Exploring Ecuador's Economic Challenges and Debt Restructuring
A Case Study by:
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Hamouda Chekir
Finance for Development Lab
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Simon Cueva
Finance for Development Lab, Former Minister of Economy and Finance of Ecuador
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José Antonio González
Former Minister of Finance and Public Credit of Mexico
Ecuador, like several other frontier economies with high levels of external debt, currently faces severe liquidity constraints. In recent years, Ecuador has made significant efforts to overcome these challenges. This includes successfully completing an ambitious program with the International Monetary Fund, restructuring its external commercial debt in 2020 (which amounted to over US$17 billion), and addressing its debt to Chinese lending institutions in 2022 (approximately US$4 billion).
In March 2020, Ecuador faced a dual crisis with plummeting oil prices and the Covid-19 health crisis, leading to a significant loss of fiscal revenues. Subsequently, Ecuador publicly announced severe liquidity shortages and its inability to fully meet its debt obligations. This led to missed coupon payments and comprehensive debt restructuring negotiations, presenting a unique case with several noteworthy takeaways for future debt restructuring episodes.
This research paper delves into the 2020 debt restructuring episode to offer valuable insights on handling liquidity vulnerabilities and engaging in constructive dialogue with key creditors.
Key takeaways include:
- The importance of securing a standstill
- The effectiveness of the third generation of Collective Action Clauses
- The crucial role of national authorities and reputable creditors in successful debt resolutions.