Ecuador

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.

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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.

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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.

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Ecuador’s fiscal discipline is making investors forget about its history of defaults, according to Finance Minister Richard Martinez. The 38-year-old economy chief said his emphasis on budget cuts, transparency and communication since taking office in May is luring foreign fund managers to the nation with the dubious distinction of having the second-most defaults in the world since 1800, Bloomberg News reported. Ecuador’s yield spread over U.S. Treasuries has fallen to 620 basis points, briefly dropping below Argentina for the first time since 2015.
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Ecuador's comptroller's office on Monday announced it will open an audit of debt contracted in the last five years of the government of former President Rafael Correa to determine the legality of the operations and the use of the funds. The move follows a report by the comptroller's office revealing that some documentation relating to debt operations had been declared secret and that official reports on public debt had excluded some of the operations, the International New York Times reported on a Reuters story.
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Ecuador repaid $650 million of its foreign debt due Tuesday, marking the first time in the South American nation’s more than 180-year history that it’s repaid global bonds on time, even as a collapse in the OPEC country’s crude prices saps liquidity needed to keep the government operating normally, Bloomberg News reported. President Rafael Correa, who led the nation’s default on $3.2 billion of overseas debt seven years ago, said on his Twitter account Tuesday that the government would also meet public workers’ December salary payments without problems.
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Ecuador’s inability to borrow in international markets after its 2008 default is drawing the nation closer to China as the world’s largest commodities consumer grants loans in exchange for access to oil and metals, Bloomberg reported. Home to untapped copper reserves similar to those of Chile and Peru, the world’s top producers, Ecuador has signed loans for $7.3 billion from China since 2009, or about one-third of the Andean country’s annual budget, according to data compiled by Bloomberg based on government announcements.
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Ecuador has offered to buy back up to $3.2 billion in defaulted bonds at a large discount in a move that reinforces President Rafael Correa popular tough stance on debt ahead of a presidential election on Sunday, Reuters reported. Finance Minister Elsa Viteri said on Monday Ecuador was offering 30 cents per dollar in a process that would involve a "modified Dutch auction." She did not spell out the terms of the modified Dutch auction. In a standard Dutch auction, the lot for sale is offered at an initial price, which if there are no takers, is then reduced until there is a bid.
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Ecuadorean President Rafael Correa may unveil an offer today to holders of $3.2 billion in defaulted bonds, a restructuring he says could include a discount of about 70 cents on the dollar. Falling income from oil has made it unlikely the proposal will include the outright buyback offer that Correa previously mentioned as a possibility, said Ramiro Crespo, head of Analytica Securities in Quito. Instead, he may offer to swap the defaulted debt for new bonds that carry a lower interest rate and longer maturity, he added.
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Ecuador says it will formally default on a second set of bonds later this week, the International Herald Tribune reported. Finance Minister Maria Elsa Viteri says the government will default Sunday on $2.7 billion in bonds due in 2030 because it refuses to pay $135 million in interest by the end of a monthlong grace period. Viteri said in a communique Thursday that Ecuador plans to make an official proposal to debt holders this month for an "integral solution" to the defaulted bonds, which account for 32 percent of its foreign debt.
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