Ecuador pleads for liquidity relief from creditors

Ecuador pleads for liquidity relief from creditors

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Ecuador's Finance Minister Richard Martínez said Monday that the country needs to get liquidity relief from creditors because debt service costs could consume 31% of fiscal revenues in 2020 as the country reels from the coronavirus outbreak and the fall in oil prices.

"Ecuador needs to take measures to ensure that this temporary exogenous shock that has translated into a liquidity problem does not translate into a debt sustainability issue," Martínez said in an online presentation. "This is a key message that I want to emphasize."

The ministry asked investors on April 8 to defer more than $800 million in interest payment until August 15, according to Fitch Ratings. In reply, Fitch cut Ecuador's long-term foreign currency ratings to C.

As Ecuador struggles to cope with the outbreak of the coronavirus, with people posting videos on social media of abandoned bodies in the streets of Guayaquil, the Finance Ministry has predicted the economy will fall 6.3% this year, a turnaround from previous estimates of 0.2% growth.

Ecuador's gross financing needs, in turn, have grown to $13 billion from $5.6 billion, widening the country's financing gap to roughly $3.4 billion, Martínez said.

"We have program lending of $1.3 billion from external funding and $2.8 billion from domestic funding," he said, adding that Ecuador has requested emergency funding from the International Monetary Fund (IMF) and a "successor arrangement" that adds to its existing loan from the fund.

"However, despite the efforts being undertaken by the government, approximately $3.4 billion in financing sources still need to be identified," he said. "That is why we want to focus on debt management."

Investors were said to support the offer for delayed interest payments, rather than risk pushing Ecuador into default, sources told LatinFinance.

"The numbers provided by Martínez regarding financing needs are worse than we expected," said an investor based in the Caribbean. "If bondholders don't agree to the solicitation by Friday, I would not discard a default because it makes no sense for them to pay."

According to Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities in New York, investors are expected to line up behind the offer. "Bondholders would probably prefer a constructive framework than the alternative of a hard default," she said in an email.