Ecuador may default on foreign debt deemed “illegitimate” debt, economy minister says

Odious Debts Online

February 7, 2007

Ecuador’s Economy Minister Ricardo Patino said [PDF] late last month that his country had set up a commission to audit Ecuador’s US$10.3 billion external debt, and that Ecuador would not pay foreign debt that the commission declared “illegitimate.”

The commission was due to report back to the government after it had finished analyzing all the debt issued Ecuador from 1970 until June 2006. According to the commission, Ecuador had already paid its creditors $127.3 billion, or 156 percent of the money the country had borrowed over that time.

The government has to pay US$135 million in interest on Thursday of next week, an obligation which has a 30-day grace period.

Since Patino first declared the possibility of a debt default, Ecuador’s bonds held near a two-year low [PDF] . However, Ecuador’s bonds rebounded [PDF] after Patino said his government may be willing to come to a “friendly” agreement with its international creditors. Patino is believed to have earmarked enough in the country’s 2007 budget to cover all of Ecuador’s debt obligations, without promising to follow through with the payments.

Patino, who took office with President Rafael Correa this month, said Jan. 19 he expected to finish a debt restructuring plan by the end of the month. On Jan. 17, Patino told investors in Quito that the government, seeking to free up funds for spending on health care and education, may only pay back 40 percent of its foreign debt.

El Universo reported that Argentine officials arrived in Ecuador on Jan. 26 to meet with Patino and discuss Ecuador’s foreign debt. Correa said on Jan. 19 that Argentina would send officials who handled that country’s restructuring of $95 billion of defaulted debt in 2005 to advise on Ecuador’s restructuring.

Correa, a 43-year-old economist, said in his inaugural address on Jan. 15 that his administration deems much of the Ecuador’s $11 billion in foreign debt illegitimate because it was contracted by military dictatorships decades ago.

Categories: Ecuador, Odious Debts, South America

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