Ecuador's Audit Commission Finds 'Illegality' in Debt

Ecuador's debt audit commission said it uncovered “illegality and illegitimacy” in the country's foreign obligations, findings that may give President Rafael Correa the legal basis he's sought to halt bond payments, Bloomberg reported. The commission said in a 172-page report that the global bonds due in 2012 and 2030 “show serious signs of illegality,” including issuance without proper government authorization. The price on the $510 million bonds due 2012 fell as much as 2.5 cents to 24 cents on the dollar, sending yields over 70 percent, after the release of the report. The bonds have tumbled from 95 cents in mid-September as speculation has mounted that Ecuador, squeezed by a tumble in its main export, oil, will default for the second time in less than a decade. “The decision to pay or not has become a political one,” said Jorge Cherrez, president of Quito-based brokerage IB Corp. “The government can pay and will pay, but they'll leave the issue uncertain until the last minute.” Ecuador's foreign debt totaled $10 billion as of September. That equals less than 25 percent of its $44 billion annual gross domestic product. Argentina's debt, by comparison, equaled 150 percent of GDP when it defaulted in 2001, said Alberto Ramos, an economist with Goldman Sachs Group Inc. “Their case for restructuring is non-existent,” Ramos said. The country's “debt load is low.” Read more.