Ecuador lawmakers vow to reclaim seats in Congress

QUITO, March 19 (Reuters AlertNet) - Ecuador's fired opposition lawmakers on Monday vowed to break a police cordon and reclaim their parliamentary seats, keeping up the pressure on President Rafael Correa in the volatile Andean state.

Fifty-seven lawmakers have been fired for trying to block a referendum the populist president is proposing. The vote would set up a body to reduce the influence of congressmen in the judiciary and state companies.

The lawmakers refuse to accept their dismissal and last week barged through a police cordon to get into Congress. They promised to do the same on Tuesday.

"Either we all enter Congress or no one will," said Washington Vallejo, one of the 57 fired lawmakers. "We will defend Congress."

Correa, a leftist ally of Venezuelan President Hugo Chavez, since taking office in January has vowed to break the power of political elites, largely seen as corrupt, in the world's top banana exporting nation.

The fight with the lawmakers is the first major challenge for a president who has vowed to restructure the national debt and renegotiate oil deals. Congress has been instrumental in ousting three presidents in a decade.

Ecuador eyes Argentine-style debt swap-report

BUENOS AIRES, March 18 (Reuters) - Ecuador does not rule out a debt restructuring along the lines of Argentina's 2005 swap, which offered creditors about 25 cents on the dollar, Ecuadorean President Rafael Correa told leading Argentine daily Clarin in an interview published on Sunday.
Argentina restructured some $100 billion in defaulted sovereign debt in early 2005, in a swap that involved a steep haircut and extended debt maturities. About three-quarters of bondholders agreed to the terms.
"We would like to renegotiate the external debt as Argentina did, but it's quite difficult to do that now, because Argentina took advantage of its tragedy to renegotiate when bond prices had fallen," Correa was quoted as saying.
Argentina defaulted on its debt at the height of an unprecedented economic crisis in 2002, a year in which the economy shrank nearly 11 percent and the peso currency sharply depreciated.
A U.S-educated economist and friend of U.S. foe Venezuelan President Hugo Chavez, Correa said he preferred not to discuss his country's restructuring plan, but said he consulted with officials at Argentina's Economy Ministry on a regular basis.
Asked if he could rule out an Argentine-style debt deal, Correa responded: "No, it has not been ruled out. The debt is a heavy burden and we are going to be tough renegotiating it."
Last week, Correa told reporters he would repay foreign debt only if the country could afford it and reiterated that a default was not inconceivable. He also said the country would soon identify which debts were "illegitimate."
Ecuador's president has rattled Wall Street with promises to limit foreign debt payments. Correa made the payment on a foreign debt coupon that came due in February, but has left investors guessing over whether he will settle the next, due in May.

Ecuadorean Opposition Plans Parallel Congress After Shooting

By Alex Kennedy and Bill Faries

March 14 (Bloomberg) -- Ecuador's suspended lawmakers, in a challenge to President Rafael Correa, plan to hold a parallel session outside Quito after police blocked their entry to the capitol and two supporters were wounded in a drive-by shooting.

Congresswoman Gloria Gallardo said opposition leaders now have backing from more than two-thirds of the 100-member congress to meet as an alternative assembly next week. Riot police used tear gas yesterday to stop the lawmakers from reaching their offices after the electoral court suspended the ``political rights'' of 57 opposition members last week.

``We're seeing a regime that's an authentic dictatorship,'' former President Lucio Gutierrez, a leader of the opposition Patriotic Society party, said in a telephone interview from Quito. ``Violence has been rising in a dangerous way, and it could at some point turn into a civil war in Ecuador.''

The shooting, which occurred outside the Marriott Hotel, where the lawmakers retreated, deepens a clash over Correa's plans to remake the country along what he calls socialist economic and political lines. Correa's proposal for a new constitution -- the trigger for the current showdown -- echoes steps taken by Venezuelan President Hugo Chavez and Bolivian President Evo Morales to consolidate their control over the congress, courts and election authorities.

``They abused their power, they thought they were immune,'' Correa said in comments broadcast on the Cablenoticias television station after the legislators were shut out of their offices. ``Now they're getting a taste of their own medicine,'' he said.

`Quiet For Now'

Ecuador's congress voted March 6 to replace Supreme Electoral Tribunal President Jorge Acosta after the court backed Correa's plan for a national referendum on re-writing the constitution. The next day, the court suspended the lawmakers who sought to remove the judge, ruling their votes violated the constitution. Correa supported the court's decision and said the lawmakers would be replaced.

The top constitutional court yesterday rejected a request by the president of congress to rule on the legality of the suspension.

``With this situation, Correa's ability to govern will be reduced,'' said Claudio Loser, former director of Western Hemisphere affairs at the International Monetary Fund and a political analyst at the Inter-American Dialogue in Washington.

The U.S. Ambassador in Ecuador, Linda Jewell, said on Cablenoticias that the conflict among Correa, the congress and the courts is a domestic situation.

``We're going to be quiet for now,'' she said.

Correa, 43, a U.S.-trained economist who served a five- month stint as finance minister in 2005, won 57 percent of votes in a Nov. 26 run-off election in which he ran without the formal backing of any political party.

`Government Crisis'

During and after the campaign, Correa aligned himself with Chavez's socialist vision, vowing to boost spending on the poor, renegotiate foreign oil contracts and review Ecuador's approximately $10 billion in foreign debt obligations. Venezuela on Feb. 22 offered Ecuador as much as $500 million of ``financial cooperation.''

Correa took office in January as Ecuador's eighth president in about a decade. On Jan. 30, about 5,000 of his supporters tried to storm congress to demand lawmakers approve plans for a referendum on the constitution.

``Correa is forcing a government crisis,'' Loser said. ``This is going to get investors even more nervous.''

Ecuador has twice backed away from threats to default on debt payments since Correa took power. Finance Minister Ricardo Patino said March 8 that the country wouldn't ignore foreign debt obligations.

``Our creditors should know that we're very responsible,'' Patino said.

Congresswoman Sylka Sanchez said in an interview that the shots were fired from a passing motorcycle carrying two people. One of the opposition lawmakers' supporters outside the hotel was hit in the back, the other in the leg.

Violence in Ecuador heats up Congress-Correa feud

By Alonso Soto, March 14, 2007.

QUITO (Reuters) - Ousted Ecuadorean lawmakers scuffled with police and a shooting wounded two of their supporters on Tuesday, worsening discord between Congress and President Rafael Correa in the volatile Andean nation.

About 20 lawmakers barged through a cordon of police, who used riot shields to try to stop them from entering Congress, as tear gas billowed in the air. One legislator was carried away on a stretcher after he was knocked to the ground and injured.

Two congressional aides were lightly wounded by gunshots. Lawmakers said their supporters were targeted by unknown gunmen on motorcycles, but police said the two men had been hit by stray bullets from an unrelated robbery.

Dozens of Correa supporters had earlier traded kicks and punches with protesters backing the dismissed lawmakers.

"We are in a state of emergency and we are being hunted," fired legislator Gloria Gallardo told a television station from inside Congress. "Police are willing to kill lawmakers."

In a radio interview before the shooting, Correa urged his supporters to avoid violence. "Do not let yourselves be provoked by these people who are trying to cause chaos," he said.

The leftist economist, an ally of Venezuelan President Hugo Chavez, has demanded that the fired lawmakers be replaced by substitutes from the same parties, in a move that could boost his clout over an unruly and widely unpopular Congress.

Fifty-seven legislators have refused to accept an electoral court decision that fired them last week. They had sought to reverse an earlier ruling that would allow the highly popular Correa to hold a referendum to weaken Congress' powers.

Changes proposed by the referendum are meant to lessen political influence in the judiciary and force lawmakers to live in the small constituencies they represent.

Tuesday's violence forced Congress to suspend sessions for a week.

The dispute has become the biggest challenge to the leftist's presidency since he took office in January in a country where Congress played a pivotal role in ousting three presidents in the last decade.

Investors, already spooked because Correa has threatened to skip some foreign debt payments, worry that the president will struggle to govern despite his high popularity.

"The escalating political confrontation carries the risk of further erosion of the institutional backbone of the country, which could exacerbate perennial weak governability conditions," senior Goldman Sachs economist Alberto Ramos said in a research note.

Ecuador is the world's top banana exporter and South America's No. 5 oil producer.

(Additional reporting by Alexandra Valencia and Guillermo Granja)

Ecuador Congress Ends Session After Lawmakers Banned

By Alex Kennedy

March 13 (Bloomberg) -- Ecuador's congress canceled its session today after riot police used tear gas to keep suspended lawmakers from entering the capitol building.

Jorge Cevallos, the legislature's president, said he canceled the meeting because too few congressmen attended. The country's top constitutional court today rejected a request by Cavellos to rule on the legality of the suspension last week of 57 opposition lawmakers by the electoral court.

``This escalating political confrontation carries the risk of further erosion to the institutional backbone of the country,'' Alberto Ramos, a senior economist with Goldman Sachs Group Inc. in New York, said in a note to clients.

The court's decision will probably lead to the appointment of the suspended congressmen's lesser-known substitutes, a move that should strengthen President Rafael Correa, Ramos said.

Police used shields and tear gas to keep a group of suspended congressmen out of congress. Officers allowed about eight of the deputies into the building to protect them from Correa supporters, Luis Cueva, head of the congressional police force, said on Ecuavisa.

Ecuador's 100-member congress on March 6 voted to replace Supreme Electoral Tribunal President Jorge Acosta after the court backed Correa's plan to hold a referendum on whether to rewrite the constitution. The court on March 7 ruled the vote unconstitutional and ordered the suspension of lawmakers who voted for it.

``If not toned down soon, the heated political rhetoric and confrontation could start to erode the fundamentals of the country,'' Ramos said. ``At that stage, what has been so far disconcerting rhetoric and questionable willingness to stay current on external debt obligations could easily mutate into genuine capacity to pay issues.''

Correa said yesterday his government won't pay $40 million in interest it owes the central bank, in a bid to free up more funds for health programs. The government, which owes the central bank $1.2 billion, last week backed off threats to default on $10 billion of foreign debt when Finance Minister Ricardo Patino said the government will probably make an interest payment in May.

Ecuador's president orders emergency fund to public health

People's Daily Online, March 13, 2007.

Ecuador's President Rafael Correa declared Monday a state of emergency in the nation's health service, ordering the economy ministry to halt a bond payment and instead deliver 40 million U.S. dollars to public hospitals.

Correa's order, which covers the nation's 25 public hospitals, also required the creation of 4,500 jobs in the health service which would allow staff to work double shifts.

Correa also announced campaigns on eye surgery and surgery to repair injuries, with the help of unnamed foreign countries.

Economy Minister Raul Patino said updating the nation's public hospitals is a priority on the government agenda because they are in a disastrous shape.

Declaring a state of emergency allows Ecuador to use contingency funds to hire emergency staff without the normal measures required by law.

Correa described his ordinance as "a way of making up for lost time."

He said he was not concerned about signing the decree despite opposition criticism, adding that he intends Ecuador to have a first-class public health system which all Ecuadorians could access.

Correa recently announced a 2007 budget proposal of 9.8 million U.S. dollars that includes a 28 percent reduction in foreign debt service. He said the government needs to make good promises of paying salaries on time and allotting resources to education and health.

Ecuador president demands lawmakers accept firing

By Alonso Soto

QUITO (Reuters), Fri March 9, 2007 - Ecuadorean President Rafael Correa ordered 57 lawmakers on Friday to accept a court ruling that fired them, intensifying a power struggle with Congress in the politically unstable Andean country.

Ecuador's electoral court ruled this week that the 57 must step down for trying to oust the court's president in legal wrangling over proposed changes to the constitution that could weaken Congress.

The popular leftist president stepped into the fight with a speech from a balcony of the presidential palace to student supporters, who like many Ecuadoreans back his efforts to use reforms to cut the power of traditional political elites.

"Those 57 lawmakers should comply with the law for their actions and they should be replaced by their substitutes. That is the way it should be," Correa told the cheering crowd.

If the lawmakers step down, they will be replaced by members of their own parties, ensuring Congress remains an opposition body.

But the removal of more than half of the elected legislature would strip power from influential Correa opponents in a Congress which has been pivotal in ousting three presidents in the last decade.

Despite lacking support from a traditional party, Correa won power last November with a pledge to rewrite the constitution to strip Congress of much of its power.

He is a close ally of Venezuelan President Hugo Chavez, whose supporters rewrote the constitution to boost his powers soon after he was first elected.

Congress has at times accepted Correa's moves against it. But in recent weeks lawmakers have increased their opposition to a referendum on the constitution scheduled for April 15.

Congress suspended its session on Thursday after police surrounded it to enforce the court ruling.

The feud highlights the charismatic Correa's troubles governing a nation which has had eight presidents in a decade.

Still, the U.S.-educated economist is highly popular as many blame lawmakers for chronic instability in the world's top banana exporter and South America's No. 5 oil producer.

LEGAL BATTLE

Congress had approved Correa's plan for a referendum, but opposition legislators say he then changed its text and they now want the vote halted.

They voted this week to fire the election court's president in a move to delay the referendum and secure an opposition majority in the court.

The electoral body hit back, ruling congressmen broke the law and would lose their political rights for a year.

The proposed constitutional changes are meant to reduce the influence of politicians in the judiciary and could force legislators to live in the constituencies they represent.

Correa has no official representatives in Congress, and opponents say he is pushing reform to extend his powers.

A former economy minister, Correa has rattled Wall Street and Washington with plans to restructure foreign debt, rewrite oil contracts and end an agreement giving the U.S. military use of an air base for counter-narcotics operations.

Still, foreign investors also worry the power struggle could weaken Correa's ability to rule and kill off another Ecuadorean government in its infancy.

Ecuador's Correa and Congress in power struggle

By Alonso Soto

QUITO (Reuters) , Mar 9, 2007 - Ecuador's Congress suspended its session on Thursday after police surrounded it to enforce a court ruling to fire 57 lawmakers in a power struggle between President Rafael Correa and the opposition.

Correa hopes to limit his rivals' influence with an April 15 referendum aimed at drafting constitutional reforms, but he faces growing resistance inside Congress.

The feud highlights Correa's troubles governing a country where three presidents have been ousted in a decade, but the left-winger is highly popular after promising to take on lawmakers who many blame for Ecuador's chronic instability.

"My countrymen, you have a true government that will not fail you," Correa told a cheering crowd inside the presidential palace. "There is no going back on the referendum."

Police carrying riot shields and batons greeted the 28 lawmakers who showed up before Congress' president cancelled the morning session because not enough of the total 100 members were present.

Local television showed protesters beating a lawmaker in a hotel car park, and another sped away as demonstrators kicked and banged his car. Neither was seriously hurt.

In a conciliatory tone, Congress president Jorge Cevallos later said he was open to talks with Correa to find a solution to the political deadlock.

"We want to restore peace and stability," Cevallos said.

Congress initially approved Correa's plan for a reform referendum, but opposition legislators say he then changed its text. They now want the vote halted and their demand is before Ecuador's constitutional court.

On Tuesday, 52 lawmakers voted to fire the election court's president, Jorge Acosta, in a move to delay the referendum and secure an opposition majority in the court.

The election court hit back on Wednesday, ruling the 52 and five others had violated the constitution and would be stripped of their political rights for one year.

'TOTALITARIAN'

"We will call local mayors and local officials to support our front against this totalitarian government," opposition lawmaker Carlos Larreategui said.

He said the fired members will appeal to the Organisation of American States for help to invalidate the court ruling.

Correa, a political outsider elected in November, has no official representatives in Congress. His foes say he wants to bypass the legislature and consolidate presidential authority with a special assembly on constitutional reforms as his ally, Venezuelan President Hugo Chavez, did after his 1998 election.

"For the first time we are seeing a weak Congress and a government that has the upper hand," said Adrian Bonilla, director of Ecuador's branch of the Latin American Faculty of Social Sciences. "I believe the government will probably win this time."

Correa, a former economy minister, has rattled Wall Street and Washington with plans to reform foreign debt, rewrite oil contracts and end an agreement allowing the U.S. military to use an air base in Ecuador for counter-narcotics operations.

Political parties often fight for appointments that will allow them to control the key electoral and constitutional courts in Ecuador, South America's No. 5 oil producer.

Ecuador to Make Next Payment on Bonds, Patino Says

By Alex Kennedy and Matthew Walter

March 8 (Bloomberg) -- Ecuadorean Finance Minister Ricardo Patino, retreating from a threatened default for a second time, said the country will probably make its next debt payment on schedule as the government faces no imminent financial crisis.

``I expect we'll make the payment,'' Patino, 52, told reporters today in Quito. ``Our creditors should know that we're very responsible. We're not going to ignore foreign debt obligations.''

Ecuador's bonds jumped as investors raised bets the threat of a default is receding. The government is still seeking to renegotiate the terms and conditions of loans from the World Bank and Inter-American Development Bank, Patino said. The dollar, adopted by the country in 2000, will remain the official currency in the ``short term,'' he said.

Patino's comments mark the second time the government has backed off from threats to default on $10 billion of foreign debt after President Rafael Correa said he might halt payments to free up funds for social programs. Correa, who took office on Jan. 15, said last month he could only fight one battle at a time, and his priority is to redraft the nation's constitution, a plan opposition lawmakers are resisting.

Correa's clash with congress intensified today as baton- wielding riot police blocked 57 of the 100 lawmakers from entering the legislature in Quito to enforce an order by the country's top electoral court suspending their ``political rights.''

The congress voted March 6 to replace Supreme Electoral Tribunal President Jorge Acosta after the court backed Correa's plan to hold a vote on the constitution. The court ruled the lawmakers' vote unconstitutional and ordered them suspended.

'Left to Right'

Correa's push for a national referendum on a constitutional overhaul makes it less likely he'll default, said Vicente Albornoz, president of Quito-based economic research firm Cordes.

The president, who last year ran without the backing of any established political party, said in February he finds it difficult to fight on ``various fronts'' and that his focus is on changing the constitution.

Lawmakers, including Correa's allies, criticized the government for harming the economy by with threats to default.

``The whole country, from the left to the right, demanded this clarity,'' Albornoz said.

Ecuador paid $135 million in interest payments on Feb. 15, reversing earlier plans to invoke a 30-day grace period because of a cash shortage. The next payment of $30.6 million is due May 15.

Bond Yields

``Until we have a clear indicator that the government intends to default, I think the bonds should be doing fine,'' said Carola Sandy, an economist at Credit Suisse in New York. The bonds have gained since January on expectations the government will pay, Sandy said.

Patino reiterated the government's forecast for economic growth of between 3.3 percent and 3.5 percent this year.

The yield on Ecuador's benchmark 10 percent bond due in 2030 closed down 31 basis points, or 0.31 percentage point, to 11.75 percent, its lowest since Feb. 26. The price, which moves inversely to the yield, rose 2.1 cents, or 2.5 percent, to 86.1 cents on the dollar, according to JPMorgan Chase & Co.

Ecuador says Congress vote prompts debt reform

QUITO, Feb 28 (Reuters) - Ecuador's economy minister said on Wednesday that Congress's vote this week to reduce debt service assignments in the budget plan had given the government more reason to push ahead with its debt restructuring plans.
Economy Minister Ricardo Patino, a leftist economist, also said a commission to audit the country's public debt would be named soon to determine "illegitimate debt" that the government says it will not pay.
President Rafael Correa, a political outsider elected last year, has rattled Wall Street by promising to overhaul the country's foreign debt, triggering concerns that Ecuador might default on its obligations.
"Congress has put at my disposal the option of a debt restructuring to reduce debt payments, and we will certainly consider it," Patino told reporters in Quito. "This is one more reason to talk about debt restructuring."
Congress's vote on Tuesday to divert $283.4 million earmarked for debt payments in the government's $9.8 billion budget plan this year worried investors who are already fretting over the government plans to reform bonds.
"This is an example of the contentious nature in which external debt is viewed in Ecuador, where there is a weak credit culture," said Lisa Schineller, of Standard and Poor's in New York.
"But I don't think that would impact the government's decision to move ahead with a restructuring if that is what they choose to do," she added.
Correa, a former economy minister and ally of U.S. foe Venezuelan President Hugo Chavez, has vowed to slash debt payments to spend more on the country's poor majority.
Even at a time when Ecuador is flush with oil cash from high oil prices, Correa has said some debt issued by past governments is hurting the country's development.
However, the 43-year-old economist has said debt restructuring could be delayed by his political plans to rewrite the Andean country's constitution.
The foreign debt of Ecuador, South America's fifth-largest oil producer, totaled $10.21 billion in December, according to government figures.

Ecuador to repair roads system with funds to repay creditors

Mercopress, February 27, 2007
Ecuadorian president Rafael Correa declared Tuesday a national roads system emergency and ordered the Army to begin the construction and maintenance of the country’s road network to be financed with funds originally destined to honor foreign debt payments.
“The political decision of this government is that the Armed Forces in times of peace should integrate in helping social and economic development”, announced President Correa during the taking office ceremony of the military new high command.
The task will be addressed by the Army’s Corp of Engineers said Correa adding that “it’s time the country takes advantage of all its potential and resources, particularly human resources”.
“Competence is the means for achieving development, social fulfillment, but if I have the resources in the government sector, a corps of engineers that with all their honesty, determination and patriotism can help rebuild the motherland, why should we give those resources to other sectors?”
Incoming Army Commander General Guillermo Vasconez praised president Correa’s initiative and pointed out that “defense policy is closely linked to progress and development”.
Correa anticipated Sunday during his weekly radio program that the emergency would also include harbors, jetties, bridges and secondary roads in need of repair and maintenance, and underlined that several public works remain unconcluded because of private sector “negligence”.
Works during the first phase will be financed with 100 million US dollars from the Savings and Contingency Fund which currently holds 600 million US dollars and was originally created to help lighten the burden of foreign debt capital and interest payments.
Ecuador has a foreign debt equivalent to 10.2 billion US dollars which represents 25% of GDP and president Correa during his electoral campaign promised priority for social investments over foreign creditors, and did not discard a moratorium, if necessary.
“They are not going to tie my hands. We’re going to invest those 600 million US dollars en developing the country’s productive infrastructure which is what the Ecuadorian people are demanding”, highlighted Correa.

Ecuadorean president hopes new regional lending institution created in 4 months

IHT, Feb 24, 2007.

QUITO, Ecuador: Ecuador's new leftist president said Saturday that he hopes a new regional lending institution will be established within four months.

The Banco del Sur, or Bank of the South, will help combat the "international bureaucracy" of high-cost loans offered by financial institutions such as the International Monetary Fund and the World Bank, Rafael Correa said in a nationwide radio address.

"We hope (the bank) is created within 120 days so we can finance ourselves with the region's own funds," he said.

Correa said that even the IMF's low-interest loans are unacceptable because the institution imposes "unacceptable conditions" such as fines that make them more expensive than commercial loans.

The new bank was approved at a summit of the Southern Common Market, or Mercosur, last July.

Correa, who took office Jan. 15, said this new regional institution would "drastically lower" loan costs.

Correa has vowed to cut ties with the IMF, and has promised to renegotiate the country's US$16.4 billion (€12.5 billion) foreign debt and direct resources to programs that help the poor.

Earlier this month, the economy minister said Ecuador would not sign an agreement allowing the IMF to monitor the country's economic plan.

Venezuela already has set aside US$500 million (€382 million) in financing for Ecuador. On Thursday, Venezuelan Finance Minister Rodrigo Cabezas said it was still not decided how the financing would be extended to Ecuador, although he favors the purchase of Ecuadorean government bonds.

Ecuador Stands Up to the US

By ROGER BURBACH.

From Counterpunch, February 19, 2007

Quito, Ecuador.

The leftist government of Rafael Correa has moved assertively in its relations with the United States during its first month in office. The Minister of Foreign Relations, Maria Fernanda Espinosa, in a meeting with the Foreign Press Association in Quito declared that Ecuador intends to close the US military base located at Manta. "Ecuador is a sovereign nation, we do not need any foreign troops in our country," she said. The treaty for the base expires in 2009 and will not be renewed.

The largest US base on South America's Pacific coast, it was ostensibly set up to help monitor narco-trafficking over the ocean and in the nearby Amazon basin. But it has become a major operations center for US intelligence gathering and for coordinating counterinsurgency efforts against the leftist guerrillas in neighboring Colombia. The base's air runway, built at a cost of eighty million dollars, is capable of accommodating the largest and most sophisticated US spy and intelligence gathering air craft. Manta is also used as a port for US naval operations in the Pacific. Upwards of 475 US military personal are continually rotated between Manta and the US Southern Command headquarters in Florida.

Popular sentiment in Ecuador overwhelmingly supports the closure of the US base at Manta. Since its establishment in 1999 the civil war in Colombia has spread to Ecuador, bringing refugees, violence and social conflict, particularly in the Amazon region. Aerial spraying of herbicides by planes originating in Colombia eradicates food crops and has deleterious health effects on Ecuadorian children and adults. The Colombian and US governments claim that the defoliants are only sprayed on the Colombian side of the border and that there are no flights over Ecuador. But President Correa vehemently disagrees: "We will not permit the continual violation of Ecuadorian air space by planes, that are not even Colombian, but from the United States. They enter our country, and then fly back to Colombia." Correa has ordered the Ecuadorian air force "to intercept any planes that violate our air space."

The Correa government is preparing a case for the World Court at the Hague against the Colombian government for the conflict and damages in northern Ecuador. Foreign Minister Espinosa is emphatic in saying that this is a "violation of human rights. It is not only a question of the health effects, but also of the psychological traumas caused by the constant over flights and the terrorization of the local population, particularly among the children who hear planes flying overhead and are subjected to war-like conditions." Special teams comprised international health and human rights representatives are being formed to investigate the conditions on the border. "We want to replace the conflictive conditions with a Plan for Peace and Development in the region," says Espinosa.

Last week the Vice-President of Ecuador, Lenin Moreno, in a trip to Caracas, Venezuela, stated that the Colombian government "should act more as a friendly neighbor and not respond only to the orders of the empire." Commenting on the upcoming trip in March of President Bush to Latin America that excludes Ecuador, Moreno added: "Every time Bush comes to visit our region we worry because we don't know what proposals he comes to impart and what sorts of statements he will make." His comments caused an uproar, and in an effort to calm the diplomatic waters, Espinosa said that Moreno's remarks were not officially sanctioned. "We want cordial, normal relations with the US embassy and government in order to resolve any issues between us," she said.

The Correa government is also moving adroitly to break with the neo-liberal trade and commercial policies that have been imposed on Ecuador by Washington and international lending agencies. In line with his campaign platform, Rafael Correa has made it clear that he will never sign the Free Trade Agreement with the United States that was being discussed with previous governments. At the same time, Ecuador is negotiating special bilateral trade and economic agreements with Presidents Hugo Chavez of Venezuela and Evo Morales in Bolivia. Venezuela has agreed to refine Ecuadorian oil and provide financial assistance for social programs in Ecuador, while the Bolivian government has concluded an agreement to import food commodities from small and medium producers in Ecuador.

For the moment Correa has not opted to join the People's Trade Treaty signed last year between Cuba, Bolivia, and Venezuela. But as Rene Baez, an economic analyst at the Catholic University of Ecuador says: "The treaty is really a series of special accords and financial agreements, and in that sense Ecuador is already an informal member of this alternative bloc."

The financial news that captured the headlines last week was the announcement of Economics Minister Ricardo Patino that Ecuador would make a scheduled debt payment of $135 million to foreign bond holders. Known for his long-held belief that paying off the foreign debt undercuts critical social spending programs and keeps Ecuador in a state of perpetual poverty, Patino's decision came just two days after he had announced that Ecuador would not make the $135 million payment.

Informed sources close to the government say that after high level discussions, Correa opted to pay the bond holders, preferring to concentrate on the upcoming negotiations with international creditors over a reduction in the schedule of debt payments and on the annulment of part of the debt that was the result of corrupt practices by prior Ecuadorian governments and foreign creditors. As Rene Baez says, "the Correa government decided to be selective in the battles it is taking on for the moment. A default now would have caused an international reaction and possibly provoked a domestic financial crisis, just as the government is trying to get its legs under it."

Roger Burbach is director of the Center for the Study of the Americas (CENSA) and a Visiting Scholar at the Institute of International Studies, University of California, Berkeley. He is co-author with Jim Tarbell of "Imperial Overstretch: George W. Bush and the Hubris of Empire," His latest book is: "The Pinochet Affair: State Terrorism and Global Justice."

Ecuador Makes International Bond Payment, Patino Says

By Patrick Harrington and Lester Pimentel

Feb. 15 (Bloomberg) -- Ecuadorean President Rafael Correa, after roiling his country's bond market with threats to default on $10 billion in foreign debt, made the first interest payment due during his term, the government said.

Economy Minister Ricardo Patino said he ordered payment of $135 million due today on schedule, reversing earlier plans to invoke a 30-day grace period because of a cash shortage. The government made the payment after taking care of priorities such as salaries for public workers, Patino said in an interview on Ecuavisa television.

``Yesterday morning the deputy economy minister said to me, `Ricardo, we have the money to pay the interest on the bonds; do we pay?' he said in the interview. ``Let's pay.''

The decision to meet Ecuador's obligations on the bonds may signal that internal political struggles are at least postponing any move to restructure the country's debt. On Feb. 10, Correa said questions about debt had to take a back seat to convening an assembly to re-write the country's constitution and possibly dissolve congress. After his election in November, Correa said he might default on debt to free up funds for welfare and social development programs.

``The government is clearly playing a game with bondholders,'' said David Bessey, who manages more than $6 billion of emerging-market securities for Prudential Financial Inc. in Newark, New Jersey. ``The government has indicated it would rather not pay, but the downside of doing so has become clearer to Correa.''

Bond Rally

Ecuadorean bonds rallied from Jan. 26 after Patino signaled the likelihood of a default was receding, and the 2007 budget accounted for payment on all debt obligations.

The yield on the government's 10 percent bonds due 2030, Ecuador's most traded securities in international markets, rose 22 basis points, or 0.22 percentage point, to 12.06 percent at 12:40 p.m. in New York, according to JPMorgan Chase & Co. The bond's price, which moves inversely to the yield, fell 1.50 cents on the dollar to 84 cents.

Ecuador adopted the dollar as its official currency in 2000, a year after defaulting on $6.5 billion in debt.

On Nov. 27, the day after Correa won the presidential election with 67 percent of the vote, Ecuador surpassed Lebanon as the riskiest country for bondholders, according to traders in the credit-default swap market.

Ecuador is not a country with a debt problem, said Jeff Grills, Co-Head of Emerging Market Debt at JPMorgan Asset Management in New York.

`Robust Cash Flow'

``This is a country with a fairly robust cash flow,'' said Grills, who holds $4.8 billion in emerging market debt and sold his Ecuador position in September. ``This was never an Argentine situation where they were coming up against unsustainable debt payments.''

Patino said the government was not trying to mislead investors, only adjusting its priorities. Spending on anti- poverty programs, government salaries and other areas now takes precedence over meeting debt payments, he said. ``On Monday we didn't have the money on Wednesday we did,'' he said.

Ecuador's Deputy Finance Minister Fausto Ortiz on Feb. 12 told reporters in Quito the country would miss the payment because it had only $60 million on hand.

``Yesterday when it was determined that there were sufficient resources to make the interest payment on the bonds we proceeded to make the payment,'' Patino told the television station.

Ecuador's on-time bond payment confuses economists

IHT, Feb 15, 2007.

QUITO, Ecuador: Ecuador's announcement that it will meet a Thursday deadline for a US$135 million (€102.7 million) interest payment on its Global Bonds 2030 has left financial analysts struggling to understand the surprise decision.

Ecuador's new leftist government said Monday that it would pay the coupon during a 30-day grace period, claiming it lacked sufficient funds in its account. Two days later, the Economy Ministry announced it would make the payment by Thursday.

President Rafael Correa, a U.S.-trained economist who took office Jan. 15, has vowed to renegotiate the country's US$16.4 billion (€13 billion) foreign debt and direct resources to programs to help the poor.

Wall Street waited to see how Ecuador would handle Global Bonds 2030, the government's first scheduled interest payment, and Wednesday's decision has economists looking for answers.

Economy Minister Ricardo Patino told Channel 8 television on Wednesday that Ecuador has the sufficient tax revenue to make the payment on time, but offered no further details on the government's decision.

Ecuador's former Economy Minister Alfredo Arizaga says the country's ability to quickly come up with the cash is suspicious.

"Someone here is lying," Arizaga told The Associated Press.

He said Ecuadorean authorities could be trying to provoke sharp fluctuations in the prices of the bonds, driving down their value by announcing they would not pay the coupon on time, then allowing their value to shoot up when Ecuador changed its position two days later.

The decision might also be due to government's "total managerial incapacity and ignorance of how financial markets work," he said.

Ramiro Crespo of Analytica Securities, a Quito-based investment bank, told Dow Jones Newswires: "The only thing that the erratic, arbitrary, capricious and manipulative debt policy and the coupon payment have done is generate more doubts and uncertainty over what the government will actually do with the foreign debt."

The payment decision also comes amid suspicions that Venezuela has purchased a significant portion of the country's debt.

"There are many indications that Venezuela has an enormous influence," Crespo said.

In its budget proposal last month, the Ecuadorean government set aside US$2.7 billion (€2.1 billion) — 28 percent of the US$9.8 billion (€7.5 billion) budget — for foreign debt payments, more than US$1 billion (€800 million) less than in 2006.

When Correa took office last month, he said some of the debt arranged by previous governments was the result of corruption and that an international tribunal should be set up to decide what debt should be repaid.

Ecuador's next foreign debt payment of US$30.6 million (€23.2 million) is due May 15.

Ecuador, Pondering Debt Default, Turns to Chavez for Funding

By Matthew Walter and Patrick Harrington

Feb. 14 (Bloomberg) -- Ecuadorean President Rafael Correa, who is considering defaulting on the country's $10 billion in international debt, is turning to Venezuela's President Hugo Chavez to cover an expected budget deficit this year.

Ecuador is short of funds to make a Feb. 15 interest payment on its benchmark bonds and will take advantage of a 30- day grace period, Deputy Finance Minister Fausto Ortiz said this week. Correa, 43, will send officials to Caracas Feb. 21 to discuss what kind of backing Venezuela can offer, Ortiz said.

``The intention is to go to Caracas to see exactly what the conditions are, to see if it involves buying bonds,'' Ortiz told reporters in Quito. ``We'll have to see exactly what the conditions of the financing are.''

For Chavez, supporting Correa's socialist government would match efforts to bolster other regional allies as he seeks to expand his reach and diminish U.S. influence. In the past year, Venezuela bought bonds from Argentina and jointly issued international bonds, which allowed the country, after a debt default in 2001, to raise funds in U.S. dollars.

``They're not sure what kind of debt restructuring proposal they'll offer. One of the first steps has got to be to cement support from Venezuela,'' said Gianfranco Bertozzi, a Latin America economist at Lehman Brothers Holdings Inc. in New York.

Ortiz said on Feb. 12 that the government is studying the composition of its debt and though payments are budgeted for this year, the country won't honor any debt found to be `illegitimate.''

Bondholders

Support from Venezuela for Ecuador could come in the form of assistance funneled through a third-party such as the Andean Development Corporation, loans at a favorable rate, or even an agreement to buy Ecuadorean bonds, Bertozzi said.

``If Ecuador defaults, it would be the first time a government does so out of a change in willingness to pay,'' he said. ``Normally, when you go to the negotiation table, there's recognition that there's no money,''

Ecuador's Finance Minister Ricardo Patino last month said the government may pay foreign creditors as little as 40 cents on the dollar to free up funds for heath care and education. Last month, the government doubled a cost of living subsidy for the elderly and disabled at a cost of up to $400 million. Correa has also promised increased housing assistance for the poor.

Default Threat

Default threats sent Ecuador's bonds to a 2 1/2 year low in January and caused Moody's Investors Service and Standard & Poor's to cut the country's credit rating.

Ecuador's 10 percent bonds due in 2030, the most traded in international markets, rose 1.85 cents on the dollar to 83.35 yesterday, pushing the yield down 0.29 percentage point to 12.16 percent, according to JPMorgan Chase & Co. The bond is up from 67 cents on the dollar Jan. 23.

``It's still not fully clear what the government strategy is with regard to their debt,'' Credit Suisse economist Carola Sandy said in a phone interview from New York. ``All the recent statements suggest that the probability of an outright default is declining.''

The bond's rise over the past three weeks has been fueled by speculators, said Raphael Kassin, who helps manage about $8 billion in emerging market fixed-income securities for ABN Asset Management in London. Kassin, who hasn't owned Ecuadorean bonds since 2003, isn't convinced.

``If there is a president who says he will default, what else can I expect,'' he said. ``I'm an investor who is running client money and my clients don't want me to take that kind of risk.''

Ecuador's new leftist government rejects IMF review of its economic program

February 1, 2007

IHT

QUITO, Ecuador: Ecuador's new leftist government will not sign an agreement allowing the International Monetary Fund to monitor the country's economic plan, the economy minister said Thursday.

"I have no intention ... of accepting what some governments in the past have accepted: that (the IMF) tell us what to do on economic policy," Economy Minister Ricardo Patino told Channel 4 television. "That seems unacceptable to us."

Patino also praised Venezuela — where President Hugo Chavez is a key ally of Ecuadorean President Rafael Correa — for offering the Andean nation credits of up to US$1 billion (€800 million).

In its budget proposal presented Wednesday, Ecuador's new government set aside US$2.7 billion (€2.1 billion) — 28 percent of the US$9.8 billion (€7.5 billion) budget — for foreign debt payments, more than US$1 billion (€800 million) less than in 2006.

Correa took office in January promising to take steps to renegotiate the country's US$16.8 billion (€13 billion) foreign debt and direct resources to programs to help the poor.

Investors are waiting to see if the country makes its programmed payment on Global Bonds 2030, due Feb. 15.

"We'll decide whether or not to pay these obligations based on fiscal necessities because our commitment is going to be to pay salaries on time, allot resources to education and health," Correa said Wednesday.

Ecuador debt service cut in Correa's 2007 budget proposal

IHT, January 31, 2007

QUITO: Leftist President Rafael Correa on Wednesday announced a 2007 budget proposal that includes a 28 percent reduction in foreign debt service.

The US$9.8 million (€7.6 million) budget was to be submitted Wednesday to Ecuador's opposition-led Congress.

"We'll decide whether or not to pay these obligations based on fiscal necessities because our commitment is going to be to pay salaries on time, allot resources to education and health," Correa said during a press conference in the port city of Guayaquil.

Investors are waiting to see if Ecuador makes its programmed payment on Global Bonds 2030, due Feb. 15.

The president said a contingency fund that had been set aside for foreign debt payment under previous administrations would be designated instead for "national emergency."

Education and health "are in crisis, and we're going to make as many emergency declarations as necessary to attend to these sectors rapidly," he said.

On Wednesday, about 100 demonstrators from a public school held a protest calling for a referendum on an assembly to rewrite the country's constitution that stopped traffic near Parliament. They were held back by police, and the protest ended without any major incoveniences.

On Tuesday, Congress was forced to abandon its session after protesters in favor of the referendum forced their way into the building.

Correa took office in January promising to take steps to renegotiate the country's US$16.8 billion (€13 billion) foreign debt and direct resources to programs to help the poor.

The debt renegotiation talk has rattled Wall Street and Moody's Investor Service on Wednesday became the third debt-rating agency to downgrade Ecuador's debt since leftist Correa took office.

The amount in his budget proposal destined to debt service was cut to US$2.7 million (€2.1 million) from US$3.8 million (€2.9 million) in 2006.

Tuesday's congressional session was suspended when Correa supporters seeking a referendum on whether the country's constitution should be rewritten stormed the building.

The budget projected an increase in gross domestic product of 3.5 percent from 2006 and annual inflation of 2.6 percent.

It estimates a per barrel oil price of US$35 (€27).