Ecuador, it seems, is fast becoming the favored haven of the
world's most notorious intelligence leakers. Will global
investors find the route to Quito as attractive as Julian
Assange and Edward Snowden apparently do?
Five years after he called international debt holders "true
monsters" and the nation defaulted on two bonds issued by
previous administrations, Ecuadorian President Rafael Correa is
preparing for the country to return to the international
capital markets this year or early in 2014.
Correa, who in February secured a third term with a crushing
congressional majority, has financed the social programs and
public investment that underpin his popularity through oil
windfalls and bilateral funding arrangements, most notably with
the Chinese. Ecuador is home to South America's third-largest
crude reserves, but a drop in oil prices and a slowdown in
China have Correa hunting for alternatives to sustain
government spending, which amounts to almost 45 percent of
gross domestic product.
Bolivia recently issued a ten-year bond at a yield of less
than 5 percent. Suddenly, even for the most stridently
anticapitalist regimes of Latin America, international debt is
an appealing financing avenue. Hence Correa's careful
presentation of a new, more private-sector-friendly face: On a
May trip to the European Union, the president declared that he
now views private enterprise as the primary engine of economic
development, and since his reelection he's repeatedly affirmed
his government's commitment to attracting more foreign
investment. Nathalie Cely, Ecuador's ambassador to the U.S. and
a longtime member of Correa's inner circle of advisers, says,
"There is no irony" or "double speech" in this charm offensive,
despite the government's extraordinary selective default on
$3.5 billion of debt in 2008.
"We feel there's enough of an appetite out there" for the
country's debt, she adds. Cely says the government has yet to
decide the size or tenor of any bond offering, but she asserts
that several banks, including Credit Suisse and Goldman
Sachs Group, have expressed an interest in managing the
issue. (Both banks declined to comment.)
"It takes more than a few notes to compose a symphony, and
at present most investors are still in no mood to listen,"
contends Shahriar Shahida, CIO of New Yorkbased
hedge fund Constellation Capital Management. But
markets have short memories, says James Harper, director of
corporate research at BCP Securities, a Greenwich,
Connecticutbased investment bank focused on emerging
markets: "Fund managers rotate; new money comes in; attitudes
Ecuador is hoping that this dynamic, combined with the
strength of the country's macroeconomic fundamentals, will
prove enticing: GDP expanded by 8 percent in 2011 before
cooling to a still-impressive 5 percent rate last year, the
fiscal deficit remains low at 1 percent, and the ratio of debt
to GDP is a paltry 21 percent.
The $650 million bond due in December 2015, which the
government left intact in 2008 and pays interest on, has
returned 15 percent over the past year. Standard & Poor's
rates Ecuador a B with a stable outlook, and most analysts
expect any bond issues to carry a yield in the high single or
low double digits. This should be "more than enough" to get
yield-starved investors "over the hump of Ecuador's credit
event five years ago," says Arif Joshi, a New Yorkbased
portfolio manager at Lazard Asset Management.
But it remains unclear whether Correa is on the road to a
more symbiotic embrace with the international investment
community or simply stopping off at the capitalist fuel pump.
How will Ecuador evolve? "I'll tell you what we won't be,"
ambassador Cely says. "We won't be a capitalist-driven economy.
We won't be a socialist-centered economy. We will be
something in the middle, but it's kind of difficult to