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By Daniel Bases
NEW YORK, Oct 24 (Reuters) - Fitch Ratings on Wednesday revised the outlook on its long-term foreign currency sovereign credit rating for Ecuador to positive from stable citing improving economic growth and manageable financing needs.
Ecuador, an OPEC member whose oil output has hovered around 500,000 barrels per day for the past few years, is being supported by the relatively high price of crude oil, Fitch said in a statement.
The highly speculative credit rating of B-minus was affirmed. Ecuador is rated one notch higher at B with a stable outlook by Standard & Poor’s and one notch lower at Caa1 with a stable outlook by Moody’s Investors Service.
“Ecuador’s ratings currently balance comparatively stronger fiscal and external solvency indicators against the sovereign’s weak debt service record, limited sources of financing and high commodity dependence,” Fitch said.
The firm also said the government’s interventions, which it described as “high level”, weakens the business environment while undermining the ability of investors to build in economic policy predictability.
Ecuador shocked investors and locked itself out of debt markets by defaulting on $3.2 billion in global bonds nearly four years ago after a government commission branded the debt “illegitimate” for having been contracted by shady public officials in collusion with greedy Wall Street bankers.
It was the first sovereign debt default in memory called by a government that clearly had the money to pay its obligations, but chose not to.
Since the 2008 default, Ecuador has met its foreign borrowing needs with bilateral credit deals, mostly from China. Access to financing remains limited, Fitch said, citing a relatively shallow domestic debt market and limited access to non-bilateral foreign funding, i.e. international financial markets.
Ecuador’s economy, Fitch points out, grew 8 percent in 2011 but medium-term performance will depend on the government’s capacity to move from a “significant oil-fuelled fiscal stimulus to a more sustainable mix including increased private sector investment.”
The Correa government has failed to diversify its economy away from its dependence on oil exports, leaving it vulnerable to a price decline. (Reporting By Daniel Bases, Luciana Lopez and Caryn Trokie)