October 1, 2007 / 6:06 PM / in 12 years

Ecuador's Correa says to renegotiate debt in 2008

QUITO (Reuters) - Ecuadorean President Rafael Correa said on Monday he will begin the renegotiation of public debt next year, but using more market-friendly mechanisms such as a swap of more expensive debt for cheaper paper.

Correa looked to have won a strong majority in Sunday’s vote for an assembly to rewrite the constitution, but investors are worried a convincing victory could embolden him to aggressively restructure the country’s foreign debt.

“Yes, we will probably renegotiate debt using market instruments, buying back more expensive debt in exchange for cheaper debt,” Correa told a press conference when asked whether debt renegotiation would begin next year.

“Our debt now is around 9 to 10 percent (interest) when we could obtain funds from international organizations at 4 or 5 percent,” he added.

Correa has softened his tone on debt policy since he came to office in January, when he threatened to default on some foreign bonds over moral or illegitimacy grounds.

Despite the left-winger’s more moderate comments, he said his delegates in the body would seek to abolish special oil saving funds and end the autonomy of the central bank.

“I don’t know what is motivating him to take a more market-friendly posture in the last couple of weeks,” said Enrique Alvarez, a Latin America debt strategist with IDEAglobal in New York. “He seems to be taking a more neutral path and that is very positive overall.”

However, Alvarez warned that some of Correa’s planned economic reforms such as regulating the banking sector and eliminating ceilings on spending could hurt the country’s ability to repay debt in the long-term.

Ecuador’s global 2030 bond was up 1.938 to bid 92.188 at a yield of 11.040 percent after briefly climbing as high as 92.375 following Correa’s debt comments to the foreign press on Monday.

The former economy minister said he planned to keep the dollar as the country’s official currency during his government, but did not rule out a regional currency in the long-term.

The leftist said his planned renegotiation of foreign oil contracts would be “friendly” and said he saw no need for deep reforms in the energy and mining sectors in the new assembly.

He said a legislative commission mirroring the make-up of the new assembly will replace Congress and he has a package of 10 to 12 bills ready. He said one of those bills includes a review to competition norms to end what he calls private monopolies in the construction and mobile phone sectors.

The 130-member assembly will debate proposed reforms for at least six months and the new constitution will then be approved by a referendum. Correa said he foresaw early presidential and congressional elections after the assembly.

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