MercoPress. South Atlantic News Agency

Ecuador delays debt payment and readies for political battle

Ecuador's new administration of President Rafael Correa that has threatened to default on the country's debt, will use a 30-day grace period to make a payment that is due this week, Deputy Economy Minister Fausto Ortiz told reporters in Quito.

Ecuador is scheduled to make an interest payment on February 15 on its benchmark bonds. The government will miss the payment date, because it lacks the funds, and pay investors within a month, Ortiz said. "The worry surrounding the payment on the 15th is fair'' Oritz told reporters in Quito. Investors ''will understand that paying with a delay of one or two weeks is not as serious as not paying within the 30 days.'' Ortiz also revealed that Ecuador is working on plans to restructure the country's debt to reduce interest payments by 500 US dollars annually in the 2007 and 2008 fiscal years. This is to be achieved by swapping short term by long term bonds and renegotiating loans conditions with multilateral credit organizations. Ecuador's 2007 capital and interest payments on foreign and home debt total 2.7 billion US dollars. The country's total foreign debt stands at 13.5 billion US dollars and the national budget 9.8 billion. US educated President Correa had warned during his campaign that he may not honor all of the government's foreign debt to free up funds for health care and education. Bond prices surged Monday after Ortiz signaled the government won't default this month. The yield on the government's 10% bonds due 2030, Ecuador's most traded securities in international markets, fell 39 basis points, or 0.39of a percentage point to 12.446%. The bond's price, which moves inversely to the yield, rose 2.40 cents on the dollar to 81.50, the highest since December 21. Ecuador's bonds have returned 8.27% in the year to date, the best performer in the emerging markets, according to data compiled by JPMorgan. Ortiz said the government currently has 60 million US dollars in cash, short of the about 135 million needed for the interest payment. ''The payment is budgeted but the money is not in the coffers to make the payment'' he said adding that the government is studying the composition of the country's debt and won't pay any that is deemed to be "illegitimate". During his February 10 radio address Correa said his administration's priority is to pressure Congress to approve an assembly to rewrite the country's constitution, however he finds it difficult to fight on ''various fronts''. "We'll wait until Wednesday/Thursday for the Electoral Tribunal to rule, but if by then there's no reply we will act following on the popular mandate, including possibly naming an "ad hoc tribunal", warned Correa. On taking office Correa, one of his first actions was to call a referendum to decide on the convening of a Constitutional Assembly with full powers to draft a new constitution and change the current political system, which all along his campaign the president described as "corrupt, outdated and only interested in protecting its privileges". However the Electoral Tribunal turned down the request arguing constitutional reforms must have the approval of Congress, but President Correa has no support in the legislative and most Deputies are not enthusiastic about a new constitution. Anyhow Correa has sent messages to Congress saying he's willing to reach an understanding or a consensus and his representatives have met with the leaders of the different political parties. "We regret that the political class is blocking a referendum which is supported by 90% of Ecuadorians", insisted Correa. Apparently Congress could be willing to a redrafting of the Constitution but limiting the assembly's full powers and particularly the restructuring of government branches. President Correa has repeatedly said he would not accept any "full powers" restrictions because if the "Assembly orders him to go home, I would do so".