Gold, best guarantee for lenders

Ecuadornews:

The authorities of the Central Bank of Ecuador again return to see the gold to get financing. Through an email, the entity confirmed to newspaper EXPRESO that this possibility is analyzed.

The Central Bank of Ecuador said it has approached several international organizations, including the Latin American Reserve Fund (FLAR).

According to previous transactions, in general terms, the Central Bank of Ecuador delivers gold for a period of time and in exchange receives a loan. When the credit expires, in three or four years, the credit must be paid so that the gold returns to the Central Bank of Ecuador vaults with an additional percentage of money for profits.

There are still no details about the amount that is sought or interests, but the objective is to strengthen international reserves in a more solid way and stoprelying solely on the money obtained by the Ministry of Economy and Finance(MEF) via external debt.

Last month, the Central Bank of Ecuador manager, in an interview with this newspaper,said that debt will be needed in the last quarter to compensate for the fall in reserves.

Liquidityis one of the problems that has not let the Central Bank of Ecuador sleep this year. In most of the second half of the year, international reserves have remained at less than 3,000 million dollars.

Which is the reason? The limited access that the Government has had to credits. Each time the MEF obtained financing, through the issuance of bonds in the markets,for example, international reserves rose and fell little by little, as the Government spent the money.

What are international reserves? In general terms, it is the external liquidity of the country through which all of Ecuador’s transactions with the world pass:both receipts and payments, explained economic analyst Danilo Albán.

The Central Bank of Ecuador said that “it is empowered to carry out the necessary actions to manage domestic and international liquidity in order to make public and private sector operations viable”.

 of the international reserves also support the deposits that the country’s banks maintain in the Central Bank of Ecuador. Currently, according to the Association of Private Banks of Ecuador (Asobanca), reserves only cover 76% of deposits and there is a shortfall of 889 million dollars.

Foreign banks and investors have expressed their concern about the reduction of reserves on repeated occasions. Artola has recognized this situation and has indicated that if the reserves fall to less than 2,400 million dollars (currently they are 2,848 million) there is concern.

For Albán, the operation that the Central Bank of Ecuador intends to take is positive, because it is necessary to strengthen reserves so as not to endanger dollarization. Another way is to attract foreign investment.

The economic analyst José Orellana Giler agrees with Albán and assured that the operation can be beneficial to compensate the low reserves, one of the concerns of the international markets.

Orellana said that the low level of reserves may also be influencing the high risk country of Ecuador, which in recent months has prevented access to cheap credit.

Record

Two similar credits

In the last four years there have been two operations carried out with the Central Bank’s gold reserves. In 2014 it negotiated with 465,619 ounces and in exchange it agreed to a credit for 400 million dollars. That transaction was finalized last year.

In August another loan was made with the same bank and 300,000 ounces of gold and bonds for 500 million dollars were delivered. (I)

Source: https://www.expreso.ec/economia/oro-credito-prestamos-bce-DD2489500