Ecuador to Gain Little from Default

Rafael Correa’s government has little to gain by missing a $31m interest payment on 2012 dollar bonds due this past weekend, analysts say. The government announced Friday that it would skip the payment and use the 30-day grace period to decide whether to honor the debt. The government has been threatening to stop paying its 2012, 2015 and 2030 bonds, after a special commission report – due to be made public November 20 – found the debt to be “illegitimate.” “Ecuador has much more to lose than to gain by defaulting,” says Eduardo Checa, CEO at Ecuadorian boutique Analytica Securities. He says the risks are future credit lines to the country being closed and a further weakening of interest from foreign investors. “This is not a problem of cashflow or reserves,” Checa says, noting that falling oil prices have not yet impacted the country’s budget plans. “There is little upside (financially or politically) and, potentially, a large downside from not paying the public debt service. If Ecuador were to default, holders of defaulted bonds could try to attach the assets of the government abroad (for example, Petroecuador’s oil tankers),” Credit Suisse says in a report. A debt moratorium would only save Ecuador about $470m in 2009, according to Analytica. The sovereign is also heard preparing to challenge creditors in Ecuadorian and international courts in an unorthodox pre-emptive strike.