Lessons From The Ecuador 2020 Debt Restructuring Case

Published on: 05/04/24

By: Simon Cueva,  Hamouda Chekir, Jose Antonio Gonzalez,

Exploring Ecuador's Economic Challenges and Debt Restructuring

A Case Study by:

  • Hamouda Chekir

Finance for Development Lab

  • Simon Cueva

Finance for Development Lab, Former Minister of  Economy and Finance of Ecuador

  • José Antonio González

Former Minister of Finance and Public Credit of Mexico

This research paper delves into the intricacies of Ecuador's 2020 debt restructuring episode and its takeaways, offering invaluable insights from key figures having a close understanding of the Ecuadorian economy and debt discussions, namely Simon Cueva, former Minister of Economy and Finance of Ecuador, José Antonio González, former Minister of Finance and Public Credit of Mexico, and Hamouda Chekir, sovereign debt specialist and founding member of the Finance for Development Lab.

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 explores the 2020 debt restructuring episode, providing insights on managing liquidity vulnerabilities and engaging in productive discussions 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.