The agreement announced with the largest group of holders of bonds of the country will bring five benefits for relieving the burden of public debt in the coming years.
This is an important step in the debt renegotiation process that the National Government began last March with the payment of $ 320 million corresponding to the 2020 bonds and that will continue until August 15, the deadline for the application to be made. restructuring.
Until that date, Ecuador must obtain the approval of around 66% of investors. With the agreement announced on July 6, there would be almost 50% support.
This group includes A shmore Group, AllianceBernstein, Wellington Management Company LLP , among others, so that the Government is optimistic that its proposal will be successful.
The President of the Republic, Lenín Moreno, stated in his Twitter account that “acting with decency brings great results (…) With this we will release more than $ 16,000 million in the next 10 years!”
That relief is the first benefit of the deal. “From now until 2025 $ 11,000 million will not be paid and until 2030 the relief will be $ 16,000 million,” explained the Minister of Economy and Finance, Richard Martínez.
Not paying any bond amount this year means a savings of $ 1,361 million. And in 2021, when $ 1,593 million was due, $ 79 million would be paid. Thus, the weight of the annual payments will decrease and will last until 2040 in installments that do not exceed $ 2.5 billion. “The next government will not pay $ 9,166 million. And the subsequent $ 5,739 million, ”said the head of Finance.
The second benefit is the reduction in capital from $ 17,375 million (negotiated amount) to $ 15,835 million. In other words, there is a cut of 1,540 million.
In third place was double the term of the existing debt . The maturity of the bonds will go from 6.1 years on average to 12.7 years. The current longest bond will expire in 2030, while the new longest bond will expire in 2040.
The reduction of interest rate is the fourth benefit. From the current average of 9.2% it will drop to 5.3%. Martínez pointed out that the highest current interest rate is 10.75%, while with the restructuring the rates will go up to a maximum of 6.9%.
Finally, the country would earn five years in capital grace periods and practically two years of interest grace, going from $ 2,954 million to $ 79 million.
The proposal also includes the restructuring of interest accrued in arrears during the renegotiation. Of the $ 1,060 million that had to be paid this year, $ 911 million (reduction of 14%) would be paid from 2026 to 2030 in installments of 182.31 million.
The Cabinet Secretary General, Juan Sebastián Roldán , congratulated the team from the Ministry of Finance and stated that this is a first step for the great objective of restructuring the debt. The next steps are conversations with multilateral organizations and with governments like China to reach new agreements.
At the news of the agreement, the chief spokesman of the International Monetary Fund (IMF), Gerry Rice, said Monday 6 July 2020 the restructuring of global bonds of Ecuador “advances in a timely and constructive manner. (…) We hope that all parties involved will continue working to finalize an agreement, which, along with other efforts, is essential to help put public debt on a sustainable path. ” ( I )