MercoPress. South Atlantic News Agency

Ecuador celebrates sovereign “defaulted” bonds repurchase

Correa called the financial operation a “resounding victory”

Ecuador announced Thursday it had bought back 91% of its “defaulted” bonds via an international auction with drastic rebates of 65% to 70%. The amount involved in the operation was 3.37 billion US dollars.

President Rafael Correa called the debt buyback a “resounding victory” and the start of a new era in international markets that he says are at fault for the global financial crisis hurting poor nations.

Ecuador shocked investors by refusing to pay 3.2 billion US dollars in 2012 and 2030 global bonds last year, saying the debt was riddled with irregularities when issued in 2000 after the renegotiation of a previous default.

Correa's bold move could set a rare precedent as Ecuador becomes one of the first countries in modern history to get away with defaulting on its debt even though it had the resources to repay it.

“We will probably be criticized for the resounding success we had in resolving the global bonds' problem. We are now a dangerous example to other indebted countries” Correa told a cheering crowd of supporters holding banners reading “Debts should be paid but not fraud.”

“We are analyzing what actions we should take with other segments of the debt, such as bilateral and multilateral debt”.

Finance Minister Elsa Viteri said Ecuador wants to keep good ties with the bond markets and that bondholders that did not participate in the auction will get another chance to sell their paper in the “near future.”

“The republic of Ecuador maintains its willingness to keep positive and balanced relations with the international financial community,” Viteri said.

She said 7.2% of the 2030 bonds and 18.7% of its 2012 bonds remained in the market after the buyback or about 289 million US dollars in total.

Ecuador launched a Dutch auction for the bonds on April 20, setting a minimum price of 30 cents on the dollar. On May 26 it announced it had accepted a price of 35 cents on the dollar, and on May 29 extended the buyback to June 3 to allow further bondholders to take up the offer.

Ecuador's bonds default stems from a government audit of its foreign debt that deemed most of the country's obligations “illegal” and recommended non-payment.

In related news US President Barack Obama called President Correa to congratulate him on his recent re-election. A White House statement Thursday says Mr. Obama commended the people of Ecuador for their commitment to democracy.

It says Mr. Obama expressed his desire to deepen the relationship between the US and Ecuador and maintain a dialogue based on mutual respect. The Ecuadorean leader is a US-educated economist who has been critical of US policy towards Latinamerica.