MercoPress. South Atlantic News Agency

Ecuador plans to restructure debt with 60% face value cut

Following on Argentina's steps, Ecuador plans to cover fiscal needs with the sale of bonds to Venezuela and will renegotiate part of its sovereign bonds only admitting 40% of face value, announced Ecuadorian Finance minister Ricardo Patiño.

Argentine foreign debt experts are also expected in Ecuador to help authorities design a restructuring and rescheduling plan of the country's sovereign debt. "At the end of the month a committee from Argentina is arriving, because we are going to renegotiate the terms of Ecuadorian foreign debt which are too much of a burden for the development of the country", said Ecuadorian president Rafael Correa during a press conference next to Patiño. The minister said that the objective of the government was to cut debt servicing from the current 45% of revenue to 10/15% "but not in a once drastic cut", and revealed that in unofficial contacts with bondholders "we've proposed cutting bonds' face value to 60%". This would mean that a 100 US dollars bond will be valued at 60 US dollars. But if bondholders of "an illegitimate" debt insist, "we would be willing to re-purchase them at a face value of 40%", pointed out Patiño. In July 2005 Argentina completed an agreement with private bond holders cutting 65.4% of defaulted bonds totaling 102 billion US dollars, considered the largest restructuring of a sovereign debt in history. Furthermore in January 2006, Argentina cancelled all pending debts with the International Monetary Fund and has made a formal offer to refinance pending debt with the Club of Paris. Patiño revealed that any treasury shortages will be addressed with help from countries with "abundant financial capacity such as Venezuela", which apparently already has been talked over with President Hugo Chavez. "The issuing of bonds (to be acquired by Venezuela) will depend on our financial needs and this does not mean we will necessarily follow on Argentina's steps", said Patiño who added that much depends on the budget, currently been drafted and "which should be ready by January 31". Meantime in Caracas Venezuelan financial authorities said the government was ready to issue a billion US dollars in bonds, similar to the "Bono del Sur" (South bonds) of last November which was a mix of Argentine sovereign bonds purchased by Venezuela and Venezuelan sovereign bonds.