Ecuador: Fausto Ortiz on paying debts vs. reality.

Fausto Ortiz became Ecuador's Economy Minister in July. He was part of the team that placed US$650 million in sovereign debt, marking the Andean nation's return to the capital markets after two decades of absence. His ascension to the top economic post raised the specter among Ecuador creditors of a potential default beginning in January when leftist President Rafael Correa took office warning that foreign debt held by governments was "illegitimate" and could be ignored if domestic budgets were short. .

Investors and creditors consider you a friend of the markets and that the risk of a debt default is over. Are they right to think so?
Yes, they are, but there has been no change in the government's policy. As President Rafael Correa has said, our primary object is to prioritize the country's development over paying the debt, but that isn't the same as saying that we will stop paying it.

But the Correa administration created a commission to audit the last three decades of debt with the purpose of establishing its illegitimacy and suspending payment. Has the commission's goal changed?
The audit process does not have as its final goal the finding of illegitimate debt in order not to pay. It seeks to find precise information on the destination of those credits and to liquidate them, to the degree that it will not affect the country's development.

What will happen if, as the government suspects, that it is found that some portion of the debt is illegitimate?
The president decides when it comes to these matters. He will make the decisions, but I must insist that the purpose of the audit is not to suspend payment.

What would happen if the price of oil declines or some other crisis leads to a reduction in government income, making it hard to pay for both domestic programs and foreign commitments?
The message is clear: We will honor our commitments, but we will not prioritize our resources to pay debt. In order to avoid the dilemma of paying either for social programs or foreign debt, we are improving our [debt] profile in order to reduce pressure on the budget. That is to say, we are paying short-term debt, because it creates tremendous pressure on fiscal accounts. In January we had $800 million in public paper at one year, [and] with credits from the Andean Development Corporation (CAF), we reduced it by more than half and we will leave it at zero before the beginning of 2008.

That's not much compared to a foreign public debt of more than $10 billion.
Correct, but we have just begun and we are doing well. Meanwhile, this year, in order to cover the public debt service, we will spend $2.88 billion, 29% of the budget. By 2008 it will fall to $1.94 billion, or 18%. The goal is to put it at 12% by 2010.

Do you have a plan to take new sovereign debt in the international markets?
We will do so if Ecuador requires financing and if international market conditions are optimal. The country today has credit with the multilateral entities on better terms than those of the market, especially from the CAF, which this year will provide to us more than $1.20 billion.

The investment and economic growth outlook for Ecuador is not promising. What is your forecast for 2008?
Positive. We have taken urgent measures to recover state oil production, stabilizing it now at 280,000 barrels a day, which is 13% more than the previous government produced. We have achieved three positive goals: We optimized fiscal performance, lowered the negative trade balance and improved the outlook for gross domestic product growth, which will be greater than 4% in 2008, compared to 3% this year.

There is some fear that the National Constituent Assembly, which was convened in October and will take charge of writing a new Constitution, will put an end to dollarization. How could this affect the economy?
The president has said it many times and I stand by his words, dollarization is here to stay. The Constituent Assembly seeks to establish a new judicial framework so that Ecuador can abandon the market society model and move to an economy with more solidarity.

What does that mean?
We leave the first model, which privileges the market, in order to enter the other, which privileges human beings.