From Bloomberg:
Ecuador won’t make a $30.6 million bond interest payment due next week, putting the South American country in default for a second time in a decade, President Rafael Correa said.
“The country is in default,” Correa told reporters in his office in Guayaquil. Correa, calling the debt “illegal” and “illegitimate,” said the government will present a restructuring proposal to bondholders in coming days. “We want creditors to recoup part of their money.”
The country’s bonds plunged to under 25 cents on the dollar.
Correa stared down his creditors - and didn’t blink. Instead, he’s followed through on a threat he’s made repeatedly since his presidential campaign in 2006 - to not abide by the rules of the international financial system if those rules harm his country. Correa, by the way, is an internationally-trained economist who holds a Ph.D in economics from the University of Illinois.
This is an idelogical dispute more than a strictly economic one (in as much as you can separate the two) since Ecuador does have the funds to make the payments. It’s just that, as the FT reported earlier this week:
…Mr Correa has denounced these issues and another maturing in 2030 - $3.8bn in total - as “illegitimate”. Mr Correa claims they were improperly authorised by previous adm-in-istrations and involved onerous interest rates, commissions and pre-payments.
Mr Correa has engaged US law firm Foley & Hoag to sue bondholders in Manhattan’s district court and flagged up an appeal to a forum such as the International Court of Justice at The Hague.
“We are not going to jump into the void. We’ve got to be responsible. We will seek all mechanisms to repudiate the debt, which is absolutely illegitimate and corrupt,” he said.
This is the second Ecuadorian default in 10 years, and as Paul Kedrosky put it:
Even in rarified world of serial sovereign debt defaulters, Ecuador is a true outlier. It now defaults out of spite
Related links:
Ecuador’s idiotic default - Felix Salmon / Market Movers
