Ecuador suspends interest payment to mull default

QUITO (AP): Ecuador won't pay bondholders $135 million in interest while it decides whether to default on 27 percent of its foreign debt, deemed "illegitimate" by in audit, a top official said Saturday.

The cash-strapped country will take advantage of a 30-day grace period that allows it to defer payment on $2.7 billion in so-called Global 2030 bonds while it works to find "an integral solution to the issue of the debt," Minister Maria Elsa Viteri said.

"When we have a defined proposal ready, Ecuador will contact bondholders," she told reporters.

President Rafael Correa in December suspended a $30.6 million interest payment on $510 million in bonds due in 2012, declaring a moratorium on those and the 2030 bonds after a commission recommended he default on $3.9 billion in foreign debt.

The commission's audit accused former officials and bankers of profiting irresponsibly from three bond issues amid a 2000 and 2005 debt restructuring, making the contracts "illegitimate." Officials involved in the deals have denied wrongdoing.

Analysts warn a default would be risky because it all but severs Ecuador's access to international lending during the global credit crunch, even as plummeting oil prices slash government revenue and force the country into deficit.

Oil is Ecuador's main export and finances 40 percent of Ecuador's federal budget.

The decision to forego December's interest payments soured international investors, forcing Ecuador to turn to its Social Security Institute to buy $1.2 billion in bonds issued since December to finance its 2009 budget.

Before his landslide election win in 2006, Correa promised he would seek to slash foreign debt payments to free up money for social programs.

Ecuador did announce plans last month to meet a $30.9 million interest payment on $650 million in 2015 bonds, which were sold later than the other two issues, under the government of former President Alfredo Palacio when Correa was economic minister.

In all, the $3.9 billion in debt questioned by the government-appointed commission is comprised of 2012, 2015 and 2030 bonds.

Ecuador is considering buying back, restructuring or swapping $4 billion in bonds for other debt instruments, Viteri said last month.

Correa has vowed to seek a major discount in any restructuring.