- President says nation had `serious problems' meeting payment
- Government signs oil pact with Schlumberger for liquidity
Ecuador repaid $650 million of its foreign debt due Tuesday, marking the first time in the South American nation’s more than 180-year history that it’s repaid global bonds on time, even as a collapse in the OPEC country’s crude prices saps liquidity needed to keep the government operating normally.
President Rafael Correa, who led the nation’s default on $3.2 billion of overseas debt seven years ago, said on his Twitter account Tuesday that the government would also meet public workers’ December salary payments without problems. Ecuador announced a pact with Houston-based Schlumberger Ltd. on Monday, granting the oil-services provider a 20-year contract to pump oil at one of its biggest oil fields in return for a $1 billion payment in the “coming days.” The company pledged to invest a total of $4.9 billion over the life of the contract, according to a statement published on the vice presidency’s website.
By honoring the 2015 bond payment, Ecuador has said it can help restore investor confidence and lower future borrowing costs. Still, the government is having problems meeting payments to local contractors and has asked for more time to find enough cash to repay its overdue debts, Correa said Dec. 12. The Finance Ministry has said it plans to borrow more than $5.86 billion next year to cover budgeted outlays.
Finding the money to pay the nation’s creditors in December “was a very serious problem,” Correa said Saturday in his weekly speech to the nation. “You can’t imagine all of the things that we’ve done.”
Yields on the nation’s bonds due in 2020 were little changed at 16.3 percent as of 11:29 a.m. in New York, according to data compiled by Bloomberg. Yields on the government’s notes due in 2024 fell 14 basis points, or 0.14 percentage point, to 12.6 percent, the data show.
Finance Minister Fausto Herrera and Economic Policy Minister Patricio Rivera told reporters in Quito on Nov. 4 that they’ve been working with credit-rating companies, the International Monetary Fund and foreign investors to help lower the perceived risk of investing in Ecuador. Correa, who’s criticized past governments for paying foreign bondholders before Ecuadorean citizens, won praise from the IMF in October for taking measures to shore up the nation’s finances. He’s trimmed government spending, halted some infrastructure investments and cut fuel subsidies this year.
His decision to stop paying foreign debt seven years ago earned the country the distinction of being the most frequent defaulter in Latin America, eclipsing Argentina and Paraguay.
Ecuador first fell into default in 1832, according to the book “Debt Defaults and Lessons from a Decade of Crises” by Federico Sturzenegger, a former secretary of economic policy in Argentina, and Jeromin Zettelmeyer, a former assistant to the Western Hemisphere Department director at the IMF. At the time, the two-year-old nation was saddled with debts accumulated during its wars of independence. Decades of internal revolt and weak government institutions kept the nation’s early leaders from meeting payments on time, according to university professor Carlos Espinosa’s book "Historia del Ecuador."