Fitch lowers Ecuador rating outlook on negative

NEW YORK, Nov 17 (Reuters) - Fitch Ratings on Monday put Ecuador's long-term sovereign foreign currency rating outlook at negative from stable citing the government's decision not to pay an interest payment on its Global 2012 bond.

The government is exercising the option of a 30-day non-payment grace period from Nov. 15, during which time a government-appointed commission will decide if the debt is illegitimate.

Left-wing President Rafael Correa has repeatedly warned of a default on some debt, saying he would not make a $31 million coupon payment on the 2012 bonds until the legitimacy of the debt, in the eyes of the commission, is resolved.

"While the oil windfall of the past two years has strengthened Ecuador's capacity to service debt, the government has always conditioned payments to pollical variables," Erich Arispe, sovereign analyst at Fitch said in a statement.

"The announcement raises further concerns about the willingness of the Correa administration to service debt under the low oil price scenario expected in 2009," Arispe added.

Fitch's rating of Ecuador at "CCC" is already highly speculative and represents a substantial risk of default. Moody's Investors Service rates Ecuador at "Caa1" while Standard & Poor's rates Ecuador at "CCC-".

Ecuador has set its 2009 budget on the assumption of $85 a barrel for benchmark crude West Texas Intermediate. The current price for a barrel of oil is $55.11, down $1.93 on Monday CLc1. (Reporting by Daniel Bases; Editing by Diane Craft)