Ecuador has begun the task of restructuring its defaulted debt but aspirations to get the same haircut that Argentina achieved in 2005 appear unrealistic according to Guillermo Nielsen, who was one of the architects of Argentina’s controversial debt restructuring.
Ecuador defaulted on its 2012 and 2030 bonds when it missed a $30.6 million interest payment that was due on December 12 – although it has promised to service payments of its 2015 bond. The decision to default was taken after a commission reported that these two bonds were "illegitimate" and recommended the action. Ecuador has $10 billion in foreign debt – $3.9 billion of this was deemed illegitimate by the audit report.
Not a precedent
Now Ecuador wants to restructure the outstanding defaulted debt. Last month it hired Lazard Frères, the French bank that was involved in the preliminary stages of Argentina’s debt restructuring programme. Argentina managed to get a 70% haircut on its defaulted bonds in a transaction that was accepted by 76% of its creditors. Ecuador’s government, led by Rafael Correa, also wants a 70% haircut. But few think Argentina has set a precedent that Ecuador can follow, including Nielsen.