Ecuador is preparing to sell $400 million in bonds backed by the Inter-American Development Bank to fund the country’s housing program, according to a person with direct knowledge of the transaction, Bloomberg News reported. The so-called “social bond” will be offered to investors this week, said the person, who asked not to be identified because the information isn’t public. The IADB would pay bondholders $300 million in the event of a default, the person added.
Two weeks of protests and clashes, in which seven people were killed and 2,500 injured or arrested in the centre of Quito, have forced Ecuador’s President Lenín Moreno to rip up his economic reform plans, leaving him in a weaker position than ever before, the Financial Times reported. Faced with the demands of a $4.2bn IMF programme, the Ecuadorean leader needs to either cut government spending or raise revenue. His plan to abolish fuel subsidies, which triggered the mass protests, would have saved the state $1.3bn a year, or 1.2 per cent of gross domestic product.
Are investors becoming too ebullient on emerging markets once more? The warm welcome recently extended by the bond market to Ecuador — a serial defaulter — seems a good example of the triumph of hope over experience. The Latin American country has defaulted on its debt with such regularity that it repaid a bond fully and on time for the first time in its history only in 2015, the Financial Times reported.
Ecuador’s benchmark bonds soared to a six-month high after President Lenin Moreno’s government secured a $4.2 billion loan package from the International Monetary Fund, Bloomberg News reported. The aid is intended to support the OPEC nation over the next three years as it tries to curb spending and revive sluggish growth. Including the IMF package, Ecuador is set to receive more than $10 billion in loans from multilateral lenders, Moreno said Wednesday in a televised address to the nation. “Thanks to the firm decisions I have made, we are not what today is Venezuela,” Moreno said.
Prayers for a sudden return to dovish monetary policies have been answered, and now investors are living with the aftermath: a world awash with $8.6 trillion in negative-yielding debt, Bloomberg News reported. That’s one reason money managers are wading once more into the fringes of fixed-income markets across the globe. Consider the action over the past week: Serial defaulter Ecuador managed to sell $1 billion in new bonds even as the government is in talks for International Monetary Fund financing.