Mr Correa took the decision to default on Ecuador’s $3.8bn of foreign debt, despite having available reserves of $6bn, because he said the bonds were contracted “illegally” under a previous administration. There is also a question mark over a coupon payment due on a 2015 bond, but it was still unclear whether the government was going to pay up before the mid-December deadline as The Banker went to press.
Ecuador is the second country after the Seychelles to default on its bonds since August last year. Mr Correa said he wanted to restructure the bonds, reducing their value and the country’s debt payments.
The decision could have serious implications, since it will drive up bond yields as people become nervous in investing in Ecuador. Its benchmark bond yield leaped 60% after the news of the default emerged.
The decision to default on its bond marks the first major Latin American sovereign bond default since Argentina defaulted in 2001. It has sent shockwaves across the region but few analysts believe it will trigger a wave of bond restructuring. The region’s other credits have so far been little affected by the move. Ecuador has about $10bn in foreign debt, $3.8bn of which is in three global dollar-denominated bonds, including bonds maturing in 2012, 2015 and 2030. The government says it plans for now to keep up payments on the rest of its foreign debt, which includes loans from multilateral banks and other countries.
