Ecuadorean economy minister Fausto Ortiz yesterday sought to reassure bondholders, pledging that the government of President Rafael Correa will continue sound management of external debt, maintain dollarization, and seek a dialogue with rating agencies. “We are interested in repositioning Ecuador in global markets. We want to sustain relations with rating agencies and dissipate any doubt and projections,” Ortiz told Emerging Markets in an exclusive interview.
After liability management exercises in the past year, Ecuador’s external debt stands at a sustainable 25% of GDP. But investors have been unsettled by a committee set up in July 2007 to investigate whether part of Ecuador’s debt is “illegitimate” because it was contracted as part of corrupt deals by previous governments.
No debt matures in the near term, and the government intention is to avoid taking on new debt by using windfall revenues from oil production for investment projects in the energy sector and infrastructure, Ortiz said.
He added that the success of Correa’s supporters in elections to the Constituent Assembly – where they have won a clear majority of 80 seats out of 130 – should be seen as a stabilizing factor. “More than worrying markets, this should be taken as a sign of certainty,” he argued.
That view is sharply questioned by some market analysts. “Uncertainty increases with the Constituent Assembly. It is a Pandora’s box and anything can come out of that,” said Gianfranco Bertozzi, Andes analyst for Lehman Brothers in New York. Minister Ortiz is considered the most market-friendly and conciliatory cabinet official in the leftist administration of President Correa – which has adopted heterodox policies, including a decree this month boosting the state’s take of oil companies’ windfall profits from 50% to 99%.
“The question, as always, is who will really be driving policy—Ortiz or Correa,” says Bertozzi. “As long as Ortiz is there, the odds of policy moving further left are reduced, he is not a heterodox thinker,” Bertozzi added.
Despite a boom in the price of oil, Ecuador’s biggest export, a number of economic concerns loom. The sharp deterioration of the trade deficit – which has grown nine-fold to $4.5 billion in the six years since dollarization – is the biggest concern on Ortiz’s mind.
The poor performance of the national oil company, PetroEcuador, is also a worry. Despite continuing state investment, production has declined in every year since 1994, according to Alberto Ramos, senior economic analyst for Latin America with Goldman Sachs. “PetroEcuador gets the money, they don’t get the output,” said Ramos.