Monday September 27, 2:04 am Eastern Time

Ecuador challenges bondholders with default

By Anthony Boadle

WASHINGTON, Sept 27 (Reuters) - Ecuador has challenged its Brady bondholders to restructure $6 billion in debt by declaring a partial default on some $50 million in interest payments due this week.

The government of President Jamil Mahuad, struggling with the Andean nation's worst crisis since the Great Depression of the 1930s, said on Sunday it simply could not pay.

Ecuador will not meet a coupon payment on its collateralized discount bonds and asked holders to use the cash collateral to cover due interest. But Quito will pay over $40 million interest on uncollateralized PDI (past due interest) bonds.

Mahuad appealed for international understanding of Ecuador's plight, hoping private creditors will share the burden of an unavoidable debt restructuring that has tacit approval from the International Monetary Fund.

Some market players said Ecuador had found a skillful formula that keeps PDI bondholders happy, while giving discount holders a way to get their interest.

But representatives for the creditors were not happy with Ecuador becoming the first country to default on a Brady bond.

``This is a challenge,'' said Amy Auster, an emerging market analyst at Chase Securities who took part in weekend talks with Ecuadorean officials in Washington.

Auster said the timing was difficult because bondholders could demand an acceleration of the bond, in which case Ecuador would have to pay up in full.

Ecuador needs 25 percent of the discount bondholders to agree to trigger the rolling interest guarantee. If not, creditors will surely accelerate the bond.

Ramiro Crespo, president of Analytica Securities of Ecuador, said Ecuador had to force a restructuring and reach a deal as soon as possible. Paying the $94 million interest payments due on Tuesday would have put off a default until the next payments come due.

``If Ecuador cannot solve this quickly, it will not regain access to markets,'' Crespo said.

Crespo said a restructuring agreement could involve swapping bonds for equity in state-owned enterprises that Mahuad plans to privatize.

Ecuador's economy will contract 7 percent this year. The country's foreign debt is almost as big as its output, and debt payments take up half the government's annual budget.

But austerity measures required by the IMF in return for a $400 million loan have been blocked by Mahuad's opponents in Congress, and the country has continued to slide downhill.

The IMF has said it wanted Ecuador to reach a ``cooperative agreement'' with creditors to ensure the country can recover its financial sustainability.

``I'm afraid Ecuador will become a battleground between creditors and the international financial institutions over burden-sharing,'' Crespo said. =======================================================================Lets see know 1.Ecuador Defaults.. 2.Gold flying..sure to kill major Hedge Funds who we're short gold...3.Dow downs 10%+...US dollar 104 heading to doubledigits..4.80% stocks at 2 year lows...5.Chinese Devaluation not far away...6.Y2K......SYSTEMIC RISK REVISITED.Stay Tuned.

-- Ponzi (Chickens@Coming.HomeToRoost), September 27, 1999

Answers

Hello,

What is the source?

What does "3.Dow downs 10%+...US dollar 104 heading to doubledigits.." mean?

Thanks

-- Rick (rick7@postmark.net), September 27, 1999.

It means Wall Street is going to crash shortly.

-- Randolph (dinosaur@williams-net.com), September 27, 1999.

Anybody happen to know what the ratio of our national debt to Gross domestic product is right now?

-- Nikoli Krushev (doomsday@y2000.com), September 27, 1999.

sorry, forgot to include the relevant quote.

Ecuador's economy will contract 7 percent this year. The country's foreign debt is almost as big as its output, and debt payments take up half the government's annual budget.

Sound familiar?

-- Nikoli Krushev (doomsday@y2000.com), September 27, 1999.

Interesting comments by Brazil about Ecuador and about Y2K:

http://biz.yahoo.com/rf/990927/bcy.html

[Fair Use: For Educational/Research Purposes Only]

Monday September 27, 6:44 pm Eastern Time

Brazil sees no contagion from Ecuador default

WASHINGTON, Sept 27 (Reuters) - Brazil's financial authorities voiced confidence on Monday that Ecuador's default on part of its Brady bonds is a temporary liquidity problem that will have no impact on other Latin American countries.

Finance Minister Pedro Malan said Ecuador had not declared a default or broken with international creditors but was seeking to reach agreement on restructuring its debt.

``As long as this process of seeking an understanding with the international community continues in good faith, I don't see any repercussions on other Brady bonds,'' Malan told reporters on the sidelines of the IMF/World Bank annual meetings.

``We are convinced that markets will be able to differentiate between countries and we don't foresee any contagion,'' he said.

The partial default, announced on Sunday, makes Ecuador the first country ever to renegotiate its Brady debt, a type of bond created in 1989 to allow emerging markets to restructure their debt.

Brazil's Central Bank governor, Arminio Fraga, noted spreads for emerging market bonds had narrowed on Monday by less than a quarter of a percentage point, a sign that investors were not worried by fallout from Ecuador.

Malan said a decline in global liquidity began several months ago and was not related to Ecuador's financial crisis.

Spreads have risen not just for sovereign bonds but for corporate bonds too, including U.S. corporates, close to levels that existed after the Russian default in August 1998, he said.

Fears about the Y2K millennium bug are partly to blame for the defensive behavior of investors, and that should change after the new year, Malan said.

He underlined that Ecuador had not gone out and declared a moratorium, but rather was making an effort to cover almost half the $94 million interest payment due on Tuesday and resorted to a clause in collaterized bonds that allows holders to cover their interest.

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-- Linkmeister (link@librarian.edu), September 27, 1999.