REFILE-Ecuador plans "very large" cut in debt restructuring

Mon Dec 15, 2008 9:58am EST

(Fixes grammar, 1st paragraph)

By Maria Eugenia Tello

LA LIBERTAD, Ecuador Dec 13 (Reuters) - Ecuadorean President Rafael Correa on Saturday warned bond-holders of a hefty cut in the nominal value of defaulted global paper as part of a restructuring plan he will offer them in coming days.

A day earlier Correa shocked bond-holders by declaring default on $3.8 billion worth of global bonds in one of the most aggressive moves against investors in Latin America for years. He said the debt was contracted illegally by a previous administration.

"We are preparing a restructuring plan with a very large reduction of its (bonds) value," Correa said during his weekly media address in the coastal town of La Libertad.

"What has been done with our debt is immoral ... that debt has been paid over many times."

Last month, Ricardo Patino, a top debt adviser to Correa, said investors should expect a reduction of more than 60 percent in the nominal value of the paper in a restructuring.

Correa also said his government is ready for a slew of potential lawsuits by angry bondholders who will seek repayment from the oil-producing country that boasts the debt default was decided based on morality and not on lack of cash.

However, in rare comments Correa admitted the grave risk his Andean nation faces with a debt default.

"If this (default) costs the country too much then the country has to decide if I should continue as president," Correa said. "I have lost sleep over this ... this will cost us tears and sweat but I think we are doing the right thing"

Correa, whose political slogan is "life before debt," is popular among Ecuadoreans for his stance against foreign investors.

He has already forced foreign companies to change contract terms in the oil and mining industries and ejected a major Brazilian building company in a dispute over a dam construction as he seeks to increase state income.

The default will likely lead to drawn-out investor lawsuits against Ecuador, further close off credit lines to the oil- and banana-exporting nation and cause foreign investment into areas such as mining to dry up.

(Writing by Alonso Soto; editing by Jackie Frank)

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