Saturday, December 27, 2008

Ecuador’s Correa Wants Debt Restructuring to Proceed in January

(Bloomberg) Ecuadorean President Rafael Correa wants debt negotiations triggered by the South American country’s second bond default in a decade to proceed in January.

In his regular Saturday radio-and-television broadcast, he repeated his call for bondholders to accept a “substantial” discount without offering specifics on the $3.9 billion owed. He will submit an offer to holders early next month, he said today.

“We will make a proposal to rebuy these bonds, many of which have already given great yields to these speculators,” Correa said. “It’s likely that those who hold the bonds now didn’t buy them at 100 -- rather at 20, 30, or 40 -- so it’s not like these people are being hurt.”

Correa, a 45-year-old economist, on Dec. 12 refused to give the order to release a $30.6 million interest payment due Dec. 15, when a monthlong grace period expired. He has alleged much of the debt is “illegal.” The $510 million bonds due in 2012 plunged to 23 cents on the dollar from 31 the previous session and 97.5 cents three months ago.

By defaulting, Correa, a close ally of Venezuelan President Hugo Chavez, fulfilled a threat he made during his 2006 presidential campaign. His decision comes as a deepening global economic slump throttles demand for oil, the country’s biggest export. Ecuador, which also defaulted in 1999, owes about $10 billion to bondholders, multilateral lenders and other countries.

A debt commission Correa formed last year said in a 172-page report in November that the global bonds due in 2012 and 2030 “show serious signs of illegality,” including issuance without proper government authorization.

Correa also said he would restrict some imports to reduce the withdrawal of dollars from the local economy.

“We import sweets and chewing gum for more than $60 million a year and perfume for more than $100 million a year,” he said. “That situation can’t continue.”

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