Ecuador's Leader Fuels Default Fear

Rafael Correa, Ecuador's left-wing president, has heightened fears that the Andean nation will default on parts of its $10 billion (£6.8 billion) foreign debt, saying an internal audit due out this week will determine if the debt is "illegitimate," the Financial Times reported today. "If there are sufficient grounds for illegitimacy, we won't pay this debt," he said. Read more. In a related story, Bloomberg reported today that the default would hurt Correa’s biggest ally, Venezuela President Hugo Chavez, more than anyone else. Chavez's government owns structured notes tied to Ecuador's bonds that would force Venezuela to pay $800 million if Correa doesn't make the payment, according to estimates by Barclays Capital Inc. The price on Ecuador's 12 percent bonds maturing in 2012 plunged to 14 cents on the dollar on Nov. 14, sending yields over 100 percent, as investors braced for the first sovereign default since the global financial crisis deepened in September. Read more.