Bloomberg News

Ecuador Taps Regional Lender as Lower Oil Prices Limit Funds

July 05, 2012

The Latin American Reserve Fund, a regional lender for nations with balance-of-payment problems, approved a $515 million loan for Ecuador to shore up liquidity in the South American country, the Finance Ministry said.

The loan has a maturity of three years and an interest rate between 3.6 percent and 4 percent over Libor, the ministry said today in an e-mailed statement, without saying when the funds would be disbursed.

The Bogota-based fund, known as FLAR for its initials in Spanish, was created in 1989 to help member nations finance trade deficits and strengthen financial systems, according to the organization’s website. Ecuador, an OPEC nation which defaulted on $3.2 billion in international bonds in 2008 and 2009, is trying to avoid a liquidity crisis after declining oil prices dropped below levels needed to sustain public spending, economist Luis Luna said today in an interview.

“It is disturbing that having such important quantities of funds like those received from oil, that we have to seek external loans,” Luna, a former subsecretary of trade and member of the Pichincha Chamber of Economists, said from Quito. “There’s an excess of public spending.”

Ecuador’s Oriente crude tumbled 21 percent in the second quarter, while benchmark West Texas Intermediate oil traded in New York dropped 19 percent, according to data compiled by Bloomberg.

Oil, Spending

Ecuador, dependent on oil exports for about 41 percent of government revenue, forecast public spending will jump 9 percent this year to $26.1 billion, or about a 36 percent of gross domestic product, according to the nation’s 2012 budget.

Correa, speaking June 30 in his weekly address to the nation, said Ecuador’s economy is doing “quite well” and that the government is prepared for any possible economic slowdown.

The Treasury has saved $600 million from higher-than- budgeted oil prices this year, he said. That would cover about one-third of the country’s average monthly imports, according to central bank data.

FLAR’s seven members are Bolivia, Colombia, Costa Rica, Ecuador, Peru, Uruguay and Venezuela.

To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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