Tuesday, 13 January 2009

Ecuador Pays Interest on 2015 Bond -- The Question Remains, What the Hell Are These Guys Doing? (Correct)

(A reader called Stephan kindly made me realise that the photo I added last night was one of another person, not Viteri. I removed the picture and got rid of a photo caption. My sincere apologies to you, dear reader.)

Today, Ecuador said it would pay interest on the 2015 bonds -- hours before the 30-day grace period for the payments expired. As we said in this blog last month, the move is a quite peculiar one: the 2015 bonds were sold to pay for an amortization of the 2012 securities, which a committee formed by President Rafael Correa (a.k.a Studmuffin as nicknamed by brother blog Inca Kola News) deemed illegal a couple of months ago.

You, dear reader, may ask yourself: What the hell are these guys doing? Well, market participants with longer experience than you and me in the matter are wondering it too -- so don't feel bad about it. One thing I learned after covering Venezuela and friends for years is that every economic policy decision is one that has to submit to political principles. No matter how, no matter what. We mentioned this in our babyborn days as a blog, that rumours has it that Ecuador had bought back $850 million days after announcing its intention to fall behind on payments. We also said that one of the reasons to prevent Correa from making the default extensive to other debt instruments was the stake that the Venezuelan government had in some bonds. Well, you have one explanation why some bonds are illegal to the eyes of God and some others aren't.


Don't expect bondholders to be as lenient with Ecuador as they were with Argentina a few years ago. Click here to read our Dec. 15 posting on this issue. We said today (or yesterday?) that a proposal draft may hint a bond buyback at ridiculously low prices (Correa always praised the nasty way Argentines renegotiated terms of their bond debts in arrears,) and would seek to implement sweeping changes in covenants and terms for the remaining bonds. Goldman Sachs wrote this morning that a debt swap might be possible because the government is falling into a financial bind as oil prices decline. For the time being, the Ecuadoreans ''can count on multilateral loans, domestic savings, and the financial support of friendly countries´´ as sources of dollars, according to Goldman.

6 comments:

  1. Guille, la foto no es de Viteri, es de Wilma Salgado, a quien Viteri reemplazó en Septiembre. Saludos, Stephan

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  2. Hola Guille, la foto es de Correa y Wilma Salgado, no de Viteri. Saludos, Stephan

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  3. Hola Guille, la foto es de Wilma Salgado, no Viteri, saludos Stephan

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  4. Mil gracias Stephan ... Ya la he quitado. Si tienes un link con fotos de la ministra, me lo pasa por favor??? Gracias. Un abrazo!

    Guillermo

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  5. You ask what they are doing? They are trying to save the Ecuadorean people billions of dollars that have already been paid back and have been found to be illegitimate. With their direct debt buybacks and auctions, Ecuador is betting that folks on Wall Street would rather have some cash today, rather than pin their hopes on a bruising fight later on (ala Argentina). With a few bold moves, Ecauador may end up 2009 with half the debt it had in 2008. There is a great danger, but Correa may have picked the perfect time for a move like this. First off, there is so much other stuff going on, that it is happening under the radar. Second, the liquidity crisis is forcing investors to think about today and not tomorrow.

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  6. I understand the actions represent market manipulation, which is as illegal as the alleged nature of the bonds he is defaulting on, right?

    An eye for an eye shouldn´t be the main principle of any eocnomic policy. My opinion ... Second, he is taking a risky chance ... and Ecuador has suffered dearly with these defaults and financial engineering that never works.

    Thanks for your nice comment leftside, hope you are enjoying this blog.

    Best wishes,

    G

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