Ecuador, Canada and that revolving door at the finance ministry

I liked Viteri, have to say. She talked straight and was clearly a team player for the Studmuffin administration. But now she is no more, caught by the FinMin revolving door. What's that, five Ministers in the first two years of Studmuffin rule?. Here's GPB at Market Memorandum on the story, taken by permision from his excellent morning service, Earlybird (put it on your radar):

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

ECUADOR -- Viteri Quits Finance Ministry; No Changes in Policy Expected (click here for link to Telegrafo story): Maria Elsa Viteri, the finance minister of the Correa government, tendered her resignation after assuming full responsibility for an accusation made by her office that a group of professors earned salaries close to $9,000 a month -- the teachers pointed at by Viteri aren't precisely the staunchest Correa supporters. The reason seems quite innocent, and it wouldn't be surprising that Viteri and her team are chickening out as fiscal revenues shrink, the economy deteriorates and the need grows for a tough policy correction. The stance towards bondholders will stay the same (it seems to be something already decided between Correa, his Rasputin and Interior Minister Ricardo Patiño, and the Economic Affairs Councilor Borja.)

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Meanwhile President Studmuffin has been winking and smiling at Canada again. Remember this post on Feb 5th when he lunched with the Canadian ambassador and made happy smiling noises about Canada? Well he did the same yesterday, inviting a whole bunch of Canadian bizpeople over to the Presidential palace for tea'n'buns. Apparently he's looking for investment in oil&gas, hydroelectricity, mining (natch), tourism, construction etc. Here are the quotes from Ecuador's newspaper of record (i.e. best of a bad bunch) El Comercio:

"We think that there are many opportunities for business and I reiterate to you; Canada is a country that has always been a great friend of Ecuador's."

"We already have Canadian investments in the country. In the mining sector, Canadian investments are the best, they are the ones that most respect the environment and the laws."

"Ecuador has many profitable projects already defined. Another potential is the tourism sector, and we sincerely think that the Canadian market has been unexplored by us."

Ecuador 14 January 2008: The Studfather

Note down 14th of January in your bizdiary, esteemed lector of IncaKuloNews.

• January 14th the most likely date for the second debate for Ecuador's new mining new is set to happen. Got the date, invitations have been sent out, the hall has been booked. The second report was approved 4-0 this afternoon (one abstention from the arch-socialist on the Congresillo). The law project now has to wait 48 hours for any observations to be added from third parties, then it must be debated in full session within five days. That means Friday is the limit, but word is that Thursday is the day.
  

• January 14th is the deadline that Studmuffin has given FinMin Viteri to announce how Ecuador wants to run its defaulted bonds buyback. She says there are still plenty of options on the table and is now working against the clock. Here's El Comercio with the whole story in Spanish (run it thru Google translator if you're Castilianly challenged).
  

More on the miners: As for ongoing rumbles and protests, yesterday was another day of skirmishes between anti-mining protestors and The Studfather's enforcement brigade. One journalist was taken hostage by the protestors for a while but then released. Sticks and stones were thrown at 20 cops until another 50 turned up and things went quiet. There is no big, organized voice-of-the-people against mining going on, but plenty of photo opportunities for the treehug brigade to take photos and handwring themselves into a frenzy.

The most notable absentee from the protests has been CONAIE national executive. The indigenous umbrella group has made anti-mining noises from the sidelines but hasn't actively joined in the protests. This is pretty significant, as although CONAIE has the manpower to help bring down governments if it wishes (check the history books for proof), it's also a canny operator and knows how to play the realpolitik game. There are enough indigenous members of CONAIE that want mining development to go ahead (those local groups have been hanigng round a welcoming Congress all week) and so CONAIE has backed off the full commitment protest, it seems. Put simply and without beating around the bush, this means the law is going to pass next week. Period. No ifs, no buts, no stupid comebacks from people who don't know about Ecuador.

From there we'll have a period of i-dotting-and-t-crossing and it should be on the books by the end of the month. Bought DMM.to today? Looks like somebody did!

Ecuador debt: "honestly...we're not kidding you know..."

Now is it just me.............?

Today Ecuador's FinMin Viteri held a presser to tell the world (translation Otto):

"If we have to reach default, we will do it responsibly. The national government does not recognize the illegal and illegitimate debt at all. Ladies and gentlemen, we are not playing; we are very serious and conclusive when saying "The national government rejects the illegal and therefore illegitimate debt."

Spooky huh? WHoooooOOOOoooooOOOOOoooooOOOOOO. Just the kind of thing Andres Oppenheimer can report on tomorrow while trying to forget what an idiot he's made of himself recently. Here's the Reuters version in English too...spookier and spookier... whooOOOoooOOOooo

So interesting that Brazil's main international advisor to President Lula, Marco Aurelio Garcia also said today, "Ecuador is going to pay its bill...we (Brazil) have the means with which to convince (them)."

Also interesting the way the Veep of the debt commission last week admitted that Ecuador will have to pay for the time being. There's no other way to take the complaint forward and maintain the "responsible" position. Right now Ecuador has two firms of US lawyers working on the same thing...betcha a dollar they advise Studmuffin&Co to keep paying the coupons while making an international case of it all. Nah...betcha ten dollars, in fact. Any takers?

Also interesting is the little snippet that Stephan Kueffner of bloomie picked up on. It's buried under the dramatic headline, but Bloomie does manage to mention that Ecuador quietly and without much fuss paid a U$1.2m coupon on one of its Brady bonds this week. The reason why it paid? To stay legal and responsible.

But most interesting is the action where it really counts, namely the bonds market. The key 2012 Globals sank to 21c on the dollar when the whole shebang first started. This time last week they were trading at 25.5c and 26c on the dollar. Today the same bonds closed the day at 31.5c on the dollar having touched 32c after (not before) Viteri spoke. That's a 50% climb since the drama began, and 20+% in the last couple of days. Money talks and BS walks, dudes and dudettes.

Speaking of BS, the whole thing comes to its inevitable climax on Saturday December 13th. That's the day Studmuffin has chosen to reveal to the world whether Ecuador is going to pay the delayed coupon, the announcement coming as part of the Studtastic* Roadshow to be transmitted on Radio MUFN. The guy must be after the ratings...hey, I wonder how much a 10 second slot to advertise this blog would set me back?
Finally, a word for those of you who've taken this blog's advice on Ecuador debt throughout this soap opera: So far you're making good coin but think about the retreat position that the idiots who called end-of-the-world over Ecuador's bonds will take. When Ecuador pays the coupon on Monday 15th, you can bet your sweet bippy you'll hear resounding cries of, "Well, they paid this time, but the issue isn't going away and the next round of coupons is steeper and you'll see you'll see I'm right y'know even though i'm wrong...." blah blah yada yadaaaaa ad infinitum.

The point here is that selling the news is a likely scenario as the pea-brained shills will still be preaching a sermon to people who want them to be right, thus maybe profit-taking on half your position on Friday 12th December is the prudent course. Biz iz biz.

*copyright DJ, used with kind permission

Ecuador Bonds: drip, drip, drip.....

mmmmmm...yummy...muffins

The ongoing Ecuador bonds saga is kinda fun to watch (in the same way it's fun to scratch a mosquito bite). Sure enough, the world that knows what's going on continues to drip-feed information to the world that doesn't, with the process continuing yesterday.

First up is Bloomberg, with an admittedly well-written note from Stephan Kueffner who reports how Debt Committee member Olmos explained that Ecuador's legal recourse may block Correa from defaulting on the bonds. Again, this is nothing new to those who've been giggling from the beginning about all this (count me in), but perhaps the most telling line in Kueffner's note is this one...

Ecuador’s debt paced gains among emerging market bonds today after Olmos’ comments, rising 0.75 cent to 27.25 cents.

....meaning the headless chickens chasing the story are still reacting to the drip-fed news. Gotta laugh. Now 3/4 of a cent may not sound like much to you, but a 2.8% move in a bond isn't anything to ignore. More interesting is the way something that should be known to anyone with skin in Ecuador bonds can be thought of as news and move the markets. The phrase "more money than sense" comes to mind.

Next up we had Celso Amorim, Brazil equivalent of Foreign Secretary (you might remember him as Brazil's point man in the Doha talks). He also pointed out the blatantly obvious by saying that if Ecuador defaulted it would affect credit ratings in the whole of the region, not just that sovereign state. Thus the "regional" card is played and the honourable way out for Studmuffin begins to be mapped. Let's see how far those expert analysts who couldn't find Quito on a map take this one......

Final addition is the fun part, with Ecuador's MPD party (aligned with Correa) petitioning for prison sentences for eight of the nine Presidents that came before Studmuffin (namely Sixto Durán Ballén, León Febres Cordero, Oswaldo Hurtado, Rodrigo Borja, Fabián Alarcón, Gustavo Noboa, Jamil Mahuad y Lucio Gutiérrez), the "lock 'em away forever!!" shouts due to their supposed collusion with those nasty foreign bankers and their nasty bonds. This call has as much chance of prospering as Alan García on 'Dancing With The Stars', but at least it makes for an interesting sideshow.

By the way and as a little sidebar to round this off, the only Prez left off this list is Abdalá Bucaram, who was Ecuador's head honcho for a full six months in the 90s before being stripped of the job due to "mental incapacity" (Otto shits thee not, dearest reader). Check the wikipedia entry on this guy for some general background, but "El Loco Bucaram" one of my all-time fave characters in LatAm politics and (among a thousand tales to tell) owner of one of the best political quotes of all-time-ever-amen. He once called previous Ecuador President Rodrigo Borja "a donkey" (un burro), which is pretty insulting in Spanish as it's a synonym for "really stupid". It caused outrage at the time, and there were calls from all quarters for Bucaram to apologize. He then said, "I have to admit that it was a terrible thing to compare Borja with a donkey. I apologize to all donkeys".* The exact quote is underneath because it's even funnier in Spanish.

Related Posts
Ecuador and Brazil rock them gently to sleep
Ecuador Bonds: The Eurasi Group's take on things
Finally, a decent quote on the Ecuador bonds saga from Bloomberg
The Ecuador Debt Commission's final debt report is published
Ecuador bonds: The Audit Committee of Public Credit Presentation

*"Yo tengo que reconocer que fue una barbaridad comparar a Borja con un burro. Yo le pido disculpas a los burros"

The Ecuador Debt Commission's final report is published

Get your copy by clicking on this link right here. If your stuck for a decent read, the 172 pages of financial Spanish on offer are sure to fascinate :-).

There's also a press conference at 10:30am (in just over an hour's time...Ecuador is the same time zone as New York right now) to inform on the results. Check the newswires for updates, yeah?

UPDATE: WHAT AM I BID?

At the presser, debt commission head and Minister of Policy Ricardo Patiño didn't surprise Otto in the slightest when he asked for debt holders to come forward with proposals on how to restructure or renegotiate the debt they held. Ladies and gentlemen , this was the whole reason behind Ecuador's tactics from the very beginning. In simple terms it goes like this:

• Bond X is at 80c on the dollar.

• Holder holds quite happily and collects the interest ad infinitum

• Ecuador pissed at having to pay so much
  

• Ecuador scares the crap out of the market

• Bond X goes to 20c on the dollar

• Holder wonders if he's ever going to see an interest payment again

• Ecuador says, "Hey, dude...we should talk 'bout this."

• Holder trundles up, offers a deal, Ecuador says "too high", makes a counter offer, holder says "too low", they keep chatting over tea'n'buns, reach a deal.

• Ecuador gets lower obligations, holder keeps getting interest flowing his way.

• We all live happily ever after.

Or at least that's how Studmuffin has it mapped out in his mind's eye. The tough part is about to begin now. It's likely that vulture funds have been scooping up distressed Ecuador debt (esp the 2012 and 2030 Globals) at these low 20c to 25c prices. These dudes play rough and hard and have successful track records of winning full value payouts against countries defaulting on sovereign debt (eg Peru). According to this Reuters Spanish language report, Ecuador is looking for a 60% haircut. Any final deal will be a compromise from both sides, I'd venture at this early stage.