Stickin' it to the man: Ecuadorian edition
This is a double dip stickin', the mark of a consummate pro. Stick #1: Rafa Correa is signalling another Ecuadorian default on its public debt, delaying an interest payment and hinting that they may declare the debt to be illegal (so awesome!!) and default.
But the true genius is stick #2: Rafa is also going to take a bite out of his sugar daddy Hugo:
Ecuador President Rafael Correa's looming default on $510 million of bonds may hurt his biggest ally, Venezuela President Hugo Chavez, more than anyone else.
Ecuador, hamstrung by a tumble in oil, its biggest export, said last week it will use a 30-day grace period to decide whether to make a $30 million interest payment that came due Nov. 15. Chavez's government owns structured notes tied to Ecuador's bonds that would force Venezuela to pay $400 million if Correa doesn't make the payment, according to estimates by Barclays Capital Inc.Venezuela's potential losses may strain relations between two presidents who meet every three months and espouse the same socialist themes.
Wow! So Venezuela has been somehow insuring Ecuador's debt?
Here is the scoop on Correa:
Correa, an economist who earned his Ph.D. at the University of Illinois at Urbana-Champaign, has been threatening since the 2006 campaign to halt payments on debt he calls ``illegitimate.''.
``If there's a sufficient basis to say we can't pay this illegitimate debt, that's what we'll do,'' Correa said in his radio address, according to a statement posted on the government's Web site. ``That the bonds fall and the country risk rises doesn't hold the least interest for us. Here we'll act for the country and the common good.''
I have a good friend and colleague who also got his PhD from Illinois. He is going to be really sick of me ribbing him about the program there.
Oh and by the way, Ecuador really is broke:
Ecuador's finances have come under strain as oil, which accounts for 60 percent of the country's exports, has plunged 62 percent from a record high in July to $55.59 a barrel.
Ecuador needs an oil price of $95 to cover all the spending in its budget and a price of $76 to avoid depleting its $6.3 billion of foreign reserves, according to Barclays. The South American country last defaulted less than a decade ago, halting payments on $6.5 billion of bonds in 1999.
Hat tip to Boz