Agencies Chop Ecuador

S&P has cut its sovereign rating on Ecuador to CCC minus from B minus and Moody’s chopped to Caa1 from B3, both implying a very high default probability. The moves were motivated by the government’s announcement Friday that it planned to miss a $31m payment due the following day, and use a 30-day grace period to determine whether to pay. “The combination of sharply lower oil prices and an expected hit to economic growth resulting from lower exports and remittances is expected to pressure fiscal accounts in 2009. However, willingness, not capacity, to pay is currently the overwhelming credit weakness,” S&P says. Ecuador has repeatedly emphasized that if faced with a trade-off between implementing its ambitious social agenda and meeting debt obligations, it would forego debt payments. However, “given the extraordinarily good performance of Ecuador’s fiscal accounts so far this year and the sizeable accumulation of government deposits, the timing of this decision is surprising as it is clear that such a trade-off does not currently exist,” Moody’s says. Both shops have the sovereign under review for further downgrade.