Ecuador, which defaulted on $3.2 billion of its international bonds four years ago, is seeking as much as $1.4 billion in financing from China to fund this year’s budget, Finance Minister Fausto Herrera said.
The first disbursement of the loan is expected next month, Herrera told reporters in Quito today. The loan may be tied to oil sales or granted directly, he said.
President Rafael Correa, who has relied on funding from China, multilateral lenders, the state pension agency and windfall oil profits to cover increased public spending since taking power in 2007, needs the money to finance a 24 percent increase in public spending this year. Economic growth in 2013 is forecast to slow to its lowest rate in three years as a rout in emerging markets assets sap dollars from the economy.
The South American country, which received a separate $1.4 billion loan from China in February to help fund this year’s estimated $5.05 billion spending gap, also plans to issue foreign bonds by the first quarter of 2014 to finance next year’s budget, Herrera said. That would be Ecuador’s first international debt sale since 2005 and will “depend on conditions,” he said.
With oil prices forecast by the government to decline to an average $84.90 per barrel this year, 2013 growth is expected to slow to 4 percent, according to the median estimate of six economists surveyed by Bloomberg from June 21 to June 26. Gross domestic product expanded 5 percent in 2012.
The February loan from China had an interest rate of 7 percent and a maturity of eight years, according to the Finance Ministry. Herrera didn’t give details of the new loan today.
Yields on Ecuador’s 2015 dollar bonds have climbed 104 basis points, or 1.04 percentage points, to 7.99 percent in the past month as global borrowing costs rise on speculation the U.S. Federal Reserve will wind down its record stimulus measures, according to data compiled by Bloomberg. Yields on the notes were little changed today as of 9:55 a.m. in Quito.
The country is rated B- by Fitch Ratings, six levels below investment grade.