Investment banking bails out the country

Ecuadornews:

TheGovernment manages to finish 2018. Last Wednesday, the Ministry of Economy andFinance (MEF) reported that it obtained 1,185 million dollars through fivecredits.

Thelargest lender of fresh resources, whose disbursement already entered onOctober 31 to ‘the wallet’ of the State, is Credit Suisse. The financialmultinational lent Ecuador 500 million dollars.

Ingeneral terms, in order to obtain the financing, the MEF had to deliver bondsfor a value of 1,250 million dollars as collateral or collateral, in thefinancial language. Ecuador will have to pay 500 million dollars in four and ahalf years, with a variable interest rate of 5.65%.

If at the end of the operation Ecuador is in a position to pay in cash the 500 million dollars, it will recover the papers that it delivered.

Thebonds will not be accounted for in the external debt because when operating ascollateral they are considered a contingent. Only 500 million dollars will beadded to the public debt. It is not the first time that Ecuador has carried outthis type of operations. In August he made a similar transaction, but with thebank Goldman Sachs.

But whydoes Ecuador use this type of credits? For the country to obtain financingthrough the issuance of bonds is complicated, for now, by high interest ratesand little appetite by investors, says Edwin Gutiérrez, director of sovereigndebt emerging markets in Aberdeen, London (England), an investment fund thathas bought Ecuadorian bonds.

If for Ecuador it was difficult to obtain financing this year, 2019 becomes a big question for investors and analysts consulted by EXPRESO.

Next year, according to proforma 2019, 8,200 million in financing will be required to cover the fiscal deficit and other projects, that is, the gap in resources that is generated due to the fact that revenues do not cover expenses.

In itslatest report on Ecuador, The Economist Intelligence Unit (EIU), the financialanalysis unit of the British publication, points out that a greater cut incurrent spending is required if the Government wants to access the capitalmarkets in order to obtain financing next year and in 2020. “We believethat the Ministry of Finance will change the direction of the policy after thelocal elections in March 2019, and pave the way for an IMF financingprogram,” says EIU. (I)

Source: https://www.expreso.ec/economia/economia-ecuador-credito-liquidez-prestamos-XB2461132