Saturday, December 13, 2008 0 comments ++[ CLICK TO COMMENT ]++

Ecuador defaults on foreign debt

Risk manager asks after Ecuador defaults on its foreign debt:

They export oil and BANANAS... they are a REPUBLIC... they already defaulted once... who actually lent them money?

LOL OK, that wasn't said by a risk manager* but I couldn't help laughing :)

On a serious note, Ecuador has chosen to purposely default without any financial need. The default was undertaken for ideological reasons (i.e. the current leftist government doesn't believe prior debt was negotiated in good faith.) It'll be interesting to see how this case unfolds. Unlike many defaults by developing countries, this is one of those cases where the country has financial resources to pay off the debt.

For what it's worth, I think emerging market debt defaults will increase significantly over the near term. Like most other debt, the market looks to hve mispriced them. At least that's my view.

(* The quoted words are from a comment by Angus Elliott of Cambridge, ON in response to the Globe & Mail article on the Ecuador default.)


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