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Ecuador seeks alternative sources of credit

After defaulting on $3.2 billion in global bonds Ecuador’s leftist president, Rafael Correa, is searching for new sources of funding to help bolster the country’s $48 billion economy, which has been hit hard by falling oil prices. Oil generated 60 percent of export earnings, or nearly $7.5 billion, in 2007. Lower oil revenues have made it difficult for Ecuador to stay current on its $9.9 billion in foreign debt. Correa infuriated bondholders and damaged his country’s ability to access credit when he decided not to pay $30.6 million in interest due on December 15 on Global 2012 and Global 2030 bonds, arguing that much of the debt is illegitimate because it was negotiated by the previous government and that the contracts had irregularities. Ecuador’s newly appointed minister for economic policy coordination, Diego Borja, says the country plans to repurchase the debt through several auctions, with a starting price of 30 cents on the dollar. "The government and Correa seem to be playing games, trying to threaten default so they can drive the price down and buy [the bonds] back," says Hans Humes, president of New York’s Greylock Capital Management, a hedge fund with $350 million invested in emerging markets. "My sense is that any repurchase offer will be rejected." Ecuador is working on a "series of alternative sources of finance, including investments by Iran in strategic projects," a government source tells Institutional Investor . Correa said on January 6 that he’s hoping to tap $2.6 billion from Latin American multilateral financial institutions.