Ecuador’s President Rafael Correa is a freaking champion. Like many of us, he runs a country that has $10b in debt, except unlike many of us he does not feel compelled to pay it back. Ecuador has the money, it’s just not going to pay its creditors. Why not? President Correa says the debt is “illegitimate”.
The bonds were “always structured for the benefit of the creditors, trampling on the national interests, dignity and sovereignty of our countries,” Correa told reporters in Guayaquil. “It is now time to bring in justice and dignity.”
Yeah, I tried that argument with Citimortgage one time. It didn’t go over so well.
Last Friday, Correa announced in a radio address that he just didn’t feel like making the interest payment due today, and the value of the country’s $4b worth of dollar-denominated bonds fell to about 25 cents on the dollar, kind of like how if you decided you didn’t feel like making your minimum monthly payment on your Capital One card and the value of your life dropped to effectively that of warm spit. Even when Argentina defaulted on its $93b in debt a few years ago, it still ended up paying 30 cents on the dollar. Out-failing Argentina is an accomplishment to be applauded. Doing it twice in ten years makes you a certified rock star, and qualifies you to catch Hep C from Pam Anderson.
The default is Ecuador’s second in a decade and seventh in its 178-year history, according to a study by Federico Sturzenegger, a former secretary of economic policy in Argentina, and Jeromin Zettelmeyer, a former assistant to the Western Hemisphere Department director at the International Monetary Fund. In 1999, Ecuador halted payments on $6.5 billion of bonds that had been restructured just five years earlier.
To Correa’s credit, one of his campaign promises was to help the country’s poor and not so much on paying down the country’s debt, so he is at least following through on that. In closing, I’d like to share this from the “We totally didn’t say it, they did” file:
“This country is not one where the culture puts any value on paying debt,” said Michael Atkin, who helps oversee $12 billion of fixed-income assets as head of sovereign research at Putnam Investments in Boston.
ATTENTION EVERYONE, PUTNAM INVESTMENTS IS STAFFED WITH ANTI-ECUADORITES
John Mazzotta // Dec 15, 2008 at 11:59 am
So which is the bigger failure? Loaning money to Ecuador or investing with Madoff?
Jason // Dec 15, 2008 at 12:01 pm
At least with Madoff there was no prior history of fail. Buying Ecuadorian bonds today is like getting back together with your girlfriend after you caught her cheating on you with the entire Tampa Bay Bucs offense.
Bud Tugly // Dec 15, 2008 at 6:30 pm
Loaning money to Ecuador will probably be numero uno on the “Magic One’s” agenda, mark my words.
“They are an honourable people, they simply never had a chance.”.
7th fail in 178 years is a Guiness Book of World Records achievement.
Jason // Dec 15, 2008 at 6:37 pm
The joke’s on Ecuador if he lends them US dollars.
simeon // Dec 18, 2008 at 3:35 pm
Hey Jason, you were the idiot who took out the loan at Citimorgage since you were so eager to be their slave paying them interest for the next few decades. Ecuadorians never approved of the loans their corrupt former governments stuck them with, nor did they receive any benefits from them, as the cash was mostly pocketed by elites in backroom deals. If anyone had asked them, they would have said to keep the dirty money, which is what they effectively did when they voted in Correa who promised not to pay the debt. Ecuadorians don’t want any more abusive loans. Smart people avoid debt at all costs – I am writing from my condo here in Quito, which I bought by slowly saving up so that I did not have to pay interest to anyone. Suckers, have fun with your monthly payments.
Jason // Dec 18, 2008 at 5:13 pm
Here at LOLFed, sometimes we make “jokes” as a coping mechanism for all the fail around us and, indeed, in the world. That was one of those times.
But if you’ll hold tight, Simeon, I believe I have a medal for you, for being better than the rest of us.
simeon // Dec 18, 2008 at 6:03 pm
I am just sick of the distorted press about Ecuador, which you are a part of, jokes or no. Leave us alone down here – the sash looks pretty cool to me.
Dr. Kenneth Noisewater // Dec 29, 2008 at 2:44 pm
@simeon: You guys better watch out though, your leadership might end up getting dragged into a soccer stadium and shot, or drugged and tossed out of an airplane into the ocean… You got a nice country there, shame if anything should happen to it… :p