Patricia Adams
Probe International
June 15, 2009

The Wall Street Journal is reporting that Standard & Poor’s Ratings Services put its long-term sovereign credit rating on Ecuador in highly speculative territory today in the wake of the country’s debt exchange.

The country’s rating of CCC+ is now one notch below where it stood last November, when ratings agencies began downgrading the country after the Ecuadorian government said it would delay a $30 million payment on its Global Bond that matures in 2012.

On June 3, Ecuador completed its buyback of its defaulted bonds due 2012 and paid 35 cents on the dollar. 81.3 percent of the bondholders accepted.

According to the Journal, S&P credit analyst Richard Francis said Ecuador’s use of an odious-debt argument to get “substantial debt relief through this completed exchange offer has reinforced questions about the sovereign’s prospective willingness to pay on other government debt outstanding, now or in the future.”

Mr. Francis added that given the government’s refusal to honor the obligations of past governments, S&P doesn’t expect Ecuador to regain access to the international capital markets until it makes a change to its debt-management strategy that the market sees as lasting. Yet the bond default, and now the Ecuadorian government’s intention to review and possibly arbitrate its debts with multilateral lenders like the World Bank, occurred after the a national Audit Commission found evidence of abuses and irregularities tied to almost all of the country’s bonds and loans. The Commission, which released its report last November, called their findings “indications of illegality.”

Ecuadorian president Rafael Correa railed against these debt claims last Friday after announcing the results of the bond buyback saying “these debts were imposed by force,” and that he intended to rebel “against the system that established odious, unfair, illegal, immoral debts.”

For more reading,

• Ecuador confronts Odious Debts
• Glitch in the System: Ecuador’s conscientious default
• Ecuador defaults on foreign debt
• Ecuador hands tough
• Ecuador Rising: A blog with a collection of articles on Ecuador