<?xml version="1.0" encoding="UTF-8"?><rss version="2.0" xmlns:content="http://purl.org/rss/1.0/modules/content/" xmlns:wfw="http://wellformedweb.org/CommentAPI/" xmlns:dc="http://purl.org/dc/elements/1.1/" xmlns:atom="http://www.w3.org/2005/Atom" xmlns:sy="http://purl.org/rss/1.0/modules/syndication/" xmlns:slash="http://purl.org/rss/1.0/modules/slash/" > <channel> <title>Bonds – The Musings Of A Politics Junkie & Closet Economist</title> <atom:link href="https://kurtdavisjr.com/tag/bonds/feed/" rel="self" type="application/rss+xml" /> <link>https://kurtdavisjr.com</link> <description></description> <lastBuildDate>Thu, 10 Feb 2022 08:15:14 +0000</lastBuildDate> <language>en-US</language> <sy:updatePeriod> hourly </sy:updatePeriod> <sy:updateFrequency> 1 </sy:updateFrequency> <generator>https://wordpress.org/?v=6.7.2</generator> <item> <title>Could Tunisia Be Heading Down The Same Route As Lebanon?</title> <link>https://kurtdavisjr.com/could-tunisia-be-heading-down-the-same-route-as-lebanon/?utm_source=rss&utm_medium=rss&utm_campaign=could-tunisia-be-heading-down-the-same-route-as-lebanon</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Tue, 31 Aug 2021 16:30:22 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[Arab Spring]]></category> <category><![CDATA[Bonds]]></category> <category><![CDATA[Hichem Mechichi]]></category> <category><![CDATA[Lebanon]]></category> <category><![CDATA[Najib Mikati]]></category> <category><![CDATA[President Kaïs Saïed]]></category> <category><![CDATA[Sovereign Debt]]></category> <category><![CDATA[Tunisia]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=504</guid> <description><![CDATA[The world is chaotic: Covid-19, economic uncertainty, and war. Amid the signs of chaos, it is said that the obvious signs of danger or opportunity can be missed. But no one is missing the power grab being made by Tunisia's President Kaïs Saïed, following the recent dismissals of ministers, including Prime Minister Hichem Mechichi, and Minister of Economy, Finance and Investment Support Ali Kooli, and the suspension of parliament. Saïed also recently announced plans to strip legislators of immunity and assume power of the state prosecutor’s office. But is this danger or opportunity? The most obvious comparison to this situation is Lebanon…but to what extent is Tunisia like Lebanon?]]></description> <content:encoded><![CDATA[ <div class="wp-block-image"><figure class="aligncenter size-large"><img fetchpriority="high" decoding="async" width="1024" height="586" src="https://kurtdavisjr.com/wp-content/uploads/2021/08/Tunisia-lebanon.jpg" alt="" class="wp-image-505" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/08/Tunisia-lebanon.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Tunisia-lebanon-300x172.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Tunisia-lebanon-768x440.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Tunisia-lebanon-750x429.jpg 750w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Tunisian President Kais Saied raises his fist to bystanders as he strolls along the avenue Bourguiba in Tunis, Tunisia on Sunday, 1 August 2021. (Photo Credit: Slim Abid/Tunisian Presidency via AP)</figcaption></figure></div> <p><strong><em>This originally appeared on TheAfricaReport.com</em></strong></p> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p><strong>The world is chaotic: Covid-19, economic uncertainty, and war. Amid the signs of chaos, it is said that the obvious signs of danger or opportunity can be missed. But no one is missing the power grab being made by Tunisia’s President Kaïs Saïed, following the recent dismissals of ministers, including Prime Minister Hichem Mechichi, and Minister of Economy, Finance and Investment Support Ali Kooli, and the suspension of parliament. Saïed also recently announced plans to strip legislators of immunity and assume power of the state prosecutor’s office. But is this danger or opportunity? The most obvious comparison to this situation is Lebanon…but to what extent is Tunisia like Lebanon?</strong></p> <p>Both countries are struggling to navigate democracy in some form. Tunisia secured independence in 1957 under revolutionary (and Tunisian lawyer) Habib Bourguiba, who served as the first president of Tunisia until 1987 when he was overthrown by Zin El Abidine Ben Ale. Ali was toppled from government in 2011 during the Arab Spring and replaced by a representative democratic republic. Lebanon gained independence from France in 1943 and, through a mix of internal conflict and civil war, established a sectarian power-sharing democracy.</p> <p>Democracy is loose term for both countries as the general focus is<strong> managing the diversity</strong> (or, in the words of critics, the sectarian nature) of the population and the politics.</p> <p>Tunisia has had eight prime ministers in ten years since the toppling of Ben Ali, and Lebanon is betting on ex-Premier Najib Mikati to form a government after former Prime Minister Saad Hariri failed to do so most recently in the last year. Hariri was forced to resign as prime minister in 2019 after protests. Najib served as prime minister from 2011 to 2014 after Hariri’s first tenure.</p> <p>The Tunisian story may be different from Lebanon with Saïed being elected two years ago as an admonishment to the political class. His popularity is partly built on the reality that he has no political experience. He won 73% of the vote in 2019 with significant support from young Tunisians who viewed the constitutional law professor as a principled (and incorruptible) revolutionary. </p> <p><strong>Yet his ban on public gatherings and raiding of media outlets</strong> has placed Saïed in a bind between upholding democracy and controlling the system. That is not exactly different from the Lebanon situation where each new prime minister is attempting to form a government as a demonstration of not just one individual’s ability but the country’s ability to sustain a democracy and control the system</p> <h3 class="wp-block-heading">Financial desert or financial cliff…</h3> <p>Lebanon defaulted on its sovereign debt in 2020 and has yet to recover. The currency continues to plummet with the Lebanese pound now consistently above 20,000 to the dollar on the black market. The government is running out of hard currency and locals are struggling in the search for basic staples, such as bread, and other necessities, such as power and petrol.</p> <p><strong>The inability of Lebanese leaders to form a government</strong> has effectively blocked the country from receiving the $20+ billion aid being held up by the international community.</p> <p>Tunisia has requested IMF financial support but faces a similar level of criticism and a growing credibility deficit like Lebanon. No one (or maybe a few) are saying the country is going the “Lebanon way”.</p> <p><strong>Although bond prices dropped after Saïed suspended parliament on 26 July,</strong> they are not priced like the Lebanese March 2020 bonds back in February 2020 when reports emerged that the Lebanese government was leaning towards a non-repayment of the debt.</p> <p>Additionally, the yields have already recovered 200 basis points for some of the Tunisian debt – the January 2025 bonds, for example, have seen the yield drop low to 9% compared to 11+% on 27 July. Foreign reserves have declined slightly to $8.9bn at the end of June 2021 compared to about $9.8bn at the end of 2020.</p> <p>None of these number suggest a Lebanon-style crash. Though the Lebanon crash was sudden and unexpected by many observers – or better said, <strong>the crash was imagined by some economists</strong> (with many economists ignoring signs of distress because Lebanon always “finds a way to survive” either through aid from neighbours or new sovereign debt.).</p> <p>But again…there remains the question of whether Tunisia can become Lebanon. It faces similar financial issues with state-owned entities such as the national airline, Tunisair, and a few state banks. Plugging the gaps at those entities and addressing existing debt maturities will put stress on the system with reserves likely only to cover two years – this analysis of remaining life for foreign reserves, however, assumes an inability to refinance debt.</p> <p><strong>Refinancing existing debt only looks less likely today</strong> because the political situation is uncertain…but is it uncertain enough for other counties, such as the United States and France, to turn and walk away?</p> <p>That sounds hard to believe.</p> <p>Tunisia will likely also benefit from the regional rivalry that pits countries, such as Turkey and Qatar against Saudi Arabia and the UAE, provided one or two of those country is willing to provide aid. The country also received a $745m emergency assistance loan from the IMF in April 2020.</p> <h3 class="wp-block-heading">Bottom line</h3> <p>Neither Tunisians nor Lebanese view their countries as models for democracy. But recent reactions by other countries to Tunisia and a continued flow of funds into the country from the international community suggests that Tunisia is still on the right side with enough people (and countries). But then again, so was Lebanon until it was not.</p> <hr class="wp-block-separator"/> <p></p> ]]></content:encoded> </item> <item> <title>Bolivia’s Left Will Win But Hopefully With a Different Economic Strategy</title> <link>https://kurtdavisjr.com/bolivias-left-will-win-but-hopefully-with-a-different-economic-strategy/?utm_source=rss&utm_medium=rss&utm_campaign=bolivias-left-will-win-but-hopefully-with-a-different-economic-strategy</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Thu, 24 Sep 2020 10:28:50 +0000</pubDate> <category><![CDATA[Latin America]]></category> <category><![CDATA[Bolivia]]></category> <category><![CDATA[Bonds]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Evo Morales]]></category> <category><![CDATA[Jeanine Añez]]></category> <category><![CDATA[Luis Arce]]></category> <category><![CDATA[Restructuring]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=298</guid> <description><![CDATA[Bolivia’s left will win but hopefully with a different economic strategy. It is not clear who will fund the socialist agenda in the short-term...]]></description> <content:encoded><![CDATA[ <figure class="wp-block-image size-large"><img decoding="async" width="1024" height="614" src="https://kurtdavisjr.com/wp-content/uploads/2020/09/Bolivia-President-withdraws-1024x614.jpg" alt="" class="wp-image-299" srcset="https://kurtdavisjr.com/wp-content/uploads/2020/09/Bolivia-President-withdraws-1024x614.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2020/09/Bolivia-President-withdraws-300x180.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2020/09/Bolivia-President-withdraws-768x461.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2020/09/Bolivia-President-withdraws-1130x678.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2020/09/Bolivia-President-withdraws-750x450.jpg 750w, https://kurtdavisjr.com/wp-content/uploads/2020/09/Bolivia-President-withdraws.jpg 1240w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Jeanine Añez announcing her withdrawal from the October general election. She said: ‘If we don’t unite, Morales will return. If we don’t unite, democracy loses.’ <br>(Photo Credit: Presidencia / AFP / Getty Images) </figcaption></figure> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading" id="it-is-not-clear-who-will-fund-the-socialist-agenda-in-the-short-term"><em><strong><em>It is not clear who will fund the socialist agenda in the short-term</em></strong></em>…</h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <div style="height:28px" aria-hidden="true" class="wp-block-spacer"></div> <p>As the covid-19 pandemic continues to unfold, its implications for democracy across the globe are of growing concern. The lack of clarity in election processes creates public mistrust. And the conspicuous ambitions of some leaders amid troubling times suggests the pandemic, at least for now, will not force good governance and cooperation. If anything, the pandemic provides an opportunity to test the boundaries of a country’s political and economic system.</p> <p>The presidential campaign by Bolivia’s interim president, Jeanine Añez, was an opportunistic attempt by a leader to retrack on her promise to not run for president and take advantage of the uncertainty in the country caused by the covid-19 pandemic. Yet, unable to build momentum, she abandoned her election campaign last week with the hope of uniting the conservative base against the current front-runner, the leftist Luis Arce from Evo Morale’s Movimiento al Socialismo–Instrumento Político por la Soberanía de los Pueblos party (MAS). </p> <p>The large-scale Jubileo Foundation poll, administered by universities and media organizations, shows the former economy minister Arce leading with 40% of the vote going into this year’s general election. To avoid a second round of voting, the election winner requires at least 40% of the vote in the first round and a ten-point advantage over the closest competitor. In the Jubileo Foundation poll, former president Carlos Mesa polled second with 26% of the vote. </p> <p class="has-normal-font-size"><strong>Why are the polls relevant?</strong></p> <p>The recent polls are forcing President Añez to retreat to her original promises. When she assumed the interim presidency in November 2019, President Añez promised to hold presidential elections within ninety days. Provided no additional delays, the election is scheduled for 18<sup>th</sup> October which will be 11 months after Añez began her interim presidency. Her administration postponed the election twice, citing the risks of the covid-19 pandemic and an inability to safely hold in-person voting. Protests, street blockades by citizens, and the public’s vocal disdain for the power structure in the country, however, have forced an election to happen this year as well as stopped Añez’s potential candidacy to remain president.</p> <p>Añez assumed power after the controversial Bolivian presidential election in 2019, where Evo Morales ran against Carlos Mesa for an unprecedented fourth term. Critics claim Morales leveraged political connections to gain approval from the constitutional court. Following Morales’ narrow margin of victory and the subsequent rumors of election fraud, an election audit was conducted by the Organization of American States (OAS)—with the approval of Morales—which found irregularities and declared the election results to be fraudulent. Although Morales accepted the findings in the report and called for a new election, threats of violence and public pressure forced Morales and his government officials to resign. Añez, as the second vice president of the Senate, was fifth in the line of succession. But with everyone ahead of her resigning, she declared herself interim president, which Morales’s supporters continue to view as “coup.”</p> <p class="has-normal-font-size"><strong>How to think about Arce considering Morale’s record?</strong></p> <p>Morales reduced poverty from 60% in 2005 to 36% in 2017, relying on redistribution policies coupled with high economic growth. According to the World Bank, Bolivian GDP growth averaged 4.9% from 2006 through 2018, underwritten by an export boom particularly of natural gas and minerals. But, as prices have moderated, the success of redistributive policies have become limited, which is why the 30% poverty level in 2012 increased to 36% in 2017 and, amid the covid-19 pandemic, may be pushing 40% today.</p> <p>Fiscal prudence has also struggled in a slower growth environment, with the expenses of 29 of 32 state-owned companies exceeding revenues in 2018. Under Morales’s administration, the size of the state increased astronomically with the budget allocated to state entities up nearly 40% in 2019 alone. As revenues from natural gas fell, Morales tried to increase revenue from agribusiness, biodiesel, and bioethanol but to little success. Covid-19 has not been nice to commodity prices with demand lagging below 2019 levels for the obvious economic reasons. Thus, while a new government will have to find a way to revitalize gas exports and investigate the potential exploration of new minerals such as lithium, such efforts to diversify the economy will remain at the mercy of the new administration’s ability to find the right buyers and contract prices. </p> <p>Absent new money into the system, Arce will have to turn to managing expenses. Thus, it is little surprise that Arce previously said he would seek to renegotiate the nation’s $2 billion in international debt, while still avoiding a default on the country’s debt. Bolivia owes more than $7 billion to multilateral lenders as well as has outstanding bilateral debt facilities with countries such as China. Arce also believes he can engage the Corporacion Andina de Fomento (CAF), the Inter-American Development Bank, and the World Bank for additional funding. </p> <p>But Arce’s perspective on engaging creditors remains incomplete. A deal to cut debt payments would initially help the currency peg – a mechanism introduced by Arce as Morale’s finance minister. That said, the strategy cannot fix a long-term problem. The central bank is already burning cash at a rate of $8 billion over the last five years to prop up its currency and underwrite the country’s socialist programs. Asking for debt relief sadly only feels like a request to shift monies from repaying debt to propping up the currency and providing greater welfare payments to the public despite the greater system’s inability to afford it. The more feasible scenario is an adjustment to the exchange rate, especially considering the weakening currency of Argentina and Brazil and potentially taking some of the hard economic decisions seen in Brazil (by Brazilian President Jair Bolsonaro). But Arce (and any other Bolivian politician) knows that devaluing the currency and shrinking the welfare state is not a winning campaign strategy in Bolivia.</p> <p class="has-normal-font-size"><strong>What happens to Bolivia in the short term?</strong></p> <p>Bolivian debt is currently rated as junk by market analysts (and political analysts). Changing that storyline will be hard. The next leader must find a way to control government spending…turning the clock back on expansionary economic policy, however, may be a tough ask despite it being a necessity. Although the commercial dollar-denominated debt for Bolivia is small, there are not many people lining up to provide additional debt. Thus, the question for the new leader—Arce or the field—sadly becomes whether anyone is willing to fund Bolivia’s house of cards or should we expect another financial system in Latin American come tumbling down in the short term.</p> <hr class="wp-block-separator"/> ]]></content:encoded> </item> <item> <title>Ecuador and Argentina: An Unfair Comparison for the Nicer Ecuador</title> <link>https://kurtdavisjr.com/ecuador-and-argentina-an-unfair-comparison-for-the-nicer-ecuador/?utm_source=rss&utm_medium=rss&utm_campaign=ecuador-and-argentina-an-unfair-comparison-for-the-nicer-ecuador</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 27 Jul 2020 10:00:00 +0000</pubDate> <category><![CDATA[Latin America]]></category> <category><![CDATA[Argentina]]></category> <category><![CDATA[Bonds]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Ecuador]]></category> <category><![CDATA[Restructuring]]></category> <guid isPermaLink="false">http://kurtdavisjr.com/?p=8</guid> <description><![CDATA[Ecuador is not a jaded lover when it comes to the international markets. It is doing all it can to reach a quick restructuring deal with its creditors...]]></description> <content:encoded><![CDATA[ <figure class="wp-block-image size-large is-resized"><img decoding="async" src="https://kurtdavisjr.com/wp-content/uploads/2020/07/Ecuador.jpeg" alt="" class="wp-image-9" width="839" height="411" srcset="https://kurtdavisjr.com/wp-content/uploads/2020/07/Ecuador.jpeg 625w, https://kurtdavisjr.com/wp-content/uploads/2020/07/Ecuador-300x147.jpeg 300w" sizes="(max-width: 839px) 100vw, 839px" /><figcaption>President of Ecuador Lenín Moreno (Photo Credit: Reuters)</figcaption></figure> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading" id="ecuador-is-earning-more-goodwill-with-bondholders"><em><strong>Ecuador is earning more goodwill with bondholders</strong></em>…</h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <div style="height:28px" aria-hidden="true" class="wp-block-spacer"></div> <p>Ecuador is not a jaded lover when it comes to the international markets. It is doing all it can to reach a quick restructuring deal with its creditors.</p> <p>Earlier this month, President Lenin Moreno’s administration ignored public criticism from political adversaries and offered more acceptable terms and conditions on its first proposal to investors — more acceptable as opposed to terms proposed by Argentina to its creditors. One group of bondholders, which included Ashmore Group, BlackRock, BlueBay Asset Management, AllianceBernstein, and Wellington Management, supported the proposal while two other groups holding more than 25% of the Ecuadorian bonds in total and more than 35% in certain series (i.e., having the power to block a deal) rejected the offer. Although the Ecuadorian proposal did not get the necessary support, the Ecuadorian strategy must be appreciated when read in context of the restructuring process in Argentina and the greater emerging markets.</p> <p class="has-normal-font-size"><em><strong>Let us not forget 2008…</strong></em></p> <p>Ecuador launched a successful yet peculiar debt restructuring process in late 2008 during the global financial crash. Ecuador has a history of defaults and challenges. In 1999, it was the first country to default on its Brady Bonds, which were dollar-denominated bonds created in 1989 to standardize emerging market sovereign debt and reduce the concentration of risk on commercial banking balance sheets. Named after United States Treasury Secretary Nicholas Brady, the bonds were a novel idea that became very prevalent in Latin America and started the movement towards tradeable debt in emerging markets. Ecuador later restructured debt in 1995 and 2000 thus when former President Rafael Correa ran for president in 2006 with a promise to not repay the country’s debt if elected, it did not necessarily shock investors that he won.</p> <p>Following his election, Correa created a national debt audit commission to examine the country’s debts contracted between 1976 and 2006 on a legal, political, and social scale. At the time, Ecuador’s Economy and Finance Minister Ricardo Patiño stated “[The audit] will consider all relevant legal, political, and economic factors, which have led to the accumulation of illegitimate debt in this country. The audit commission must also consider social and environmental damages to the local populations caused by debt. Debts which are found to be illegitimate must not be paid.”</p> <p>The report ultimately detailed a series of lending irregularities and then determined some of the loans to be exploitative thereafter permitting the Ecuadorian government to default on two bonds simply because the bonds were deemed ‘illegitimate’ by the government. Following the defaults and a precipitous fall in the bond prices, the Ecuadorian government conducted a bond repurchasing program with a participation rate over 90 percent at 35 cents on the dollar. The remaining bonds were purchased by the government over several years and Ecuador returned to the market with new bonds in 2014.</p> <p class="has-normal-font-size"><em><strong>Putting Ecuador and Argentina restructurings in context…</strong></em></p> <p>Like Ecuador, this is not Argentina’s first rodeo. When Argentina missed the deadline to pay $503 million on 22nd May this year, it marked the ninth default for the country since its independence in 1816. Creditors expected this default, but the missed payment finally set the stage and turned on the music for the creditors next show — i.e., bondholders created their committee and prepared to judge the best ‘dance’ or restructuring proposal. The most storied restructuring in Argentinian history was in 2001, which was the country’s seventh default. The legal cases associated with this default lasted 15 years and included a well-documented seizure of an Argentine naval vessel that was docked in the Ghanaian port of Tema.</p> <p>Both countries could choose the same fight strategy with today’s creditors. But the cat and mouse game with assets seen in 2001 coupled with disputatious public messaging does not necessarily play well with long-term investors. There remain hedge funds in the bondholder group, but most analysts do not see the same vulture funds from the old days. Furthermore, although the causes for this default may be over-spending and bad economics, covid-19 creates the right backdrop (and ideal timing) for a debt restructuring. Covid-19 has wrecked developed and emerging markets alike, wiping out earnings at corporates, decimating economies, and stripping government coffers of cash. Thus, the argument for liquidity is clear…plus the story is more palatable with the IMF apparently keen to support. The IMF already approved $643 Million in emergency assistance to Ecuador. Lastly, Ecuador and Argentina can establish some precedent for the various ongoing restructurings (i.e., Lebanon and Zambia) and the other restructurings in the pipeline.</p> <p class="has-normal-font-size"><em><strong>Ecuador’s different strategy and more pleasant attitude…</strong></em></p> <p>With all the similarities, Ecuador and Argentina are different and their strategies manifest those differences. First, Ecuador is restructuring significantly less debt, i.e., about $17 billion in bonds for Ecuador compared to $65 billion for Argentina. The smaller amount automatically reduces the complexity of the situation. Secondly, Ecuador’s government has a true liquidity story with its currency reserves around its lowest levels in the last two decades. As of June, Ecuador was holding about $1.2 billion in net foreign currency reserves at its central bank.</p> <p>Third, toss in the reality of Moreno’s presidency. He was Vice President under Rafael Correa from 2007 to 2013 and very much part of the 2008 restructuring process in Ecuador. Moreno won a narrow victory in the 2017 presidential election as leader of Correa’s PAIS Alliance, the center-left political party, but then changed policy positions shortly after his victory. He has abandoned significant parts of the legacy of Correa by stripping Julian Assange of his Ecuadorian citizenship, allowing social movements and protests, and permitting investigations into Correa’s administration.</p> <p>Now Julian Assange is incarcerated. Protests undid Moreno’s efforts to raise fuel prices. And Correa was convicted in April in absentia on corruption charges and sentence to eight years in prison. Altogether Moreno’s government trends right (with political analysts speculating if this is an actual shift away from the leftist populism and spending that has controlled the country for years). His Finance Minister Richard Martinez is also facing criticism for his quick engagement with private creditors and making previous bond payments.</p> <p>Moreno’s change in policy at home with Correa’s legacy underpins his ability to be quick and different in his approach to negotiations with creditors. Sovereign debt restructurings are expected (or assumed) to be arduous and acrimonious. Yet Moreno’s administration wants to engage bondholders with a clear story on the country’s economic rebound potential coupled with a true picture of liquidity and negotiate terms within those realistic parameters. Basing discussions on liquidity is very differentiating, especially when compared to other restructurings, because it eliminates the discordant nature of other negotiations and relegates the discussion to a more detailed discussion around numbers and economic performance (and less about past public spending and a country’s ability to be good stewards of foreign capital). Yes…economic and social policies remain a debate. But, with Correa’s conviction and the internal political clean-up by Moreno’s administration, Moreno’s team has well-earned goodwill with bondholders and is building upon such goodwill with a friendly stance toward the bondholders.</p> <p class="has-normal-font-size"><em><strong>Does this make a deal easier…</strong></em></p> <p>A sovereign debt restructuring negotiation is a sovereign debt restructuring negotiation…you cannot dress it up as anything else. It has politics, economists, (social) policy advisors, and emotions, which is a dangerous concoction for any country, yet alone a country going into an election year. That said, Ecuador’s approach and strategy makes you believe the solution is closer each day. Some political and market analysts believe a debt restructuring deal is possible by the end of August. Let us be clear…there is not the same optimism for a quick deal with other ongoing restructurings (i.e., Zambia and Lebanon). This optimism coupled with honest engagement is a success story by itself. In other words, the downturn may remind us of 2008 but Ecuador’s response surely does not. Now, let us hope that there is an agreement for the country’s situation that gets across the line with the bondholders and is palatable for any president trying to implement it (beyond Moreno’s time in office).</p> <hr class="wp-block-separator"/> ]]></content:encoded> </item> </channel> </rss>