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Disquiet over prospect of Ecuador default By Naomi Mapstone in Lima Published: November 20 2008 23:24 | Last updated: November 20 2008 23:24 Ecuador's debt audit commission said on Thursday that the country's 2012 and 2030 bonds showed "serious signs of illegality", which has added impetus to the threats of default from Rafael Correa, the Andean nation's leftwing president. The price of Ecuadorian bonds and credit default swaps have fluctuated strongly since last week, when Mr Correa said he was delaying a $30.5m payment on the 2012 bond to seek a legal basis for a default. Ecuador has defaulted nine times in the past 200 years. Ecuador's $10.6bn in foreign debt had been accumulated "for the benefit of the financial sector and transnational companies", not the Ecuadorian people, concluded the audit report published on Thursday. Mr Correa was playing "a giant game of chicken" with bondholders, said Patrick Esteruelas, Latin America analyst at Eurasia Group. "Correa clearly feels that this is the right time to extract savings in a potential restructuring negotiation before oil prices continue to decline and before emerging market sentiment recovers. And his only way of doing that is if he credibly threatens default," he said. "Otherwise bondholders won't entertain any proposal from the government, especially knowing full well that they have the money to pay." Ricardo Patino, Ecuador's politics minister, was reported as saying he wanted foreign bondholders to make a proposal to restructure debt and that a 60 per cent reduction in the nominal value of the country's global bonds was "not enough". Ecuador's 2012 bond, together with the 2015 and 2030 issues, are worth a combined $3.8bn out of a total $10 billion of foreign debt. Although Mr Correa has repeatedly threatened to default since he came to power in 2006, observers had judged that the president would not make a move until closer to the general elections in May. But the rapid fall in oil prices and an expensive political campaign to secure a new constitution have taken their toll on the economy. Ecuador's 2009 budget is predicated on oil prices of $80 a barrel. US oil futures have slumped since hitting a record high above $147 a barrel in July, and briefly dipped below $50 yesterday. If Ecuador does not make the 2012 bond payment next month, it will become the first country to default even though it has the ability to pay - a precedent some observers say is particularly dangerous given the global financial crisis. <http://www.reuters.com/article/bondsNews/idUSN2250616020081122> Ecuador says won't drop Brazil loan suit Sat Nov 22, 2008 1:19pm EST QUITO, Nov 22 (Reuters) - Ecuadorean President Rafael Correa said on Saturday he will not quit an international suit to suspend a Brazilian loan repayment even if it frays diplomatic ties between the two countries. Brazil recalled its ambassador from Quito on Friday after Ecuador filed suit in Paris to halt payments on a $320 million loan from Brazil's national development bank, or BNDES, over "illegalities" found in its contracting by a past government. "Their measure hurt us deeply as I told President Lula da Silva. We respect it, but don't share it and we will not quit defending the interests of our country," Correa said during his weekly media address, referring to Brazilian President Luiz Inacio Lula da Silva. "We have not suspended the payment, we have not thrown the contract on the trash, we are complying with the contract and started an arbitration claim." Since he took office last year, Correa has kept good ties with Lula, who presides over Latin America's biggest economy, in an effort to push forward joint energy and infrastructure projects. In September, Correa, a popular leftist, raised tensions with Brazil after he expelled top constructor Odebrecht over a dam dispute. Correa said the BNDES loan was linked to the Brazilian constructor that failed to properly built the dam. Correa has raised the specter of default by threatening not to repay billions of dollar of "illegal" debt or loans riddled with irregularities when they were contracted. A government-appointed audit panel found illegalities in much of the country's $10 billion foreign debt. The U.S.-trained economist has said his government will act responsibly on the debt front, but has not ruled out more suits or an outright default of "illegal" loans. (Reporting by Alonso Soto; editing by Mohammad Zargham) This message has been scanned for malware by SurfControl plc. www.surfcontrol.com _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
