South America

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.

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.

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.

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.

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.

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.

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.

Foreign Minister Maria Isabel Salvador said Ecuador won't illegally default on its close to $4 billion in sovereign debt, Bloomberg reported today. While a debt audit called by President Rafael Correa has revealed evidence that crimes were committed when the debt was contracted, any decision to repudiate the debt will go ahead in accordance with the law, she said in a radio interview with Quito-based Ecuador Inmediato yesterday. “Ecuador will never act outside the law,” she said.

A debt auditor said Ecuador would find challenging its foreign debt in U.S. courts difficult because the country signed away its legal rights in bond agreements over a 20-year period, Bloomberg reported. Halting debt payments without the support of a court decision would be a “catastrophe” for the nation, said Alejandro Olmos, a member of a committee appointed by President Rafael Correa to review the debt. Bondholders could seize Ecuador’s assets, including those of state-owned oil company PetroEcuador, he said. Ecuador on Nov.

Ecuador's flirtation with a $10.3 billion foreign debt default may force bondholders into restructuring, potentially saving the government billions of dollars at a time when access to capital is increasingly tight, the Associated Press reported today. Ecuador is going to "present a credible threat of default and force bondholders to renegotiate the terms of existing debts, winning savings and considerable benefits for the state," Patrick Esteruelas, an analyst at the Eurasia Group in New York, said Wednesday.