Ecuadors government plans on forging a definitive
solution to the holdouts from its 2008 bond default in the
There will be new dialogue in the next few months that
will close this process, Ecuadorian Finance Minister Elsa
Viteri said yesterday. We believe that there is a lot of
room for creativity.
She reiterated that Ecuador will meet forthcoming interest
payments on $650 million worth of 2015 bonds.
Ecuador announced in early 2008 that it would not meet payments
on 2012 and 2030 bonds, considering them illegal. Viteri said
it was the right decision, because the bonds were unjust
and went against the interests of our country.
The initial round of negotiations achieved approximately 90%
acceptance, with bond holders receiving around $0.40 per $1.
Subsequent negotiations last year moved the number up to 94%.
The deal was done through a mechanism known as a modified Dutch
Ken Levine, of the Wall Street law firm Carter Ledyard &
Milburn LLP who advised Ecuadorian bondholders, said many
investors had purchased the bonds at a discount rate, so
preferred to take the money rather than face the cost and
uncertainty of a lengthy legal process.
He shares Viteris belief that the 6% holdouts will come
around because of the high cost of litigation. The
holdouts would be looking at a long and costly process trying
to litigate. I think many will accept the deal, which will
probably be a little sweeter than the initial offer, he
While the Ecuadorian process has been much less complicated
than the bond negotiations with Argentinas creditors, the
default does pose problems for President Rafael Correas
government if it does decide to the return to the international
If Ecuador comes to the bond markets in the future, I
expect that investors will demand a high level of protection in
case of another default, said Levine. Ecuador should also
pledge collateral that could be seized in case of a default,
such as revenues from oil sales.
Viteri said she sees no need to turn to the markets to finance
development. President Rafael Correas administration
plans to use internal savings for infrastructure and social
projects, as well as loans from multilateral
Ecuador could attract upward to $2.5 billion in loans, but this
amount would be unnecessary. The amount would likely be below
$1 billion, coming primarily from the IDB and CAF.
The Correa government is expecting a big rebound from 2009,
when, like all countries in the region, GDP growth dropped
significant compared to the previous years. Official GDP
forecasts for 2009 are 1.5%, while the projection is 6% for
We were able to grow about the regional average, which
was actually 1.8%, which is what we always said. Growth
will recover in 2010 to the 2008 levels, said
She said the projections for inflation this year are 3%, which
are below the countrys historic levels, and exports
earnings, which tanked last year, should recover as oil prices
stabilize between $70-80/barrel. More than 60% of the
countrys income comes from oil reserves.