Ecuador Will Default on Part of Foreign Debt Payment

By THE ASSOCIATED PRESS

QUITO, Ecuador -- Ecuador will default on payment of millions of dollars of U.S.-backed debt, President Jamil Mahuad announced Sunday night.

Last month, Ecuador chose to delay its $98-million interest payment on its Brady bond debt for 30 days. It had until Tuesday to make the payment or officially become the first country ever to default on a Brady bond debt.

Brady bonds, named after former U.S. Treasury Secretary Nicholas Brady, were created to resolve the Latin American debt crisis of the 1980s. They are partly backed by U.S. Treasury securities.

In a nationally televised address, Mahuad said his nation would only pay interest on the bonds that are not guaranteed by the U.S. Treasury Department. He said Ecuador would pay "a little less than half," of the $98-million interest payment.

International lenders and creditors have been fixated on Ecuador's economy. Although the country does not rank among the region's largest economies, some fear a default on the once-sacrosanct Brady bonds could spark a tumble in emerging bond markets.

Mahuad asked international lenders and creditors for "flexibility."

Ecuador "cannot pay its foreign debt on the terms that are currently presented," he said.

Ecuador had been working on proposals to restructure its entire Brady bond debt of $6 billion, and was preparing to present strategies for foreign debt restructuring this week during the annual International Monetary Fund meeting in Washington.