South America

Twice in the last three decades, Mexico has demonstrated that one country’s profligacy and mismanagement can spell economic catastrophe beyond its borders. In 1982, the country defaulted on its foreign debt and set off a Latin American debt crisis that led to a decade of anemic growth across the region. In 1994, the peso collapsed and halted capital flows to emerging markets around the world, until the Clinton administration arranged a $50 billion Mexican bailout.
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The risk of default by Brazil’s biggest companies increased as the global credit crisis spread to the country, O Estado de Sao Paulo newspaper reported. The credit rating of Brazilian companies with more than 800 million reais ($337 million) in revenue jumped from 4.5 to 5.3, Estado reported, citing Serasa Experian, the biggest credit- rating firm in Latin America. A bigger number indicates a higher probability of default, according to the newspaper. Serasa downgraded 34 of the 276 companies it rated, Estado said. Individual credit ratings by Serasa are confidential.
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Fresh from a $30.6 million default, Ecuador's government has issued $700 million in new bonds to help finance next year's budget, local media reported Thursday. The Ecuadorean Social Security Institute bought all the new bonds, in line with regulations that require it to invest half its funds in government debt, according to the Guayaquil newspapers El Universo and Expreso.
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Ecuador’s default on $3.9 billion of international bonds means it’s only a matter of time before the country drops the U.S. dollar as its currency, Goldman Sachs Group has said, Bloomberg reported. Ecuador’s use of the dollar gives President Rafael Correa no outlet for providing credit to the economy as access to foreign financing dries up and revenue from sales of oil, the nation’s biggest export, tumbles.
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The biggest losers from Ecuador's debt default announced Friday are not foreign bond holders, the Latin Business Chronicle reported. Rather they are Ecuadorian companies, which now will have a virtually impossible time getting international credit--just as all markets are suffering from a credit crunch. "Ecuadorian exporters of shrimp, banana and flowers will likely find it difficult to secure trade finance," UK-based risk consultancy Exclusive Analysis said.
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Ecuador may saddle investors with the biggest losses in a government bond restructuring since at least World War II after President Rafael Correa fulfilled a two-year pledge to default on debt he calls “illegitimate,” Bloomberg reported. Investors expect to recover less than the 30 cents that Argentina paid in a 2005 settlement that was the harshest since the war, according to Arturo Porzecanski, an international finance professor at American University in Washington. Correa said in a Dec.
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Automotive supplier Tedrive has filed for insolvency for two German units, citing a recent slump in orders, according to the company's insolvency administrator, The Guardian reported. Tedrive was the second industry player to file for insolvency in the region within a week, after German brake pad maker TMD Friction did the same for four German plants. The administrator said Tedrive aimed to restructure its business at the two units. The units make driveshafts and steering systems, and have a total of 1,500 workers.
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Ecuador sees falling oil prices as a determining factor in its decision on whether to service foreign debt that the leftist government deems "illegal," Minister of Politics Ricardo Patino told Reuters on Monday. Patino, one of President Rafael Correa's closet allies, said a restructuring of the country's Global bonds was less likely now as the government plans to decide on whether it will keep servicing or default on the debt this week.
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TMD Friction's German companies filed for insolvency yesterday as the auto supply group became the latest victim of the global downturn, the Financial Times reported. The private Luxembourg-registered group, the industry's second-biggest supplier of brake pads and linings after America's Federal-Mogul, said the rapid slowdown in the industry had "led to a very high level of pressure on our cash flow." Its owners are looking to sell the business, and are in talks with potential private equity investors, according to its chief executive.
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Ecuador’s government is considering various ways of repudiating its debt and will ask for loans from friendly governments like Iran should it lose access to credit markets, the country’s finance minister Maria Elsa Viteri said. Ecuador has threatened to default on $3.9 billion in bonds because it says a government-commissioned audit found evidence of criminal violations in connection with its issuance, Bloomberg reported. The government skipped a $30.6 million bond payment on Nov. 15, invoking a 30-day grace period.
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