This week’s big news: Ecuador defaults on its foreign debt, basically because it doesn’t want to pay up:
And while developing world economies have taken a sharp turn for the worse in recent months, Ecuador is ceasing payments not because the oil-rich country cannot afford to pay but because it has made a political decision not to.
The default is Ecuador’s second in a decade and seventh in its 178-year history. More links and posts below. Update: Felix Salmon (via Maggie) explains why this default is stupid:
In the annals of idiotic political decisions, today’s default by Ecuador has to rank pretty high. The country failed to pay a $30.6 million interest payment on its 2012 global bonds, despite the fact that it has $5.65 billion in cash reserves and debt service accounts for less than 1% of Ecuador’s GDP.
As a result, Ecuador’s economy will suffer greatly. The country is a major exporter, not only of oil, but also of such things as shrimp, bananas, and cut flowers; trying to get trade finance for any of that will now be all but impossible.
But those aren’t even the biggest reasons this default is so stupid.
This debt has already been restructured twice, and there’s zero chance that bondholders will agree to it being restructured a third time. They know that Ecuador has the ability to pay, and they don’t like being bullied.
Most importantly, they have leverage. Yesterday, Judge Thomas Griesa, of the Southern District Court in Manhattan, ordered the attachment of Argentine pension fund assets held in New York, on behalf of defaulted Argentine bondholders. It’s the latest move in a long legal game being played out between Argentina and its creditors, and the creditors are scoring a few minor victories these days.
They face, however a formidable adversary: Argentina was careful to repatriate all its attachable assets before it defaulted, and the only reason the pension funds got attached is that they weren’t nationalized at the time. Argentina also has seriously heavyweight legal representation, in the form of Cleary Gottlieb — which used to represent Ecuador, too, until Ecuador fired them earlier this year and denounced them as criminals.
Ecuador’s bonds are all issued under New York law, and the country needs a good New York law firm to defend itself. Unfortunately, it’s having to make do with Foley Hoag in Boston instead.
Even with Cleary, Ecuador would have had a hard time defending itself against well-funded antagonists such as Elliott Associates and Greylock Capital, who are expert at navigating the legal system. With Foley Hoag, it has no chance, for one big reason: Ecuador has dollarized. The dollar is the legal currency of Ecuador; there is no other. As a result, all of Ecuador’s assets, ultimately, are US assets.
The only hope for Ecuador now — and it’s a slim one indeed — is that this whole thing has been engineered by people holding Ecuador’s credit default swaps, and that once they’ve been paid out, the government will quickly act to cure the default. (Incidentally, the single biggest writer of default protection on Ecuador is… Venezuela. You can be quite sure that the leftist solidarity between Rafael Correa and Hugo Chavez is no longer.)
If this default isn’t cured in a matter of days, Ecuador is going to lose billions of dollars it can ill afford to see go. Surely Correa knows this — and surely he knows, too, that whenever Latin American presidents announce a debt default, they rarely last long in office. Which makes this decision even more inexplicable. But there’s Ecuador for you: always bet against the country taking the logical and sensible course of action, and you’re likely to make a lot of money.
InkaCola News has more on that, but what doesn’t cease to amaze me is that Correa is an economist.
A stupid one, but an economist all the same.
The Real Latin-American Left: One We Can Work With
A heroic pooch
Reputed one-time Colombian cocaine kingpin Diego Leon Montoya Sanchez is in Florida after being extradited from his South American homeland, U.S. officials say.
Known as “Don Diego,” Montoya Sanchez allegedly once commanded the North Valley cartel, a narco-trafficking empire that exported at least 1.2 million pounds of cocaine to the United States. But Friday he was sitting in a tiny federal jail cell in Miami, The Miami Herald reported.
U.S. Attorney R. Alexander Acosta said the Colombian’s extradition marked a historic point in efforts by the United States to smash the vast cartel, saying Montoya Sanchez’s arrest was the most significant since the convictions of brothers Gilberto and Miguel Rodriguez Orejuela, the 1980s leaders of Colombia’s Cali cartel.
Buques rusos atracarán en Cuba por primera vez desde caída de URSS Russian ships landing in Cuba for the first time since the fall of the USSR. Russian navy: Russian warships to visit Cuba
The return of the 1980s?
More backyard fun
Urgent prayer request
Who let the big cat out of the bag? Puerto Rico searches for panther prowling suburbs
Wildlife officials patrolled streets and undeveloped lots in a sort of suburban safari Sunday, searching for a nocturnal predator that has mauled a sheep, ripped apart chickens and dominated newspaper headlines in the tropical U.S. territory since last week.
I didn’t know there were any sheep or chickens in Rio Piedras, either.
Miguel Octavio was part of a Round Table discussion at the White House on Human Rights Day
Via Brazilian Neocon, Jaime Bayly on Chavez’s Alo Presidente’s diarrhea program, part 1 (in Spanish)
Texas Hispanics upset with Democrats