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Capital Markets

Ecuador: Correa still intent on debt renegotiation

The Argentine government has advised Ecuador not to follow its example and default on its debt.

Rafael Correa, Ecuador’s populist left-wing president

Rafael Correa is looking for a haircut

Rafael Correa, Ecuador’s populist left-wing president, who was inaugurated on January 15, has been threatening to default on repayments of the country’s $4.13 billion of commercial external debt. He is also pushing for a haircut on this debt of about 75% (the same level as Argentina forced on bondholders in 2005). However, it is believed that Argentina recently told Correa’s government that the circumstances of his country, which is awash in petrodollars, is totally different from that of Argentina when it defaulted on and subsequently restructured its debt. Ecuador is also highly enthusiastic about being a founding member of Banco del Sur, the new development bank for South America being spearheaded by Hugo Chávez, Venezuela’s president. It is being set up as an alternative to Washington multilaterals, such as the Inter-American Development Bank and the IMF. Ecuador’s total official debt is $4.14 billion (it owes the IDB the most – $1.83 billion).

Lisa Schineller, director of sovereign ratings at Standard & Poor’s, which in January lowered Ecuador’s long-term sovereign rating to CCC from CCC+ and downgraded its country outlook to negative from stable, says: "The Ecuadorians recently asked the Argentines for help over the debt.

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