When is it convenient for Ecuador to issue bonds? That is the question that international capital markets are now asking. For now, there is no answer. What is clear is that Ecuador will not be able to do so in the short term.
Ecuador needs to issue paper to get money and face the fiscal deficit, that is, the resource gap that occurs when the State’s income does not cover all expenses.
In this year, the financing needs add up to 11.7 billion dollars, according to the last report of International Financing Review (IFR) of Reuters, published last Saturday.
Of that amount, the Government has already obtained 6,100 million dollars and still has to obtain 5,620 million.
Investors believe that Ecuador will not issue this month, according to the publication specializing in debt.
Bond investors, according to IFR, have taken the appointment of Richard Martinez to the Ministry of Economy and Finance as refreshing, as well as their efforts to address the realities of the country.
“I’m not sure there’s enough appetite for a bond issue and that’s what the authorities are perceiving,” said Petar Atanasov, co-director of sovereign research at Gramercy, a hedge fund.
According to Atanasov, the Ecuadorian government is currently not sure of being able to get the amount of money they want with an interest rate below 10%. Martinez has stated that Ecuador will issue between 1,000 and 1,500 million in sovereign bonds.
The dilemma is whether Ecuador should issue debt by the end of the year or wait until 2019, according to IFR, when the context of emerging markets could deteriorate further.
“Despite the improvements, Ecuador remains a weak credit,” Atanasov said. “It’s exactly the kind of credit that is vulnerable to current external conditions.”
Investors believe that Ecuador should resort to a program with the International Monetary Fund (IMF) to strengthen its credibility in the markets and to meet debt maturities that lie ahead after 2020.
Between 2020 and 2024, Ecuador has bond maturities of approximately 7,000 million dollars and another 8,300 million between 2026 and 2028, according to Reuters data.
Another aspect to which investors are waiting is the approval of the project of Law of Productive Development, which will allow the Government to contract more debt during the next three years, despite exceeding the legal limit of 40% with respect to the Gross Domestic Product. (GDP).
For now, the government has turned to multilateral agencies to get fresh dollars. The Inter-American Development Bank (IDB) granted a credit for 600 million dollars last Friday.
The sovereign bond is a paper issued by a government to obtain financing; your interest rate accounts for the country risk.
The international capital markets are the investors or investment banks that acquire shares or bonds in order to achieve profitability. (I)