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.

Monday, May 25, 2009

Regional lenders back Ecuador in debt talks

By Alexandra Valecia and Alonso Soto

QUITO (Reuters) - Regional multilateral lenders see progress in Ecuador's talks with investors to rework $3.2 billion in defaulted debt and promised to keep working alongside the Andean nation, officials said on Thursday.

The public backing from the Andean Development Corporation and the Inter-American Development Bank could strengthen Ecuador's position against bondholders by giving some legitimacy to the default and signaling that the tiny country holds the upper hand in negotiations, analysts say.

It could also signal both lenders could disburse more loans to the OPEC nation reeling from the financial crisis.

"This backing is like saying Ecuador has a very strong hand against bondholders in a poker game," said Alberto Bernal, an analyst with Bulltick Capital Markets in Miami.

"This could prompt more investors to participate (in the buyback) to avoid being on the losing side."

President Rafael Correa, a leftist former economy minister, offered to buy back about $3.2 billion in global bonds due in 2030 and 2012 that he refused to pay last year on charges the debt was issued "illegally" by past administrations.

He offered a buyback auction of the defaulted debt with a 70 percent discount as a starting point.

Many in Wall Street say Ecuador has a key advantage because Correa already bought back most of the debt when it started to threaten a default and dragged down market prices in late 2008. Ecuador has not confirmed or denied past buybacks.

Most holders of defaulted debt have so far failed to create a united front against Ecuador to seek repayment via courts.


The Andean Development Corporation's representative in Quito, Luis Palau-Rivas, said the lender sees the OPEC-member nation's defaulted debt restructuring "positively."

"We see the process positively because it's a voluntary process," Palau-Rivas told reporters. "It's helping to solve a difficult situation ... and will benefit everyone."

Palau-Rivas said the CAF was planning to disburse up to $700 million in loans to Ecuador in 2009. From those credits about $450 million will go to the public sector.

The IADB also said it was seeing progress in Ecuador's talks with bondholders.

"The good results obtained (in the restructuring) will benefit all Ecuadoreans during difficult times," the lender's representative, Carlos Melo, said in a statement. "The IADB reiterates its predisposition to work alongside Ecuadoreans to promote economic development."

Ecuador hopes to get nearly $1 billion in loans from both lenders this year to cover a widening fiscal gap stemming from low oil prices and a flagging economy.

(Reporting by Alexandra Valecia and Alonso Soto; Writing by Alonso Soto; editing by Leslie Adler, Gary Hill)

1 comment:

  1. Ecuador's president Rafael Correa has done an about face on the nation's debt. Previously, I read that he refused to pay the debts because it was done illegally so perhaps this was some kind of ploy to lower the value of the debts and he is now buying it. If this is so, it's a brilliant strategy.

    Evelyn Guzman (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.)