Ecuador, IMF in Talks to Ease Nation’s Debt Pressure

Ecuador and the International Monetary Fund met Sunday in the Andean nation’s capital to finalize a plan to ease the recession-bound country’s financial crunch, a government official said.

The closed-door talks between IMF and officials with the Ecuadorean finance ministry and central bank focused on austerity targets the South American nation must set to get further loans from the IMF and other big lending agencies, a central bank official, who did not wish to be named, told Reuters.

Meanwhile, the United Nations will report today that economic growth and price stability in Latin America and the Caribbean have failed to cut unemployment or boost workers’ earnings.

Development in the region could stall if efforts aren’t made to tackle rising unemployment rates and job insecurity, said the 149-page report. It was written by Juan Somavia of Chile, director-general of the International Labor Organization.

Global economic troubles “will thwart growth in the region even further,” the report said. It predicted the regional economy will shrink by 0.4% and said unemployment in the region could hit 9.5% this year. That would be higher than during the 1980s debt crisis, despite a decade of economic reform and modernization. Last year’s region-wide unemployment rate was 8%.

Ecuador sent shock waves through emerging markets Thursday after news that the government had presented the IMF with a plan to restructure its foreign debt, which may involve deferral of payments on its Brady bonds.

Late Thursday, President Jamil Mahuad said his government would not take any “unilateral decisions” about a possible deferral of interest payments due Aug. 31 on more than $94 million in Brady bond coupons.

Even so, the hint of a deferral was enough to spark a sell-off of Ecuadorean bonds and amid speculation that the world’s first Brady bond restructuring was in the offing. Mexico’s currency and Brazil’s real tumbled Friday partly as a result of the news.

Traders are worried that a failure by Ecuador--whose economy is officially forecast to contract 7% this year--to make a Brady bond payment would set a bad precedent for other highly indebted countries in Latin America.

Bradies, bonds born during the 1980s international debt crisis, gave some highly indebted countries the chance to restructure commercial debt into new paper backed by U.S. Treasuries.

The Brady bonds cover 52% of Ecuador’s public debt, which totals about $13 billion. The country’s foreign debt stands at $16.1 billion.