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Ecuador’s outstanding debt: To pay or not to pay

In the month after populist leftist Rafael Correa took power in January, the market in Ecuador’s global bonds went crazy. Correa made noises about defaulting on Ecuador’s debt from the beginning of his presidential campaign, but bond traders generally discounted that rhetoric as political posturing, and Ecuador’s benchmark 2030 global bonds remained near par until after the inauguration.

When the rhetoric didn’t go away, however, the bonds started to fall – and then Correa’s finance minister, Ricardo Patino, held a disastrous meeting in Quito with Citibank clients, in which he talked openly of offering them perhaps 40% on the dollar in a future restructuring. The price of the bonds fell to the 70s, and the markets braced themselves for a default on February 15, when a $135 million coupon payment was due on the 2030s.

Eventually, Ecuador announced that it would make the coupon payment, but not on time: the $135 million would arrive within the 30-day grace period, which is written into the bond contract. Then, on February 15, the day the coupon was due, the money arrived from Ecuador. Minister Patino, interviewed on Ecuavisa television, sounded as if he had just decided to choose the chicken rather than the fish. "Yesterday morning the deputy economy minister said to me, ‘Ricardo, we have the money to pay the interest on the bonds; do we pay?’" He said. "Let’s pay."

The markets breathed a very small sigh of relief. However, the bonds still trade only in the mid-80s, at a yield of 12% – stratospheric compared with an EMBI Global yield of 6.45%.

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