Ecuador’s Borja Vows to ‘Defend’ Use of U.S. Dollar

By Nathan Gill
Feb. 17 (Bloomberg) — Ecuador’s Economic Policy Minister, Diego Borja, defended the country’s use of the U.S. dollar and said President Rafael Correa wasn’t planning to abandon the system.

“The president has been clear, we are going to defend dollarization,” Borja said today in an interview broadcast on Quito-based television station TeleAmazonas. The government won’t change its currency system because it would “strongly hit sectors with the lowest incomes,” he said.

Ecuador joined Panama and El Salvador in adopting the dollar in 2000 to help curb inflation after the sucre tumbled 73 percent against the dollar and the government defaulted on $6.5 billion of foreign debt.

Latin America economists, including Alberto Ramos at Goldman Sachs Group, Inc. in New York and Alberto Bernal, head of fixed-income research at Bulltick Securities Inc., have said that Ecuador’s use of the dollar gives Correa no outlet for providing credit to the economy as access to foreign financing dries up and revenue from sales of oil, the nation’s biggest export, tumbles.

                      ‘Extremely Delicate’
Borja today defended the decision to use a grace period to decide whether to make an interest payment on its 2030 bonds that was due Feb. 15.
Asked if not paying the external debt would hurt the South American country’s credibility abroad, Borja said, “On the contrary, because Ecuador has been coherent with the management of its commercial debt policy all along.”
   
In December, Correa skipped a $30.6 million payment for the country’s 12 percent bonds due in 2012.
   
Last month, Ecuador made a payment on its 9.375 percent bonds due in 2015 after invoking a 30-day grace period. The government views that bond’s legality differently than that of its notes due 2012 and 2030, Finance Minister Maria Elsa Viteri said last month.

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