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Eight Defaults and 180 Years Later, Ecuador to Repay Bondholders

By Nathan Gill
November 18, 2015 (Bloomberg) -- Ecuador is poised to do something it’s never done in its more than 180-year history: repay a bond.
“What’s positive is that Ecuador has a new chance to honor, for the first time, the payment of its bonds,” said Santiago Mosquera, a former Fitch Ratings analyst who is now head of research at Quito-based brokerage Analytica. “But that’s probably not enough to lower rates to what they were in their last bond sale.”
Click here to read the full story on Bloomberg News.

Everything Is Going Wrong in Ecuador

By Nathan Gill August 24, 2015 (Bloomberg) -- As emerging markets come unhinged around the world, few nations face tougher challenges than Ecuador, a dollarized oil producer in El Nino’s path, where street protests are flaring up alongside one of the planet’s most dangerous volcanoes.
“Sometimes it makes you want to laugh,” said Jose Hidalgo, director of Cordes, a Quito-based research institute. “What else could happen to us?”
Click here to read the full story on Bloomberg News.

Pope Apologizes for Church Abuse in Conquest of the Americas

By Nathan Gill July 9, 2015 (Bloomberg) -- Pope Francis asked for forgiveness for crimes committed by the Catholic Church during the colonization of the Americas at a summit in Bolivia, home to one of the region’s largest indigenous populations.
“I say with sorrow that the church has committed many serious sins against the indigenous peoples of America in the name of God,” Francis said to applause at a summit of popular movements in Santa Cruz, Bolivia on Thursday. “I humbly ask for forgiveness not only for the offenses of the church itself, but also for the crimes against native peoples during the so-called conquest of America.”
Click here to read full story on Bloomberg News.

Pope Seeks Unity in Latin America Plagued by Political Strife

By Nathan Gill (Bloomberg) -- Pope Francis, the first Latin American to lead the Catholic Church, called for unity and greater respect for diversity Tuesday during a mass in Quito, where thousands camped overnight in the rain to hear the pontiff speak.
“There was no shortage of conviction or strength in that cry for freedom which arose a little more than two hundred years ago,” Francis told about 1 million people gathered in Quito’s Bicentennial Park. “But history tells us that it only made headway once personal differences were set aside, together with the desire for power and the inability to appreciate other movements of liberation.”
Click here to read the full story on Bloomberg News.

Pope Francis Brings Focus on Poor to South America

By Nathan Gill and John Follain July 5, 2015 (Bloomberg) -- Pope Francis arrived in Ecuador Sunday, starting a nine-day visit to South America in which he’s expected to focus on the poor and challenge policies on oil drilling that damage the environment.

“In the words of the gospel, we can find the keys that will permit us to face current challenges, appreciate differences, and promote dialogue and participation without exclusions,” Francis said in seven minutes of remarks on a windswept tarmac after landing in Ecuador’s capital, Quito.
Click here to read the full story on Bloomberg News.

Pope’s South American Homecoming to Spotlight Poor, Environment

By John Follain and Nathan Gill July 4, 2015 (Bloomberg) -- Pope Francis will fly to South America on Sunday for a nine-day visit in which he is likely to focus on the poor and may challenge policies on oil and gas drilling.
The first Latin American pope, who was elected in March 2013 and called for “a poor Church for the poor,” will visit three of the region’s poorest countries, Ecuador, Bolivia and Paraguay.
During the visit, the Argentine Francis, 78, will meet prisoners, slum-dwellers and grass-roots groups representing indigenous peoples and landless peasants. He will deliver 13 speeches and six homilies to crowds likely to run into the hundreds of thousands.
Francis’s message is for God’s “children most in need, to the elderly, the sick, the imprisoned, the poor, to those who are victims of this throw-away culture,” he said in a statement on the eve of the trip.
Click here to read the full story on Bloomberg News

Venezuela Bonds Trapped by Oil’s New Normal as Relief Rally Ends

By Nathan Gill (Bloomberg) -- This year’s climb in crude prices, however slight, brought relief to Venezuelan and Ecuadorean bondholders after last year’s crash decimated the oil producers’ revenue and prompted concern they were running short of cash.
Now, the pessimism is back.
While New York oil futures have surged 36 percent from a six-year low in March, they’re still down 45 percent from their 2014 high and probably will stay around there for the rest of the year, based on analyst forecasts compiled by Bloomberg. That means the Andean countries could struggle to find enough cash to continue meeting debt payments and prop up popular social programs that help maintain stability.
“Things are going to get much more difficult if oil prices stay where they are,” Sarah Glendon, the head of sovereign research at Gramercy Funds Management LLC in Greenwich, Connecticut, said in a telephone interview Monday. “High oil prices masked the challenges that both governments had, allowing them to …

Ecuador Cocoa Forecast Cut to 230,000 Tons After Rains Hit Crops

By Nathan Gill (Bloomberg) -- Ecuador, the world’s biggest grower of flavored beans used in fine chocolate, will probably lose about 15 percent of this year’s cocoa crop after heavy rains hurt farms in the Andean nation’s coastal region, the National Cocoa Exporters Association said.
Anecacao, as the association is known, reduced its 2015 forecast to about 230,000 metric tons from a January estimate of 260,000 tons to 280,000 tons, Ivan Ontaneda, the group’s president, said Wednesday by telephone from Guayaquil. Heavier-than-normal rains since April have hurt the mid-year harvest and are damaging flowers on trees expected to bear fruit beginning in September, he said.
The bad weather in Ecuador comes on top of problems in West Africa, where floods in Ivory Coast and Ghana, the world’s top cocoa producers, are blocking roads and leaving cocoa pods rotting on the trees.
“We’re worried about the weather,” said Ontaneda, who’s also the chief executive officer of Guayaquil-based cocoa exp…

Correa’s Back-Track on Tax Bills Fails to Halt Ecuador Protests

By Nathan Gill (Bloomberg) -- Ecuador President Rafael Correa’s attempt to defuse nationwide protests by back-tracking on two controversial tax proposals failed to prevent opposition supporters marching for a ninth straight day Tuesday.
Protesters gathered in the capital city, Quito, less than 24 hours after Correa called for calm and announced he would delay plans to raise taxes on inheritances and real estate profits to avoid violence.
Correa “temporarily” withdrew the plans just hours after saying he wouldn’t “cede a millimeter” to protesters’ demands. It’s probably too little to stop the protests from growing in the coming days and months as opposition groups seek to boost support ahead of presidential elections in early 2017, said Michel Levi, coordinator of the Andean Center of International Studies at the Universidad Andina in Quito.
“I don’t think the president’s announcement will calm spirits down completely,” Levi said Tuesday in a telephone interview from Quito. “Rather, t…

JPMorgan Says Not to Worry as Ecuador Promotes Digital Currency

By Nathan Gill (Bloomberg) -- Ecuador’s home-grown digital currency is nothing to fear. At least that’s the conclusion of analysts from JPMorgan Chase & Co. to Credit Suisse Group AG and Nomura Securities International Inc.
The country’s bonds fell last week after the government ordered banks to start accepting a new electronic tender it created last year. Previously, officials had said the system would be voluntary. Investors are concerned that President Rafael Correa plans to use the dinero electronico to wean the nation off its official currency, the U.S. dollar, and eventually start creating virtual money to plug a budget gap.
The bond selloff, and the concerns, were overblown, the analysts say. Javier Kulesz, a managing director at Nomura, said he isn’t worried about a sudden end of dollarization because the government has said it will keep liquid reserves to back the digital currency. Oil prices will be more important in determining how the country’s dollar bonds perform th…

Ecuador Requiring Banks to Offer Electronic Currency Services

By Nathan Gill (Bloomberg) -- Ecuador, which uses the U.S. dollar as its official currency, will require banks to offer services tied to a government-created electronic coin.
Lenders with assets greater than $1 billion as of Dec. 31 have 120 days to fulfill the requirement, while smaller banks will get as long as a year, according to a resolution published on the Monetary Council’s website.
The new rule comes less than a year after the government asked Congress to approve the creation of the new currency with the condition that its use be voluntary. While President Rafael Correa has criticized the nation’s use of the greenback because it hampers officials’ ability to offset a drop in the OPEC nation’s crude exports with monetary stimulus, he has said the government has no plans to switch away from the dollar.
“The new institutional vision of the central bank determines as a strategic objective financial inclusion and the modernization of payment systems,” the council said in the reso…

South America’s Commodity Rout Spurs Public Spending on Housing

By Nathan Gill (Bloomberg) -- Enrique Perez, who’s been building homes for most of his life in Ecuador, is finally going to make one for himself.
Perez is an unlikely beneficiary of the plunge in crude prices. That prompted Ecuador, an OPEC nation, to offer mortgage subsidies to people like Perez, a construction worker.
Ecuador joins Chile, Colombia and Peru in boosting spending on housing -- a politically popular move -- to revive their economies bruised by the worst commodities rout in four years. The Latin American nations are rolling out everything from changes in tax and mortgage laws to increases in infrastructure spending and subsidies for builders.
“The Ecuador government’s idea was to generate a massive housing program focused on middle- and lower-income levels to help boost the economy,” Mario Burbano de Lara, strategic director of Ecuador mortgage lender Mutualista Pichincha, said in an interview. “They saw a fiscally difficult year coming and wanted a new motor for the ec…

China’s Andes Said to Join Repsol in Ecuador Oil Drilling Freeze

By Nathan Gill and David Wethe  (Bloomberg) -- Andes Petroleum Ecuador Ltd. and Repsol SA, Ecuador’s two biggest foreign oil producers, are shelving plans to drill exploratory wells amid a payment dispute with the OPEC nation’s government, according to two people with direct knowledge of the matter. 
Andes, owned by China National Petroleum Corp. and China Petrochemical Corp., and Madrid-based Repsol have notified Halliburton Co. that they plan to freeze their drilling contracts this year, said the two people, who asked not to be named because the matter hasn’t been made public. Houston-based Halliburton provides services to both companies, which pump oil for Ecuador’s government for a per-barrel fee. 
A third person with knowledge of Repsol’s plans, who isn’t authorized to speak about the matter publicly, said the Spanish company has begun notifying all of its service providers in Ecuador, including Halliburton, that it wants to reach new agreements after global oil prices fell. Cur…

Ecuador Approves New Labor Law With Changes to Public Pensions

By Nathan Gill (Bloomberg) -- Ecuador’s congress approved changes to the Andean nation’s labor laws on Tuesday, including the removal of a government subsidy meant to cover almost half of state pensioners’ monthly payments.
Lawmakers approved the measure proposed by President Rafael Correa in a 91-to-29 vote, while government supporters and political opposition groups looked on from a packed balcony at congress in Quito. The new law replaces the subsidies with a general promise of future state funding for pensions, if needed.
Correa and members of his Alianza Pais political party have argued that the government didn’t need to subsidize the social security institute, known as IESS, because Ecuador has a surplus of young workers whose mandatory payroll contributions provide enough funding to cover current expenses. By eliminating the subsidy, the government will save about $1 billion a year, Correa said in a March 28 speech.
As the government was previously paying the subsidy with bond…

GMO Settles With Ecuador Over Bonds That Defaulted in 2009

By Katia Porzecanski and Nathan Gill (Bloomberg) -- Grantham, Mayo, Van Otterloo LLC, a Boston-based money manager, dismissed its lawsuit against Ecuador over debt the nation defaulted on six years ago.
The parties agreed to dismiss the suit filed in December in Manhattan federal court, agreeing that each side would pay its own costs and that the complaint wouldn’t be refiled, without disclosing other terms, according to a March 23 court filing.
GMO said in its complaint that it owned Ecuador sovereign notes due 2030 with a face value of $15.9 million. President Rafael Correa defaulted on $3.2 billion in bonds in late 2008 and early 2009, declaring the debts illegal and illegitimate. The government then repurchased most of the securities at about 35 cents on the dollar.
The government told potential investors in new notes sold on March 19 that the lawsuit represented a “risk of disruption to the offering,” according to a prospectus obtained by Bloomberg News. Robert G. Jones, a lawye…

GMO Settles With Ecuador Over Bonds That Defaulted Six Years Ago

By Katia Porzecanski and Nathan Gill
(Bloomberg) -- Grantham, Mayo, Van Otterloo LLC, a Boston-based money manager, dismissed its lawsuit against Ecuador over debt the nation defaulted on six years ago.

The parties agreed to dismiss the suit filed in December in Manhattan federal court, agreeing that each side would pay its own costs and that the complaint wouldn’t be refiled, without disclosing other terms, according to a March 23 court filing.

GMO said in its complaint that it owned Ecuador sovereign notes due 2030 with a face value of $15.9 million. President Rafael Correa defaulted on $3.2 billion in bonds in late 2008 and early 2009, declaring the debts illegal and illegitimate. The government then repurchased most of the securities at about 35 cents on the dollar.

The government told potential investors in new notes sold on March 19 that the lawsuit represented a “risk of disruption to the offering,” according to a prospectus obtained by Bloomberg News.

Robert G. Jones, a lawyer for…

World’s Costliest Bond Sale in Decade Shows Ecuador Cash Crunch

By Katia Porzecanski and Nathan Gill (Bloomberg) -- Six years ago, Ecuador President Rafael Correa’s government denounced the 10 percent in annual interest the country paid on its bonds as “usury.”
So when the 51-year-old former economics professor was willing to pay 10.5 percent in a sale of notes this month, it raised speculation the OPEC nation may be running short of cash after oil prices collapsed.
Before the March 19 sale, Ecuador told potential buyers it wanted to pay less than 8 percent to borrow at least $1 billion for as long as seven years, two people with knowledge of the offering said. Instead, the Andean nation got just $750 million for five years at yields that were more than two percentage points higher.
The sale “indicates that they are running into trouble,” Sarah Glendon, an economist at Gramercy Funds Management LLC, said by telephone from Greenwich, Connecticut.
The more than 50 percent plummet in the nation’s oil prices from their June peak last year caused bond…

Ecuador GDP Growth Slowed in 2014 for Third Year on Oil Decline

By Nathan Gill
     (Bloomberg) -- The rate of growth in Ecuador, South America’s seventh biggest economy, slowed for a third year in 2014 as falling crude oil prices and a refinery shutdown offset gains from higher fishing and electricity output.
Gross domestic product rose 3.8 percent in 2014 from a year earlier, less than the government’s 4 percent forecast, the central bank said Saturday in a statement on its website. Growth was the slowest since 2010’s 3.5 percent. In the fourth quarter, GDP rose by 0.5 percent from the previous three months and 3.5 percent from a year earlier.
Ecuador, an OPEC nation that relies on oil for about half its export revenue, saw prices for its Oriente and Napo crudes drop by about 50 percent by year-end from a June peak of $98.90 a barrel. That cut funds the government uses to finance public works projects that generate jobs and economic growth.
Maintenance on Ecuador’s biggest oil refinery starting in July cut local fuel output by 48 percent last y…

Ecuador Discloses Loans From Wall Street, China as Oil Sinks

By Nathan Gill (Bloomberg) -- Ecuador got $924 million in previously undisclosed loans from Deutsche Bank AG and other lenders, showing the extent of President Rafael Correa’s effort to line up a record amount of financing as oil prices plunge.
The country took $181 million in two separate loans from units of Deutsche Bank and obtained $125 million from the European Investment Bank, according to a prospectus prepared before the government sold bonds this month that was reviewed by Bloomberg News. Ecuador also got financing from Bank of China Ltd. and a Chinese state oil company, the document shows.
The 50 percent drop in oil prices over the past 12 months has pushed the Andean nation’s financing needs to a record $10.5 billion this year, prompting Correa to court banks, international debt investors and foreign governments to make ends meet. Last week the country sold $750 million of bonds with a 10.5 percent interest rate, the highest for any major dollar-bond sale this year.
Ecuador…

Peru Top Cement Maker Unacem Says Exports to Offset Mining Slump

By Nathan Gill (Bloomberg) -- Union Andina de Cementos SAA, Peru’s biggest cement supplier, expects growth in exports will help offset weakening demand from local miners.
Overseas sales of clinker, an ingredient in cement production, will surge 18 percent to about 500,000 metric tons this year, Ricardo Rizo Patron, chairman of the company, said Wednesday in an interview in Quito. Demand for its construction materials in Peru will probably rise this year and next, he said.
“The increase in exports is very interesting because it provides us with dollars,” Rizo Patron said. “I think 2015 will be a better year than 2014, and 2016 will be even better.”
The Lima-based company, which also operates in Chile, Colombia and the U.S., also expects construction of housing and large infrastructure projects in Peru to offset a slowdown in demand from the nation’s mining industry, Rizo Patron said. The company isn’t planning any new debt or equity sales this year and won’t change its investment plan…

Ecuador Said to Sell $750 Million of Five-Year Bonds at 10.5%

By Katia Porzecanski and Nathan Gill (Bloomberg) -- Ecuador sold $750 million of five-year bonds overseas to meet its financing needs amid a plunge in the price of crude oil.
The country sold the securities to yield 10.5 percent, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified. Citigroup Inc. is managing the sale, the person said.
Ecuador, facing a funding shortfall of more than $10 billion this year, is returning to bond markets for the second time since defaulting on $3.2 billion of bonds six years ago. Borrowing costs for the nation have jumped more than a percentage point since officials began meeting with investors March 9 as oil, the nation’s biggest export, extended declines.
“The fact that Ecuador is going for it probably shows that the nation will do what it must to fund its financing needs,” Juan Lorenzo Maldonado, a Latin America economist at Credit Suisse Group AG, said by telephone from New York.
The n…

Monsters of Bond Market Now Correa Go-To as China Is Not Enough

By Nathan Gill (Bloomberg) -- When President Rafael Correa defaulted on most of Ecuador’s overseas debt in 2008, he disparaged bondholders as “true monsters.”
Now, he’s increasingly dependent on their goodwill.
Ecuador hired Citigroup Inc. to arrange meetings with investors to gauge demand for what would be the nation’s second international bond sale in the past year, according to the Finance Ministry. After relying predominantly on China for foreign funding in the years following the default, Correa is turning more often to bond markets as the collapse in oil prices pushes the Andean nation’s financing needs to a record $10.5 billion this year. The plan comes after Correa, a self-described socialist, cut government spending for the first time since he took office in 2007, helping to win over investors and drive down Ecuador’s borrowing costs by the most in Latin America.
“The composition of their financing is still worrisome, so to the degree that they can move to more transparent f…

Bondholder Love for Ecuador’s Correa Is Questioned: Andes Credit

By Nathan Gill (Bloomberg) -- President Rafael Correa’s resourcefulness in the face of sinking oil prices has made Ecuador a favorite among emerging-market bond investors this year.
To AllianceBernstein and Capital Economics, Correa needs to do more to ensure that the goodwill doesn’t prove fleeting.
The nation’s debt securities returned 4.9 percent as Correa said he’d cut spending for the first time since taking power in 2007 and lined up more than $7.5 billion in loans from China. That gain, the biggest in emerging markets behind Belize, is a sign of investor confidence in the OPEC nation’s ability to weather a 53 percent plunge in crude prices since June.
But with Ecuador needing a record $10.5 billion to cover its total financing needs this year, Correa can’t afford to rest on his laurels, said Marco Santamaria, a money manager at AllianceBernstein, which oversees about $27 billion in emerging-market debt. While Ecuador’s borrowing costs have tumbled from a four-year high in Dece…

Ecuador’s Dollar Reliance Worsens Impact of Oil, Correa Says

By Nathan Gill
(Bloomberg) -- President Rafael Correa, a former economics professor critical of Ecuador’s use of the dollar as its official currency, said the greenback is worsening the impact of falling crude prices as liquidity in the economy contracts.

The reliance on the dollar means the government can’t print more money to increase the amount of cash circulating in the economy, hurting growth, Correa said in comments from Costa Rica, broadcast on the presidential website. The country adopted the dollar in 2000 after a banking crisis in the 1990s.

Ecuador depends on crude for about half of its export revenue, and the nation is taking steps to minimize the fallout on the economy from lower oil prices, he said. The government, which defaulted on $3.2 billion of the nation’s foreign bonds six years ago, announced this month that it would cut planned public spending by about 4 percent and take on more debt with China to offset the plunge in crude.
Lower oil prices “hit us hard,” Correa …

Bondholders Embracing Chavez’s Disciple in Ecuador: Andes Credit

By Nathan Gill (Bloomberg) -- Nicolas Maduro and Rafael Correa are both socialist disciples of the late Venezuela President Hugo Chavez, but only one is managing to convince bondholders he’s got the ability to weather the collapse in oil prices.
While Chavez’s handpicked successor Maduro is struggling to ward off a default, Ecuador counterpart Correa is getting a vote of confidence as he cuts spending and lines up more than $7.5 billion in loans from China. Ecuador’s benchmark notes due 2024 have gained 2.3 percent in the past month, compared with a 16 percent plunge in similar-maturity Venezuelan securities.
Correa, who has long allied himself with Chavez’s socialist ambitions and declared three days of mourning to mark his death, is now deviating from policies that saw him use Ecuador’s oil wealth to finance record spending. Maduro’s refusal to break with the currency controls and gasoline subsidies embraced by Chavez is deepening concern that Venezuela, which gets about 95 percent…

China Rescues Ecuador Budget From Deeper Cuts as Crude Drops

By Nathan Gill (Bloomberg) -- Ecuador, an OPEC nation that relies on crude for about a quarter of revenue, obtained enough financing from China to avoid deeper budget cuts even as its oil price fell below $40 a barrel, Finance Minister Fausto Herrera said.
The Latin American country expects total financing needs for 2015 to rise to about $10.5 billion from a previous estimate of $8.81 billion, Herrera said today in an interview at his office in Quito. The government will use loans from China, multilateral lenders and the nation’s social security agency to help offset a drop in the price of crude, the nation’s biggest export, he said. The ministry isn’t planning to sell international bonds this year after global interest rates rose, he said.
Ecuador’s government announced last week that it would cut $1.42 billion of public spending on items such as new schools and police stations while going deeper into debt with the Asian nation. On top of the $7.5 billion in Chinese loans and credit…

China Rescues Ecuador Budget From Deeper Cuts as Crude Drops

By Nathan Gill (Bloomberg) -- Ecuador, an OPEC nation that relies on crude for about a quarter of revenue, obtained enough financing from China to avoid deeper budget cuts even as its oil price fell below $40 a barrel, Finance Minister Fausto Herrera said.
The Latin American country expects total financing needs for 2015 to rise to about $10.5 billion from a previous estimate of $8.81 billion, Herrera said today in an interview at his office in Quito. The government will use loans from China, multilateral lenders and the nation’s social security agency to help offset a drop in the price of crude, the nation’s biggest export, he said. The ministry isn’t planning to sell international bonds this year after global interest rates rose, he said.
Ecuador’s government announced last week that it would cut $1.42 billion of public spending on items such as new schools and police stations while going deeper into debt with the Asian nation. On top of the $7.5 billion in Chinese loans and credit…

Ecuador Gains $5.3 Billion Credit Line From China as Oil Tumbles

By Nathan Gill (Bloomberg) -- The Export-Import Bank of China granted Ecuador a $5.3 billion credit line after a slide in oil to an almost six-year low prompted spending cuts for the OPEC member.
Finance Minister Fausto Herrera said in a statement published today in the president’s official gazette that the Andean nation will use about $1.5 billion of the funds this year to finance public-work projects such as irrigation and transportation. The credit line will have a 30-year maturity and an interest rate of 2 percent, according to the statement.
President Rafael Correa, a 51-year-old former economics professor, traveled to China this week to ask for loans to help prop up public spending after the price of crude, Ecuador’s biggest export, plunged to its lowest level since April 2009. The government announced yesterday that it would cut the 2015 budget by $1.42 billion, or almost 4 percent, because of a decline in oil revenue.
China “is very interested in continuing to finance because…