IMF’s $6.5 Billion Allows Ecuador to Restructure Bonds
IMF and Ecuador Agree to New $6.5 Billion Deal
(Bloomberg) -- The International Monetary Fund agreed to lend Ecuador $6.5 billion which will allow the nation to complete a bond restructuring plan and fund its 2020 budget.
The deal announced Friday will enable the exchange of $17.4 billion of debt to go ahead before the Sept. 1 deadline. The country had agreed with bondholders that it would seek a new IMF deal, and that the restructuring wouldn’t go ahead without one.
The so-called Extended Fund Facility is a staff-level agreement subject to approval by the IMF’s board, and is repayable in 27 months, the IMF said in a statement.
Under the deal, $4 billion would be disbursed before the end of the year, according to four people with knowledge of the agreement, who asked not to be named because the details aren’t public yet.
The deal replaces Ecuador’s previous agreement with the IMF, which was shelved amid the pandemic. Under that, the country was slated to receive $4.2 billion over three years.
Ecuador was badly ravaged by the Covid-19 outbreak, which led to corpses piled up on sidewalks in Guayaquil.
The economy was also hit particularly hard, since the debt crisis made it impossible to deploy fiscal stimulus to soften the impact of lockdowns. At the same time, prices crashed for crude, while Ecuador’s use of the U.S. dollar as its currency made its exports more expensive as the greenback strengthened.
Market Reaction
The nation’s bonds are likely to rally on the news of the deal when trading resumes Sept. 1, said Siobhan Morden, the head of Latin America fixed income strategy at Amherst Pierpont Securities in New York.
“This IMF program shows clear international diplomatic and political support for a country that has pushed an opening agenda and avoided technical default with friendly investor relations,” Morden said, in response to written questions.
The program is aimed at helping stabilize the economy, and then preparing the ground for a recovery, the fund said in its statement.
By preventing a deeper meltdown of the economy, the IMF deal reduces the chances that socialists allied to former President Rafael Correa will perform strongly in elections next February, said Vicente Albornoz, dean of economics at UDLA in Quito. President Lenin Moreno leaves office next May.
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