Thursday Brazil, Friday Argentina now Ecuador. We can ignore this and concentrate on easy Al but this could come back and bite us again later......
Possible DEBT DEFAULT LOOMS IN ECUADOR:
México City, August 22, 1999:
Bloomberg News
QUITO -- Officials from the International Monetary Fund (IMF) will meet with Ecuadoran leaders this weekend, trying to find a way out for an embattled economy hammered by years of government overspending and last year's plunging oil prices.
Mired in its worst economic crisis since the Great Depression, the Andean nation's troubles came to a head this week when its bonds plunged on fears it would miss a 93.5 million-dollar debt payment due at month's end.
The IMF sent a delegation to Quito this weekend, working to help the country meet its debt obligations, helping Ecuador avoid becoming the first country to ever default on Brady bonds.
This week's route in Ecuadoran bonds and the currency is only the latest crisis for the South American country of 12 million people, among the most indebted countries in the region.
Analysts trace the roots of Ecuador's problems to snowballing budget deficits and the inability of Ecuador's political classes to agree on a strategy to right a teetering economy.
'Postponing over a long period of time taking on tough economic policies and structural reforms left the economy exposed,' said Michael Henry, an analyst with ING Barings in New York. 'When it hit the international community, the country fell into a calamitous trap.'
Ecuador's 15.5 billion-dollar economy, based on oil, banana and shrimp exports, was hamstrung for years by fuel and electrical subsidies, government bank bailouts, and the Congress' reluctance to raise taxes.
Problems Unmasked
For years, strong oil prices allowed Ecuadorans to enjoy a robust economy that masked excessive public spending and rising debt as the government borrowed to meet obligations. However, economic reality was laid bare last year when the country was battered by 2.5 billion dollars in El Nino flooding damage, oil's price collapse and a region-wide credit crunch after Russia's August 1998 debt default.
As the economy reeled, Ecuador's politicians -- from congressmen to labor and Indian leaders -- dithered, bickered and used the worsening economy to jockey for political advantage, unwilling to impose higher taxes or other reforms.
'We can't seem to sort out this problem,' said Maria de la Paz Vela, an analyst at Quito-based Multiplica, an economic research group. 'There's regionalism. There's populism. There's an absence of a national project.'
With the economy in a tail-spin, President Jamil Mahuad has tried to stave off the looming crisis, yet Congress -- and most Ecuadorans, for that matter -- balked at closing the budget deficit. The result was predictable: In March the sucre plummeted, nearly collapsing the frail banking system and the economy. The sucre has lost 43 percent of its value against the dollar so far this year, the worst performing currency in the world.
Bad Dream
Today, Ecuador's economic problems read like an emerging market nightmare.
Deep in recession, gross domestic product (GDP) is expected to shrink 7 percent this year. Inflation is running at about 50 percent, the budget deficit stands at about 580 million dollars, or 4 percent of GDP, and a broad financial industry restructuring is about to halve the number of banks in the country.
Its total debt stands at 16.3 billion dollars, or 112 percent of Ecuador's projected 1999 GDP, higher than any other country in the region. Argentina's debt is just 41 percent of GDP, by comparison. Foreign public debt stands at 13.3 billion dollars, of which 51 percent is in Brady bonds, eurobonds and private bank loans. The government this year will be hard-pressed to meet foreign debt obligations totaling 1.36 billion dollars, including 283.6 billion dollars in Brady bond interest and amortization payments. To relieve the fiscal pressure and shore up the economy, the government has been negotiating with the International Monetary Fund for an accord that will give it access to 1.2 billion dollars in multilateral credits.
No Deal
That accord has failed to materialize and for weeks investors have fretted over whether Ecuador would make its August Brady coupon payments. This week, reports the government planned to defer those payments -- split between past due interest and discount Bradys -- sparked drops in Ecuador's sucre currency and dollar debt. A basket of Ecuadoran debt fell 7.7 percent Friday, driving its yield almost 31 percentage points higher than comparable U.S. bonds.
exchange2000.com
Good Luck,
Lee |
