt.

“They paid him back with public support for his buyback proposal,” Crespo said.

Ecuador bought back 91 percent of its defaulted bonds due 2012 and 2030, Finance Minister Maria Elsa Viteri told reporters last night. The offer, which closed on June 3, will be reopened later to bondholders who didn’t participate, she said.

Viteri said 18.7 percent of the holders of the 2012 bonds didn’t accept compared with 7.2 percent 2030 holders. The government will offer the holdouts the same 35 cents on the dollar later, she said.

‘Imposed by Force’

“These debts were imposed by force,” Correa said last night in Quito after the government disclosed the buyback results. “We have rebelled against the system that established odious, unfair, illegal, immoral debts.”

An audit commissioned by Correa reported on Nov. 20 that much of the debt is illegal because usurious rates were charged and there were numerous conflicts of interest among lawyers, lenders, and government officials.

Ecuador would be willing to negotiate with lenders in the event of a dispute, rather than defaulting as it did with bondholders, Viteri told reporters after Correa spoke.

“If there’s any problem, there will always be an option to sit down and talk as the first option, however there’s no definitive strategy yet,” Viteri said. “The Republic continues to be willing to have a positive and balanced relationship with the international financial community.”

At the same time, the recovery in the price of crude oil, Ecuador’s top export, has eased financing pressure on the government.

Correa will probably focus his anger at multilateral lenders on the World Bank, which he has often criticized in the past, without having to ask that institution for money, Crespo added.