Emerging Market Highlights: Ecuador, Latin America, The Russian Ruble

Last Friday, the president of Ecuador announced that the country would be defaulting on some of its foreign debt – specifically on its December 15th payment.

A MarketWatch article entitled, “Ecuador Defaults on its Foreign Debt,” states that:

Correa said Friday that the Andean country will not pay a $31 million coupon on the 2012 global bonds and declared his country in default, reports said. This is Ecuador’s second debt default in a decade.
Ecuador’s government has been indicating for some time now that it might default on its external debt, which totals $3.8 billion, and has said in the past that it considers portions of it to be illegitimate.
"It’s purely at this point a function of willingness, not ability [to pay]," said Paul Biszko, senior emerging markets analyst at RBC Capital Markets.

The move helped to deflate some of the economic lift emerging markets had been building as the default unequivocally put doubt into investors’ minds in regards to the non-developed world. The move was supposedly planned as a response to allegations that some of the debt was not entirely legitimate, which seems to be corroborated by the fact that Ecuador’s cash reserves have quadrupled in the last year due to rising oil prices.

However, it does indicate potential further defaults in Central America as a result of falling oil and commodity prices. According to the same Marketwatch article: “Venezuela and Argentina are the other countries likely facing crises as commodity prices fall, due largely to the poor economic policies that were followed during the boom times, Thin said.”

The news was offset however by the Russian central bank allowing its ruble to be devalued again (which is the second time in two weeks) by approximately 5.5%. Ultimately, this led in a brief surge, amongst other hopes that the US Fed will lower interest rates again, in addition to a belief that the US auto industry will also be bailed out by Congress.

It seems for the time being, the Ecuador default only slightly dampened the upward trend of emerging markets in the last few weeks. For Emerginvest, the weighing question seems to be Washington’s reaction to the key issues enumerated above.

Comments

[notsosmart:]

its tough enough here. why would you invest off shore with govts. that move goal posts all the time.how much,in todays $ has russia defaulted since ww1? at least in vegas you would have more fun & somebody will bring you a drink.be very careful with anal sts that keep touting emerging markets.most have an agenda.

2008 Dec 16 12:35 PM