MercoPress. South Atlantic News Agency

Ecuador defaults on bonds; promised restructure

Correa: "I have given the order that interest payments not be made"

Ecuadorean President Rafael Correa has ordered halting payment on foreign bonds he calls “illegal” and “illegitimate”. If this is the case it would be Ecuador's second default in a decade.

The government won't make a 30.6 million USD interest payment next Monday when a month-long grace period expires, Correa told reporters in his office in Guayaquil. The 510 million USD bonds due in 2012 plunged to 23 cents on the dollar from 31 on Thursday and 97.5 cents three months ago. "I have given the order that interest payments not be made" Correa said. "The country is in default". However he added Ecuador will present a restructuring proposal in coming days, "we want creditors to recoup part of their money". His decision comes as a deepening global economic slump throttles demand for oil, the country's biggest export. Ecuador, which defaulted in 1999, owes about 10 billion USD to bondholders, multilateral lenders and other countries. A debt commission President Correa formed last year said in a 172- page report in November that the global bonds due in 2012 and 2030 "show serious signs of illegality," including issuance without proper government authorization. Correa invoked the 30- day grace period on the interest payment last month, saying he wanted to analyze the commission's findings. "Ecuador is a serial defaulter" said Arturo Porzecanski, an international finance professor at American University in Washington. "They defaulted in the 1980s, 1990s and this decade. A lot of other countries have had one or two defaults, but Ecuador tops them all".. An economist from the University of Illinois, Correa repeatedly promised in his electoral campaign he would not sacrifice spending on health and education to pay the debt. Ecuador's foreign obligations are equal to 21% of its 44 billion US dollars GDP. When Argentina defaulted in 2001, its debt was equivalent to 150% of its GDP.