Ecuador President Rafael Correa said proceeds from a loan obtained from Goldman Sachs Group Inc. after he offered more than half the country’s gold reserves as collateral will go toward investing in economic growth.
The government, faced with a budget deficit forecast to hit a record this year, said last week that it “invested” 466,000 ounces of gold with Goldman Sachs in return for “instruments of high security and liquidity.” The transaction added to reserves of “monetary gold” and would generate as much as $20 million in profit, according to a central bank statement.
The gold reserves “serve as collateral for a loan,” Correa told reporters today at the presidential palace in Quito. “With this loan, we can invest in the country.”
The deal, amounting to 1,165 gold bars worth about $580 million at current prices, comes on top of government attempts to sell about $700 million of bonds this year in what would be the nation’s first foreign debt sale since it defaulted on $3.2 billion of its notes in 2008 and 2009.
Ecuador’s government hasn’t sufficiently explained the operation with Goldman Sachs and the difference between the central bank’s original statement and Correa’s comments today, said Luis Fernando Torres, a congressional representative for Tungurahua province. The government has liquidity problems and has begun delaying payments to some public officials, he said.
“An investment and a loan are two totally different things,” Torres said today in an interview at the nation’s Congress in Quito. “This operation is baffling.”
Correa’s administration is also in talks with China to finance a $10 billion refinery in the coastal province of Manta, Strategic Sectors Minister Rafael Poveda said today at the event in Quito. The government expects to sign a deal for $2 billion in August, of which $500 million will be for the government’s discretionary use, he said.
The Finance Ministry forecasts the government will need about $4.94 billion to cover this year’s budget deficit. The government has said that if it doesn’t find the funds to finance the gap, it will cut spending on budgeted infrastructure projects.