Renegotiation started with payment of 2020 Bonds

On March 23, 2020, Ecuador marked the first milestone of the renegotiation of the debt with the cancellation of $ 341 million for payment of principal and interest on the Bonds 2020 , amid the crises of the covid-19.

Renegotiation started with payment of 2020 Bonds

The payment was criticized by many social sectors ; however, compliance with this obligation allowed the country to receive new financing and reach the last agreement with the main bondholders.

Finance reported that with the payment of the 2020 Bonds, the country would stop paying about $ 216 million of interest on the 2022, 2025 and 2030 Bonds , making use of a 30-day right of grace. This amount would serve to face the health and economic crisis of the covid-19.

The Minister of Economy and Finance , Richard Martínez , explained that, if the capital payment of the 2020 Bonds had not been made , the country could have fallen into default (no payment). “Which would have had serious consequences,” he said, not only for the local economy, but to access credit.

The Secretary General of the Cabinet , Juan Sebastián Roldán , said on Monday at a press conference that “this payment managed to bring in $ 1.8 billion in the next six months and (with the agreement) a forgiveness of $ 1.5 billion of debt is achieved.” He said that finances are being taken care of for the next 15 years.

Agreements with holders

Another important event in the framework of the renegotiation occurred on April 17, 2020; Ecuador obtained the approval of the Consent Request that sought to defer interest payments until August 15, 2020.

This decision allowed the country to postpone the payment  of $ 911 million, between March and August, which will be paid from 2026 if the agreement is formalized.

That, plus the renegotiation of bonds of Petroamazonas and the arrival of resources agencies internments, as the Monetary Fund International , the Development Bank of Latin America , among others, were key to reach the last announcement of the National Government with the group more important of bondholders that represent 45% of the total of Ecuadorian papers in the international market.

According to the President of the Republic, Lenín Moreno , this will reduce $ 1.5 billion of debt, lower interest from 9.3% to 5.2%. In addition, extend the term by 10 more years and obtain five years of grace for the payment of capital.

Faced with this situation, the economic analyst Jorge Calderón considers that the re- profiling of the external debt that the country has achieved is very convenient. “The important thing is that the government can properly use those resources that it is releasing, which can be directed to greater credits to reactivate the Ecuadorian economy.”

It reiterates the need to reduce state spending, which frees up resources for truly productive activities.

On debt , the expert says it is time to set new parameters , payment terms , grace periods and interest rates . “Although the Public Finance Law is already outlining them, it is important that they can be respected.”

In addition, he believes that it is important that the guidelines are given with the different renegotiation periods , so that the resources go to the sectors that really need it.

Public Finance Law continues in the Assembly

An important instrument to give sustainability to public debt management is the Public Finance Law approved in the Assembly . The presidential veto is now in the Legislative and if the Plenary does not continue its debate until July 15, it will go through the Ministry of Law . On July 2, the partial veto of the Executive did not obtain the 91 necessary votes of the legislators for its search.

One of the issues that caused debate was the objection to the twenty-sixth transitional provision , which establishes that in order to comply with the 40% debt in relation to GDP rule, the governing body of finance must progressively reduce the indicator of public debt and other obligations according to the following limits: 57% of GDP until 2025, 45% of GDP until 2030 and 40% of GDP until 2032 and thereafter.

Patricio Donoso (CREO) believes that the law will effectively help improve public debt management and that it is the way to acquire international credits.  On the contrary, Esteban Melo (Citizen Revolution) maintains that this proposed schedule is anti-technical because they do not know the financing needs that the country may have at that time and the variation in GDP in those years is unknown.

Augusto de la Torre , member of the Government’s Economic Advisory Council , considers that the project reintroduces eliminated fiscal responsibility rules in the Rafael Correa government . Explains that the rule requires greater transparency in the public sector . ( I )

https://www.eltelegrafo.com.ec/noticias/economia/4/renegociacion-pago-bonos2020