Ecuador seeking emergency financing to help battle COVID-19
March 23, 2020 |
IMF says Ecuador will seek help through Rapid Financing Instrument
Ecuador, late on Monday, said it would reach out to lenders of last resort and its creditors to seek financial assistance and a chance to renegotiate some of its debt obligations in an effort to counter the impact of the novel coronavirus, which has hit the Latin American nation harder than nearly all other countries in the region.
Finance Minister Richard Martinez, in a video posted on the ministry’s website, explained the nation’s dire financial position and said it would utilize a 30-day grace period to delay an interest payment on roughly $200 million in debt due this month in order to focus on the health crisis.
At the same time he reiterated what his deputy, Estaban Ferro told LatinFinance on March 16, that the government will still make a $325 million payment on debt maturing on Tuesday. By making the payment, Ecuador will be able to maintain its access to the international capital markets.
“In this context, we are taking decisions to guarantee a relief from debt payments but at the same time guarantee access to sources of financing. It would be impossible for Ecuador to face a crisis of this magnitude without access to international financing,” Martinez said after explaining that the nation needed to prioritize health, food security, production to protect micro-enterprises from failing and overall macroeconomic stability.
“We need to keep access to resources that will feed the State's budget, resources needed to tend to the health emergency,” he said, according to a translation by LatinFinance.
Creditors have largely pushed Ecuador’s sovereign bonds into default territory. The 7.875% 2028 bond bid at 27.875 late on Monday, down 5 points from Friday’s closing level to show a bid yield of 35.77%, according to data provider Refinitiv.
IMF EMERGENCY FUNDS
Martinez said the International Monetary Fund would provide Ecuador with $500 million and that another $500 million would come from the combined efforts of the Inter-American Development Bank, World Bank and the Development Bank of Latin America, also known as CAF.
The IMF said late on Monday that Ecuador intends to seek emergency financing to underpin its efforts to combat the virus and stabilize the economy.
“In light of urgent need to quickly step up action to protect people and the economy, the Government of Ecuador expressed its intention to seek our financial support through the Fund’s Rapid Financing Instrument (RFI),” IMF Managing Director, Kristalina Georgieva, said in a statement.
“This emergency financial tool will allow the government to address urgent balance of payments needs and will support policies that would make it possible to direct funds swiftly to Ecuador’s most affected sectors, including the healthcare system and social protection, to bolster its response to COVID-19,” she said.
Ecuador’s oil-dependent economy has suffered a double hit as not only the coronavirus impacts activity but the dispute between Russia and Saudi Arabia over production has resulted in the price of oil being cut by more than half since the start of the year, putting in jeopardy the government’s fiscal and economic plans.
Ecuador, which left OPEC in order to increase its output, produces roughly 540,000 barrels of oil per day. The oil price crash has prompted President Lenín Moreno to announce a series of austerity measures to account for oil dropping under the $51 per barrel the national budget is based upon.
In addition to the multilateral lending institutions offering aid, Martinez said it would try to reach consensual debt reorganization agreements with creditors, both commercial and bilateral, within the next several days.
Martinez told reporters on Monday that he had been in touch with the US Treasury according to press reports, and confirmed the previously reported contact with the Chinese. Ferro had told LatinFinance that the government was negotiating with two Chinese banks since January over a $2 billion credit line, and that it was seeking to renegotiate with the banks the size of amortization payments due in 2020 and 2021.
Ecuador has 981 confirmed cases of COVID-19, with 18 deaths, according to the Johns Hopkins University’s Coronavirus Resource Center. It is second in the region on this grim scale only to Brazil, an economy that is 17 times larger, according to IMF/World Bank data. Brazil has 1,924 confirmed cases with 34 deaths as of Monday.