Wednesday, November 19, 2008

Ecuador's Viteri Urges Bondholders to Be Patient

(Bloomberg) Ecuador's Finance Minister Maria Elsa Viteri urged ``anxious'' bondholders to be patient as a debt auditing commission finishes a report that will help determine whether the country honors its foreign obligations.

Viteri, complaining of sleepless nights as she works round the clock before tomorrow's scheduled release of the report, called President Rafael Correa's push to examine the legitimacy of the country's debt ``a model for other countries.''

``We're at the doorstep of something unheard of -- let's have a little patience,'' Viteri told foreign journalists in Quito late yesterday. ``Anxiety is a bad thing.''

Ecuador's bonds have tumbled over the past week as Correa, 45, opted to use a monthlong grace period to decide whether to make good on a $30 million bond interest payment that came due Nov. 15. Viteri, the fourth finance minister during Correa's 22- month-old administration, said the commission's preliminary report pointed to ``signs of illegality and illegitimacy,'' echoing statements she and Correa have made in recent days.

Correa, who has threatened since the 2006 campaign to default, called the findings in the preliminary report ``truly horrifying'' on Nov. 15. He said he'll suspend debt payments if the final report provides a legal basis for such a move.

Commission's Findings
The commission will recommend some bond payments be halted because the audit established their ``illegality and illegitimacy,'' El Universo reported today, citing a copy of the report it says it saw. The commission will also recommend that the people who managed the issuance in 2000 of global bonds due in 2012 and 2030 be put on trial, according to the newspaper.

A spokesman at the Finance Ministry wasn't immediately available for comment when contacted by Bloomberg News. The commission is scheduled to hand the report over to Correa at 10:30 tomorrow New York time, according to the ministry.

The price on the South American country's $510 million bond maturing in 2012 tumbled 28 cents on the dollar over two days last week to 14 cents, pushing the yield above 100 percent, according to JPMorgan Chase & Co.

The price has rebounded to 26 cents on the dollar this week as some investors bet Correa will make the interest payment because a default would hurt his biggest ally, Venezuelan President Hugo Chavez. Venezuela owns structured notes tied to Ecuador's bonds that would force Chavez's government to pay $400 million if Correa defaults, according to estimates by Barclays Capital Inc.

No Contact With Venezuela
Viteri said she hasn't discussed the debt payment with Venezuelan government officials. She says she last spoke with Venezuelan officials during a trip to Caracas several weeks ago in which the two sides discussed the creation of a bi-national development fund. A spokesman at the Venezuelan Finance Ministry declined to comment on the government's holdings of the notes.

The benchmark 2012 bonds traded at 95 cents on the dollar in mid-September, before a deepening of the global credit crisis accelerated a rout in oil, Ecuador's biggest export.

Ecuador will impose restrictions on imports, only allowing ``necessary'' goods into the country, to preserve dollars during the crisis, Viteri said. Oil, which accounts for 60 percent of Ecuador's exports, has plunged 64 percent from a July record to $53.65 a barrel.

The government is negotiating a $1 billion loan with the Inter-American Development Bank and may also seek financing from the Organization of Petroleum Exporting Countries, Viteri said.

Six Defaults
``We talk with everyone'' about financing, said Viteri, a 43-year-old economist who did a graduate program in agricultural economics at Iowa State. ``The world is our limit.''

While the decline in oil has pared dollar flows to the country and reduced government tax revenue, Viteri said yesterday the country's fiscal accounts remain ``strong and healthy.'' On Nov. 14, she said the government has the $30 million to make the interest payment.

``Questions about its willingness to pay'' are undercutting Ecuador's credit rating, said Lisa Schineller, an analyst at Standard & Poor's in New York. S&P cut Ecuador's rating to CCC-, three levels above default, on Nov. 14, hours after the government said it wouldn't make the interest payment on time. ``If you look at Ecuador's indicators, in terms of debt to gross domestic product, one could think the rating could be higher.''

Viteri said she has little interest in the credit ratings assigned to Ecuador.

``How can I believe in a risk evaluation when the country risk remained high even as I paid my debt punctually?'' she said. ``How can I believe in agencies that gave AAA-ratings to banks that collapsed? The agencies seem to have lost their prestige.''

Ecuador has defaulted six times since it separated from Gran Colombia in 1830, according to ``Debt Defaults and Lessons from a Decade of Crises,'' a book published in 2007 by Federico Sturzenegger and Jeromin Zettelmeyer.

Two of the government's three foreign bonds -- the notes due in 2012 and 2030 -- are restructured securities from the country's last default, which came in 1999.

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