Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Canadian Rocket Red's Picks -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (9509)	10/11/2006 1:16:33 PM
From: Land Shark	Read Replies (1) \| Respond to of 19697

Ecuador's Correa Unlikely to Seek Default, UBS Says (Update2) By Guillermo Parra-Bernal Oct. 11 (Bloomberg) -- Ecuadorean presidential front-runner Rafael Correa is unlikely to make good on pledges to restructure the nation's $14 billion debt should he win election, UBS AG said in a report. Correa would only seek to push down the nation's borrowing costs through a debt restructuring if he is unable to increase spending for the poor, Javier Kulesz, a Latin America economist for the Swiss bank, said. A surge in revenue from oil exports, which swelled government coffers and turned the budget deficit into a surplus this year, would give Correa enough leeway to ramp up social spending, the report, released last night, said. Yields on Ecuador's benchmark bond have jumped 2 percentage points to 11 percent since August on concern a Correa government might suspend debt payments and seek to renegotiate oil contracts. While domestic debt is largely held by state banks that may suffer with a restructuring, the costs derived from a sovereign debt default may outweigh the resulting savings, the report said. ``We don't think a Correa administration will seek a restructuring as long as the government continues to enjoy high liquidity conditions to address his aggressive social agenda, as it does today,' Kulesz said in the report. ``Correa understands that the savings to be achieved going after bondholders are not that significant and that the benefit may not justify the cost.' Calculations Ecuador's borrowing costs remain among the highest in Latin America six years after the government restructured its defaulted debt. The yield on the benchmark 12 percent bond due November 2012 was unchanged at 12.47 percent from yesterday, according to JPMorgan Chase & Co. The bond's price, which moves inversely to the yield, held at 98 cents on the dollar. UBS is recommending investors start buying the nation's bonds ``slowly.' Investors are also advised to step up Ecuadorean debt purchases around the time the next administration takes office in January, the report said. Many local investors and analysts are betting on a Correa victory in a run-off vote, said Kulesz in his report. Correa led the field of candidates in a Sept. 25 Cedatos/Gallup International opinion poll released Sept. 25. Under Ecuador's electoral law, the media and pollsters are not allowed to divulge the results of opinion surveys after Sept. 25. Ecuador's first-round vote takes place Oct. 15. Priorities The report also echoed remarks made by Finance Minister Armando Rodas, who said in an interview with Bloomberg last month that investors were overplaying Correa's default threats - - which he dubbed as ``campaign rhetoric.' Correa, while not necessarily bluffing about those pledges, would likely initially focus his attention on rooting out political graft rather than seeking to shift the course of economic policy, Kulesz said. So-called political reform ``is by far the primary demand of those voting for him and would likely consume much of Correa's agenda in the early days of his administration,' Kulesz, who is based in Stamford, Connecticut, said. Rodas said in a Sept. 20 interview in Singapore that efforts by the outgoing administration of Alfredo Palacio to cut debt, extend bond maturities and raise tax revenue from oil exports will make it easier for the next government to manage the budget. Citigroup Inc., which last month told investors to ``move away' from investing in Ecuador, is now recommending buying the 2015 bonds, said economist Jose Wynne. Merrill Lynch & Co. this week said that concern over Correa's pledges may be overdone and that Ecuador has the ability to honor its obligations. To contact the reporter on this story: Guillermo Parra-Bernal in Caracas at at gparra@bloomberg.net Last Updated: October 11, 2006 11:41 EDT